Developments related to the US Federal Reserve’s imminent rate hike will likely impact the Indian stock markets in the coming week, as a pick-up in safe-haven demand prompts investors to pull out money from emerging economies.
At home, the focus will be on the Goods and Services Tax bill and release of data on inflation and industrial production as well as the movement of the rupee after the currency fell to a two-year low.
The Indian stock market ended one percentage point lower on Friday, weighed down by Fed chair Janet Yellen’s statement that she was looking forward to a rate hike and the European Central Bank’s decision to expand its stimulus programme that fell short of expectations.
With the US jobs report, released on Friday, highlighting that the economy added 211,000 jobs last month, the Fed is expected to hike rates for the first time in nine years in its mid-December review. The Fed decision would come two years after it announced the winding up of its monthly purchase programme.
While the hike has been factored in, the next few days will be volatile for emerging markets as investors pull out money. Foreign investors have pulled out Rs 2,359 crore ($353 million) from the Indian market so far this month, although the Indian economy is in a better position than other emerging markets.
Meanwhile, two IPOs will hit the Indian bourses this week -- diagnostics chain Dr Lal PathLabs and drugmaker Alkem Labs. The Indian stock market has seen 18 IPOs this year with companies mopping up close to Rs 11,000 crore.
Brightening prospects for GST
There is a hint of good news for the Indian economy with the path for the GST bill cleared by a panel led by chief economic advisor Arvind Subramaniam.
The report recommended a standard rate of 17-18 per cent and a revenue neutral rate of 15-15.5 per cent for the new tax. It also recommended inclusion of alcohol and fuel in the bill, besides eliminating all taxes in inter-state trade including the 1 per cent additional tax proposed in the bill.
With parties like the JD(U) and the BSP supporting the bill, the government may be able to push it through the Rajya Sabha where it does not have a majority. But the main concern comes from the Congress, which still has some reservations about the bill.
Data releases for index of industrial production and inflation are due for Friday this week. IIP numbers for September had shown some weakening, coming in at 3.6 per cent after jumping to 6.3 per cent in August.
With the infrastructure index, which represents 38 per cent of the IIP, released a week ago showing a similar growth rate as in October, the trend for IIP is going to be much the same. The purchasing managers index data last week indicated that subdued demand pushed business activity toward stagnation.
Inflation has been on the upside given the waning of a favourable base. While inflation is expected to be in vicinity of the 5 per cent mark in October, the number is expected to stay below the 6 per cent target set by the Reserve Bank for January 2016.
The rupee had quite a drubbing last week with the local currency falling to a two-year low against the dollar, as expectations of a rate hike and the jobs report pumped up the greenback. With more FIIs expected to pull money out, the RBI will likely have to intervene to stop the rupee from tumbling further.