Indian benchmarks settle with modest gain

Indian equity benchmarks showed a volte-face on Tuesday as what started on a promising note ended as a dismal show. However, the benchmarks managed to extend the winning momentum for the second straight day as local sentiments continued to show signs of improvement ahead of RBI policy review scheduled for Wednesday. The economic slowdown due to demonetization is likely to cut a percentage point from the gross domestic product (GDP) growth and so a rate cut at this point to encourage private-sector loan off-take and spending will be needed. Nevertheless, the US Federal Reserve is likely to increase its policy rate in mid-December. If that happens, the interest rate differential between India and the US will narrow, making it unattractive for foreign investors to put in money in Indian market. Meanwhile, firm global cues coupled with the appreciation in rupee value against the dollar added to the optimistic sentiments. Indian rupee strengthened by 16 paise to 68.05 against the dollar on Tuesday on increased selling of the US currency by exporters and banks.  However, market participants turned cautious after Kerala finance minister Thomas Isaac said he is almost sure the central government will not be able to present the supporting legislation for the goods and services tax (GST) in this session of Parliament. The central government is trying to push the draft GST bill before the Parliament’s winter session ends on 16 December, as it tries to roll out the new indirect tax regime by the 1 April deadline.

Prime Minister Narendra Modi's outlawing of high-value bank notes last month, aimed at curbing corruption and tax evasion, has left the nation's 1.2 billion population scrambling to exchange old notes for new and left many companies' cash-reliant supply chains in tatters. Opposition parties are criticizing the governments’ demonetization move, but many private companies, agencies and public figures are supporting the move, saying this will have positive effects on the Indian economy in future. Amit Kalyani Executive Director of Bharat Forge, Termed demonetisation as a big positive move for the Indian economy, said that the step would expand the country's tax net and result in lower interest rates. He further claimed that demonetisation would boost low cost housing owing to the projected softening of interest rates and availability of credit history of loan seekers due to operational bank accounts. Niti Aayog Vice-Chairman Arvind Panagariya had said the government's demonetization drive will leave a 'very positive' impact on the economy in the long term as more people will move towards digital transactions.

On the global front, barring Shanghai Composite index which declined by 0.16 percent, all the other Asian markets ended higher on Tuesday as investors turned their focus to a highly anticipated ECB meeting this week, with most economists expecting the central bank to expand its quantitative easing program beyond the first quarter of 2017. Sentiment took a positive tone from the higher euro overnight, there was a consensus view that a 'no' vote from Italy could bring further distress to the European Union, but the higher euro shows investors do not see this as a concern. Global investors had shaken off the Italian referendum results, and shares had risen higher on Tuesday. The global rating agency S&P said that Italian referendum outcome may not have immediate implications for Italy’s economic or budgetary policies beyond likely near-term changes in Italian politics. Meanwhile, European markets had a negative start of the day, although they quickly recovered ground and turned positive amid a rally in banking sector stocks across Europe, particularly in the Italian banks.

Back home, the benchmark got off to a positive start in the morning trade as investors were largely influenced by the supportive leads from Asian markets. Thereafter, the key indices capitalized on the momentum and touched intraday highs in late morning session but the indices failed to hold onto the highs and receded to intraday lows in final hour of the trade. Eventually the NSE’s 50-share broadly followed index Nifty, got buttressed by around two tenth of a percent to settle just below the crucial 8,150 support level, while Bombay Stock Exchange’s sensitive Index-Sensex accumulated forty three points and closed near the psychological 26,400 mark. Moreover, broader markets managed a touch better than the larger peers as the BSE’s midcap and smallcap indices settled with gains of 0.52% and 0.41% respectively.

The market breadth remained optimistic as there were 1535 shares on the gaining side against 1129 shares on the losing side, while 148 shares remained unchanged.

Finally, the BSE Sensex gained 43.66 points or 0.17% to 26392.76, while the CNX Nifty added 14.40 points or 0.18% to 8,143.15. 

The BSE Sensex touched a high and a low of 26502.43 and 26356.02, respectively and there were 18 stocks on gainers side against 12 stocks on the losers side on the index. The broader indices made a positive closing; the BSE Mid cap index ended higher by 0.52%, while Small cap index was up by 0.41%.

The top gaining sectoral indices on the BSE were Realty up by 1.73%, Oil & Gas up by 1.17%, Metal up by 0.74%, PSU up by 0.58% and Power up by 0.57%, while FMCG down by 0.77%, Consumer Durables down by 0.73% and Auto down by 0.38% were the only losing indices on BSE.

The top gainers on the Sensex were HDFC up by 2.07%, Tata Steel up by 1.16%, ONGC up by 1.08%, Adani Ports & SEZ up by 1.04% and SBI up by 0.95%. On the flip side, Hindustan Unilever down by 1.24%, Maruti Suzuki down by 1.20%, Power Grid down by 1.11%, Sun Pharma down by 0.99% and ITC down by 0.95% were the top losers.

Meanwhile, foreign investors have pulled out close to $6 billion from the Indian capital market in November amid concerns over the government's demonetisation decision coupled with fears of a rate hike by the US Federal Reserve in December. 

According to exchange data, net withdrawal by foreign portfolio investors (FPIs) from equity market stood at Rs 18,244 crore during November, whereas the same from the debt market was Rs 21,152 crore during the period under review, translating into total outflow of Rs 39,396 crore ($ 5.78 billion).

FPI outflows during the month came following withdrawal of more than Rs 10,306 crore from the capital market (equity and debt) during October. Prior to that, equity market had witnessed inflows of over Rs 20,000 crore. This year so far, FPIs have invested a net sum of Rs 28,742 crore in stocks, while they pulled out Rs 24,710 crore from the debt market, resulting in a combined net inflow of Rs 4,032 crore.

Domestic cash crunch following demonetisation drive to curb black money sparked intense selling pressure. The pull out by FPIs started in October 2016, on uncertainty over US election results and was felt across emerging markets.

The CNX Nifty traded in a range of 8,178.70 and 8,130.85. There were 31 stocks in green against 20 stocks in red on the index.

The top gainers on Nifty were Tata Power up by 2.87%, HDFC up by 2.06%, Idea Cellular up by 2.06%, BPCL up by 1.38% and Adani Ports up by 1.34%. On the flip side, Bharti Infratel down by 2.31%, Bosch down by 2.09%, HCL Tech down by 1.77%, Maruti Suzuki down by 1.36% and Power Grid down by 1.35% were the top losers.

The European markets were trading mostly in green; Germany’s DAX increased 11.23 points or 0.11% to 10,696.06 and France’s CAC increased 8.93 points or 0.2% to 4,583.25, while UK’s FTSE 100 decreased 6.94 points or 0.1% to 6,739.89.

Most of the Asian markets made a positive closing on Tuesday as investors brushed off the Italian referendum result and turned their focus to a highly anticipated ECB meeting this week, with most economists expecting the central bank to expand its quantitative easing program beyond the first quarter of 2017. Japanese shares closed higher after solid gains on Wall Street overnight. Though, Chinese shares bucked the positive trend on concerns surrounding a tighter regulatory environment, a day after Liu Shiyu, Chairman of the China Securities Regulatory Commission (CSRC), warned against ‘barbaric’ share acquisitions. The China Insurance Regulatory Commission has suspended Foresea Life Insurance Company from selling new life insurance policies and proposing new products, further denting investor sentiment.