Markets start the new series on a positive note; Sensex reclaims 26,000 mark

Indian equity benchmarks have made a positive start to the new F&O series and are trading with traction in early deals, with frontline gauges recapturing their crucial 26,000 (Sensex) and 8,000 (Nifty) levels. Sentiments got some support with Finance Minister Arun Jaitley’s statement that the government's demonetisation move is going to have 'a positive impact on the economy, including GDP'. Jaitley said there will be a positive impact 'because a lot of money that operates in the shadowy economy will now become part of the banking structure' and banks will have a lot more money to support the economy. Meanwhile, the global rating agency Moody’s has said that India's decision to scrap some high-value notes will significantly disrupt economic activity, result in weaker consumption and economic growth in the immediate term but is expected to boost tax revenues and trigger faster fiscal consolidation in the long run.

On the global front, all the Asian counters, barring Shanghai, were trading in green at this point of time with Japanese market extending its rally with the dollar heading toward its steepest three-week climb against the yen since 1995. The US markets remained closed in last session unable to give any cues to other global markets. Back home, the broader indices too were trading with traction, the market breadth on the BSE was positive; there were 1444 shares on the gaining side against 344 shares on the losing side while 82 shares remain unchanged.

The BSE Sensex is currently trading at 26013.90, up by 153.73 points or 0.59% after trading in a range of 25874.45 and 26042.55. There were 22 stocks advancing against 8 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.78%, while Small cap index was up by 1.20%.

The top gaining sectoral indices on the BSE were IT up by 2.33%, TECK up by 1.98%, Metal up by 1.82%, Basic Materials up by 1.35% and PSU up by 1.05%, while Auto down by 0.06% was the lone losing index on the BSE sectoral front.

The top gainers on the Sensex were Tata Steel up by 2.85%, Infosys up by 2.84%, GAIL India up by 2.60%, TCS up by 2.02% and Asian Paints up by 1.61%. On the flip side, Tata Motors down by 1.67%, Bharti Airtel down by 0.41%, NTPC down by 0.35%, Dr. Reddys Lab down by 0.33% and Cipla down by 0.31% were the top losers.

Meanwhile, global rating agency, Moody's Investors Service in its latest report titled 'Indian Credit -- Demonetisation Is Beneficial for Indian Government and Banks; Implementation Challenges Will Disrupt Economic Activity', has said that the demonetization will ‘significantly disrupt economic activity’ and will lead to weaker growth in near-term, though in the long run it can boost tax revenues and translate into faster fiscal consolidation. It added that government’s decision to withdraw Rs 500 and Rs 1000 old currency notes from circulation is affecting all sectors of the economy to various extent, with banks being the key beneficiaries.

Moody’s said that although the measures in the near term will pressure Gross Domestic Product (GDP) growth and thereby government revenues, in the longer term they should boost tax revenues and translate into higher government capital expenditure and/or faster fiscal consolidation. It said that there will be a loss of wealth for individuals and corporates with unreported income, as some will choose not to deposit funds back into the formal financial system to avoid disclosing the sources of these funds. It added that households and businesses will experience liquidity shortages as cash is taken out of the system, with a daily limit on the amount in old notes that can be exchanged into new notes.

Talking about the corporates, the report said that corporates will see economic activity decline, with lower sales volumes and cash flows, with those directly exposed to retail sales most affected. However, it added that greater formalisation of economic and financial activity would ultimately help broaden the tax base and expand usage of the financial system, which would be credit positive. Though, on positive side Moody’s said that banks would benefit significantly from a move towards digital payments, given their role as intermediaries for such transactions. It expects the banks’ deposits to increase by 1-2 percent as a result of demonetization and could lower lending rates. However, in near term it expects asset quality to deteriorate for banks and non-bank finance companies, as the economic disruption will significantly impact the ability of borrowers to repay loans, in particular for the loans against property, commercial vehicles and micro finance sectors.

The CNX Nifty is currently trading at 8030.05, up by 64.55 points or 0.81% after trading in a range of 7976.75 and 8033.10. There were 43 stocks advancing against 8 stocks declining on the index.

The top gainers on Nifty were Tech Mahindra up by 3.29%, Infosys up by 3.24%, Tata Steel up by 2.93%, GAIL India up by 2.65% and Yes Bank up by 2.51%. On the flip side, Tata Motors - DVR down by 1.83%, Tata Motors down by 1.79%, NTPC down by 0.51%, Cipla down by 0.31% and ACC down by 0.28% were the top losers.

Asian markets were trading mostly in green; FTSE Bursa Malaysia KLCI rose 0.02 points to 1,624.23, KOSPI Index gained 0.89 points or 0.05% to 1,972.15, Jakarta Composite increased 11.12 points or 0.22% to 5,118.74, Taiwan Weighted advanced 16.72 points or 0.18% to 9,168.83, Nikkei 225 added 37.79 points or 0.21% to 18,371.20 and Hang Seng was up by 82 points or 0.36% to 22,690.49. On the flip side, Shanghai Composite was down by 4.1 points or 0.13% to 3,237.64.