Indian Benchmarks end lower on caution ahead of Fed meet outcome

A session after showcasing a vivacious rally, Indian equity benchmarks faltered and failed to extend the winning momentum on Wednesday as market participants refrained from taking any big bets, awaiting the outcome of the U.S. Federal Reserve meet wherein the interest rate policy of the world’s largest economy will be decided. Investors are keenly waiting for clues about future policy and the economic outlook under President-elect Donald Trump from Fed Chair Janet Yellen's press conference. On the domestic front, sentiments were undermined after Congress vice president Rahul Gandhi claimed that he had ‘personal information’ about corruption by Prime Minister Narendra Modi but that he wasn’t being allowed by ruling lawmakers to speak about it in Parliament. However, the downside remained capped with Finance Minister Arun Jaitley holding hopes of tax cuts in the future as higher revenue gets generated by a cashless system that will allow transactions to be tracked, following the November 8 demonetisation announcement. According to him, cancelling the old Rs 500 and Rs 1,000 notes will help India move toward a 'less-cash' economy and rising digital payments will deliver multiple benefits. The government was rapidly replacing old currency with new notes and significant amounts will be injected into the banking system over the next three weeks. Adding the concerns over banking industry, RBI’s latest report indicated that credit or loan growth for the fortnight that ended November 25 declined to 6.6% from 7.9% on a year-on-year basis in the previous fortnight. But at the same time, the note ban had some positive effect too, as borrowers, including some default accounts, paid back as much as Rs 66,000 crore during the same period. In contrast, during the same fortnight, banks received huge inflows as people deposited as much as Rs 4.03 trillion into the accounts, which as of December 9 crossed Rs 12 trillion, putting all calculations of the Government into a tizzy. Investors got some comfort with 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. Furthermore, Wholesale Price Index (WPI) inflation continued its easing trend for the third straight month in November, falling to 3.15 per cent.

On the global front, Asian markets ended mostly lower on Wednesday as investors remained cautious ahead of the Federal Reserve’s monetary policy decision due later in the day. The Fed’s path to tighter monetary policy has been delayed throughout 2016, as first instability in Chinese markets, then the shock votes for Brexit and Donald Trump, put policy makers on the defensive. The Fed is widely expected to hike rates for the first time in a year at the conclusion of its meeting later Wednesday. Meanwhile, European markets were trading lower in early trade, stepping slightly away from their best level in 11 months, as investors prepared for a likely interest-rate increase by the U.S. Fed.

Back home, the local indices started the session on a cautious note tracking mixed trade in Asian markets. Thereafter, the key indices failed to show any kind of fervor due to lack of encouraging leads.  The key gauges suffered a setback in afternoon trades as sudden bouts of profit booking emerged in the local markets immediately after Congress vice president said that he had explosive information on personal corruption of Prime Minister Narendra Modi. Though the bourses recovered from the lows of the day but could only succeed in minimizing the huge losses by the end of trading session. Finally the NSE’s 50-share broadly followed index Nifty, declined by around half a percent to settle below the crucial 8,200 support level, while Bombay Stock Exchange’s Sensitive Index Sensex deposed around one hundred points and closed above the psychological 26,200 mark. Moreover, the broader markets had to bear a brutal assault as they went on to underperform their larger peers by quite a margin with BSE’s midcap shaving off 0.82% and BSE’s smallcap shelving  0.85%.

The market breadth remained pessimistic as there were 905 shares on the gaining side against 1733 shares on the losing side while 149 shares remained unchanged. Finally, the BSE Sensex declined by 94.98 points or 0.36% to 26602.84, while the CNX Nifty dropped 39.35 points or 0.48% to 8,182.45.

The BSE Sensex touched a high and a low of 26736.34 and 26547.05, respectively and there were 8 stocks on gainers side against 22 stocks on the losers side on the index.

The broader indices made a negative closing; the BSE Mid cap index ended lower by 0.82%, while Small cap index was down by 0.85%.

The few gaining sectoral indices on the BSE were IT up by 0.63%, Realty up by 0.50% and TECK up by 0.36%, while Metal down by 1.70%, PSU down by 1.65%, Capital Goods down by 1.00%, FMCG down by 0.82%, Power down by 0.78% were the top losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 3.23%, Reliance Industries up by 1.93%, Infosys up by 0.91%, Mahindra & Mahindra up by 0.51% and Tata Motors up by 0.48%. On the flip side, Coal India down by 4.42%, ONGC down by 2.02%, Power Grid down by 1.78%, Cipla down by 1.59% and ICICI Bank down by 1.55% were the top losers.

Meanwhile, Union Finance Minister Arun Jaitley has indicated that both direct and indirect taxes rates could come down at some stage due to higher tax collections from digital payments. He said that future transactions would be substantially digital and once they are digital, they would come in the tax net. Therefore, the future taxation level would be much higher than what is currently being collected, which would enable the government at some stage to make taxes more reasonable applying to both direct and indirect taxes.

Jaitley also stated that with this demonetisation move, the banking system will have lot more cash in it and therefore, its ability to support economy with low-cost cash that is cash whose capital is much lesser, would be much higher. He also said that currency withdrawal along with many other reforms such as GST and the restrictions on cash spending subjected to PAN declaration, will help to bring down the levels of corruption in society. He added that it is also going to bring down cash transaction in society as well as to bring down levels of evasion as far as taxation is concerned.

He said that it’s our strategy that from high cash-dominated economy, we should become a less cash economy where the amount of paper currency comes down. Cash will still exist and there would be a greater digitization. He also warned of a “very heavy price” that unscrupulous elements will have to pay for amassing large amounts of cash unlawfully. He said that it has come to the notice of the government that some unscrupulous people, including some in the banking system and others, have been trying to subvert the system once again and have accumulated large amounts of cash unlawfully. Obviously, there is a breach of law in this and this is a step which hurts the economy

The CNX Nifty traded in a range of 8,229.40 and 8,165.10. There were 12 stocks in green against 39 stocks in red on the index.

The top gainers on Nifty were Axis Bank up by 3%, HCL Tech up by 2.63%, Reliance Industries up by 1.59%, Tata Power up by 1.42% and Infosys up by 0.89%. On the flip side, Coal India down by 4.43%, Bosch down by 2.73%, Aurobindo Pharma down by 2.45%, Eicher Motors down by 2.44% and ACC down by 2.21% were the top losers.

The European markets were trading in red; UK’s FTSE 100 decreased 17.43 points or 0.25% to 6,951.14, Germany’s DAX decreased 15.69 points or 0.14% to 11,268.96 and France’s CAC decreased 20.52 points or 0.43% to 4,783.35.

Asian equity markets ended mostly in red on Wednesday as investors remained cautious ahead of the Federal Reserve’s monetary policy decision due later in the day. The Fed is widely expected to hike rates for the first time in a year at the conclusion of its meeting later Wednesday. Chinese shares ended lower after regulators pledged to restrict risky investments by insurers. Meanwhile, Japanese shares closed flat as traders processed the Bank of Japan’s quarterly tankan survey, released Wednesday. The survey showed that sentiment among large manufacturers rose to plus 10 over the three months to December from plus 6 in the previous quarter. A plus figure means the percentage of respondents saying business conditions are favorable exceeds those saying they aren’t.