Daily Market Update – Nov 2nd 2020

unnamed Daily Market Update   Nov 2nd 2020

There were finally some positive signals on the macro front with GST collections for the month of October 2020 registering Rs.105,000 crore. This is the first time in 8 months that the GST figure has gotten past the Rs.1 trillion mark. The Finance Secretary admitted that there was a 10% surge in collections on a month-on-month basis and this roughly corresponds with the pre-COVID levels of goods and services output. Of course, this may not drastically change the impact on the fiscal deficit which is still expected to be above 7% of GDP in this year; unless the government works magic on divestments.

The core sector numbers for September 2020 were extremely encouraging. One can argue that the core sector continue to contract for the seventh month in succession but at (-0.8%), the contract is the least we have seen in the last 13 months. The core sector has been negative for 9 out of the last 13 months and the cumulative core sector growth for the first six months of the fiscal (Apr-Sep) stood at (-14.5%), a vast improvement from the last few months. It means that core infrastructure production is finally getting back to pre-COVID levels. 3 out of the 8 core sectors; coal, steel and electricity, registered positive growth. The biggest challenge is weak crude prices because oil extraction, natural gas and oil refining account for 45% of the core sector growth; and they depend on robust crude oil prices.

Foreign Portfolio Investors or FPIs infused Rs.22,033 crore into the Indian markets in the month of October 2020. They infused Rs.19,450 crore into Indian equities and much more humble Rs.2,492 crore into Indian debt. The infusion into Indian equities was driven by strong corporate results for the second quarter as well as a hedge against the likely uncertainty caused by the US elections this week. Most FPIs are also impressed by the fact that COVID-19 cases in India are falling drastically and the world may be closer to a vaccine than previously thought. The accommodative tone of the MPC also helped markets.

The top ten Indian companies by market on the NSE saw value erosion to the tune of Rs.163,500 crore with 9 out of the 10 companies losing value during the week. The Nifty and Sensex were down 2.5% during the week with IT and oil coming under pressure. Kotak Bank was the solid gainer adding Rs.32,571 crore to its market value during the week. The biggest value loss was seen in RIL which lost Rs.39,355 crore of value in the week. Among the other heavy weights, HDFC Bank lost Rs.28,575 crore while Infosys lost Rs.26,152 crore. HDFC, ICICI Bank, HUL and TCS lost Rs.70,000 crore between them.

The week ended October 30 represented the worst weekly fall for the Dow and the NASDAQ since March this year. During the week, the Dow Jones Industrial Average lost 6.5% while the NASDAQ lost 5.5%. This was in response to the rising trend of COVID infections in the US combined with the environment of uncertainty created by the forthcoming US presidential elections. The US has already reported more than 9.1 million total infections and over 230,000 casualties. There has been good news on the economic front with the US economy growing 33% in the third quarter after a tepid Q1 and Q2.

DLF and the Government Investment Corporation of Singapore (GIC) plan to launch their REIT over the next 15-18 months to effectively monetize their commercial assets. Most of the rent yielding properties of DLF, in which GIC already has a strategic stake, will be monetized through the REIT route. In the recent past, some of the key players like Mindspace and Embassy have monetized their commercial assets through REITs and these have been quite successful post listing. DLF Cybercity which houses the commercial rent yielding properties of the group is a JV in which DLF has a 66.67% stake and GIC of Singapore has a 33.33% stake. GIC had invested close to Rs.9000 crore for this stake and the total property ownership is worth 33 million SFT. The first step would be to structure the REIT properly.

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