Benchmarks consolidates ahead of RBI policy meet

Monday’s trading session was of consolidation as the Indian frontline equity indices appeared a bit fatigued and kept moving in a range throughout the day. However, the benchmarks managed to extend the winning momentum for the third consecutive day of trade, as encouraging global developments buttressed domestic sentiments. Investors continued to build hefty positions across the board in early trades as sentiments got a boost after a stellar jobs report outstripped Wall Street expectations, showing sustained improvement in a labor market that has been spotty over the past few months. The US generated 255,000 new jobs in July, furnishing fresh proof that companies are still hiring plenty of workers even though the economy is operating at a lower pace. On the domestic front, sentiments got some support from Finance Minister Arun Jaitley’s statement that Indian economy has defied global slowdown and geo-political tensions, and is now poised to seize the opportunity to grow faster.

Today’s session largely remained characterized by choppiness as the aimless indices moved only sideways in a tight band amid lack of fresh triggers. Investors remained optimistic with the Moody's Investors Service’s report, terming the Indian government's targeting of inflation at four per cent with a range of plus/minus two per cent a 'credit positive' measure that will help macroeconomic stability.  According to Moody’s, sustained moderate inflation would contribute to macroeconomic stability and help prevent a repetition of the short marked cycles of the past.  Some support also came with a joint study by Confederation of Indian Industry (CII) and the Indian Banks' Association (IBA), stating that the overall financial conditions index in India rose 28 per cent sequentially to 61.1 percent in the first quarter of 2016-17 from 47.8 percent in the previous quarter of 2015-16, indicating healthy improvement.  Meanwhile, banking stocks gained traction ahead of the RBI policy review on August 09, 2016, while Auto shares extended their gains as the sector is likely to benefit the most, post the implementation of the GST Bill on the back of a lower effective tax rate. Moreover, Power stocks edged higher on the report that state power distribution companies have sharply reduced commercial losses and interest costs, giving a promising start to Power Minister Piyush Goyal's Uday scheme that aims to set right electricity distribution, the biggest bottleneck in the sector.

On the global front, strong US jobs data sent Asian markets higher on Monday, with the yen’s decline driving sharp gains in Japan’s Nikkei Stock Average. The jobs report boosted the odds of a Federal Reserve interest rate increase this year, but many believe the Fed would wait for GDP growth to improve and inflation to move closer to its 2 percent target before pulling the trigger on a rate hike. Moreover, Chinese shares ended higher as a surge in coal stocks and sustained interest in property shares offset the impact of worse than expected trade data. Meanwhile, the European markets too displayed conviction, as they traded on a sturdy note with gains of around half a percent point.

Earlier on Dalal Street, the benchmark got off to a positive start as market participants were largely influenced by the supportive leads from Asian markets. The frontline indices gathered momentum and touched intraday highs in early hours but the optimism fizzled out soon and the indices oscillated in an extremely tight range through the session. Yet, final hour buying ensured the key shut shops near the intraday highs and extend the winning streak for the third consecutive day. Finally the NSE’s 50-share broadly followed index Nifty, got buttressed by over three tens of a percent to settle above the crucial 8,700 support level, while Bombay Stock Exchange’s Sensitive Index-Sensex accumulated over a hundred points and closed above the psychological 28,150 mark.  Moreover, broader markets showed some resilience by outclassing their larger peers by a big margin as investors carried forward their value hunting in beaten down shares from the midcap and small cap space.

The market breadth remained optimistic, as there were 1545 shares on the gaining side against 1210 shares on the losing side, while 154 shares remained unchanged.

Finally, the BSE Sensex surged by 104.22 points or 0.37% to 28182.57, while the CNX Nifty rose by 28.20 points or 0.32% to 8,711.35.

The BSE Sensex touched a high and a low 28226.38 and 28128.06, respectively. The broader indices made a positive closing; the BSE Mid cap index ended up by 0.99%, while Small cap index was up by 0.71%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.54%, Power up by 0.92%, Realty up by 0.88%, Consumer Durables up by 0.75% and Auto up by 0.68%, while there were no losers on BSE sectoral front.

The top gainers on the Sensex were Adani Ports &Special up by 2.80%, HDFC up by 1.70%, Reliance Industries up by 1.49%, Dr. Reddys Lab up by 1.11% and Lupin up by 1.09%. On the flip side, Bharti Airtel down by 3.11%, Sun Pharma down by 1.12%, NTPC down by 0.90%, ITC down by 0.58% and Tata Motors down by 0.46% were the top losers.

Meanwhile, government may cut gas price for producers by 20 percent in October, when it is scheduled for its next review. This will be the fourth consecutive reduction since the implementation of the domestic gas pricing formula approved by the NDA- government in October 2014 that calculates the rate on a volume weighted average of rates in gas surplus nations of the US, Canada and Russia, based on the 12-month trailing average price with a lag of three months.

Price of natural gas paid to producers like state-owned ONGC and RIL will likely fall to $ 2.45 per million British thermal unit (mmbtu) with effect from October 1 as opposed to $ 3.06 presently on gross calorific value (GCV) basis. On a net-calorific value (NCV) basis, the new gas price is likely to be $ 2.7 from October 1. The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into reduction in retail prices.

On October 1, 2015 price of natural gas was lowered to $3.82 per mmBtu from $4.66. The cap for April 1 to September 30 was $ 6.61 per mmBtu on GCV basis and $ 7.3 on NCV basis. The price cut on 1 October, 2016 will put further pressure on finances of upstream producers who do not find the current rate incentivising enough to invest more in oil and gas hunt. The cap price based on alternative fuels for undeveloped gas finds in difficult areas like deep sea will also fall to around $5.2-5.3 per mmBtu from $6.61 currently.

The price of gas has declined by around 39 per cent since the implementation of the gas pricing formula in October 2014. The government had earlier this year approved marketing and pricing freedom for all undeveloped discoveries lying in difficult areas subject to a cap.

The CNX Nifty traded in a range of 8,723.50 and 8,697.60. There were 33 stocks advancing against 18 decliners on the index.

The top gainers on Nifty were Hindalco up by 3.65%, BPCL up by 3.06%, Adani Ports &Special up by 2.78%, Tata Power up by 2.46% and Bosch up by 1.81%. On the flip side, Bharti Airtel down by 3.63%, Idea Cellular down by 3.06%, Bharti Infratel down by 2.26%, NTPC down by 1.21% and ITC down by 1.19% were the top losers.

The European markets were trading in green; UK’s FTSE 100 rose 6.5 points or 0.1% to 6,799.97, France’s CAC jumped 17.92 points or 0.41% to 4,428.47 and Germany’s DAX was up by 81.19 points or 0.78% to 10,448.40.

Asian equity markets ended higher on Monday, buoyed by gains on Wall Street, following Friday’s upbeat US non-farm payrolls report, which showed that non-farm payroll employment surged up by 255,000 jobs in July after jumping by an upwardly revised 292,000 jobs in June, providing further evidence of the strength of the country's labor market. The jobs report boosted the odds of a Federal Reserve interest rate increase this year, but many believe the Fed would wait for GDP growth to improve and inflation to move closer to its 2 percent target before pulling the trigger on a rate hike. Japanese shares received some boost from a relatively weaker yen after a strong US jobs report, lifted exporters' shares. Further, Chinese shares ended higher as a surge in coal stocks and sustained interest in property shares offset the impact of worse than expected trade data. Official data on Monday showed China’s July exports in dollar terms were down 4.4% from a year earlier, following a decline of 4.8% in June.