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Bulls ride on election outcome, Nifty closes above 9,100-mark

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Mumbai, March 18, 2017: Riding on the outcome of the just-concluded assembly elections, key Indian equity indices zoomed to new 52-week highs and crossed their psychologically significant levels. The benchmark NSE Nifty hit a record intra-day high and closed above the 9,100-mark for the first time during the truncated week ended Friday.

On Friday, the wider 51-scrip Nifty of the National Stock Exchange (NSE) touched a new record intra-day high of 9,218.40 points. Similarly, the Sensex touched a new 52 week-high of 29,824.62 points.

The bull run continued for the second consecutive week as the outcome of the assembly elections in five states and positive global cues enhanced the risk-taking appetite of investors.

The positivity in the equity markets was also favoured by a strong rupee and substantial inflows of foreign funds.

The barometer 30-scrip Sensitive Index (Sensex) of the BSE surged by 702.76 points or 2.43 per cent to close at 29,648.99 points, while the NSE Nifty was up by 225.5 points or 2.52 percent at 9,160.05 points.

“Markets zoomed higher this week to touch new life highs. The Nifty closed above the 9,100 level for the first time ever,” Deepak Jasani, Head – Retail Research, HDFC Securities, told IANS.

Market observers pointed out that the BJP victory in Uttar Pradesh and Uttarakhand assemblies elevated the mood of the Indian equity markets.

“The election results will provide the much-needed boost to the ruling-BJP to accelerate the pace of reforms, including the roll-out of the crucial Goods and Services Tax (GST), slated to be implemented from July 1, 2017,” said Vijay Singhania, founder and Director of brokerage firm Trade Smart Online.

D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors, told IANS: “In the week gone by, the global markets moved higher and higher as confidence continued to return to the markets, and also after the (US) Federal Reserve indicated it was unlikely to speed up monetary tightening.”

On Wednesday, the benchmark Indian indices well-absorbed the 25 basis points (bps) rate hike by the US Federal Reserve for the second time in three months and the third time since the 2008 global financial crisis.

“Moreover, the industrial activity has shown some improvement in January, after the contraction in December, which also indicated that the negative effects of demonetisation are gradually waning,” Aggarwal said.

According to Dhruv Desai, Director and Chief Operating Officer of Tradebulls, the Indian equity markets traded with firm sentiments tracking bearish USD/INR futures prices and continuous buying support.

“Continuous funds flow witnessed by FIIs (foreign institutional investors) in this week indicated continuation of the uptrend in the Indian equity markets,” Desai pointed out.

The Indian rupee strengthened by 1.15 paise to 65.46 against a US dollar from last week’s close of 66.61.

In terms of investments, provisional figures from the stock exchanges showed that FIIs purchased stocks worth Rs 8,121.51 crore during the week, while domestic institutional investors (DIIs) divested scrip worth Rs 2,192.86 crore.

Figures from the National Securities Depository (NSDL) disclosed that foreign portfolio investors (FPIs) bought equities worth Rs 7,495.85 crore, or $1.13 billion, during March 14-17.

Commenting on sector-specific movement, Rakesh Tarway, Head of Research, Reliance Securities, said: “FMCG gained by 5.1 per cent, high beta sectors like realty and metals also reversed its last week losses to gain by 4.9 per cent and 3.1 per cent respectively, while other sectors gained by around 2.5 per cent.”

The top weekly Sensex gainers were: Adani Ports (up 7.93 per cent at Rs 324.60), Tata Steel (up 6.93 per cent at Rs 502.05), ITC (up 6.19 per cent at Rs 281.20), HDFC (up 5.74 per cent at Rs 1,450) and Larsen and Toubro (L&T) (up 4.99 per cent at Rs 1,550.70).

The losers were: Coal India (down 8.94 per cent at Rs 289.75),Bharti Airtel (down 3.77 per cent at Rs 346.80), Gail (down 1.23 per cent at Rs 374.75), Power Grid (down 0.39 per cent at Rs 193.50), and Mahindra and Mahindra (M&M) (down 0.07 per cent at Rs 1,303).

By Porisma P. Gogoi

Business

ADB lowers India’s GDP forecast to 6.7%

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GDP

New Delhi, Dec 13: The Asian Development Bank (ADB) on Wednesday lowered its Indian GDP forecast for the current financial year to 6.7 per cent citing tepid growth in the first half, demonetisation and transitory challenges posed by implementation of GST.

The multilateral lender also revised its Indian Gross Domestic Product outlook for the 2018-19 fiscal down to 7.3 per cent, from 7.4 per cent, largely due to the hardening of international crude oil prices and stagnant private sector investment in the country.

“Owing to tepid growth in the first half of 2017-18, the lingering effects of demonetisation in November 2016, transitory challenges of a new tax system, and some risks to agriculture stemming from a spotty monsoon in 2017, the economy is now expected to grow by 6.7 per cent, slower than the seven per cent forecast in the Update,” the ADB said in a supplement to its Asian Development Outlook (ADO).

In its September update, the ADB had downgraded India’s growth projection for the current fiscal to seven per cent and also lowered its forecast for the next financial year to 7.4 per cent, from 7.6 per cent.

GDP figures released by the Central Statistics Office here in November showed that, reversing five consecutive quarters of decline, growth in the second quarter ended September rebounded to 6.3 per cent, from 5.7 per cent in first quarter.

Meanwhile, a UN report released earlier this week in New York noted that subdued private investment in India, which has declined as share of GDP from 40 per cent in 2010 to 30 per cent in 2017, coupled with the staggering bad loans accumulated in the Indian banking system, are major causes of concern.

“The anaemic performance of private investment remains a key macroeconomic concern. Gross fixed capital formation has declined from about 40 per cent in 2010 to less than 30 per cent in 2017,” said the World Economic Situation and Prospects (WESP) 2018 prepared by the UN Department of Economic and Social Affairs (DESA).

The report said the global economy grew at an average of three per cent in 2017, the highest growth rate since 2011, and is expected to remain steady at three per cent in 2018 and 2019.

IANS

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Markets open on negative notes

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Mumbai, Dec 13: The 30-scrip Sensitive Index (Sensex) on Wednesday opened in red during the morning session of the trade.

The Sensex of the BSE after opening at 33,229.73 points touched a high of 33,248.92 and low of 33,123.44 points.

On Tuesday the Sensex closed at 33,227.99 points.

The Sensex is trading at 33,179.21 points down by 53.56 points or 0.16 per cent.

On the other hand, the broader 51-scrip Nifty at the National Stock Exchange (NSE) opened at 10,236.60 points after closing at 10,240.15 points.

The Nifty is trading at 10,225.90 points in the morning.

IANS

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It’s best to steer clear of Bitcoins lest the bubble bursts

Either when the speculative run ends or governments decide to regulate, the Bitcoin dream run is bound to come to an end. It is best to steer clear of the dreaded eventuality.

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Bit Coin

It is impossible to make sense of the Bitcoin-mania that has been making waves of late.

In just a span of one year, the crypto-currency has doubled four times. The price of one Bitcoin in early January was $1,000 (almost Rs 64,000). It rose to $2,000 by May. In August, it breached $4,000. By late November, it was $8,000 and, two weeks later, it had crossed $16,000. Nothing short of a bubble can explain such an astronomical run. In fact, most recently, the market valuation of Bitcoin in South Korean markets briefly surpassed that of JP Morgan, the world’s largest bank.

The Bitcoin bubble is quite reminiscent of the myriad bubbles in global economic history beginning with the infamous Tulipmania of the 1600s. The tulip bulb bubble occurred in Holland during early 1600s when competing for the rarest tulip bulbs became a status symbol and speculation eventually drove its price to the extremes. At its peak, the price of tulip bulbs rose as much as 1,100 percent in a month. All of this came to an abrupt end in 1637 when prices dropped to an extent that bulbs began trading at a fraction of what they once had, miring many in financial ruin. All bubbles end in a similar fashion. Only the extent differs.

Olivier Blanchard and Mark Watson, in their 1982 paper “Bubbles, Rational Expectations and Financial Markets”, explain why assets like gold, just like Bitcoins, are prone to evolve into bubbles. First, gold acts as a hedge against inflation. This, however, is not true in the case of Bitcoins. The second reason that Blanchard and Watson give for a regular gold frenzy is that people base their choices on whether or not to hold an asset based on past returns rather than market fundamentals. Therefore, investors who witness a rise in asset prices believe that they can hold on to it themselves as long as it appreciates and get out of the market before the market crashes.

The latter reason holds true in the case of Bitcoins, which are largely being driven by such speculation. Even though the Blockchain technology behind the currency is revolutionary and could very well be the Next-Big-Thing, it does not explain the astronomical 16-fold rise that it has displayed this year. It would make sense if this trend were occurring in light of a broader loss in confidence in fiat money. But this is clearly not the case in the current global economic scenario, which finally seems to be picking up.

It can also be argued that since central banks have been practicing easy monetary policy since the crisis to revive economic activity, asset prices have displayed an upward trend. Therefore, in a market where stocks, bonds and other such assets are overvalued, Bitcoin is not an exception. Its rise can be merely a hedge against oncoming interest rate hikes. But, that does not explain why the rise in gold prices has not been similar. In fact, the rise in gold prices has been lower than that in stocks.

There is an additional aspect of the Bitcoin that might explain its widespread appeal: the anonymity involved in its transactions. Bitcoin transactions can be made securely without revealing one’s identity, which makes it easy to bypass the government eye altogether. If true, the rise of Bitcoins could point to a disturbing trend of breakdown of global institutions. The Bitcoin craze can be seen in conjunction with a spate of shocking election outcomes that have been witnessed globally which reflect a larger loss in confidence in institutions that have guided growth.

However, in such a case, the longevity of the currency will be dependent on the government’s appetite to allow such transactions. It is hard to imagine governments allowing large-scale anonymous transactions that evade any taxation and enable criminal activity. China has already banned the currency. On the other hand, Japan has made it legal tender in an attempt to become the global centre of fintech. The jury is still out on what course governments across the globe will take. American economist and chess Grandmasster Kenneth Rogoff put it best recently when he said: “The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates.”

Either when the speculative run ends or governments decide to regulate, the Bitcoin dream run is bound to come to an end. It is best to steer clear of the dreaded eventuality.

By : Dr. Amit KAPOOR

(Dr. Amit KAPOOR is chair, Institute for Competitiveness, India. The views expressed are personal. He can be contacted at [email protected] Chirag Yadav, senior researcher, Institute for Competitiveness, India has contributed to the article)

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