Indian benchmarks extend downtrend; Sensex slips below 26,300 mark

Bearishness continued in Indian equity markets for sixth straight session as benchmark indices, after trading in positive territory for the most part of the session, snapped the dismal day of trade in the red zone. Jittery investors chose to square off their positions on rising concerns that the government’s decision to recall high denomination currency bills will dampen demand and slow economic growth. Confirming fears of demonetisation move hitting growth, Global financial services major Nomura said its proprietary indices have dipped to the lowest levels since 1996, with rural consumption showing the maximum impact. The Nomura Composite Leading Index (CLI) for India for early 2017 has slumped to the lowest level since the series began in 1996 and is consistent with GDP growth of below 6 per cent. According to rating agency CRISIL, the government’s demonetising Rs 500 and Rs 1,000 notes may yield lasting economic benefits but its immediate impact has been stunningly disruptive, with cash shortages roiling business plans. The CRISIL’s report highlighted that the government’s decision has given individuals and businesses very little time to adjust to the removal of large-denomination notes and printing of replacement notes has been slow, causing a cash crunch and drop in economic activity. Sentiments weakened further on report that Global funds have pulled over $160 million from local shares in December, adding to the $2.6 billion they withdrew last month.  However, investors got some comfort with Finance Minister Arun Jaitley’s statement that the government would offer tax incentives to small businesses engaged in cashless transactions, as part of the government's fight against the cash economy. He said the move would enable businesses with annual turnover of Rs 2 crore to save up to 30 per cent in tax payments.

Meanwhile, some buying observed in banking stocks on the report that Indian banks could collectively gain a total of Rs 38,200 crore in the current fiscal year from potential treasury gains due to the sharp drop in government bond yields because of the momentous liquidity with banks after the withdrawal of high denominated currency notes. Gold & Jewellery stocks like PC Jeweller, Rajesh Export, Gitanjali Gems, Asian Star Company and Tribhovandas Bhimji Zaveri edge higher on reports that the government is likely to lower gold import duty from 10 percent to 6 percent. However, select micro finance stocks declined on reports that the Maharashtra government will form a special investigation team to look into complaints of irregularities and violations of RBI guidelines by microfinance companies.

On the global front, Asian markets ended in negative territory on Wednesday, losing some of the optimism spurred from the Dow hitting a new record close overnight just shy of the psychological 20,000 level. Investors remained cautious over the geopolitical concerns in Turkey, Germany and Switzerland. Japanese market closed lower in choppy trade as a modest uptick in the yen overshadowed overnight advances in US stocks and the government's upbeat assessment of the domestic economy. However, Chinese shares ended higher as liquidity worries eased and the State-owned Assets Supervision and Administration Commission pledged to deepen reforms in state-owned sectors. Meanwhile, European indices opened on a weak note after German authorities admitted to the attacks in Berlin being a terrorist attack and the Islamic State claiming responsibility for the same.

Back home, after trading on positive note for the most part of the session, the local benchmarks slipped into the negative territory in final hour of trade, tracking weak trade in regional and European markets. Finally, the NSE’s 50-share broadly followed index Nifty, declined by over quarter percent to settle below the crucial 8,100 support level, while Bombay Stock Exchange’s Sensitive Index Sensex deposed over sixty points and closed below the psychological 26,300 mark. On the BSE sectoral space, FMCG index remained the top laggard in the space and settled with around a percent laceration followed by the IT and Capital Goods pockets which went home with around half a percent cuts. On the flipside, Realty, Consumer Durables and Power pockets managed to go home with moderate gains.

The market breadth remained pessimistic as there were 1191 shares on the gaining side against 1398 shares on the losing side, while 168 shares remained unchanged. Finally, the BSE Sensex declined by 65.60 points or 0.25% to 26242.38, while the CNX Nifty dropped 21.10 points or 0.26% to 8,061.30.

The BSE Sensex touched a high and a low of 26396.00 and 26213.51, respectively and there were 15 stocks on gainers side against 15 stocks on the losers side on the index. 

The broader indices made mixed closing; the BSE Mid cap index ended lower by 0.16%, while Small cap index was up by 0.03%.

The top gaining sectoral indices on the BSE were Realty up by 1.52%, Consumer Durables up by 0.68%, Power up by 0.55%, PSU up by 0.53% and Metal up by 0.50%, while FMCG down by 0.95%, IT down by 0.75%, TECK down by 0.74% and Capital Goods down by 0.40% were the top losing indices on BSE.

The top gainers on the Sensex were NTPC up by 1.24%, Mahindra & Mahindra up by 1.22%, Lupin up by 1.17%, Maruti Suzuki up by 0.83% and ONGC up by 0.78%. On the flip side, Sun Pharma down by 2.25%, ITC down by 1.44%, TCS down by 1.07%, Hero MotoCorp down by 1.00% and Wipro down by 0.91% were the top losers.

Meanwhile, ahead of the combined general and railway budget, Finance Minister Arun Jaitley has indicated that the Railways must shift its focus from populism to performance and said that passengers must pay for the service they receive and gave emphasis to outsourcing of non-core functions in railways.

While hinting that there could be hike in passengers fare and rejecting the idea of several subsidies populist announcements regarding trains, he made a strong case for outsourcing of non-core functions like hospitality services of Indian Railways, he said that unless the railways strengthen its performance and internal management system, they will lose out to competition from other sectors like highways and airlines in both passenger and cargo transportation. The core competence of railways is really to drive trains, to provide those services. Hospitality may not be the core competence of the railways and therefore, what is not within its core competence, the principle of outsourcing-which is accepted world over-can be a logical addition to those activities of railways.

Highlighting a transport accounting system,  Arun Jaitely said that Accounting System should be revealing and not concealing and railways plan to shift towards accrual system of accounting from cash system will better reflect its performance.           

The CNX Nifty traded in a range of 8,112.55 and 8,053.25. There were 23 stocks in green against 28 stocks in red on the index.

The top gainers on Nifty were Ultratech Cement up by 1.25%, Lupin up by 1.16%, NTPC up by 1.11%, Maruti Suzuki up by 1.01% and Indusind Bank up by 1%. On the flip side, Bharti Infratel down by 2.66%, Sun Pharma down by 2.17%, ITC down by 1.63%, Idea Cellular down by 1.50% and Ambuja Cement down by 1.49% were the top losers.

European markets were trading mostly in red; UK’s FTSE 100 decreased 1.12 points or 0.02% to 7,042.84 and France’s CAC decreased 7.99 points or 0.16% to 4,841.90, while Germany’s DAX increased 6.08 points or 0.05% to 11,470.82.

Asian equity markets ended mostly in red on Wednesday, with Japanese shares closed slightly lower in choppy trade as a modest uptick in the yen overshadowed overnight advances in US stocks and the government's upbeat assessment of the domestic economy. The government has upgraded its assessment of the Japanese economy for the first time since March 2015, citing a pickup in private consumption and exports. Oil prices nudged higher to trade above $53 a barrel in Asian deals after API data showed US stockpiles declined last week. The EIA report due out later in the day is also expected to show a draw of 2.5 million barrels in the week ending December 16. Chinese shares ended higher as liquidity worries eased and the State-owned Assets Supervision and Administration Commission pledged to deepen reforms in state-owned sectors.