Benchmarks add further losses; positive start of European equities might aid

After reversing trajectory and slipping into negative territory, benchmark equity indices have further added to their losses and were trading below psychologically crucial 26,750 (Sensex) and 8,000 (Nifty) levels respectively as investors squared off their long position on the penultimate session of F&O expiry, while caution ahead of RBI’s monetary policy on September 30, 2014, also added to the pessimistic environment. However, losses were more pronounced for broader indices, which were trading with nasty cut of over 1.25%.

Nevertheless, the losses of frontline indices to some extent have been capped on account after Former Finance Minister P Chidambaram said that India could achieve 8% growth in the next 2-3 years if it followed the path of fiscal prudence, which could be finance by domestic savings and some foreign direct investment. Additionally, mostly positive regional counterparts, which erased most of their early losses, were also preventing any kind of sharp fall. Meanwhile, European equities got off to a mostly positive start helped by supportive comments by the European Central Bank's President, although the mood remained cautious ahead of a key German sentiment survey. ECB's President Mario Draghi said euro zone monetary policy would remain accommodative for a long period and that the goal was to push ultra-low inflation back up closer to the two percent level.

Back home, most of the sectoral indices on BSE were reeling under pressure, however stocks from FMCG, Information Technology and Metal counters were the only gainers of the session. While, rupee depreciation was aiding the up-move of IT counter, defensive buying were spurring gains of FMCG stocks. Additionally, metal stocks were advancing in trade ahead of the Supreme Court's ruling on 218 coal blocks allocated by the government since 1993. The apex court on August 25 had held that all coal blocks allocations since 1993 by various regimes at the Centre have been made illegally and arbitrarily on an “ad-hoc and casual” approach “without application of mind” and “Common good and public interest have, thus, suffered heavily” due to lack of fair and transparent procedure resulting in “unfair distribution” of the “national wealth”. On the flip side, stocks from Capital Goods, Realty and Power counters were the prominent losers of the session. The overall market breadth on BSE was in the favour of declines which thumped advances in the ratio of 1855:823; while 74 shares remained unchanged.

The BSE Sensex is currently trading at 26715.34, down by 60.35 points or 0.23% after trading in a range of 26641.76 and 26844.70. There were 10 stocks advancing against 20 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 1.39%, while Small cap index down by 1.51%.

The gaining sectoral indices on the BSE were FMCG up by 1.17% and IT up by 0.02% while, Capital Goods down by 1.92%, Realty down by 1.54%, Power down by 1.16%, INFRA down by 1.07%, Auto down by 1.02% were the losing indices on BSE.

The top gainers on the Sensex were Hindustan Unilever up by 2.21%, Coal India up by 1.63%, Wipro up by 1.59%, Infosys up by 1.14% and ITC up by 1.11%. On the flip side, BHEL down by 2.73%, Tata Power down by 2.30%, Larsen & Toubro down by 2.12%, Hero MotoCorp down by 1.86% and Cipla down by 1.44% were the top losers.

Meanwhile, Former Finance Minister P Chidambaram said that India could achieve 8% growth in the next 2-3 years if it followed the path of fiscal prudence, which could be financed by domestic savings and some foreign direct investment. However, he underscored that growth beyond 8% would bring its own set of problems as it is bound to become inflationary, which will exacerbate fiscal deficit. It would lead to additional borrowing, which in turn would enlarge twin deficits, i.e. fiscal deficit and Current Account Deficit (CAD).

Further, Chidambaram emphasized that if the government continued to remain on the path of fiscal prudence, promotes savings and investments, and be more diligent in implementing projects, it would be possible to get back to 8% growth. The Indian economy grew by 4.9% in 2013-14 fiscal. However, in the April-June quarter, the growth picked up to 5.7%. Notably, the country clocked an enviable 9% growth during pre- global financial crisis in 2008.

Also, he highlighted that the key to control inflation was to contain fiscal deficit, which the government aims to bring down to 4.1% in the current fiscal from 4.5% in 2013-14. The minister pressed upon the need for financial sector reforms to achieve 8% growth. It added that FSLRC (Financial Sector Legislative Reforms Commission) had made far reaching recommendations, some are legislative, some are non-legislative in nature and the Non-legislative recommendations should be carried out over a period of next 2-3 years.

The minister also lauded the Modi government's decision to do away with the Planning Commission and suggested to put in place a small body of not more than 100 people in its place, who could do prospective planning, and lay out the future roadmap.

The CNX Nifty is currently trading at 7996.80, down by 20.75 points or 0.26% after trading in a range of 7979.50 and 8042.05. There were 18 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were Hindustan Unilever up by 2.62%, Wipro up by 1.84%, Coal India up by 1.60%, ITC up by 1.52% and Infosys up by 1.28%. On the flip side, PNB down by 3.59%, BHEL down by 2.82%, BPCL down by 2.34%, ACC down by 2.23% and Tata Power down by 2.06% were the top losers.

Asian markets were trading into positive territory; with FTSE Bursa Malaysia KLCI trading higher by 2.53 points or 0.14% to 1,842.72; KOSPI Index trading higher by 6.73 points or 0.33% to 2,035.64; Jakarta Composite trading higher by 7.68 points or 0.15% to 5,195.79; Taiwan Weighted trading higher by 13.59 points or 0.15% to 9,098.49; Shanghai Composite trading higher by 34.09 points or 1.48% to 2,343.80; Hang Seng trading higher by 99.85 points or 0.42% to 23,936.92. On the flip side, Nikkei 225 was trading lower by 38.45 points or 0.24% to 16,167.45 and Straits Times edging lower by 2.88 points or 0.09% to 3,295.21

European markets were trading in green; with UK’s FTSE 100 trading up by 1.51 points or 0.02% to 6,677.59; France’s CAC edging higher by 9.33 points or 0.21% to 4,368.68 and Germany’s DAX advancing by 14.24 points or 0.15% to 9,609.27