Markets to make a somber start of the crucial week on soft global cues

The Indian markets suffered sharp sell-off in the last session on weak global cues and on concern about the demonetization impact on the economy. Today, the start of the crucial week is likely to remain somber on weak global cues and the traders will first be reacting to the news of GST tax reforms from next April suffering a major setback after a two-day meeting of the centre with state officials ended without the resolution of a deadlock on who would administer the tax. Finance Minister Arun Jaitley has said that “Discussions on dual control of assessees remain inconclusive. They will be carried forward in the next GST Council meeting, which is slated to meet again on December 11 and 12. The Finance Minister though expressed optimism on the rollout date and said, “We are still targeting April 1, 2017 for roll out of GST”. All eyes will be on RBI monetary policy scheduled later in the week, in the backdrop of a severe contractionary shock after the demonetization announcement. Meanwhile, the industry body Assocham has asked the government to jack up its public expenditure in 2016-17, arguing that private consumption will take a “significant hit” at least in the next two quarters following demonetization. There will be some buzz in the steel stocks, as the government has extended the minimum import price (MIP) for 19 colour-coated and galvanised steel products till February 4, 2017, without tweaking the price range.

The US markets closed mostly flat in last session after a choppy trade, following the release of the Labor Department's closely watched monthly employment report for November, where employment increased more than expected and the unemployment rate fell to its lowest level since hitting a matching rate in August of 2007. The Asian markets have made mostly a lower start with some of the indices trading lower by over half a percent weighed down by mixed U.S. jobs data. Traders in the region were also concerned with the failure of Italy’s referendum on constitutional reform.

Back home, Indian benchmarks finished the week on a distressing note as they went on to extend the declining streak for the second successive session as market participants resorted to hefty across the board position squaring. Sentiments remained down-beat on the private report indicating that Cash crunch post demonetisation is expected to slowdown India's GDP growth to 6.5 per cent for the fourth quarter of 2016 and is likely to spill over into the first quarter of 2017. According to the report, cash-dependent sectors (agriculture, trade, real estate, construction and transport) and conspicuous consumption demand (high-end white goods, high-end cars, gold and jewellery and travel) would likely to be 'particularly hit' by demonetisation.  The impact of demonetization was first observed in November’s manufacturing PMI, which fell to 52.3 in November from October's 54.4, its biggest month-on-month decline since March 2013. The demand disruption could take its toll on the economy over the next few quarters. Meanwhile, Reserve Bank of India (RBI) is expanding the tools at its disposal to suck out the surge of liquidity in the banking sector following the government’s decision to scrap high value notes, the central bank said that the government has raised the limit for issuing market stabilization scheme (MSS) bonds to Rs 6 lakh crore compared to Rs 30,000 crore earlier. Jittery investors lacked conviction to build positions ahead of the release of the US monthly jobs data, a referendum in Italy over its constitution, and the Reserve Bank of India's policy review next week. Also, the GST Council meet is started today, the meeting has become significant in the light of the controversial comments made by West Bengal finance minister Amit Mitra that demonetization - making over 85% of old Rs 500 and Rs 1,000 currency notes illegal - will delay implementation of GST. Finally, the BSE Sensex declined by 329.26 points or 1.24% to 26230.66, while the CNX Nifty dropped 106.10 points or 1.30% to 8,086.80.