Currently, the market is in a Downtrend, as Nifty is trading near its five-month low. All the sectoral indices are trading below their 50-DMA, indicating broad-based weakness. In such a scenario, it is advised to trim positions and stay in cash rather than making huge losses. The importance of taking small losses is emphasized in this article.
It is difficult to identify the start of a major stock market uptrend if you are relying on headlines and news. By the time, reporters figure out what’s going on in the stock market, the best part is over.
At MarketSmith India, we have a defined set of rules to identify the upturn in the market. It will remove any personal judgment.
Nifty Scales New Highs After Consolidating Gains; FII Buying Continues
In November, Nifty consolidated gains and was trapped between 10,800 and 12,000 for most part of the month. The gap between Nifty and its rising 21-DMA shrank as a result of the consolidation during the month. At the start of November, Nifty was extended 3.5% and 6.0% from its 21- and 50-DMA, respectively. Currently, Nifty is trading less than 1% and 3% above its 21- and 50-DMA, respectively. The market remained in a Confirmed Uptrend and the distribution day count remained low during the month, with the addition of two distribution days in the last week of November. The distribution day count is now at four. FIIs/FPIs were net buyers in November (Rs 13,000 crore), while net selling from DIIs was Rs 8,000 crore. Continue reading “Industry Update: November 2019”
- The corporate rate has been slashed to 22% if companies choose not avail exemptions and incentives. The effective tax rate would be 25.17% after including all surcharges. Also, these companies would not be required to pay Minimum Alternative Tax (MAT).
- Push to Make-in-India: Domestic companies incorporated on or after October 1 and are making fresh investments in manufacturing are allowed to pay 15% tax if the exemptions are not availed. The companies must commence production before the end of FY23. In addition, they are not required to pay MAT.
- Companies seeking exemption and incentives can pay MAT of 15%, which was earlier 18.5%.
- The sale of equity shares and equity-oriented mutual funds will not attract additional surcharge on capital gains tax for individuals and HUFs. Earlier, individuals earning Rs 2-5 crore and those earning more than Rs 5 crore had to pay a surcharge of 25% and 37%, respectively. Now, this has been revised and a higher rate of surcharge shall not apply on capital gains.
- Companies now have permission to use 2% CSR spending on incubators funded by IITs, NITs, national laboratories, and autonomous bodies.
- Tax on share buyback will not be levied for those listed companies that made the announcement before July 5.
- These new measures will have an impact of Rs 1.45T on government’s exchequer on an annual basis.
- Transmission of rate cuts by banks to the borrower is expected to improve. Out of 75bps cut by RBI till June, only 29bps has been transmitted.
- Although government spending has picked up from July onward, private consumption and investment activity remain sluggish
- Liquidity in the system is in large surplus and not a concern.
- Boosting aggregate demand, especially private investment, is the key priority.
- Expects inflation to go up by 50–60bps in H2 due to higher food prices and rainfall deficiency. RBI expects downside risks to its forecast of GDP growth for India.
Repo rate cut by 35bps to 5.4%; Reverse rate adjusted to 5.15% and Bank rate to 5.65%.
- As per RBI, 50bps cut would have been excessive in current circumstances.
- This is the fourth consecutive rate cut, totalling a cut of 110bps in 2019.
- Policy stance maintained at Accommodative.
RBI comments on Growth and Inflation projections:
- Global slowdown and escalating trade tensions are posing downside risks. FY20 GDP growth target cut by 10bps to 6.9%. In H1, it is expected to expand 5.8–6.6%, and in H2 it is estimated at 7.3–7.5%, base effect to aid the growth in the second half.
- For H1 FY21, GDP is expected to expand 7.4%.
- CPI projected at 3.4-3.7% for H2 from 3.0-3.1% in H1.
- Crude oil prices may remain volatile due to geopolitical tensions.
On Transmission of rate cuts to borrowers:
- RBI is in talks with the banks, expects higher transmission, as banks come out of NPA issues.
- Liquidity was surplus in June-July due to return of currency to banks, drawdown of excess CRR balances by banks, open market operations (OMO), and forex market operations. RBI has conducted two OMO purchase auctions totalling Rs 27,500 crore in June.
Measures to enhance credit supply to NBFCs:
- Bank’s lending limit to NBFCs raised to 20% of the tier-1 capital of a bank from previous 15%.
- RBI is consistently monitoring the liquidity situation and intends to protect large and systematically important NBFCs.
- Bank’s lending to NBFCs for on-lending to Agriculture upto Rs 1M, MSMEs up to Rs 2M and housing up to Rs 2M per borrower will be considered as priority sector lending.
- Lending activity of any bank depends on its own risk assessment, and as a regulator RBI cannot force a bank to increase its lending to particular segment.
- It continues to have constant interaction with the government at highest level. Decision of MPC is autonomous.
- At the moment, CRR cut is not in proposal. Future rate cycle will depend on the incoming data.
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Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.
Performance computations reflect a time-weighted rate of return and includes a brokerage of 0.5%. All holdings are rebalanced to equal rupee amounts daily. Dividends are not considered in computations. Percent gains and losses are calculated for all issues that remain on the “Current Holdings” at the end of the day. For stocks that were added to “Current Holdings”, the basis used to calculate the percent change is the price noted when the issue appeared as a “Current Holdings” in MarketSmith India. For stocks that were removed, the selling price used to calculate the percent is the price note d when the issue appeared as “Removed” in the MarketSmith India. For more information, see our Legal disclosures here.