Weekly Wrap: U.S.-Iran Tensions, Fiscal Worries, RBI’s Third Operation Twist
Here’s are the factors that impacted Indian markets between Dec. 30 and Jan. 3.
A U.S. airstrike in Iraq ordered by President Donald Trump killed one of Iran’s most powerful generals. India’s fiscal deficit widened further in November. And Reserve Bank of India announced a third round of its simultaneous bond buying and selling.
Here’s what happened in the business world and across the globe between Dec. 30 and Jan. 3:
U.S.-Iran Tensions Escalate
The killing of Qassem Soleimani in the U.S.-ordered airstrike sent global markets tumbling on Friday as Iran’s Supreme Leader threatened “severe retaliation.”
- The death of Soleimani, who led the Revolutionary Guards’ Quds force, fueled concerns that the U.S. and Iran could be drawn into an armed confrontation that could easily pull in other countries.
- The pressures, which have been building for months, have been complicated by widespread protests in Iraq and Iran.
- The escalation led to the rally in commodities as gold spiked and oil surged to a 3.5-month high.
Fiscal Deficit Rises
India’s fiscal deficit widened further in November, raising concerns that the country will breach its budgeted target for the third straight year.
- The gap between the government’s revenue and expenditure widened to Rs 8.07 lakh crore as of November, according to data released by the Controller General of Accounts. That’s 114.8 percent of the budgeted estimate for 2019-20.
- Capital expenditure stood at Rs 2.13 lakh crore as of November 2019. That’s 63.3 percent of the Rs 3.38-lakh-crore estimate.
RBI’s ‘Operation Twist’: 3.0
The Reserve Bank of India announced its third round of simultaneous purchase and sale of government securities.
- The central bank will purchase Rs 10,000 crore worth of long-term government bonds and sell an equivalent amount of short-term securities.
- The two new longer-dated government securities will mature in 2024 and 2026.
- The first round of auction was conducted on Dec. 23 with the RBI receiving Rs 20,826 crore worth of bids for the 10-year government bonds.
- The second round of auction was conducted on Dec. 30 when the RBI purchased another Rs 10,000 crore worth of bonds maturing in 2029.
Watch | How markets fared this week...
No New Year Cheer For Markets
India’s equity benchmark, S&P BSE Sensex, ended the first week of the new year with losses. The 31-stock index registered its worst week in four after falling 0.27 percent to 41,464.61.
The NSE Nifty 50 Index fell 0.16 percent this week to close at 12,226.65.
The benchmark indices erased their weekly gains with Friday’s decline that mirrored global peers as tensions between the U.S. and Iran escalated.
“The flare-up in the Middle East is the key reason for the fall in the market. There could be some profit-booking after the rally we have seen so far,” G Chokkalingam, founder of Equinomics Research & Advisory, told Bloomberg.
Seven of the 11 sectoral gauges compiled by the National Stock Exchange ended lower, led by the NSE Nifty Media Index’s 3.03 percent fall. The NSE Nifty Metal Index was the top gainer, up 3.2 percent.
How Broader Markets Fared
The broader market represented by the NSE Nifty 500 Index gained 0.3 percent, led by a rally in Indiabulls Real Estate Ltd., Suzlon Energy Ltd. and Adani Green Energy Ltd.
How Asian Currencies Performed
The Indian rupee was the second-worst Asian currency this week. The domestic unit depreciated 0.63 percent against the dollar at 71.80.
Other Big Talking Points This Week
- Reliance Jio adds most active users in October despite voice charges.
- Billionaire Hinduja Brothers are preparing to bid for Jet Airways.
- Ajit Pawar back as Deputy CM; Aaditya Thackeray joins Uddhav’s Council of Ministers.
- PAN-Aadhaar linking deadline extended till March 31, 2020
- Government lays road map for Rs 102-lakh-crore infrastructure spending.
- Railways announces fare hike effective Jan. 1.
- December auto sales: Maruti Suzuki outpaces rivals.
- FDI rises 15 percent during April-September to $26 billion.
- Bosch to cut thousands of jobs in India as auto sales slump.
- India’s Manufacturing PMI jumps to the highest in seven months in December.
- LIC cuts exposure to equity, corporate bonds in first half of 2019-20.
Key Events To Watch Next Week
- Dec. 6: Markit India services and composite PMI data.
- Dec. 7: GDP annual estimate for 2020.
- Dec. 10: India to release industrial production data for November.