Markets to make positive start on firm global cues

The Indian markets despite a good start lost its momentum and ended with around half a percent of losses in last session mainly due to slump in IT stocks. Today the start is likely to be on a positive side amid firm global cues. Traders will take some support with Finance minister Arun Jaitley’s statement that the impact of demonetization on the economy would be “transient” but in the medium and long run, the GDP would be “bigger and cleaner” and it will also help lower interest rates. However, traders will be concerned with the first advance estimates, released by the Central Statistics Office (CSO) on Friday that the economic growth is expected to be 7.1 percent in FY 2016-17 as compared to the growth rate of 7.6 percent in FY 2015-16. Manufacturing sector is estimated to grow by 7.4 percent as compared to growth of 9.3 percent in 2015-16. The growth rate in per capita income is estimated at 5.6 percent during 2016-17, as against 6.2 percent in the previous year. There will be some buzz in the sugar stocks on report that the government does not have any immediate plans to cut import duty on sugar as the country would have sufficient supply of the sweetener considering fall in consumption this year and a likely bumper crop next year.

The US markets ended higher following the release of the Labor Department's closely watched monthly employment report for December. Though the report showed weaker than expected job growth during the month, it also showed a significant acceleration in the pace of wage growth. The Asian markets have made a firm start, following the Dow Jones coming within inches of hitting the 20,000 mark at the close of trade last week.

Back home, Indian equity markets showed a volte-face on Friday as what started on a cheerful note ended as a dismal show. The optimism in local markets petered out completely by the end of trade and the indices even drifted in to the negative territory, despite getting off to a gap-up opening. Sentiments got a hit after President Pranab Mukherjee issued a note of caution that the Narendra Modi government’s demonetization decision could likely lead to a temporary slowdown in the economy and hurt the poor. The President called for policymaking that would reduce the suffering of the poor, and seemed to question the focus shift in the government’s poverty alleviation programmes and policies from an entitlement-based approach to an entrepreneurial one. Furthermore, a private report highlighted that India’s GDP is likely to have grown at a much slower-than-expected pace of 5 percent in the October-December period and may see a 6 percent growth in the following quarter due to a slowdown in manufacturing and services sectors post demonetization. Besides, sharp selling in IT counter also weighed on investor sentiments. Technology stocks came under pressure on reports that two US Congressmen have reintroduced a bill to curb the use of H-1B visas, on which the Indian IT sector is particularly dependent. The new bill would require workers on the H-1B visa pay a minimum of $100,000, up from $60,000 currently. However, losses remained capped in local markets with the report of Financial Stability and Development Council (FSDC), headed by Finance Minister Arun Jaitley indicated that India appears to be much better placed with improved macro-economic fundamentals, as measures to eliminate shadow economy and tax evasion are expected to have positive impact on GDP. India expects to grow at around 7 percent in the first half of the next financial year. Market participants got some relief with the report that Reserve Bank of India (RBI) replaced as much as 44% of the currency extinguished by demonetisation with new notes by December 30, 2016. The report also expresses hopes that India's currency supply is likely to return to near normal by February end and growth, which has been hit by the withdrawal of Rs 500 and Rs 1,000 notes, is likely to bounce back faster than earlier expected. Finally, the BSE Sensex declined 119.01 points or 0.44% to 26759.23, while the CNX Nifty was down by 30 points or 0.36% to 8,243.80.