Markets to continue the sluggish trend on weak global cues

The Indian markets continued the slide for the sixth straight session last day. Today, the start is likely to remain muted on mostly a weak global trend, traders will be concerned with Prime Minister Narendra Modi’s top economic adviser Bibek Debroy’s statement that the negative shock from demonetisation will last until the end of March, though he also said that improved growth next year should fully compensate for the loss. Also, the minutes of last rate-setting meeting of the Reserve Bank of India’s monetary policy committee (MPC) showed that it shifted its focus towards inflation while playing down concern about economic growth. The minutes showed that all members expressed concern over rising risk from global oil prices, and domestic non-oil and non-food inflation. RBI Governor Urjit Patel voted for status quo on the key interest rate arguing that the central bank needs to remain focused on inflation target as the impact of demonetisation on economy is uncertain, though transitory. Market may however get some support in the latter trade on report that the agriculture sector is all set to bounce back leaving two years of drought behind and may well pull off record foodgrain output of 270 million tonnes in 2016-17 on good rains. There will be some buzz in the power sector stocks, as the government has allowed public and private power producers to swap their coal supplies with a view to reducing the cost of electricity by ensuring more efficient fuel usage.

The US markets witnessed some profit taking at the record highs and declined in last session, though the selling pressure remained relatively subdued, limiting the downside for the markets, also as the National Association of Realtors reported an unexpected increase in existing home sales in the month of November. The Asian markets have made mostly a lower start tailing the US markets, despite the oil prices firming up after falling Wednesday for the first time in a week.

Back home, 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. 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.