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Rise in foreign portfolio investments, sharp fall in crude prices, and negative growth in exports

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Foreign portfolio investors have infused Rs.4800 crore into the Indian markets in the first five days. However, nearly 95% of the money came into debt and only 5% of the inflows came into equity markets. This is still a relief after the massive selling to the tune of Rs.39,000 crore in the previous month. The FPIs have become a little more confident with the bottoming out of the rupee as well as the sharp fall in Brent crude prices by nearly 20% in the last couple of weeks. The Fed decision to maintain status quo on rates has also helped reduce the risk-off panic in emerging markets.

With Iran sanctions hardly making any dent on the global oil supply due to the exemptions given to select nations, Saudi Arabia and other OPEC nations have turned wary of the sharp fall in crude prices. Brent has fallen from a high of $86/bbl to below $70/bbl in a span of just a few days. Under pressure from the US, the OPEC and Russia had restored old levels of production but may not resort to further production cuts. The year 2018 and 2019 are likely to see a glut of oil supply and the OPEC is wary that it could result in a repeat of the situation between 2014 and 2016.


India's export growth is in the negatives

The trade deficit may be lower in the last month but the commerce ministry may have a real problem on hand in the form of negative growth in exports. Early inputs from the September trade data indicate that nearly 16 out of the 30 sectors tracked by the Ministry had showed negative growth in exports. That appears to be a direct outcome on world trade as a result of the ongoing trade war between the US and China. There was negative growth in outbound shipments of rice, tea, coffee, tobacco, engineering products, leather, spices, marine products and gems & jewellery.

The coming week is likely to be a data heavy weak. While the Iran sanctions will cease to be an issue, the market will keep a close watch on the CPI Inflation data and the IIP data to be announced this week. IIP had touched a 3-month low in the previous month but CPI inflation had reached a more comfortable level of 3.77%. The market will also be keeping an eye on the rupee movement after the rupee showed a sharp appreciation to 72.5/$ on Friday on the back of weak oil prices. Some key results are also expected this week which include SBI, Tat Steel, Jet Airways, Britannia, Sun Pharma etc.


Retail inflows into equity funds during October touched an all-time high

Even as the month of October saw sales of Rs.39,000 crore by FPIs, the equity mutual funds continued to see a relentless inflow of retail money. Retail inflows into equity funds during the month of October touched an all time high of Rs.12,622 crore. This is nearly 1/3rd of the total inflows into mutual funds in the month of October. Out of the total equity inflows during the month, nearly Rs.7965 crore has come through systematic investment plans (SIP) in equity funds and ELSS schemes. The average SIP size has doubled per month in the last two years even as the collections via SIP have jumped sharply. SIPs represent sustainable inflows since it is normally part of a long term financial plan and does not behave like typical hot money does. Indian MFs are seeing continuous inflows since 2014.

Government plans to sell as much as 149 small and marginal oil and gas fields of ONGC to private and foreign companies. This will permit the ONGC to only focus on the large fields beyond a certain threshold of scale. Typically, fields are auctioned to those who offer the highest share of revenue to the government. In October last year, the government had identified 15 fields with collective reserves of 791 million tonnes of crude and 333 billion cubic metres of gas. The plan could not go through as ONGC had offered a counter proposal. It needs to be seen how it pans out this time around.