Benchmarks edge lower ahead of Federal Reserve, Bank of Japan policy meeting

Indian markets suffered setback on Tuesday, relinquishing all the gains made in previous session and snapping the four days gaining streak. Earlier, the major averages opened with a negative bias tracking muted global cues, as investors nervously waited for the outcomes of the Federal Reserve and Bank of Japan policy meetings that begin later in the day. The key indices oscillated in an extremely tight range through the session as market participants remained on the sidelines lacking any conviction. Global markets have been blowing hot and cold in recent weeks over the Fed's intentions, amid both hawkish and dovish comments from several Fed officials over this period. Further, the BOJ is expected to further ease its ultra-loose policies at this week's meeting, as it struggles to overcome chronic stagnation and quell speculation that it is running out of options. BOJ officials have also suggested that there is room to cut interest rates further, despite criticism that they are hurting financial institutions and even damaging economic sentiment. On the domestic front, sentiments were undermined by the report that India's total external debt rose by 2.2 percent to $485 billion at the end of March 2016, compared to that of $475 billion as of March 31, 2015, largely driven by private commercial borrowings and non-resident Indian (NRI) deposits. Weakness in rupee against the dollar also weighed on the sentiment. Indian rupee depreciated by six paise to trade at 67.03 against the US dollar at the time of equity markets closing, due to fresh buying of the American currency by banks and importers.

Coming with mixed signals, Moody's Investors Service said the reforms undertaken by the government will help boost investor confidence and bolster growth potential, but cautioned muted private investment and banking sector risks will remain a constraint on India's sovereign rating. Investors got some comfort with global rating agency S&P projecting India to clock 8% growth over next few years and stating that India's structural reform agenda has maintained strong momentum and should propel growth higher. Another private report indicated that the investment cycle is likely to see an improvement in India in the medium-term, largely driven by improved rural income due to a normal monsoon and a rise in consumption owing to the Seventh Pay Commission awards. Meanwhile, some mild buying observed in metal stocks as India is considering expanding the basket of steel products that attracts an anti-dumping tax to stem inflows of cheaper supplies into the world’s third-biggest producer. Aviation stocks displayed a mixed performance despite reports that domestic air passenger traffic increased by 23.98% during August to 83.81 lakh.

On the global front, the session was largely subdued for Asian markets, which ended mostly in red as investors braced for key monetary policy decisions later in the day by the US Federal Reserve and the Bank of Japan, which could help shape the future path of global markets. Japanese stocks ended lower as the yen edged up against the dollar on doubts about the BOJ's ability to sustain its stimulus plans, while Chinese stocks fell in thin trading, even as property stocks rose broadly after upbeat home price data. Meanwhile, European markets made a good start and were trading with small gains in early trade.

Back home, after getting a cautious start, the local benchmarks slipped to lower levels in late morning session and thereafter traded in tight range throughout the session, lacking any significant upside cues.  Markets took a breather after four days of solid gains with many high beta stocks that gained in last few rallies witnessing profit taking. Finally, the NSE’s 50-share broadly followed index Nifty, took a cut of over quarter percent to settle below the crucial 8,800 support level, while Bombay Stock Exchange’s Sensitive Index, Sensex slipped by over hundred points and closed below the psychological 28,600 mark. The broader markets traded with some resilience today and finished with moderate losses thereby outperforming their larger peers by quite a margin.

The market breadth remained pessimistic, as there were 1137 shares on the gaining side against 1560 shares on the losing side, while 201 shares remained unchanged.

Finally, the BSE Sensex declined by 115.67 points or 0.40% to 28518.83, while the CNX Nifty dropped 32.50 points or 0.37% to 8,775.90. 

The BSE Sensex touched a high and a low 28698.81 and 28480.53, respectively. The broader indices made a negative closing; the BSE Mid cap index ended down by 0.09%, while Small cap index was lower by 0.26%.

The few gaining sectoral indices on the BSE were Metal up by 0.34% and Oil & Gas up by 0.18%, while Realty down by 1.94%, Power down by 0.75%, Auto down by 0.62%, Capital Goods down by 0.53%, FMCG down by 0.52% were the top losing indices on BSE.

The top gainers on the Sensex were ONGC up by 1.48%, Tata Steel up by 1.08%, Cipla up by 0.70%, Maruti Suzuki up by 0.53% and Power Grid up by 0.39%. On the flip side, Hero MotoCorp down by 2.43%, Adani Ports &Special down by 2.16%, Bajaj Auto down by 1.96%, Bharti Airtel down by 1.59% and NTPC down by 1.22% were the top losers.

Meanwhile, the India Meteorological Department (IMD), differing from its earlier forecast of ‘above normal’ monsoon, has now said that the monsoon will be “normal” this year due to delay in La Nina weather pattern. IMD Director General K J Ramesh said that “The monsoon will be normal this year.”Anything between 96%-104% of the long period average (LPA) is considered as ‘normal’ rainfall, while precipitation in the range of 104%-110% is termed 'above normal'.

Ramesh further said that “The monsoon deficiency is now 5%, but a lot of rains have been taking place in Central India, east coast of Odisha to Gujarat coast, Madhya Pradesh, Chhattisgarh since last 4-5 days. Another spell of rains in the same pocket is likely to happen from 21 to 23. So, we are looking at huge rainfall scenario in coming days. There is a good possibility that we will be closer to a normal rainfall scenario.”

The monsoon, which delivers 70% of India’s annual rainfall, is critical for the country’s 263 million farmers and their rice, sugarcane, corn, cotton and soybean crops because nearly half of its farmland lacks irrigation. India has been hit by drought in the last two years, with the last monsoon being affected by El Nino. The activation phase of La Nina, phenomenon associated with cooling of Pacific waters, was supposed to start in August-September. This could have given a boost to the rainfall. But that has got delayed and La Nina could now start in November.

The CNX Nifty traded in a range of 8,816.45 and 8,759.30. There were 21 stocks advancing against 30 decliners on the index.

The top gainers on Nifty were Yes Bank up by 2.52%, Bharti Infratel up by 1.94%, ONGC up by 1.44%, Eicher Motors up by 1.39% and Hindalco up by 1.29%. On the flip side, Hero MotoCorp down by 2.58%, Adani Ports &Special down by 2.44%, Bajaj Auto down by 1.95%, Indusind Bank down by 1.76% and ACC down by 1.44% were the top losers.

The European markets were trading in green; UK’s FTSE 100 increased 29.84 points or 0.44% to 6,843.39, Germany’s DAX increased 49.56 points or 0.48% to 10,423.43 and France’s CAC increased 9.06 points or 0.21% to 4,403.25.

Asian equity markets ended mixed on Tuesday, as caution remained ahead of monetary policy decisions by the US Federal Reserve as well as the Bank of Japan on Wednesday. The Federal Reserve is widely expected to keep interest rates steady on Wednesday, while the Bank of Japan is seen easing policy further, though economists are split over what measures it will take. Japanese shares ended lower as the yen edged up against the dollar on doubts about the BOJ's ability to sustain its stimulus plans. Further, Chinese stocks fell in thin trading, even as property stocks rose broadly after upbeat home price data.