Detest of Railway budget sends Indian equity markets into free-fall

Railway Minister Sadananda Gowda’s maiden Budget failed to impress D-Street, whereby investors queued up for exiting out of risky equities, the budget was seen as lacking big announcements or projects. Indian barometer gauges witnessed blood bath on Tuesday with both the major indices losing around two percentage points and ending below their crucial 7,650 (Nifty) and 25,600 (Sensex) levels. Selling was both brutal and wide-based as none of sectoral indices on BSE were spared. Counters, which featured in the list of worst performers, included realty, power, public sector undertaking and capital goods.

The sell-off was mainly triggered post the Rail Budget announcement. Meanwhile, the first rail budget of the current NDA government tried to strike a balance between the twin conflicting objectives of making profits like a commercial enterprise and yet serving its social obligations. The Ministry in the budget sought cabinet approval for allowing foreign direct investment in the state-owned network, an announcement which despite being on much expected lines, failed to excite markets. In the budget, budgetary plan outlay was proposed to be hiked to the extent of Rs 47,650 crore, compared to Rs 30,200 crore outlined in the interim budget. Meanwhile for FY15, Railways pegged receipts of Rs 1.64 lakh crore (versus Rs 1.39 lakh crore in FY14) and expenditure of Rs 1.49 lakh crore. Though, shares of companies like Kernex Microsystems (India), Titagarh Wagons, Kalindee Rail Nirman (Engineers), Hind Rectifiers and Stone India were near their lower circuits.

Selling got intensified as European markets made an awful start with CAC, DAX and FTSE all were trading with a cut of around half a percent after weak trade data from Germany added to evidence that economic activity in the country has slowed down. Asian markets ended mostly in the green but gains on the upside remained capped as investors stayed cautious ahead of the corporate reporting season and as earnings guidance from regional tech heavyweight Samsung came in well short of forecasts. 

Back home, sentiments remained dampened on report suggesting Finance Minister Arun Jaitley likely pegging the fiscal deficit target for FY15 at 4.3%, up from the 4.1% stated by his predecessor P Chidambaram, but lower than previous estimate of 4.8%. Meanwhile, Stocks related to capital goods counter edged lower despite EEPC India saying that engineering exports from the country can surpass the $70 billion target in 2014-15 if 3 percent interest subvention is extended for the entire financial year.

The NSE’s 50-share broadly followed index Nifty tumbled by over one hundred and sixty points to end below the psychological 7,650 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by over five hundred and ten points to finish below its psychological 25,600 mark. Broader markets too witnessed blood-bath and ended the session with a cut of around four percent. The market breadth remained in favor of decliners, as there were 770 shares on the gaining side against 2,234 shares on the losing side while 92 shares remain unchanged.

Finally, the BSE Sensex dropped by 517.97 points or 1.98%, to 25582.11, while the CNX Nifty declined 163.95 points or 2.11%, to 7,623.20.

The BSE Sensex touched a high and a low of 26190.44 and 25495.04, respectively. The BSE Mid cap index was down by 3.63%, while Small cap index lost 4.19%.

On the BSE sectoral front, Realty down by 7.16%, Power down by 6.37%, PSU down by 4.92%, Capital Goods down by 4.80% and Consumer Durables down by 4.55% were the top losers in the space, while there were no losers on the space.

The only gainers on the Sensex were Sun Pharma up 0.76% and HDFC up by 0.25%. On the flip side, the key losers were BHEL down by 7.84%, NTPC down by 5.33%, Tata Power down by 5.27%, Coal India down by 5.23% and L&T down by 4.34%.

Meanwhile, the government has proposed to hike foreign direct investment (FDI) limit in insurance sector to 49 percent from the current 26 percent. The Department of Financial Services has amended the Insurance Laws Bill, 2008 with a rider that voting right of overseas partner will remain capped at 26 percent.

Further, the department has cleared that the chief executive officer (CEO) of the insurance company will be appointed by Indian shareholders subject to approval of a competent authority and a majority of the company's directors will have to be Indians. The department’s proposal sought increase in foreign investment in both general as well as life insurance segments of the insurance sector. Earlier proposal was that the higher FDI limit would be allowed only for health insurers. The official amendment will incorporate suitable safeguards on foreign equity investment in the insurance sector while enhancing the overall cap to 49 percent.

An increase in FDI limit to 49 percent would bring in around $1 billion (around Rs 6,000 crore) of foreign investment in Indian insurance sector. Insurance in India is mainly of two types namely ‘life insurance’ and ‘general insurance’. At present, there are fifty-two insurance companies operating in India of which twenty-four are in the life insurance business. During 2008-09 and 2013-14, insurance penetration has fallen from 4.6 percent to 3.9 percent, reflecting need to develop the insurance sector.

The CNX Nifty touched a high and low of 7,808.85 and 7,595.90 respectively.

The only gainers of the Nifty were Sun Pharma up by 0.62% and ITC up by 0.06%. On the flip side, the key losers were DLF down by 8.53%, BHEL down by 8.21%, Jindal Steel down by 6.07%, NMDC down by 5.97% and Power Grid down by 5.92%.

The European markets were trading in red France’s CAC 40 was down by 0.47%, Germany’s DAX was down by 0.46% and United Kingdom's FTSE 100 was down by 0.46%.

The Asian markets concluded Tuesday’s trade mostly in green, while Japanese stocks dropped as yen held gains and insurers and consumer lenders retreated. China’s stocks rose, sending the benchmark index to a three-week high, before the release of inflation data scheduled tomorrow. Indonesia’s benchmark stocks gauge rose to a one-year high on speculation market favorite Joko Widodo will win tomorrow’s presidential election. Indonesia’s foreign exchange reserves increased 0.7% in June, thanks in part to the rise in the government’s oil and gas revenue and higher foreign-exchange term deposits at local banks. Reserves climbed to $107.7 billion at the end of June, from $107 billion a month earlier. Taiwanese CPI rose to a seasonally adjusted annual rate of 1.64%, from 1.61% in the preceding quarter.

Japan’s Economy Watchers Current Index rose to a seasonally adjusted 47.7, from 45.1 in the preceding month. Japan’s current account logged a higher-than-expected surplus in May, as the trade deficit narrowed due to a decline in imports. The surplus was 522.8 billion yen ($5.14 billion), more than the median forecast for a 403.6 billion yen surplus. It was the fourth consecutive month of surpluses. In April, the surplus was 187.4 billion yen. Exports rose 2% in May from a year ago, slower than a 6.2% annual gain in April. Imports fell an annual 0.4%, following a 6.6% annual increase in April. As a result, the trade deficit in May narrowed to 675.9 billion yen. Japan’s Current Account rose to a seasonally adjusted 0.38T, from 0.13T in the preceding month while Japan’s Bank Lending remained unchanged at a seasonally adjusted annual rate of 2.3% compared to the preceding quarter.