Aaj Mai Upar, Kal Mai Niche
In this edition: a lot of selling, down low, more to come and Moti Vaato as always
On August 11, the Indian stock market concluded with a second consecutive decline as various sectors saw selling pressure, except for PSU banks. The closing figures showed the Sensex decreasing by 365.53 points, or 0.56%, to reach 65,322.65, while the Nifty closed 114.80 points lower, or 0.59%, at 19,428.30.
Although the benchmark indices initially started the day in the negative, their losses continued to expand as the day went on. While there was a slight recovery in the afternoon, the market couldn't sustain the gains and ultimately closed near the lowest point of the session.
Over the course of the week, the Sensex dropped by 0.6% and the Nifty declined by 0.45%. Among the sectors, the PSU bank index experienced a gain of 1.2%. On the other hand, the pharma index saw a decline of 1%, while the bank, auto, FMCG, metal, and oil and gas sectors all faced a decrease of 0.5% each.
The BSE midcap and smallcap indices also concluded the session with slight decreases. Over 100 stocks reached their 52-week high on the BSE, including companies like NCC, Jindal Steel & Power, Exide Industries, Coforge, Cupid, Wonderla Holidays, NBCC, Raymond, Suzlon Energy, Texmaco Rail & Engineering, Welspun India, and Ashok Leyland.
International Markets
The U.S. dollar appeared set to achieve gains over the course of a month following steady U.S. inflation, which did not provide the anticipated downside surprise.
Soft demand during a 30-year Treasury auction and a large rise in the U.S. budget deficit last month both had a negative effect on bonds. As a result, bond yields rose, leading to a strengthening of the dollar, especially against the yen, due to yield control measures in Japan.
The yen reached a six-week low of 144.89 per dollar early on Friday, although trading volumes were reduced due to a public holiday in Japan. Both its stock markets and Treasuries remained untraded during the Asia session. MSCI's most comprehensive index of Asia-Pacific shares, excluding Japan, experienced a slight 0.2% decline and was on track for a 1% decrease for the week.
The main U.S. Consumer Price Index (CPI) remained at 0.2% for the previous month, mirroring the results from the month before. Notably, the core goods inflation rate slowed down, with only rents remaining persistently high.
Following the news about inflation, the benchmark 10-year Treasury initially experienced a rally. However, by the end of the trading day in New York, yields had increased by seven basis points to reach 4.11%. Meanwhile, two-year yields went up by two basis points to 4.82%.
The yields for thirty-year Treasuries surged by six basis points to 4.24% after a $23 billion auction resulted in a yield that was one basis point higher than the prevailing market rate. Primary dealers were left with 12.5% of the total sale.
Market Movers
1. India's June Industrial Output rose At 3.7%, the slowest pace in three months
In June, India's industrial output growth rate declined to a three-month low of 3.7% year-on-year, as per data released by the Ministry of Statistics on Friday.
According to a Reuters poll of analysts, an expansion of 5% had been projected. May's industrial output was revised from 5.2% to 5.3%.
The manufacturing sector, which contributes about 17% to the Indian economy, saw a year-on-year increase of 3.1% in June, slowing down from the revised annual growth rate of 5.8% recorded in May.
During June, electricity generation rose by 4.2% compared to the same month the previous year, while mining activities grew by 7.6%, as indicated by the data.
In May, electricity generation decreased by 0.9%, while mining activities increased by 6.4%.
India's central bank anticipates the economy to grow by 6.5% in the fiscal year ending next March, primarily driven by government capital spending.
Infrastructure or construction goods production exhibited a year-on-year growth rate of 11.3% in June, remaining unchanged from the downwardly revised growth rate for May. Capital goods observed 2.2% growth compared to the previous year.
Although there has been some improvement in recent months, consumer spending has been relatively weak. Consumer durables output contracted by 6.9% year-on-year in June, contrasting with the revised growth of 1.2% in the previous month. Consumer non-durables demonstrated a year-on-year growth of 1.2%, as opposed to the upwardly revised growth of 7.6% in May.
2. Sebi To Enhance Enforcement Activities And Cybersecurity With Geotagging And Technology Initiatives
The Securities and Exchange Board of India (Sebi) is embarking on a technology-centered journey to strengthen its enforcement efforts and cybersecurity precautions, as detailed in its annual report for the fiscal year 2022-23.
A notable initiative is the upcoming implementation of a Geotagging Solution, aimed at enhancing Sebi's enforcement procedures. Geotagging involves attaching geographical details, like latitude and longitude coordinates, to different types of media, such as pictures and videos. This inventive approach aims to improve the accuracy and efficiency of site visits, surveys, and training activities conducted by the market regulator.
The Geotagging Solution will utilize mobile application technology, allowing Sebi to capture important information like location, date, and time during various field operations. This will not only streamline tasks but also create a comprehensive record of each interaction. The anticipated launch of the Geotagging Solution is planned for the fiscal year 2023-24.
Furthermore, Sebi is dedicated to strengthening its cybersecurity preparedness by developing a Cyber Capability Index (CCI). This index aims to provide an unbiased evaluation of the cybersecurity readiness of both regulated entities and Sebi itself. In a time of constantly evolving cyber risks, the CCI is set to play a crucial role in maintaining the security and credibility of India's financial markets.
To facilitate smoother business processes, Sebi is actively working on integrating its e-registration system with key agencies like DigiLocker and the National Institute of Securities Market (NISM) through application programming interfaces (APIs). This strategic step will enable real-time verification of information provided by intermediaries, resulting in more efficient procedures and improved accuracy.
Furthermore, Sebi is considering introducing an online document verification feature. This digital verification method aims to confirm the authenticity of documents and notices exchanged between Sebi and market participants. By embracing such technology-driven measures, Sebi is ready to enhance openness and confidence in its interactions with stakeholders.
3. RBI Partners With McKinsey And Accenture On Using AI and ML
The Reserve Bank of India (RBI) has partnered with global consulting firms McKinsey and Company India LLP and Accenture Solutions Pvt. Ltd. India to harness the potential of artificial intelligence (AI) and machine learning (ML) in transforming its supervisory functions over banks and non-banking financial companies (NBFCs).
The RBI's ambitious goal of utilising advanced analytics, AI, and ML to analyse its extensive database and enhance regulatory supervision underscores its commitment to ensuring financial stability and safeguarding the interests of depositors. By collaborating with external experts, the central bank demonstrates its dedication to adopting cutting-edge technologies in its regulatory operations.
This collaboration is the outcome of a meticulous selection process that began in the preceding year, starting in September. The RBI had invited expressions of interest (EoI) from consultants specialising in advanced analytics, AI, and ML to enhance its supervisory capabilities. After a thorough evaluation of proposals, McKinsey & Company India LLP and Accenture Solutions Pvt. Ltd. India were chosen as the preferred partners.
The contract, valued at around Rs 91 crore, will involve close collaboration between the two consulting giants and the RBI's Department of Supervision. While the central bank already employs AI and ML in its supervisory processes, this collaboration aims to elevate these efforts to a higher level. By tapping into its extensive data repository, the RBI aims to identify attributes that can be used to create more robust and insightful supervisory inputs.
The RBI's supervisory responsibilities extend across a diverse range of financial entities, including banks, NBFCs, payment banks, small finance banks, and more. Integrating AI and ML techniques, often referred to as 'suptech' and 'regtech', aligns with the global trend of regulatory and supervisory authorities seeking innovative approaches to enhance their oversight functions.
Key aspects of the RBI's initiative encompass real-time data reporting, efficient data management, and dissemination using AI and ML technologies. These advancements facilitate streamlined data collection and reporting processes, crucial for effective supervisory activities. Additionally, AI and ML applied to data analytics enable the RBI to proactively monitor various risks faced by supervised entities, including liquidity, market, and credit exposures. The technology also aids in conducting misconduct analyses and identifying instances of product misselling.
Motabhai ni Moti Vaato
Once again, on August 11, the equity market felt the influence of liquidity measures and concerns about inflation, as stated by the RBI. As a result, the Nifty50 index, which had been consolidating for four days, dropped below 19,500. The next potential support point for the index might be around 19,300. This aligns with a horizontal support trendline that connects the lows of July 4 and August 3. If this trendline is breached, the index could potentially decline further to 19,000. However, maintaining these levels could lead to significant resistance around 19,650–19,700 on the upper side.
In general, the market is anticipated to remain in a consolidation phase, with particular attention on the monthly CPI and WPI inflation data as well as the release of FOMC minutes, according to experts.
The BSE Sensex experienced a decrease of approximately 400 points, reaching 65,323, while the Nifty50 saw a decline of 89 points to 19,428. This drop was influenced by declines in banking and financial services and FMCG stocks. However, the downturn was mitigated by buying activity in technology, metals, oil and gas, pharmaceuticals, and specific automobile stocks.
Amidst mounting worries about inflation, market observers will carefully scrutinise the CPI data for July, slated for release on August 14. It is anticipated that these figures will exceed the 6% benchmark established by the RBI, primarily due to elevated vegetable prices, as opposed to the 4.81% recorded in June. Already on August 10, the RBI elevated its inflation projection for the current financial year to 5.4% from the previous 5.1% and also adjusted the figures higher for the Q2 and Q3 FY24 quarters.
Amidst mounting worries about inflation, market observers will carefully scrutinise the CPI data for July, slated for release on August 14. It is anticipated that these figures will exceed the 6% benchmark established by the RBI, primarily due to elevated vegetable prices, as opposed to the 4.81% recorded in June. Already on August 10, the RBI elevated its inflation projection for the current financial year to 5.4% from the previous 5.1% and also adjusted the figures higher for the Q2 and Q3 FY24 quarters.
The role of Foreign Institutional Investors (FIIs) in the correction of Indian equity markets has been significant, as they have been selling consistently since the last week of July. If this selling trend continues, experts suggest that the equity markets could experience further declines in the upcoming weeks.
During the past week, FIIs sold a net total of Rs 4,700 crore, leading to them becoming net sellers on a monthly basis for the first time in August, with sales exceeding Rs 7,500 crore. However, Domestic Institutional Investors (DIIs) managed to offset some of this impact by purchasing shares worth Rs 2,224 crore during the week.
Over the course of seven consecutive weeks, there has been a consistent increase in oil prices, driven by supply constraints and a forecast of record demand. The international benchmark Brent crude futures reached $86.81 per barrel, indicating a 0.66% increase during the week. While the continuous rise in oil prices poses a risk for oil-importing nations like India, experts anticipate the likelihood of a technical correction in prices in the upcoming days due to the substantial upward movement in recent times before any further rally resumes.
Word Wise
Misselling
Misselling is a sales tactic where a product or service is intentionally or negligently misrepresented or customers are deceived about its appropriateness to facilitate a sale. This can encompass purposely leaving out crucial details, conveying misleading guidance, or vending an inappropriate product based on the customer's stated requirements and inclinations.
Engaging in misselling is both unethical and neglectful, and it can result in legal consequences, penalties, or professional reprimands. The United Kingdom's former Financial Services Authority described it as a "failure to provide equitable outcomes for consumers."
Misselling poses a significant challenge within the financial services sector and among financial industry regulators. Individuals such as brokers, financial advisors, bank representatives, or salespeople of financial services who receive commissions as compensation may have strong incentives to promote investments or financial products based on their potential earnings rather than focusing on their suitability or necessity for the customer.
Misselling can manifest in various financial products, including insurance products, annuities, investments, mortgages, and others. The occurrence of a financial loss is not always a prerequisite to classifying a situation as misselling; the sale of an inappropriate product suffices.
An illustrative instance of misselling is often observed in the life insurance field. For instance, consider an investor with substantial savings and investments but without dependents or a deceased spouse. In this case, the investor would likely have minimal requirements for whole life insurance or an annuity with an expensive survivor benefit. If an insurance salesperson portrays such a product as crucial for safeguarding the investor's assets or income stream in the event of their death, this could be categorised as a case of misselling.
Individuals who suspect they have fallen victim to misselling should promptly gather their supporting evidence, particularly any written documentation, and initiate a complaint or claim without delay. Most financial services firms have established formal internal procedures for handling complaints, which should generally be the initial course of action. These companies are obligated to address all inquiries and claims. If the response received is unsatisfactory, certain industries or jurisdictions might offer recourse through an ombudsman or an independent investigator who can review the complaint.
An alternative avenue could involve reaching out to relevant authorities or regulators. It's also worth noting that avenues for claims and compensation could potentially be accessible even if a company has ceased operations.
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Motabhai.