Indian benchmarks edge lower as caution prevails ahead of Union Budget

Indian equity benchmarks carried forward their southward journey for yet another session on Tuesday as participants kept their bets to a minimum ahead of the federal budget, while the risk sentiment was hit as Asian shares fell on worries over US President Donald Trump's immigration policy. The Union Budget 2017 will be a tightrope for Finance Minister Arun Jaitley to boost public spending and also keep deficit within limits. Local sentiments also got undermined by the Economic Survey 2016-17, tabled by chief economic adviser Arvind Subramanian, estimating economic growth to moderate to 6.5% in the current fiscal year ending March 2017, down from 7.6% reported in the previous fiscal. It also outlines three main downside risks to FY18 GDP growth forecast adding that demoetisation, rise in oil prices and global trade tensions will affect the growth forecast. The Economic Survey, however, sees India's GDP rebounding sharply in the range of 6.75-7.50 percent during the fiscal year ending March 2018. Painting a rosy picture on the agriculture sector, the survey sees farm sector to grow at a healthy rate of 4.1 percent in the current fiscal as against 1.2 percent growth achieved in 2015-16. Furthermore, market participants remained anxious with the CII - IBA Financial Conditions Index for Q4 (January-March) FY2016-17 recording a drop below the 50 mark owing to expectation of banks and financial institutions of deterioration in the overall financial conditions in the economy. 

Meanwhile, banking stocks declined on the report that demonetisation is likely to push back recovery in banks' asset quality as the cash shortage had a ‘disruptive impact’ on India's informal economy. Cash shortages caused by the demonetisation of large denomination currency notes have affected the income of many borrowers by holding back economic activity and reduced their short-term repayment abilities. Furthermore, IT stocks slipped as investors panicked over US President Donald Trump plans to keep his electoral promise of imposing tougher immigration rules on the H1B visa plans. India's IT sector will face temporary setback to move workers from India to the US with the bill introduced in the US House of Representatives that mandates minimum wages of H1B visa holders at $130,000, double the current limit.

On the global front, Asian equity markets ended lower on Tuesday as worries about the economic impact of US President Donald Trump's immigration policies continued to weigh on markets. Japanese shares ended lower as the yen strengthened against the dollar and euro, and the Bank of Japan kept its policy settings unchanged at its first meeting of the year, underlining its nervousness about how Trump plans to implement his pro-growth policies.  However, European stocks gained some ground in early trade, following their selloff in the previous session as banking stocks rebounded, while forecast-beating earnings from Hennes & Mauritz AB sparked a rally in the retail sector.

Back home, the local benchmark got off to a somber opening, extending the downtrend for the second straight session as pessimistic sentiments prevailed across Asian markets. The selling pressure accentuated in the late morning trades as investors took to across the board risk aversion. The key gauges made some attempts to pull-back in early afternoon trades, but profit booking at higher levels dragged the key indices to the lowest point in the session.  Finally, the NSE’s 50-share broadly followed index - Nifty plunged by around a percent to settle below the crucial 8,600 support level, while Bombay Stock Exchange’s Sensitive Index - Sensex took a triple digit cut and closed below the psychological 27,700 mark. Moreover, the broader markets too finished on a daunting note with over a percent losses, underperforming their larger peers by quite a margin. The market breadth on the BSE was abysmal, as there were 828 shares on the gaining side against 1897 shares on the losing side, while 220 shares remained unchanged.

Finally, the BSE Sensex declined 193.60 points or 0.70% to 27655.96, while the CNX Nifty was down by 71.45 points or 0.83% to 8,561.30. 

The BSE Sensex touched a high and a low of 27867.92 and 27624.54, respectively and there were 10 stocks on gainers side as against 20 stocks on the losers side on the index.

The broader indices made a negative closing; the BSE Mid cap index declined 1.10%, while Small cap index was down by 1.03%.

The sole gaining sectoral index on the BSE was FMCG up by 0.04%, while IT down by 2.96%, TECK down by 2.49%, Oil & Gas down by 1.64%, PSU down by 1.39%, Metal down by 1.01% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 0.84%, Power Grid up by 0.76%, Bajaj Auto up by 0.44%, ONGC up by 0.25% and Hindustan Unilever up by 0.19%. On the flip side, TCS down by 4.47%, GAIL India down by 3.41%, Adani Ports & Special economic zone down by 3.23%, Sun Pharma down by 2.06% and Infosys down by 2.01% were the top losers.

Meanwhile, Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, is planning to release the next edition of Consolidated Foreign Direct Investment (FDI) Policy Circular of 2017 soon. DIPP also said that the next edition of the consolidated FDI policy is scheduled to be issued this year, which would incorporate all the changes effected in FDI Policy post issue of Consolidated FDI Policy Circular of 2016 that is from June 7, 2016.

DIPP is the nodal agency on FDI policy and it compiles all policies related to India's FDI regime into a single document to make it simple and easy for investors to understand. Investors would otherwise have to go through various press notes issued by the industry department and RBI regulations to understand the policy. The government updates the policy every year.

For economic development, FDI is considered as essential component and the country has taken several steps to attract such funds. Last year, the government relaxed norms in about a dozen sectors including defence, civil aviation and single brand retail. During April-September of the current financial year, FDI inflows increased by 30 per cent to $21.62 billion as compared to $16.63 billion in the same period a year earlier.  

The CNX Nifty traded in a range of 8,631.75 and 8,552.40. There were 11 stocks in green as against 39 stocks in red on the index, while one stock remained unchanged.

The top gainers on Nifty were Idea Cellular up by 12.74%, Indusind Bank up by 0.88%, Bharti Airtel up by 0.82%, ITC up by 0.82% and Power Grid up by 0.70%. On the flip side, Bharti Infratel down by 10.86%, Grasim Industries down by 6.14%, TCS down by 4.33%, HCL Tech down by 4.23% and Tech Mahindra down by 3.73% were the top losers.

The European markets were trading in green; UK’s FTSE 100 increased 38.08 points or 0.53% to 7,156.56, Germany’s DAX increased 44.94 points or 0.38% to 11,726.83 and France’s CAC increased 22.56 points or 0.47% to 4,807.20.

Asian equity markets ended in red on Tuesday after Donald Trump fired Acting Attorney General Sally Yates Monday night, adding to concerns surrounding the unpredictability and protectionist trade stance of the new US President. Japanese shares ended lower as the yen strengthened against the dollar and euro and the Bank of Japan kept its policy settings unchanged at its first meeting of the year, underlining its nervousness about how Trump plans to implement his pro-growth policies. Meanwhile, the BOJ raised its gross domestic product (GDP) forecast to 1.4 percent for the current fiscal year ending March 31, from a previous prediction of 1.0 percent growth made in October. The BOJ said in its policy statement it expected inflation to rise to around its target of 2 percent by fiscal 2018. Financial markets in China, Hong Kong and Taiwan remained closed for the Lunar New Year holidays.