Indian equity markets finish first trading day of 2017 in the red

Indian markets showed smart recovery despite snapping the first trading day of 2017 in the red territory.  Renewed buying in auto, cement and realty stocks, after banks announced reduction in lending rates, helped the indices to recoup most of the losses in the second half of the trading session. The country’s largest bank State Bank of India (SBI) announced a steep interest rate cut in several years, by reducing its marginal cost of funds based lending rate (MCLR) by 90 basis points (bps) across all maturities, while Union Bank of India and Punjab National Bank also announced cuts ranging from 60 to 90 basis points.  Lending rate cuts by the several banks and Narendra Modi's announcement of new sops to boost low-cost housing ahead of the Union Budget affected the sentiment despite India's December manufacturing PMI dropping for the first time in a year. The Nikkei India Manufacturing Purchasing Managers' Index, or PMI, dropped to 49.6 in December from November's 52.3, showing the first business activity contraction in 12 months. The survey cited shortages of money in the economy leading to fall in output and new orders, which interrupted a continuous sequence of growth that had been seen throughout 2016. Meanwhile, Prime Minister has announced interest subsidy of up to 4% on loans taken in the New Year under the Pradhan Mantri Awaas Yojana (PMAY). According to the scheme, loans of up to Rs 900,000 taken out in 2017 to receive interest rebate of 4%, while loans of up to Rs 1,200,000 taken out in 2017 to receive interest rebate of 3% and loans of up to Rs 200,000 taken in 2017 for new housing, or extension of housing in rural areas, to receive an interest rebate of 3%. On the Sectorl front, oil marketing companies such as HPCL, BPCL and IOC gained after they increased petrol prices by Rs 1.29 a litre - the third increase in a month, and diesel price by 97 paise a litre - the second hike in a fortnight. Shares of sugar companies edge higher for the second straight session and rallied by up to 20% on hopes of debt restructuring. According to the reports, the Union finance ministry is considering a proposal to restructure sugar mills’ debt, which is under severe stress due to lack of capacity utilisation.

On the global front, after a late-year rally fueled by the U.S. election pushed stocks to surprising new peaks, investors are wary that the market could be primed for a spill to start 2017. US markets ended in red on the last session of the year but were well off the day’s low. While globally, Japan, China, Hong Kong, Singapore, the US and the UK will be closed for the day on account of New Year's Day, the People’s Bank of China has said that China should set a more flexible 2017 economic growth target to give policy makers more room to enact reform. Meanwhile, European stocks traded higher in early trade, driven largely by gains for banks across the board, though volumes were expected to be thin as many traders remained out for an extended New Year’s break.

Back home, after getting a weak start, the frontline indices kept losing steam thereafter and even drifted to the lowest point in the session in early afternoon trades. Thereafter started the road to recovery for the bourses which kept slowly but steadily moving towards the neutral line. The frontline indices even managed to break into the positive terrain in late afternoon trades but only for a brief period. Some final hour profit booking ensured that the key gauges end the session below neutral line. Finally, the NSE’s 50-share broadly followed index - Nifty settled with trivial losses of six points above the psychological 8,150 levels while Bombay Stock Exchange’s Sensitive Index - Sensex shed thirty one points and closed below the psychological 26,600 mark. Moreover, broader markets showed some resilience by outclassing their larger peers by a big margin as investors carried forward their value hunting in beaten down shares from the midcap and small cap space. On the BSE sectoral space, Realty counter remained the top gainer in the space with over four percent gains followed by the high beta- Auto index which ended with around two percent gains. On the other hand, the Banking index slipped by over a percent followed by IT and TECk counters which settled with close to quarter percent losses.

The market breadth remained optimistic as there were 1918 shares on the gaining side against 797 shares on the losing side, while 109 shares remained unchanged.

Finally, the BSE Sensex declined 31.01 points or 0.12% to 26595.45, while the CNX Nifty was down by 6.30 points or 0.08% to 8,179.50. 

The BSE Sensex touched a high and a low of 26720.98 and 26447.06, respectively and there were 15 stocks on gainers side against 15 stocks on the losers side on the index.

The broader indices made a positive closing; the BSE Mid cap index ended higher 0.83%, while Small cap index was up by 1.20%.

The top gaining sectoral indices on the BSE were Realty up by 4.32%, Auto up by 1.95%, Metal up by 1.89%, Consumer Durables up by 1.64% and Capital Goods up by 0.80%, while Bankex down by 1.18%, IT down by 0.33% and TECK down by 0.15% were the only losing indices on BSE.

The top gainers on the Sensex were Tata Steel up by 3.80%, Mahindra & Mahindra up by 3.42%, Tata Motors up by 3.37%, Maruti Suzuki up by 2.69% and Adani Ports &Special up by 2.11%. On the flip side, HDFC down by 3.42%, SBI down by 2.46%, Bajaj Auto down by 1.40%, ICICI Bank down by 1.37% and Infosys down by 0.90% were the top losers.

Meanwhile, India’s manufacturing growth contracted in December as new work orders and output took a knock for the first time in 2016 after governments demonetisation move. In turn, quantities of purchases were scaled back and employment lowered. Meanwhile, input costs increased at a quicker rate, whereas output charge inflation eased. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) - a composite single-figure indicator of manufacturing performance - was down to 49.6 in December from 52.3 in November.

As per the report, four of the five sub-components of the PMI edged below 50.0, while average delivery times lengthened further. At the sector level, operating conditions deteriorated in both the consumer and intermediate goods categories. The survey participants cited shortages of money in the economy leading to fall in output and new orders, which interrupted a continuous sequence of growth that had been seen throughout 2016. Concurrently, manufacturers lowered output accordingly. Cash flow issues among firms also led to reductions in purchasing activity and employment. Businesses also highlighted challenging conditions in external markets, with a fall in new businesses from abroad ending a six-month long growth.

The survey found that higher prices paid for a range of raw materials led average cost burdens to increase for the fifteenth straight month in December, with the rate of inflation picking up since November. It also stated that with the window for exchanging notes having closed at the end of December, January data will be key in showing whether the sector will see a quick rebound. As per the report, a reading below 50 in terms of manufacturing performance indicates contraction from expansion.

The CNX Nifty traded in a range of 8,212.00 and 8,133.80. There were 28 stocks in green against 23 stocks in red on the index.

The top gainers on Nifty were Ambuja Cement up by 3.97%, Ultratech Cement up by 3.84%, Tata Steel up by 3.82%, Mahindra & Mahindra up by 3.78% and Eicher Motors up by 3.27%. On the flip side, HDFC down by 3.62%, Bank of Baroda down by 2.87%, SBI down by 2.66%, Indusind Bank down by 1.87% and ICICI Bank down by 1.19% were the top losers.

The European markets were trading in green; Germany’s DAX increased 93.61 points or 0.82% to 11,574.67 and France’s CAC increased 12.22 points or 0.25% to 4,874.53. London Stock Exchange was closed for the day on account of ‘New Year’s Day’ holiday.

The only major Asian markets trading today ‘Seoul Composite’ ended almost unchanged on Monday, the first trading session of the year, amid concerns that China may retaliate against the decision to deploy an advanced anti-missile defense system on South Korean soil. Other major Asian financial markets, including Japan, China and Hong Kong, were shut for the New Year’s holiday.

South Korea’s Seoul Composite ended tad lower by 0.30 points or 0.01% to 2,026.16.