Benchmarks negotiate positive close for second consecutive session

Indian benchmarks carried forward their northbound journey for yet another session on Wednesday, due to short-covering by investors ahead of November derivatives expiry and a firm global trend. Sentiments remained optimistic with the private report indicating that a moderation in aggregate food prices will lower inflation momentum in November and the CPI inflation is expected to moderate to around 4 percent in November from 4.2 percent in October. Adding optimism among Market participants, Piyush Goyal, minister for power, coal, renewable energy and mines said demonetisation will increase India’s tax base and prepare the ground for less taxation, lower inflation and a fall in interest rates. Some support also came with Agriculture Minister Radha Mohan Singh’s assurance that sowing of rabi crops like wheat, pulses and oilseeds has not been affected due to banning of old Rs 500 and Rs 1,000 notes. Highlighting various steps taken to ease cash flow to farmers, the minister said farmers are allowed to buy seeds with old Rs 500 notes at government outlets as well as from agri varsities. He also said sowing area of wheat, pulses and oilseeds has been higher till November 18 of this rabi season compared with the year-ago period. However, several investors adopted cautious approach, while entering into market on rising pessimism over the report that government has assessed the impact of demonetisation that is likely to bring the gross domestic product (GDP) growth to 5.5% in the third quarter of financial year 2016-17, a steep drop from 7.1 per cent in the first quarter. Also, rupee was trading at fresh nine month low, down 25 paise at 68.50 at this point of time on market volatility and gaining US Dollar.  Meanwhile, the GST council meeting on Friday has been cancelled. This is the second time in the month of November that the GST council meeting had to be cancelled. The meeting was initially scheduled for 9-10 November, and was later postponed to 24-25 November. Furthermore, Lok Sabha was on Wednesday disrupted for the fourth consecutive day with Opposition leaders demanding discussion on demonetisation with the presence of Modi.

On the global front, Asian markets ended mostly higher on Wednesday as investors tried to share in the exuberance of Wall Street’s record run, while high US bond yields kept the dollar well underpinned.  Several Asian currencies, however, continue to slide, indicating that offshore funds are pulling money from the region. Chinese shares ended lower even as survey figures from MNI showed China's business sentiment picked up slightly in November after falling in the previous month. Meanwhile, European counter parts too traded with conviction as the UK’s FTSE 100 led the space with over half a percent gain.

Back home, the local benchmarks got off to a positive start in the morning trade as investors were largely influenced by the supportive leads from Asian markets. However, the indices slipped into the red terrain soon, lacking any significant upside cues. Second half of the session saw the key gauges capitalize on the momentum further and spurt to session’s highest levels in dying hour. However, a mild profit booking in dying moments of trade ensured that the key indices shut shops off the intraday highs. Eventually the NSE’s 50-share broadly followed index Nifty, convalesced by over quarter a percent to settle above the crucial 8,000 support level, while Bombay Stock Exchange’s Sensitive Index, Sensex accumulated close to hundred points and closed above the psychological 26,000 mark. Moreover, the broader markets managed a touch better than the larger peers as the BSE’s midcap and smallcap indices settled with gains of 1.22% and 1.54% respectively. On the BSE sectoral space, Realty counter remained the top gainer in the space with around three and half a percent gains followed by the high beta- Metal index which ended with gain of over two percent. Good buying was also observed in Capital Goods, Consumer Durables and Power counters. The market breadth remained optimistic as there were 1922 shares on the gaining side against 665 shares on the losing side, while 165 shares remained unchanged.

Finally, the BSE Sensex gained 67.34 points or 0.26% to 26028.12, while the CNX Nifty rose 31 points or 0.39% to 8,033.30.

The BSE Sensex touched a high and a low of 26130.49 and 25877.16, respectively and there were 20 stocks on gainers side against 10 stocks on the losers side on the index. The broader indices made a positive closing; the BSE Mid cap index ended higher 1.22%, while Small cap index was up by 1.54%.

The top gaining sectoral indices on the BSE were Realty up by 3.41%, Metal up by 2.32%, Capital Goods up by 1.30%, Consumer Durables up by 1.26% and Power up by 0.98%, while there were no losers on the BSE sectoral front.

The top gainers on the Sensex were Lupin up by 5.22%, NTPC up by 4.17%, Asian Paints up by 3.87%, Tata Steel up by 3.80% and Larsen & Toubro up by 2.16%. On the flip side, Mahindra & Mahindra down by 2.02%, HDFC down by 1.72%, Power Grid down by 1.22%, Bharti Airtel down by 1.22% and HDFC Bank down by 1.18% were the top losers.

Meanwhile, global ratings agency, Fitch Ratings in its latest report has said that the surprise move of demonetizations of old Rs. 500, 1,000 has the potential to raise government revenue and encourage bank lending, but at the same time the positive effects are unlikely to be strong and sufficiently enduring to support credit profiles. The rating agency said that the impact on GDP growth will increase, the longer the disruption continues, but we will already need to revise down our forecasts to reflect what will almost certainly be a weak 4Q16.

The report further said that the discontinuation of the large denomination notes has led to a short-term disruption in India’s economy. The withdrawal of bank notes has created a cash crunch, with the time spent queuing up outside banks affecting general productivity. Following the announcement, the consumers have not had the cash to complete purchases, and there have been reports of supply chains being disrupted. Also, farmers incapable to buy seeds and fertiliser for the sowing season.

As per the report, the move by the government could also affect sectors that rely on cash transactions and have a negative impact on bank asset quality. Most importantly, demonetizations is a one-off event. People that operate in the informal sector will still be able to use the new high-denomination bills and other options like gold to store their wealth.

However, Fitch pointed that the move could boost government revenue to the extent that demonetizations helps to move economic activity from the informal to the formal sector, as more earnings would be declared. It is possible that this positive effect would soon outweigh the drag on revenue collection from lower short-term GDP growth. Government finances may also benefit from a proportion of high-denomination notes not being traded. On November 8, 2016, the government had declared demonetisation of Rs 500 and Rs 1,000 note replacing them with new Rs 500 and Rs 2,000 notes to curb corruption and make efforts to recover ‘black’ or unaccounted money.

The CNX Nifty traded in a range of 8,055.20 and 7,973.10. There were 37 stocks in green against 14 stocks in red on the index.

The top gainers on Nifty were Lupin up by 4.26%, Hindalco up by 3.93%, Asian Paints up by 3.55%, Tata Steel up by 3.16% and NTPC up by 3.05%. On the flip side, Mahindra & Mahindra down by 2.39%, HDFC down by 1.57%, Bank of Baroda down by 1.41%, HDFC Bank down by 1.37% and Power Grid down by 1.31% were the top losers.

The European markets were trading mostly in red; Germany’s DAX decreased 41.01 points or 0.38% to 10,672.84, France’s CAC decreased 12.1 points or 0.27% to 4,536.25, while UK’s FTSE 100 increased 40.42 points or 0.59% to 6,860.14.

Asian equity markets ended mostly in green on Wednesday, helped by Wall Street's record run, even as the dollar's strength and rising bond yields implied faster-than-expected rate hikes by the Federal Reserve going forward. Oil prices traded slightly lower in Asian deals after reports that Iran and Iraq aren't ready to agree on an OPEC output freeze. Chinese shares ended slightly lower even as survey figures from MNI showed China's business sentiment picked up slightly in November after falling in the previous month. Markets in Japan were closed for Labor Thanksgiving Day.