Indian benchmarks end a disappointing session with modest cut; broader markets outclass blue-chips

Indian equity markets commenced the week on a sluggish note as the frontline indices showcased an unenthusiastic performance on Monday and settled with moderate cuts of around ten basis points. Market participants remained on the sidelines and refrained from any buying activity after the US payrolls data released on Friday indicated strong underlying wage growth, strengthening the case for more rate increases in 2017. The US Labor Department said non-farm payroll employment climbed by 156,000 jobs in December, while hourly pay jumped 2.9 percent from the year before, which was the biggest monthly increase in seven years. For 2016 overall, job growth in the world’s biggest economy remained steady, although the pace was slower than in 2015. On the domestic front, sentiments were undermined by the advance estimates of GDP data for fiscal year 2017, indicated a slowdown in growth even though the figures do not take into account the demonetisation impact. GDP growth is estimated to slow down to 7.1% in the current fiscal, from 7.6% in 2015-16, mainly due to slump in manufacturing, mining and construction sectors. sentiments weakened further on the report that Foreign investors pulled out more than $3 billion of the so-called 'hot money' from the Indian capital markets in 2016, making it the worst period in last eight years in terms of foreign investments. However, investors got some ease 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. He also said that the Goods and Services Tax (GST), which will be implemented this year, will provide for better indirect tax administration. Some support also came with the report that India has emerged as the most optimistic country globally in terms of business optimism as the country’s businesses are high on expectations of increasing revenue, employment, profitability. According to the report, there is an overall increase in global optimism which augurs very well for India in terms of attracting investments and providing markets for Indian products and services globally.

On the global front, Asian markets ended mostly lower on Monday as investor caution grew before a news conference by President-elect Donald Trump on Wednesday, where his views on global trade and China will be carefully scrutinized for future policy implications. Sentiments also remained down-beat after US employment increased less than expected in December but a rebound in wages pointed to sustained labor market momentum that sets up the economy for stronger growth and further interest rate increases from the Federal Reserve this year. However, Chinese shares ended higher, led by defense stocks as more central state-owned enterprises (SOEs) mulled plans to push mixed-ownership reforms. Meanwhile, European shares edged lower in early deals, bucking the trend seen across other global markets, as investors focused on fresh data from the euro zone and volatility in oil markets.

Back home, after getting a positive start, the local benchmarks immediately drifted into the negative zone and slipped to intraday lows in late morning trade. Thereafter, the indices traded in the tight range for most part of the session as investors remained sideways in the absence of any significant trigger at domestic front. Eventually the NSE’s 50-share broadly followed index Nifty, suffered a moderate cut of around 10 bps to settle above the crucial 8,200 support level while Bombay Stock Exchange’s Sensitive Index-Sensex- slipped over thirty points and closed above the psychological 26,700 mark. However, the broader markets showed some resilience and settled on a positive note, outperforming their larger peers by quite a margin. The market breadth remained optimistic as there were 1600 shares on the gaining side against 1206 shares on the losing side, while 140 shares remained unchanged.

Finally, the BSE Sensex declined 32.68 points or 0.12% to 26726.55, while the CNX Nifty was down by 7.75 points or 0.09% to 8,236.05. 

The BSE Sensex touched a high and a low of 26860.88 and 26701.18, respectively and there were 12 stocks on gainers side against 18 stocks on the losers side on the index.

The broader indices made a positive closing; the BSE Mid cap index ended higher 0.23%, while Small cap index was up by 0.45%.

The top gaining sectoral indices on the BSE were Realty up by 0.62%, IT up by 0.59%, FMCG up by 0.58%, TECK up by 0.45% and Bankex up by 0.10%, while Oil & Gas down by 0.93%, Power down by 0.51%, PSU down by 0.43%, Metal down by 0.23% and Consumer Durables down by 0.17% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 1.30%, TCS up by 0.88%, Maruti Suzuki up by 0.62%, Wipro up by 0.59% and Tata Steel up by 0.56%. On the flip side, Dr. Reddys Lab down by 3.00%, ONGC down by 2.17%, Asian Paints down by 1.88%, Coal India down by 1.86% and Lupin down by 1.40% were the top losers.

Meanwhile, Central Board for Direct Taxes (CBDT), in its year-end review 2016, has stated that General Anti-Avoidance Tax Rule (GAAR), which was originally to be implemented from April 1, 2014, will now come into effect from April 1, 2017. GAAR contains provision allowing the government to prospectively tax overseas deals involving local assets. In its year-end review, tax department listed its major achievements so far include, among others, Enactment of The Benami Transactions (Prohibition) Amendment Act, 2016, Implementation of The Direct Tax Dispute Resolution Scheme, 2016 and of GAAR from Assessment Year 2018-19.

During the 2015 Budget presentation, Finance Minister Arun Jaitley had said that GAAR implementation will be delayed by two years. Its implementation was repeatedly postponed because of the apprehensions expressed by foreign investors. Jaitley also said that the investments made up to March 31, 2017 shall not be subjected to GAAR, which was to be applied on those claiming tax benefits of over Rs 3 crore.

GAAR was part of the 2012-13 Budget speech of the then Finance Minister Pranab Mukherjee to check tax evasion and avoidance. There have been fears that the government may use it to target P-Notes. Through the use of GAAR, government may try to tax P-Notes as indirect investments, which could attract a tax rate of up to 15 per cent. To avoid tax altogether under GAAR, an investor may have to prove that P-Notes were not set up specifically to avoid paying taxes.

The CNX Nifty traded in a range of 8,263.00 and 8,227.75. There were 22 stocks in green against 29 stocks in red on the index.

The top gainers on Nifty were HCL Tech up by 2.55%, Idea Cellular up by 2.06%, Eicher Motors up by 1.22%, TCS up by 1.17% and Indusind Bank up by 1.16%. On the flip side, Dr. Reddys Lab down by 3.14%, ONGC down by 2.15%, Coal India down by 1.99%, Asian Paints down by 1.86% and Hindalco down by 1.77% were the top losers.

The European markets were trading mostly in green; UK’s FTSE 100 increased 22.66 points or 0.33% to 6,954.21 and France’s CAC increased 28.59 points or 0.6% to 4,764.07, while Germany’s DAX decreased 57.82 points or 0.5% to 11,541.19.

Asian equity markets ended mostly in red on Monday, as investor caution grew before a news conference by President-elect Donald Trump on Wednesday, where his views on tax reform, infrastructure spending and China trade will come under close scrutiny. With China's yuan resuming its downward slide and oil prices edging lower in Asian deals on a stronger dollar amid renewed doubts about touted production cuts, investors were wary of making any big moves. The dollar stood tall against rivals after the latest US jobs report showed the 75th straight month of job growth, keeping the Federal Reserve on track to raise interest rates as much as three times this year. Friday’s Labor Department report painted a mixed picture of US employment. It showed that companies added a solid but slightly disappointing 156,000 jobs in December. On the other hand, hourly pay jumped 2.9 percent from the year before, which was the biggest monthly increase in seven years. For 2016 overall, job growth in the world’s biggest economy remained steady in 2016, although the pace was slower than in 2015. Meanwhile, Chinese shares ended higher, led by defense stocks as more central state-owned enterprises (SOEs) mulled plans to push mixed-ownership reforms. The Japanese markets were closed for the 'Coming of Age Day' holiday.