Benchmarks snap three days losing streak as S&P upgrades India outlook

Indian equity benchmarks staged a smart recovery in last leg of trade on Friday and snapped the three days losing streak with a gain of over half a percent, supported by short-covering in beaten down but fundamentally strong stocks amid S&P rating upgrade. Nevertheless, traders remained concerned with the Reserve Bank of India (RBI) Governor, Raghuram Rajan reiterating that persisting inflation is a major concern and it has to be contained, dashing any hopes of rate cut in its upcoming policy review. The indices even went on to test important psychological 26,200 (Sensex) and 7,850 (Nifty) levels, but the key gauges got solid support around those intraday low levels as they convalesced from thereon.

Recovery which took place in last hour of trade mainly helped benchmarks to regain their positive trajectory on report that S&P has revised India’s credit outlook up to ‘stable’ from ‘negative’. While the agency maintained India’s rating at BBB-, the revision in outlook will serve to be a positive for India. This development came after PM Narendra Modi’s government, spurred by flurry of the positive economy data, pitched for a credit ratings upgrade. India's economy expanded at its fastest pace 5.7%. Some support also came after Asian Development Bank (ADB) has said the economy shows a new promise of turnaround after the election brought a stable government in May and revised India’s GDP upwards by 0.3 percent to 6.3 percent in 2015. Also, assuring red carpet to investors, Commerce and Industry Minister Nirmala Sitharaman has said the government is fully committed to creating business- friendly environment to boost the manufacturing sector.

On the global front, European counters were to trade close to a one-month low in early deals as a sharp sell-off in US and Asian markets prompted caution among investors on the last trading day of the week. Asian markets ended mostly in the red tailing the plunge in the US markets, with Japanese shares retreating from a six-year high.

Back home, appreciation in Indian rupee too supported the sentiments. The partially convertible rupee was trading at 61.13 per dollar at the time of equity market closing against the Thursday’s close of 61.34 on the Interbank Foreign Exchange.

Meanwhile, metal shares which had fallen sharply in the previous sessions following the Supreme Court verdict have rebounded on the back of short covering and value buying at lower levels. Buying also witnessed in pharma space too aided the sentiments, led by rally in shares of Sun Pharmaceutical Industries and Ranbaxy Laboratories which rallied on report suggesting that a team of US FDA inspectors, which recently conducted a surprise audit on a Gujarat unit of Sun Pharma, has submitted Form 483.

The NSE’s 50-share broadly followed index -- Nifty -- rose by around sixty points to end above the psychological 7,950 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex - surged by around one hundred and sixty points to finish above the psychological 26,600 mark. Moreover, broader markets also traded with traction and ended the session in the green terrain with a gain of over half a percent. The market breadth remained in the favour off advances, as there were 1,552 shares on the gaining side against 1,405 shares on the losing side while 86 shares remain unchanged. Finally, the BSE Sensex surged by 157.96 points or 0.60%, to 26626.32, while the CNX Nifty gained 57.00 points or 0.72% to 7,968.85.

The BSE Sensex touched a high and a low of 26721.03 and 26220.49, respectively. The BSE Mid cap index was up by 0.76%, while the Small cap index gained 0.63%.

The top gainers on the Sensex were Hindalco up by 5.25%, Sun Pharma up by 4.30%, Mahindra & Mahindra up by 3.16%, ONGC up by 3.14% and Tata Steel up by 3.10%. On the flip side, Dr. Reddys Lab down by 2.61%, HDFC down by 1.90%, Hero MotoCorp down by 1.30%, GAIL India down by 1.28% and ITC down by 1.22% were the top losers in the index.

On the BSE Sectoral front Metal up by 2.49%, Realty up by 2.27%, PSU up by 2.19%, Bankex up by 1.91% and Capital Goods up by 1.56% were the top gainers, while TECK down by 0.55%, IT down by 0.53%, FMCG down by 0.52% and Consumer Durables down by 0.16% were the top losers in the space.

Meanwhile, Supreme Court’s decision of coal block cancellation is likely to have an adverse impact on country's nascent economic recovery, according to rating agency, India Ratings, which feels that this landmark verdict would hit key sectors, like those of power and banking and also have some bearing on states. However, it also pointed that while the finances of six states would be affected by this ruling, with the worst hit being the state of West Bengal, there would be some windfall gain for the Central Government this fiscal from the additional levy imposed.

In a development which would have significant impact on the energy sector, the Supreme Court cancelled 214 coal blocks that were illegally allocated to private firms by various governments between 1993 and 2011 and exempted 4 coal blocks owned by the government. Further, the court also directed the allottees to pay a fine of Rs 295 per tonne from the time the coal was mined and allowed the government to auction or allot the blocks to central firms, though it did give six months breathing time to the private companies for winding up their blocks.

The rating outfit highlighted that the impact of this ruling will lead to a rise in non-performing assets of the banking sector, increase the cost of coal which in turn raise power tariffs and may also stoke inflation in case the fuel price hike is passed on to consumers completely. In its report, the agency highlighted that the decision is also expected to put pressure on current account/currency as coal would have to be imported at higher costs. Agency pointed the banking and financial institutions' exposure to these coal blocks was around a whopping Rs 2.5 trillion and apart from commercial banks, Rural Electrification Corp and Power Finance Corp, too, will be hit by the cancellation.

The CNX Nifty touched a high and low of 7,993.30 and 7,841.80 respectively.

The top gainers of the Nifty were Hindalco Industries up by 6.27%, Jindal Steel & Power up by 5.23%, NMDC up by 4.73%, DLF up by 4.56% and Sun Pharmaceuticals Industries up by 4.44%. On the other hand, Dr. Reddy's Laboratories down by 2.56%, HDFC down by 1.68%, ITC down by 1.65%, GAIL (India) down by 1.54% and Hindustan Unilever down by 1.36% were the top losers.

Most of European markets were trading in red, Germany’s DAX was down by 0.01% and United Kingdom’s FTSE 100 was down by 0.06%, while France’s CAC 40 was up by 0.63%.

Asian markets ended mostly in red on Friday, with Indonesian stocks closing in red, dragging the benchmark index by the most in almost four months, after the nation’s parliament passed a law scrapping direct local elections. The rupiah weakened and bonds fell. The Asian Development Bank stated that steady consumption and rising external demand will support economic growth in China this year, especially if the government continues its accommodating macro-economic policy package. According to the Asian Development Outlook 2014, its growth forecast for China’s gross domestic product was flat at 7.5% this year and 7.4% next year.

Japan’s National Core CPI fell to a seasonally adjusted 3.1%, from 3.3% in the preceding month while Tokyo’s core CPI, which excludes fresh food costs, fell to at an annualized rate of 2.6%, from 2.7% in the preceding month. Singaporean Industrial Production rose to an annual rate of 4.2%, from 3.0% in the preceding month whose figure was revised down from 3.3%. South Korean Consumer Confidence remained unchanged at 107 compared to the preceding month.