Benchmarks trade firm near highest point of the day

Indian equity benchmarks added strength and continued their firm trade hovering near the highest point of the day in late morning session on account of buying in front line blue chip counters amid positive global cues as dollar retreated from 14-year high mark. After hitting a record low of 68.86 against the US dollar in intraday trade on Thursday, the rupee opened higher against the greenback on Friday. The selling of American dollars by banks and exporters supported the local currency in opening trade. The 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. According to the data by the BSE and Centre for Monitoring Indian Economy (CMIE), contrary to popular perception, the overall consumer sentiment rose over 210 bps to 98.75 from 96.65, while the unemployment rate fell by nearly 150 bps to 6.10% during the week demonetisation was announced. This is despite the fact the agency claiming that demonetisation has disrupted consumption which will in turn lead to postponement in investment revival.

Investors however maintained their cautious approach after the global rating agency Moody’s stated 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. Separately, as rupee seeks a new bottom over risen FII outflows, some experts feel that this will push foreign investors further away from the Indian market. Foreign institutional investors (FIIs) have pulled out over $2 billion in the past fortnight from the cash market.  FIIs stood net sellers in the domestic equity market on Thursday, as they offloaded shares worth Rs 1,095.10 crore, according to the data available with NSDL. Gross purchases and gross sales of FIIs stood at Rs 4,235.62 crore and Rs 5,330.72 crore, respectively. Traders were seen piling up positions in IT, TECK and Metal stocks, while selling was witnessed in Auto sector stocks.

On the global front, Asian shares were trading mostly in green, as the Thanksgiving break in the United States pegged the dollar’s relentless surge that had sucked capital out of most emerging markets. Japan's core consumer prices marked their eighth straight month of annual declines in October, illustrating the sheer scale of the central bank’s struggle to beat deflation and stagnant growth with diminishing policy options. Back home, the NSE Nifty and BSE Sensex were trading above the psychological 8,000 and 26,000 levels respectively. The market breadth on BSE was positive in the ratio of 1619:400, while 124 scrips remained unchanged.

The BSE Sensex is currently trading at 26090.12, up by 229.95 points or 0.89% after trading in a range of 25874.45 and 26091.61. There were 19 stocks advancing against 11 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.80%, while Small cap index was up by 1.27%.

The top gaining sectoral indices on the BSE were IT up by 3.74%, TECK up by 3.10%, Metal up by 1.88%, Power up by 1.53% and PSU up by 1.27%, while Auto down by 0.02% was the sole losing index on BSE.

The top gainers on the Sensex were Infosys up by 4.10%, TCS up by 3.46%, GAIL India up by 3.40%, Tata Steel up by 3.26% and Adani Ports & Special Economic Zone up by 2.46%.

On the flip side, Tata Motors down by 0.85%, Bharti Airtel down by 0.83%, Bajaj Auto down by 0.62%, ICICI Bank down by 0.54% and Dr. Reddy’s Lab down by 0.52% 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 8029.55, up by 64.05 points or 0.80% after trading in a range of 7976.75 and 8033.10. There were 33 stocks advancing against 18 stocks declining on the index.

The top gainers on Nifty were Infosys up by 4.17%, HCL Tech up by 3.90%, Tech Mahindra up by 3.66%, GAIL India up by 3.47% and TCS up by 3.43%.

On the flip side, Bharti Airtel down by 1.12%, ACC down by 1.06%, Tata Motors down by 0.98%, Dr. Reddy’s Lab down by 0.90% and Bharti Infratel down by 0.68% were the top losers.

The Asian markets were trading mostly in green; FTSE Bursa Malaysia KLCI increased 0.26 points or 0.02% to 1,624.47, KOSPI Index increased 0.63 points or 0.03% to 1,971.89, Jakarta Composite increased 5.34 points or 0.1% to 5,112.96, Taiwan Weighted increased 18.64 points or 0.2% to 9,170.75 and Hang Seng increased 78.53 points or 0.35% to 22,687.02.

On the other hand, Nikkei 225 decreased 27.41 points or 0.15% to 18,306.00 and Shanghai Composite decreased 7.4 points or 0.23% to 3,234.33.