Indian benchmarks extend gains for fourth straight session; Nifty settles at 3-month high

Indian equity indices staged a decent performance on the last day of the week by gaining around half percent in the session. Wednesday’s optimism got spilled over into the Friday’s session helping the frontline indices in extending the winning momentum for fourth successive session as investors remain optimistic ahead of the Union Budget next week. Besides, better than expected corporate earnings also aided the sentiments. Investors remained optimistic after Finance Minister Arun Jaitley put up a spirited defence of demonetisation, saying the drive 'shook' the financial system for a short while, but will integrate the shadow economy with the formal in the long run and ensure better tax compliance. He also said most contentious issues regarding the Goods and Services Tax (GST) have been sorted out between the Centre and states and the new indirect tax regime is at the final stages of implementation. Furthermore, market participants got some comfort with the report indicating that money in circulation is rising again in India post-demonetisation period and at the current rate, currency-to-GDP ratio will reach about 9 per cent by March -- sufficient to stabilise economic activity. According to report, the negative effects of demonetisation on growth are likely to be transitory as demand conditions are likely to re-surface after remonetisation and the economy is expected to see a V-shaped recovery. Some support also came in on report that foreign institutional investors bought shares worth Rs 1378.81 crore on January 25, 2017. However, gains remained capped with Reserve Bank of India’s (RBI) statement that business sentiments of the Indian manufacturing sector deteriorated in the third quarter of the current financial year and are likely to decline in the fourth quarter. The survey, which conducted between October and December, shows that businesses were less optimistic about several parameters like order books, capacity utilisation and imports. The mood around exports, however, improved reflecting a recent pick-up in export growth.

On the global front, Asian markets ended mostly lower on Friday amid a deepening rift between the U.S. and Mexico and ahead of U.S. fourth-quarter advance GDP figures on tap later in the day. Mexico's President Enrique Pena Nieto on Thursday scrapped his trip to Washington after U.S. President Donald Trump signed an executive order to move forward on construction of a physical wall between the two countries and repeated his claim for Mexico to foot the bill. While higher oil prices supported energy stocks, trading volumes were relatively thin amid holidays in China, South Korea and Taiwan for the start of Lunar New Year. Chinese markets are closed through next Thursday. Meanwhile, European stocks edged lower, trimming a weekly gain, with banks underperforming, after UBS posted a drop in full-year profit and warned there might be some significant changes if there is a 'hard Brexit'.

Back home, the benchmark got off to an optimistic opening, shrugging the sluggish sentiments prevailing in Asian markets following mixed cues from Wall Street. The key indices soon capitalized on the momentum and touched intraday highs in late morning session but the indices failed to hold onto the highs and slipped to lower levels in afternoon session post weak European market opening and profit booking in some frontline blue-chip stocks. Eventually, the NSE’s 50-share broadly followed index Nifty, convalesced by close to half percent to settle below the crucial 8,650 support level while Bombay Stock Exchange’s Sensitive Index, Sensex accumulated over one hundred and fifty points and closed above the psychological 27,850 mark. Moreover, the broader markets too participated in the rally and closed with gains of over half percent. The market breadth remained optimistic, as there were 1400 shares on the gaining side against 1378 shares on the losing side while 218 shares remained unchanged.

Finally, the BSE Sensex gained 174.32 points or 0.63% to 27882.46, while the CNX Nifty was up by 38.50 points or 0.45% to 8,641.25. 

The BSE Sensex touched a high and a low of 27980.39 and 27759.48, respectively and there were 19 stocks on gainers side against 11 stocks on the losers side on the index.

The broader indices ended in green; the BSE Mid cap index jumped 0.64%, while Small cap index was up by 0.53%.

The top gaining sectoral indices on the BSE were Power up by 2.10%, Consumer Durables up by 1.52%, Bankex up by 1.50%, PSU up by 1.33% and Auto up by 0.65%, while FMCG down by 1.51% and Realty down by 0.49% were the only losing indices on BSE.

The top gainers on the Sensex were ICICI Bank up by 4.74%, Bharti Airtel up by 3.82%, NTPC up by 3.33%, SBI up by 2.78% and HDFC up by 2.60%. On the flip side, ITC down by 2.78%, Lupin down by 1.77%, Wipro down by 1.55%, Hindustan Unilever down by 1.53% and Asian Paints down by 0.84% were the top losers.

Meanwhile, credit rating agency, India Ratings and Research in its latest report has said that in the forthcoming budget scheduled to be presented on February 1, 2017, Finance Minister Arun Jaitley may have to provide stimulus to the economy to ease the pain of demonetisation. Further the rating agency stated that the sudden decision of cancelling the legal tender of Rs 500 and Rs 1,000 notes and the chaos created thereafter due to the limited availability of new currency has caused significant disruption to the economy and employment.

India Rating in its report titled 'De-legalisation Tsunami May Compel Government to Provide Stimulus in Union Budget FY18', lowered the India's GDP growth estimate for the current fiscal to 6.8 percent, from its earlier estimate of 7.8 per cent and taking into account the present situation, the adverse impact may flow into FY18 too.

On informal sector, the report said that it is not a standalone sector and has strong-weak linkages with the formal sector, depending on the nature of goods/services dealt in. Therefore, where business in the informal sector has come to a grinding halt or down by 30-40 per cent and beyond, it has resulted in either ‘nil’ or lower income generation.

Further report has said that Indian public finances (central, state and local bodies) suffer from committed expenditure syndrome as a large part of current expenditure is inflexible and cannot be reduced/curtailed in the short-run. Therefore the fiscal room for stepping up expenditure has to either come from higher revenue collection or higher fiscal deficit. With growth expected to fall not only in FY17 but also in FY18, the government is clearly staring at lower tax collection. Further it believes that integration of the railway budget into the general budget will increase capital expenditure.

The CNX Nifty traded in a range of 8,672.70 and 8,606.90. There were 32 stocks in green against 18 stocks in red on the index, while one stock remained unchanged.

The top gainers on Nifty were BHEL up by 5.57%, Bharti Airtel up by 5.20%, ICICI Bank up by 4.56%, Bank of Baroda up by 3.67% and NTPC up by 3.36%. On the flip side, ITC down by 3.01%, Bosch down by 2.22%, Lupin down by 1.67%, Wipro down by 1.63% and Kotak Mahindra Bank down by 1.53% were the top losers.

The European markets were trading in red; UK’s FTSE 100 decreased 2.38 points or 0.03% to 7,159.11, Germany’s DAX decreased 23.84 points or 0.2% to 11,824.79 and France’s CAC decreased 23.43 points or 0.48% to 4,843.81.

Asian equity markets made a mixed closing on Friday amid a deepening rift between the US and Mexico and ahead of US fourth-quarter advance GDP figures later in the day. Mexico's President Enrique Pena Nieto on Thursday scrapped his trip to Washington after US President Donald Trump signed an executive order to move forward on construction of a physical wall between the two countries and repeated his claim for Mexico to foot the bill. Trading volumes were relatively thin amid holidays in China, South Korea and Taiwan for the start of Lunar New Year. Chinese markets are closed through next Thursday. Meanwhile, Japanese shares ended higher on a weaker yen as the Bank of Japan surprised market participants by increasing its buying in five- to 10-year bonds in an attempt to bring down bond yields. Also, Japan's core consumer prices fell at the slowest annual pace in nearly a year in December, bringing some relief to the central bank, which has been struggling with deflationary pressures for quite some time.