Benchmarks drift below crucial levels as North Korea nuclear test rattles global markets

The local benchmarks witnessed a sharp fall on Friday as investors booked profits following reports of a nuclear test in North Korea amid uncertainty over the European Central Bank's future policy steps. European Central Bank at its policy meet on Thursday maintained a status quo on key rates and also surprised the market by not extending the deadline of its bond-purchases programme. On the domestic front, sentiments were undermined by the report that the country-wide monsoon deficit stood at 4% with northeastern and eastern states reporting 13% less rains from June 1 to September 7, 2016. India mostly remained dry during last week, with many areas receiving scanty rainfall. June witnessed a rain deficiency of 11%, while July had 7% of surplus rainfall. August again witnessed a dip of 9.7%. Anxiety among investors further increased the private report indicating that lower food prices likely cooled India’s inflation rate in August, but probably not by enough to give the central bank scope to ease monetary policy again anytime soon. Markets participants remained cautious ahead of IIP data due to be released later in the day. However, the downside remained capped with the President Pranab Mukherjee giving his assent to the landmark Goods and Services Tax (GST) Bill. Now the Centre will have to pass the Central GST and Integrated GST Bills, while the states will need to approve their respective GST legislations. The government targets to implement the GST system from 1 April, 2017.

On the global front, Asian markets ended mostly lower on Friday as investors weighed the outlook for monetary policy in the US and Japan after the European Central Bank downplayed the need for more economic stimulus. Decline in oil prices after sharp overnight gains, mixed inflation data out of China and media reports that North Korea has conducted a fifth nuclear test also kept investors nervous. Reports showed that Consumer prices in China rose just 1.3 percent in August from a year earlier. Meanwhile, European shares posted their first back-to-back losses since mid-August as market participants continued to pull money from the region’s equity funds amid concern over the economic recovery. After rising to their highest prices since April, European shares have once again lost momentum, with US services data indicating this week the weakest expansion in six years and European Central Bank President Mario Draghi downplaying the need for more stimulus.

Back home, the local benchmarks got off to a gap down beginning following the hefty selling in Asian equities after investors largely remained influenced by gloomy global developments. After the somber opening there was continuous downslide for the frontline indices as they lacked enthusiasm to tread to higher levels amid no supporting cues. The selling pressure aggravated from the afternoon trades as European markets too slipped in the opening trade. The indices’ southbound journey only halted with the close of trading and the key gauges even slipped below crucial levels. Eventually, the NSE’s 50-share broadly followed index Nifty, got battered by around a percent and settled below the psychological 8,900 support level, while Bombay Stock Exchange’s Sensitive Index - Sensex suffered around two fifty points laceration to close below the psychological 28,800 mark. Moreover, the broader markets too failed to show any kind of fervor and closed with losses of over half a percent. On the BSE sectoral space, the high beta - Metal and FMCG pockets remained among top laggards in the space as they got lacerated by over one and half percent, while sectors like rate sensitive Auto, Consumer Durables and Banking too got pounded heavily in the session. On the flipside, Oil & Gas, IT and Realty managed to go home with moderate gains of around half a percent.

The market breadth remained pessimistic, as there were 1148 shares on the gaining side against 1609 shares on the losing side, while 193 shares remained unchanged.

Finally, the BSE Sensex declined by 248.03 points or 0.85% to 28797.25, while the CNX Nifty dropped 85.80 points or 0.96% to 8,866.70. 

The BSE Sensex touched a high and a low 29062.90 and 28755.08, respectively. The broader indices made a negative closing; the BSE Mid cap index ended down by 0.99%, while Small cap index was lower by 0.47%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 0.92%, IT up by 0.41%, Realty up by 0.34% and TECK up by 0.10%, while Metal down by 1.77%, FMCG down by 1.76%, Auto down by 1.48%, Consumer Durables down by 1.20% and Bankex down by 1.01% were the top losing indices on BSE.

The top gainers on the Sensex were ONGC up by 3.31%, GAIL India up by 1.54%, Wipro up by 1.49%, TCS up by 1.35% and Reliance Industries up by 1.11%. On the flip side, Axis Bank down by 2.54%, ITC down by 2.49%, Hindustan Unilever down by 2.24%, Tata Steel down by 2.08% and Hero MotoCorp down by 2.00% were the top losers.

Meanwhile, President Pranab Mukherjee has given final approval to the GST Constitution Amendment Bill which has been already been approved by the Parliament as well as 16 states, making the GST bill a law. This is a significant milestone achieved in the implementation of GST that sets the stage for GST Council, which will work out the details of the tax, including the rate at which it will be levied.  With this, the road is now clear for the Centre and states to constitute the GST Council, headed by Union finance minister Arun Jaitley and comprising state finance ministers. Jaitley has recently said that the government will attempt to press ahead with the implementation of the GST from April 1, 2017. Once the date of the new tax is notified all state and central taxes that it subsumes will cease to exist.

The GST rate has to be decided by the proposed GST Council, which will be chaired by the Union Finance Minister. The states will have two-thirds of the voting rights in the GST council, while the Centre will have a one-third right. Decisions will have to passed by three-fourth vote, implying the need for consensus. The council will take crucial decisions including the rate, laws, rules and procedures and administrative framework that will form the core of the CGST law and the IGST law, which will have to be passed apart from the state GST laws before the tax can be rolled out.

A committee headed by chief economic adviser Arvind Subramanian has suggested a revenue neutral rate of 15-15.5 per cent and standard rate of around 18 per cent. The Goods and Services Tax is a single indirect tax that proposes to subsume most central and state taxes like Value Added Tax, service tax, central sales tax, excise duty, additional customs duty and special additional customs duty and creating one national market that is expected to bump up GDP by as high as 2 per cent.

The CNX Nifty traded in a range of 8,939.15 and 8,858.70. There were 9 stocks advancing against 42 decliners on the index.

The top gainers on Nifty were ONGC up by 3.53%, GAIL India up by 1.59%, TCS up by 1.29%, Wipro up by 1.28% and Reliance Industries up by 0.78%. On the flip side, Hindalco down by 4.17%, Yes Bank down by 3.97%, Ultratech Cement down by 3.41%, Axis Bank down by 2.51% and Hero MotoCorp down by 2.40% were the top losers.

The Asian markets ended in red on Friday after the European Central Bank disappointed investors who were looking for some kind of announcement on what future steps it may take to boost Europe's sluggish economy. Decline in oil prices after sharp overnight gains, mixed inflation data out of China and media reports that North Korea has conducted a fifth nuclear test also kept investors nervous. Reports showed that Consumer prices in China rose just 1.3 percent in August from a year earlier, the National Bureau of Statistics said. That was beneath expectations for 1.7 percent and down from 1.8 percent in July. The producer price index eased an annual 0.8 percent versus expectations for a fall of 0.9 percent after sliding 1.7 percent in the previous month. China stocks ended lower after August inflation data provided few if any incentives for authorities to ease monetary policy, and that kept many investors on the sidelines. Meanwhile, Japanese shares ended a choppy session flat, as investors continued to look for clues to when US interest rate will be increased and whether the Bank of Japan will add to its aggressive monetary stimulus at the September 20-21 rate review.