October 2018 India Market Overview
arket sentiments turned weak during September
Equity markets saw heightened volatility during the month and the performance suffered mainly on the back of domestic factors. Market indices BSE Sensex and NSE CNX Nifty were down 6.2% and 6.4% respectively and the broader market performance suffered much more. S&P BSE 200 index was down 8.1% while BSE Midcap and Smallcap indices lost 12.4% and 15.9% respectively. Global crude oil prices increased by about 6.9%, while INR depreciated by another 2.1% during the month. Market sentiments were also dented by the rating downgrade of ‘AAA’ rated group to ‘D’ and concerns of liquidity issues in the NBFC space. The same has been further accentuated by seasonal advance tax outflows and macro concerns on rising crude and a depreciating currency.
The RBI took measures to address the system liquidity issue and conducted Rs.100 bn of Open Market Operations or OMOs while additional OMOs are on the anvil. Government also reduced its borrowing programme for FY19 by Rs. 700 bn and allowed additional 2% (from 11% to 13%) of SLR for the purpose of calculating Liquidity Coverage Ratio (LCR) for banks.
During September, the government announced a slew of measures aimed at boosting capital flows and also to support INR. Some of these included removal of exposure limits on FPI investment in bonds, exemption from withholding tax for Masala bond issuance for the current fiscal, reduction in minimum maturity for manufacturing firms’ ECB issuance, mandatory hedging requirements of infrastructure ECB issuances, removal of restrictions on Indian banks’ market making process in Masala bonds etc. The government also announced incremental import tariffs on 19 items amounting to USD 13 bn in a measure aimed at containing the Current Account Deficit.
On the monsoon front, the cumulative rainfall received this year has been weaker than anticipated. The South - West monsoon season (i.e. June-September) recorded rainfall at 91% of the long period average (LPA). The monsoon season also saw an uneven spatial and temporal distribution of rainfall across the country. However, encouragingly, the reservoir storage levels on a pan country basis stood at a healthy 76% of full reservoir level compared to 66% same time last year.