A tepid week on trading front with modest gains towards end of the week.
Stock markets in India traded the week on a tepid note to finally end with modest gains. Market action was largely influenced by policy action by Central Banks and macro-economic updates at home. The Reserve Bank of India, in its monetary policy review, hiked the repo rate by 25bps to 6.50%. The Central Bank maintained its neutral stance while reiterating that inflation continues to be a major consideration in rate decision. While market reaction to the rate hike was muted, we did see some sharp selling pressure in interest rate sensitive stocks.
According to data released during the week, manufacturing conditions across India improved at a modest and slower pace at the start of the quarter, reflecting softer rises in output, new orders and employment. The Nikkei India Manufacturing Purchasing Managers' Index (PMI) posted 52.3 in July, 2018 down from 53.1 in June, 2018. Although modest, the latest improvement in the health of the manufacturing sector was the second-strongest (behind June) since January, 2018. Additionally, the Indian service sector remained in expansion territory for the second consecutive month in July, 2018. The seasonally adjusted Nikkei India Services Business Activity Index remained above the neutral 50.0 threshold for the second consecutive month in July, 2018. Moreover, rising from 52.6 in June, 2018 to 54.2 in July,2018, the latest reading signalled the strongest rate of output growth since October 2016. Favourable demand conditions were cited by panellists as the key factor behind the latest upturn.
Investors also digested the latest moves from the Bank of England (BoE), which pushed interest rates above their financial crisis lows on Thursday but signalled it was in no hurry to raise them further with an uncertain Brexit on the horizon. BoE raised its main interest rate by 25 basis points to 0.75%, as had been expected. Earlier in the week, the European Central Bank(ECB) left interest rates unchanged and affirmed its plan to end its monthly bond-buying program in December,2018, as had been expected. Across the Atlantic, the US Federal Reserve left interest rates unchanged at 1.75% to 2%, as widely expected, and indicated that it is likely to raise rates next month as the economy remains strong.
The week also saw the emergence of renewed US-China trade concerns. The Trump administration announced that it is looking at the possibility of slapping a 25% tariff on $200 billion worth of imported Chinese goods - from the initial 10% announced earlier.
The month of July, 2018 saw some respite from foreign institutional investor (FII) selling. FIIs net sold Indian equities worth INR 2768.75 crore in July, 2018 which was much lesser than the INR 10249 crore and INR 12359 crore that they sold in June, 2018 and May, 2018, respectively. Domestic institutional investors (DIIs) on the other hand net bought Indian equities worth INR 3845 crore, in July, 2018.
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