Benchmarks trade in fine fettle in early deals

Indian equity benchmarks have made a gap-up opening and are trading in fine fettle in early deals on Friday with frontline gauges inching towards their crucial 27,900 (Sensex) and 8,650 (Nifty) levels. Sentiments remained up-beat after the Finance Ministry has said that the drive to transform India will continue in Budget 2017-18 to be unveiled by Finance Minister Arun Jaitley on February 1. Traders also took some support with President Pranab Mukherjee’s statement that demonetisation may have led to “temporary” slowdown in economy but it will bring more transparency in the system. Some support also came in on report that foreign institutional investors bought shares worth Rs 1378.81 crores on January 25, 2017.

On the global front, Asian markets were exhibiting mixed trend at this point of time, though Japanese market was trading higher as the pace of consumer prices decline eased as oil costs rose, supporting expectations for a return to inflation later this year. The US markets made a mixed closing in last session following a lackluster trade.

Back home, there was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too participated strongly in the rally. On the sectoral front, stocks related to pharmaceutical space edged higher as the new US President Donald Trump aims to reduce drug prices since the country's generic medicines are already affordable. Sugar stocks remained in action, as the Indian Sugar Mills' Association (ISMA) has revised downwards its estimates for sugar production during the 2016-17 season (October-September) to 213 lakh tones, in view of drought in key growing states of Maharashtra and Karnataka.

The market breadth remained in favor of advances, as there were 1,304 shares on the gaining side against 622 shares on the losing side while 113 shares remain unchanged.

The BSE Sensex is currently trading at 27876.93, up by 168.79 points or 0.61% after trading in a range of 27759.48 and 27902.19. There were 19 stocks advancing against 11 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index jumped 0.91%, while Small cap index was up by 0.78%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.61%, Power up by 1.31%, PSU up by 1.21%, Capital Goods up by 1.08% and Consumer Durables was up by 1.08%, while Metal down by 0.23% and Realty was down by 0.14% were the only losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 2.09%, GAIL India up by 1.72%, NTPC up by 1.37%, ONGC up by 1.35% and ICICI Bank was up by 1.27%. On the flip side, Lupin down by 0.77%, Tata Steel down by 0.75%, Wipro down by 0.53%, Cipla down by 0.50% and Bajaj Auto was down by 0.46% were the top losers.

Meanwhile, global ratings agency, Moody's Investors Service (Moody’s) has said that its positive outlook on India's Baa3 credit rating reflects their expectations of continued policy reforms which will allow balanced growth to support a sustainable reduction in the government's debt burden, even as it feels that the high debt level limits room to cut fiscal deficit quickly. It also cautioned that India's debt-to-GDP ratio at 68.6 percent is high compared to peers and the economy will return to the previous trend by mid-2017 after temporary effects of demonetisation fade away.

The agency said that India's general government debt-to-GDP ratio, at 68.6 percent, is high relative to peers. Therefore, room to reduce the deficit quickly is limited as wages and salaries account for about 50 percent of total expenditure with a large, once-in-10-years increase in central government compensation just implemented. As a result, fiscal policy decisions will need to be carefully calibrated, moving forward'.

Moody’s V-P Sovereign Risk Group William Foster said that persistent sizeable deficits imply that any reduction in India's debt burden will largely rely on robust nominal Gross Domestic Product (GDP) growth, which, in turn, is linked to a sustainable recovery in private investment. He also said that government capital expenditure that crowds in such private investment through infrastructure investment could support such growth. Foster on impact of demonetization said that in the medium term, it will strengthen India's institutional framework by reducing tax avoidance and corruption. He added that Demonetisation should also result in efficiency gains through greater formalisation of economic and financial activity, which would help broaden the tax base, enhance tax revenues and expand usage of the financial system.

The government aims to lower fiscal deficit to 3.5 percent of GDP in the present financial year, from 3.9 percent earlier. The 2017-18 budget, which is due on February 1, will outline the fiscal deficit target.

The CNX Nifty is currently trading at 8647.15, up by 44.40 points or 0.52% after trading in a range of 8606.90 and 8657.65. There were 36 stocks advancing against 15 stocks declining on the index.

The top gainers on Nifty were BHEL up by 2.81%, Axis Bank up by 2.04%, ACC up by 1.95%, BPCL up by 1.71% and GAIL India was up by 1.66%. On the flip side, Bosch down by 1.02%, Hero MotoCorp down by 0.84%, Tata Steel down by 0.78%, Lupin down by 0.70% and Cipla was down by 0.56% were the top losers.

Asian markets were trading mixed; Jakarta Composite rose 1.88 points or 0.04% to 5,319.52 and Nikkei 225 was up by 55.05 points or 0.28% to 19,457.44. On the flip side, Hang Seng decreased 13.39 points or 0.06% to 23,360.78 and FTSE Bursa Malaysia KLCI was down by 7.25 points or 0.43% to 1,684.97.