Markets to get a flat to cautious start reacting to CPI and CAD data

The Indian markets rallied in last session, coming out of the somberness seen in the previous one. Today, the start is likely to be mildly in green reacting to some positive economic data, while the retail inflation fell to a two-year low in November due to the ongoing cash crunch following the demonetization drive, the country’s current account deficit (CAD) narrowed by more than a percentage point to 0.6 percent of GDP at $ 3.4 billion in the July-September, on account of lower trade deficit. Market will also be getting some support with Finance Minister Arun Jaitley’s indication of lower tax rates, as he has said that higher tax revenues would enable the government at some stage to make taxes more reasonable which will apply to both direct and indirect taxes. The Finance Minister also said that future transactions would be substantially digital as India moves towards a less-cash society. Trade though may remain cautious ahead of the US Fed’s rate hike decision later in the day, also the domestic rating agency ICRA has said that with consumption being affected by the demonetisation of higher currency old notes, tax revenues of the State governments for the current financial year is likely to be weaker than budgeted. The Tata group stocks will keep buzzing after shareholders of Tata Consultancy Services (TCS), voted out Cyrus Mistry as a director from its board at the much-awaited extraordinary general meeting.

The US markets moved higher in last session, with the advance, all three of the major averages reached new record closing highs, ahead to the Federal Reserve's monetary policy decision, scheduled to be announced on Wednesday. The Asian markets are trading mostly in red, giving up their early gains, with bets on a US rate increase.

Back home, a session after displaying a distressing performance, Indian equity indices managed to pull through a shining performance by surging over half a percentage points on Tuesday, thanks to fresh buying by domestic investors in the Auto, IT and Oil & Gas counters. Sentiments got some support with Central Board of Direct Taxes (CBDT) clarification that an increase in turnover of a business owing to its accepting digital means of payment will not trigger reopening of cases of past years. Market participants are optimistically waiting the Consumer Price Index (CPI) data which is expected to cool down for the month of November, as the data accommodates the impact of the government’s decision to demonetize high value currency notes that month. The all-India general CPI inflation had dropped to 4.2% in October from 4.39% in the previous month. Meanwhile, many stock specific actions were seen during the session, which helped the indices to enlarge their gains.  Shares of Tata Motors surged as much as 4%, making them the top gainer on the BSE index, after an undisclosed buyer bought about 50 million shares in two block deals at an up to 10% premium to Monday's close. Adani Ports, Wipro, Axis Bank and Infosys were also among the gainers in the Sensex. Investors are closely looking at the Fed's statement on future action given fears that aggressive rate hikes could spark outflows from emerging markets to the United States. Such an outcome could hit Indian shares further given that markets are already under pressure over worries that demonetisation would hurt the economy bigger than expected. Asian Development Bank (ADB) has recently trimmed its 2016 growth estimate for India to 7% from the previous 7.4%. Also, one private report indicated that Private equity/ venture capital investments declined both in terms of value and volume in November 2016. In value terms, PE/VC investments in India stood at $908 million, down 50%, from $1.82 billion in November last year. Finally, the BSE Sensex gained 182.58 points or 0.69% to 26697.82, while the CNX Nifty added 51 points or 0.62% to 8,221.80.