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Weekly Wrap: DHFL Troubles Overshadow Rate-Cut Boost For Markets

Indian equity benchmarks halt three-week gaining streak.

A trader reacts as he looks at financial data on computer screens on the trading floor at ETX Capital, a broker of contracts-for-difference in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)
A trader reacts as he looks at financial data on computer screens on the trading floor at ETX Capital, a broker of contracts-for-difference in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Indian equity benchmarks halted three-week gaining streak as corporate credit rating downgrades outweighed the expected Reserve Bank Of India’s policy rate cut.

The S&P BSE Sensex ended 0.25 percent lower this week at 39,615.90 and the NSE Nifty 50 closed at 11,870.65, down 0.44 percent. The markets were shut on Wednesday on account of Id-ul-Fitr.

The markets had a turbulent week as skeletons further emerged in the ongoing liquidity crisis, Jimeet Modi, founder and chief executive officer at Samco Securities & StockNote, said in a statement. “The malaise was caused due to the rather illiquid nature of assets which the lenders had agreed to finance. But since lenders are no longer able to rollover their bonds/commercial papers, they have no option but to sell the mortgaged assets which has become quite difficult in the current market.”

This temporary funding gap mismatch, unless the RBI proactively helps them, can snowball into a bigger-crisis of confidence that can lead equity markets to roll down further, Modi said.

On Wednesday, credit rating agencies downgraded Dewan Housing Finance Ltd.’s commercial paper programme citing liquidity concerns, a day after the non-bank lender delayed interest payments to investors.

Commenting on the technical front, Modi said the Nifty made a dark cloud formation on the weekly chart, indicating a beginning of a deeper correction cycle.

The upper trend line indeed acted as a resistance and since now the validity of the trendlines are established, a target of 11,400 seems quite likely on the lower side. Sell on rise should be adopted by the traders and all long trading positions may be squared off.
Jimeet Modi, Founder and CEO, Samco Securities & StockNote

Notable Benchmarks Movement

  • On Monday, the 31-share Sensex and the 50-stock Nifty hit record highs at 40,312.07 and 12,103.05, respectively.
  • On Thursday, the benchmark indices clocked their worst single-day fall in 2019.

Here’s the markets fared this week:

How Broader Markets Performed

The broader market represented by the NSE Nifty 500 Index closed 0.71 percent lower this week, led by the declines in Reliance Infrastructure Ltd. and DHFL.

The Best And The Worst Sectoral Performers

Eight out of 11 sectoral gauges compiled by NSE ended lower this week, led by the NSE Nifty PSU Bank Index’s 4.3 percent decline. The NSE Nifty FMCG Index was the top sectoral gainer, up 0.41 percent.

How Rupee Fared This Week

The Indian rupee ended higher this week. The currency appreciated 0.33 percent this week to close at 69.47 against the greenback. The local legal tender was among the best Asian performers this week.

Big Talking Points This Week

  • Monetary Policy: MPC cuts rates by 25 basis points, changes policy stance.
  • Azim Premji to step down as Wipro Chairman, Rishad Premji to take over on July 31.
  • Prime Minister Narendra Modi rejigs NITI Aayog.
  • PSU banks’ bad loans drop 12 percent in FY19 as stressed asset cycle turns.
  • India’s manufacturing activity gains momentum in May.
  • Auto sales tumble again but stocks jump on optimism.
  • Hindi’s not compulsory, says Head of Draft National Education Policy Panel.
  • Nifty companies’ debt jumps the most in five years.
  • India’s digital payments could grow tenfold in three years, says Nandan Nilekani.
  • All you need to know about the DHFL crisis.
  • Gold imports by India jump in May as prices drop to year's low.
  • DHFL Downgrade: Tata Mutual Fund side pockets its exposure to DHFL securities.
  • Exclusive: India proposes 10-year jail for cryptocurrency use, may introduce its own digital currency.

Key Events To Watch Next Week

  • June 12: CPI Inflation data for May
  • June 12: Industrial Production for April
  • June 12: India trade balance data for May
  • June 14: Wholsale prices data for May