Post Session: Quick Review

Indian equity benchmark witnessed bloodbath on Monday with frontline gauges breaching their crucial 25,900 (Sensex) and 7950 (Nifty) levels, as fears on expectation of increase in long term capital gains tax weighed on market sentiments. The markets made a dismal start in red in early deals due to profit booking by investors. The sentiments were under pressure with Prime Minister Narendra Modi’s statement that his government would not hesitate to make tough decisions to help support its growing economy and his suggestion that people earning from financial markets must make a fair contribution to nation building. The comments were interpreted as a pitch for higher taxes on income from capital markets. Sentiments weakened despite Finance Minister Arun Jaitley’s clarification that there is no intention of government to impose long-term capital gains tax on securities transactions in the upcoming budget. Apart from profit booking, sustained capital outflows by foreign funds have also dampened the sentiments. Foreign investors have pulled out a massive $3.5 billion from the capital market this month so far following rate hike by the US Federal Reserve. Most of the outflows by the Foreign Portfolio Investors (FPIs) have been witnessed in the debt markets during the period under review. The latest FPI outflows took place following a withdrawal of over Rs 49,700 crore on net basis from the capital market (equity and debt) in last two months (October-November).

Some pressure also crept in with domestic rating agency ICRA’s latest report that India’s gross value added growth is likely to be at 6.6 percent in 2016-17 as economic activity will take more time to normalize following the government’s move to demonetize high-value notes. The street maintained cautious approach as the GST Council could not evolve a consensus on the issue of dividing the administrative powers between the Centre and states in its two-day meeting which concluded on Friday even as it cleared all other provisions of draft model GST Bill and whole of compensation Bill. The next meeting of the GST Council will take place on January 3 and 4. The market may remain volatile this week as traders may roll over positions in the Futures & Options (F&O) segment from the near month i.e. December 2016 series to next month i.e. January 2017 series. The near month December 2016 derivatives contracts will expire on Thursday i.e. December 29, 2016.

On the global front, Asian markets ended mostly in green, while several of the markets remained closed for the Christmas holiday. Investors chose to remain on the sidelines in the absence of fresh cues. The Japanese market, which resumed trading after a three-day holiday, closed modestly lower despite the positive cues from Wall Street on Friday. The fall in Nikkei share was led by falls in banking and exporter stocks with risk appetite sapped by a pause in the yen’s recent tendency to weaken. China stocks erased early losses and eked out a gain after some shares favored by insurers rebounded, offsetting the weakness in resources pulled lower by falls in commodity prices.

The BSE Sensex ended at 25823.68, down by 217.02 points or 0.83% after trading in a range of 25753.74 and 26008.57. There were 5 stocks advancing against 25 stocks declining on the index. (Provisional)

The broader indices ended in red; the BSE Mid cap index was down by 2.26%, while Small cap index was down by 2.07%. (Provisional)

The sole gaining sectoral index on the BSE was FMCG up by 0.02%, while Realty down by 3.64%, Metal down by 2.83%, PSU down by 2.02%, Power down by 1.86% and Oil & Gas down by 1.52% were the losing indices on BSE. (Provisional)

The top gainers on the Sensex were Hindustan Unilever up by 1.65%, Bharti Airtel up by 0.42%, Larsen & Toubro up by 0.34%, ITC up by 0.18% and TCS up by 0.17%. (Provisional)

On the flip side, Cipla down by 5.02%, Lupin down by 3.19%, Tata Steel down by 2.48%, SBI down by 2.13% and Sun Pharma down by 2.05% were the top losers. (Provisional)

Meanwhile, the Finance Minister Arun Jaitley has expressed hope that demonetisation will help to increase government revenue and lower fiscal deficit. Also, the move towards a digitised economy will help to have a higher economic growth which in turn will imply less borrowing and help to achieve an overall cleaner economy. He said that the rise in government’s revenue will lead to higher expenditure on defence and rural infrastructure. Further, the government aims to bring down fiscal deficit to 3.99 percent of Gross Domestic Product (GDP) this fiscal. India’s fiscal deficit for the first seven months of current financial year 2016-17 stood at Rs 4.23 lakh crore or 79.3 per cent of the full-year target.

Jaitley said that with the junking of the old high-value currency, the parallel economy has become part of the formal system, which leads to higher accountability and taxation that boost economic growth and transparency. He also said that shifting towards less cash economy will help bridge fiscal deficit and bring about improvement in rural India. He added that the government will pass on lesser burden to the posterity if the fiscal deficit is lower. At the same time, it will augment capability of administration, increase defence expenditure and improve spending on the poor.

The Minister also said that anonymity of money is gone with demonetisation as the money has come into the banking framework and becomes part of the formal system leading to strengthening of banking, and money in the system becomes part of the taxation system too. Recently, the government in order to encourage digital transaction has unveiled two schemes, Lucky Grahak Yojana and Digi Dhan Vyapaar Yojana for customers and traders to promote mobile banking and e-payments. A total of 15,000 people will get rewards as Christmas gift through a draw, whereby each of them will have Rs 1,000 in their accounts, the scheme will continue for the next 100 days.

The CNX Nifty ended at 7910.20, down by 75.55 points or 0.95% after trading in a range of 7893.80 and 7970.05. There were 6 stocks advancing against 45 stocks declining on the index. (Provisional)

The top gainers on Nifty were Hindustan Unilever up by 1.63%, TCS up by 0.30%, ITC up by 0.18%, Larsen & Toubro up by 0.17% and Bharti Airtel up by 0.17%. (Provisional)

On the flip side, Cipla down by 4.62%, Hindalco down by 4.58%, Aurobindo Pharma down by 3.68%, Bank of Baroda down by 3.43% and Eicher Motors down by 3.23% were the top losers. (Provisional)

The European stock markets remained closed on account of Christmas holiday.

Asian equity markets ended mostly in green on Monday despite thin trading volumes because of the Christmas holidays, with some major markets in the region still closed. Markets in Hong Kong, Singapore, Indonesia and Malaysia were closed. Chinese shares fell more than 1% in morning trading over concerns about Beijing’s monetary policy to deflate various risky asset bubbles, but rebounded and ended higher as investors turned their attention to increased government spending on infrastructure to boost the economy. Meanwhile, Japanese shares ended lower as the yen strengthened a bit and banking stocks continued to succumb to profit taking. A strong yen threatens to reduce profits exporters earn abroad.