Benchmarks end a lackluster session with modest cut

Indian equity benchmarks commenced the week on a sluggish note as the indices showcased an unenthusiastic performance on Monday and settled with moderate cuts of around a quarter percent. Sentiments remained down-beat  with RBI Governor Raghuram Rajan’s  statement that India should restrain itself from being ‘too ambitious’ at a time when the world is full of uncertainties and instead focus on sensible policies to ensure a sustainable economic growth. Rajan has also said that Indian economy has certainly picked up pace in growth, but certain sectors are still under stress, making the economic recovery uneven. Besides, prospects of early interest rate hike by the US Federal Reserve in June and slip in crude oil prices also hurt sentiments. However, the downside risks for the frontline indices was limited by reports that India’s net FDI flows are expected to rise further this fiscal to $38 billion on emergence of some ‘positive signs’ such as regulatory easing in select sectors and reform measures initiated by the government. Net FDI flows in 2015-2016 stood at around $36 billion as against $31 billion for 2014-2015.  Going ahead, volatility is to be seen on the bourses as traders will roll over positions in the futures & options segment from the near-month May series to June series. Last batch of quarter results, progress of monsoon, trend in global markets, foreign institutional investor stance and movement of rupee and crude oil will also dictate trend this week.

On the global front, Asian equity markets ended mostly higher on Monday, even as investors sat tight awaiting fresh news about a possible US rate rise and after G7 finance ministers pressed Japan not to weaken its currency. Japan’s Nikkei stock index declined, on account of renewed strength in yen, weak exports data and fears the government will proceed with sales tax hike. Japanese exports measured by value fell 10.1 percent in April from a year earlier, deterioration from March's 6.8 percent decline. Meanwhile, European markets were trading in red as investors were cautious after a global finance meeting failed to yield fresh ideas for spurring economic growth and Japanese exports weakened. While oil extended Friday's losses, the safe-haven Japanese yen gained ground after the US and Japan clashed over exchange-rate policy at the two-day G7 meeting over the weekend.

Back home, the benchmarks though got off to a boisterous start as investors were largely influenced by the supportive leads from Asian markets. Some support also came with Finance Minister Arun Jaitley’s statement that India offers a good opportunity for global investors because of its strong growth when the world economy is struggling. He also said good monsoon forecast, political reform process and low current oil prices were the key drivers of economic growth, while also pointing out that India had also benefited from the decline in prices. However, the local bourses failed to capitalize on the early momentum and slipped to lower levels. The key indices remained choppy through the morning trades but saw a sudden spurt in buying in afternoon trades post the sanguine European market opening. However, the frontline gauges met with severe resistance around the psychological 7,800 and 22,500 levels as hefty bouts of profit booking brought about a steep and nasty laceration on the bourses. Finally the NSE’s 50-share broadly followed index Nifty, took a cut of around quarter percent to settle above the crucial 7,750 support level, while Bombay Stock Exchange’s sensitive index Sensex slipped by seventy points and closed above the psychological 25,200 mark. Moreover, the broader markets too succumbed to the selling pressure and closed with losses of about half a percent. On the BSE sectoral space, Capital Goods and IT pockets remained among top laggards in the space as they got lacerated by 0.91% and 0.83% respectively. While sectors like Realty, Oil & Gas and Auto too got pounded in the session. On the flipside, the defensives like FMCG and Consumer Durables along with high beta Power managed to go home with moderate gains. The market breadth remained pessimistic as there were 1075 shares on the gaining side against 1512 shares on the losing side while 172 shares remained unchanged.

Finally, the BSE Sensex ended lower by 71.54 points or 0.28% to 25230.36, while the CNX Nifty dropped 18.65 points or 0.24% to 7,731.05. 

The BSE Sensex touched a high and a low 25519.26 and 25207.78, respectively. The broader indices made a negative closing; the BSE Mid cap index ended down by 0.29%, while Small cap index declined by 0.38%.

The top gaining sectoral indices on the BSE were FMCG up by 2.12%, Power up by 0.30% and Consumer Durables up by 0.25%, while Capital Goods down by 0.91%, IT down by 0.83%, Realty down by 0.71%, Oil & Gas down by 0.68% and Auto down by 0.64% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 5.29%, Adani Ports &Special up by 1.77%, Bharti Airtel up by 0.99%, Hindustan Unilever up by 0.85% and Coal India up by 0.47%. On the flip side, Tata Steel down by 2.88%, Lupin down by 2.57%, ONGC down by 2.18%, Cipla down by 1.94% and Bajaj Auto down by 1.80% were the top losers.

Meanwhile, with an aim to mobilise additional resources to fund the construction of highways, the government has come up with a plan to raise up to Rs 60,000 crore, over the next six months, by offering as many as 104 existing tollable projects on lease to private players including global funds with patient capital.

The ministry of road transport and highways has already sent the proposal to lease highway projects via the toll-operate-transfer (TOT) route to the Prime Minister’s Office for approval and the proposal is likely to be considered by the Cabinet soon. Once the Cabinet gives its nod, global tenders would be floated to lease out the projects. Around 20 global funds with long-term capital including Nomura, Macquarie and Abu Dhabi Investment Authority have shown interest in these projects, but as they are unlikely to invest in a single project, proposal has been made to bunch 5-6 projects, together valued at  around $150 million.

Under the proposed model, bidders will make an upfront payment to the government and recoup their investments and returns by collecting toll over a 20-year lease period. After the lease tenure expires, these projects would return to the government’s fold. Furthermore, the investors will have the opportunity to borrow funds for the upfront payment by securitising the toll.

The 104 projects identified for the plan fetch a combined toll revenue of Rs 4,000-5,000 crore annually and the entire money generated from the TOT plan would be ploughed back for development and re-development of highways.

The CNX Nifty traded in a range of 7,820.60 and 7,722.20. There were 15 stocks advancing against 36 stocks decliners on the index.

The top gainers on Nifty were ITC up by 5.15%, Power Grid up by 2.69%, Bharti Infratel up by 1.95%, ACC up by 1.91% and Tata Power up by 1.73%. On the flip side, Lupin down by 3.31%, Tata Steel down by 2.65%, ONGC down by 2.42%, Cipla down by 2.37% and Bank of Baroda down by 2.26% were the top losers.

European markets were trading in red; France’s CAC decreased 12.44 points or 0.29% to 4,341.46, UK’s FTSE 100 slipped 2.48 points or 0.04% to 6,153.84 and Germany’s DAX was down by 0.99 points or 0.01% to 9,915.03.

Asian equity markets ended mostly higher on Monday, even as worries about impending interest rate hikes by the Federal Reserve continued to reverberate through markets. Chinese shares ended higher despite worries about slowing growth and fading hopes for more policy easing. Japanese shares fell, with renewed strength in yen, weak exports data and fears the government will proceed with sales tax hike weighing on sentiment. Japanese exports dropped 10.1 percent year-over-year in April, worse than March's 6.8 percent slide, reflecting sluggish demand from China, the emerging markets and the US. Separately, the latest flash survey from Markit Economics showed that activity in Japan's manufacturing sector deteriorated at the steepest pace in over three years in May.