Markets make a positive start recovering from Rail Budget jitters

Indian markets made a positive start on Friday, recovering from last session’s jitters of Rail Budget. Traders seem to have analysed the budget and have factored in development proposals over lack of new announcements. Rail Minister Suresh Prabhu in his maiden rail budget has tried to strike a fine balance between politics and economics. He has put emphasis on increasing the capacity of congested main rail routes and on the electrification of the lines. There were various other announcements related to passenger amenities entailing investment of Rs 12500 crore. He left the fares unchanged but increased freight rates for various commodities, including coal, steel, LPG and Urea.

The global cues were mixed, and the US markets made mostly lower closing, while the Asian markets after some initial hiccups have recovered and some of the indices were poised for their biggest monthly advance since September 2013 on the last trading day of the month.

Back home, markets were also getting some support with the global rating agency Standard & Poor’s (S&P) sharply revising India's growth forecast for the next several years and terming it be a 'bright spot' in Asia. On the sectoral front while, most of the indices have recovered from their last session’s fall, defensive FMCG was still reeling in red. The gainers were led by capital goods, metal, realty and auto.

The BSE Sensex is currently trading at 28878.73, up by 132.08 points or 0.46% after trading in a range of 28857.82 and 28991.40. There were 22 stocks advancing against 8 stocks declining on the index.

The broader indices were outperforming the benchmarks; the BSE Mid cap index was up by 0.83%, while Small cap index gained 0.78%.

The top gaining sectoral indices on the BSE were Capital Goods up by 2.42%, Realty up by 2.16%, Metal up by 2.00%, Power up by 1.12%, Auto up by 1.08%, while FMCG down by 1.10% was the lone losing index on BSE.

The top gainers on the Sensex were Tata Power up by 3.80%, Larsen & Toubro up by 2.96%, Sesa Sterlite up by 2.42%, Coal India up by 2.36% and Mahindra & Mahindra up by 1.71%. On the flip side, ITC down by 2.27%, GAIL India down by 1.26%, Dr. Reddys Lab down by 0.80%, TCS down by 0.67% and Wipro down by 0.46% were the top losers.

Meanwhile, global rating agency Moody's, in its report clarified that fiscal policies and structural reforms will determine India's sovereign credit profile and not recent revisions to the economic growth data. Although, it acknowledged that upward revision in India's economic growth highlight strength of economy, but at the same time clarified on the little impact this had on overall assessment of the credit profile since this did not change ratios for government finances, private external leverage and bank asset quality, all of which continued to pose sovereign credit risks. India's GDP growth in the fiscal year ended March 2014 is estimated at 6.9% under the new methodology, from 5% earlier.

In a report titled 'GDP Revisions underscore economic strength, but are credit neutral’, Moody's underscored that fiscal and structural reform policies would determine the extent to which accelerating growth could buttress the sovereign credit profile. It also noted that declining inflation called for a policy rate cut to boost investments.

It cautioned that India's wide fiscal deficits, poor infrastructure and regulatory complexity have combined creating a mismatch between domestic demand and supply, thereby contributing to inflation and current account pressures. The global rating agency, further warned that absence of government action to reduce fiscal deficits and structural supply constraints, a pick-up in domestic demand or rebound in global commodity prices could lead to renewed inflation and current account pressures over a three to five year horizon.

Notably, these comments come on heels of another rating agency Standard & Poor's warning that India’s weak fiscal and debt indicators coupled with low income levels could “constrain” the sovereign rating.

Rating agencies are keenly awaiting the 2015-16 Budgets to assess the government's commitment to fiscal consolidation and the direction of reforms. The government expects an upgrade in sovereign ratings from the near junk levels now due to reforms unleashed and economy's potential for faster growth.

The CNX Nifty is currently trading at 8732.00, up by 48.15 points or 0.55% after trading in a range of 8721.20 and 8758.20. There were 38 stocks advancing against 12 stocks declining on the index.

The top gainers on Nifty were Jindal Steel & Power up by 6.51%, Tata Power up by 3.87%, Larsen & Toubro up by 3.13%, Sesa Sterlite up by 2.45% and Coal India up by 2.45%. On the flip side, ITC down by 2.26%, BPCL down by 1.11%, Cairn India down by 1.09%, GAIL India down by 1.01% and Dr. Reddys Lab down by 0.99% were the top losers.

Asian markets were showing a mixed trend,  Jakarta Composite increased 1.47 points or 0.03% to 5,452.89,  Nikkei 225 was up by 10.5 points or 0.06% to 18,796.29,  Shanghai Composite was higher by 19.13 points or 0.58% to 3,317.49 and Hang Seng surged by 139.57 points or 0.56% to 25,041.63

On the other hand, FTSE Bursa Malaysia KLCI declined by 4.08 points or 0.22% to 1,816.79,  KOSPI Index was lower by 2.14 points or 0.11% to 1,990.94 and Straits Times was marginally in red down by 0.94 points or 0.03% to 3,425.24.