Market Outlook - Broader market to endure its relative outperformance

Output of eight core industries fell 8.5% in August 2020 (8% decline in April 2020) on account of Covid-19 related localised lockdown. Fertiliser and coal production grew 7.3% YoY and 3.6% YoY, respectively in August 2020, while other sectors - refinery products (19.1%), cement (14.6%), natural gas (9.5%), crude oil (6.3%), steel (6.3%) and electricity (2.7%) recorded a decline in production.

The central government has permitted reopening of cinemas from October 15 with up to 50% of seating capacity outside containment zones adhering to the SOP, which will be issued by the I&B Ministry. Apart from this, restaurants in Maharashtra have been given in-principle approval to re-open from the first week of October 2020.

The government has rolled out new provisions for tax collected at source (TCS), which would be applicable from October 1, 2020. As per these new guidelines, 5% TCS would be applicable on amounts exceeding Rs. 7 lakh in a financial year for foreign remittances under the Liberalised Remittance Scheme (LRS) of the RBI. In addition, TCS of 0.5% & 5% would apply for remittances for education loans and tour packages, respectively. Furthermore, TCS will be at 0.1% on sale of goods of over Rs. 50 lakh in a year.

The government has extended the timeline for localisation of various EV components under the Phased Manufacturing Programme (PMP) (such as electronic throttle, traction motors, electric compressor, instrument panels, etc) by six to 12 months to April 1, 2021. PMP requires certain localisation levels for EVs to be eligible for FAME-II incentives.

As per media reports, the Oil Ministry is considering a floor price for domestically produced natural gas. The proposal being considered pegs the price at a discount to Asia LNG benchmark.

As per media reports, government is working on a Rs. 15000 crore PLI scheme for the pharma industry. The scheme aims to reduce import dependence and promote domestic manufacture of complex generics, biosimilars and high value drugs by giving financial incentives of 5-10% to eligible manufactures for sale of complex generics and biopharmaceuticals.

Brent Crude prices ended flattish at US$ 41.9/barrel as compared to previous week's closing price. Gold prices ended higher at $ 1899/ounce as compared to previous week's closing price of $ 1869/ounce. Bond yields ended lower at 5.99% as compared to previous week's closing price of 6.04%

International Markets:

US Markets: The US markets traded with positive bias on hopes of a near term stimulus package. US House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin expressed hope for a breakthrough in partisan stimulus negotiations. US economy is expected to rebound strongly in Q3 (just ended) compared to 31.4% contraction seen in Q2, as businesses have opened and people returning to work.

European Markets: The European markets are trading flat to positive as positive US stimulus news was met with negative sentiments of stalled economic recovery. As per the ECB president, Eurozone is expected to remain in the deflation zone in the near to medium term due to the recent appreciation of Euro.

Source : Equity Bulls

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