Markets to make a somber start on weak global cues

The Indian markets suffered sharp setback in last session, as the major benchmarks after a strong start lost ground in the final hours to end with cut of around half a percent. Today, the start is likely to be somber on weak global cues. Traders will be a bit concerned with the government deciding to peg the peak goods and services tax (GST) rate at 40 per cent in the legislation instead of 28 per cent, giving it the flexibility to raise rates without having to reach out to Parliament. Though, the change in the peak rate will not alter the 4-slab rate structure of 5, 12, 18 and 28 percent agreed upon last year for the moment. Meanwhile, Chief Economic Advisor Arvind Subramanian has said that Economic and political systems in India have 'not developed maturity' for nuanced interventions and tend to take recourse to bans and restrictions. There will be some buzz in the defence and telecom stocks on report that the government is set to make further changes in its overseas investment regime, scrapping the need for approvals in sectors where licences are also required, such as defence, telecom and broadcasting, eliminating one layer completely from the process.

The US markets retreated in last session after moving sharply higher over the course of the previous session. Profit taking contributed to the pullback by stocks, while there were indications of a continued increase in the chance that the Federal Reserve will raise interest rates at its next monetary policy meeting later this month. The Asian markets have made an all red start following weakness in Wall Street. The Japanese market too declined despite report of a gauge of consumer prices rising for the first time since December 2015.

Back home, Indian equity benchmarks showed a volte-face on Thursday as what started on a promising note ended as a dismal show. Investors squared off position in the dying hours of trade as sentiments turned pessimistic on the report that GST Council has proposed to raise the peak tax rate to 20%, from the current 14%, in the model goods and services tax Bill to preclude the requirement of approaching Parliament for any change in rates in future. The change in the peak rate will not alter the 4-slab rate structure of 5, 12, 18 and 28 percent agreed upon last year, but is only a provision being built into the model law to take care of contingencies in future. Furthermore, traders remained cautious as Non-food credit, comprising loans given by banks to agriculture and allied activities, industry, services and personal segments, grew at a slower clip of 3.5% year-on-year in January 2017 as against 9.8% in the year-ago period. The slow growth in non-food credit shows that demand in the economy has not recovered after taking a beating during the 50-day demonetisation period between November 9 and December 30, 2016. Moreover, credit to agriculture and allied activities increased at a slower pace of 8.1% in January 2017, compared with a robust increase of 13.4% in January 2016. Adding anxiety among market participants, Moody's kept India's gross domestic product (GDP) forecast for FY17 at 6.9% and expects the full impact of demonetisation to reflect in the fourth quarter numbers. The ratings agency expects Q4 GDP to moderate to 6.4%. However, losses remained capped with the report that the government is expected to soon announce relaxations in the foreign direct investment (FDI) policy in certain sectors, including single brand retail. The further liberalisation in the FDI policy is aimed at providing better business environment by removing impediments. The government last year relaxed FDI norms in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies, real estate and news broadcasting. Finally, the BSE Sensex declined 144.70 points or 0.50% to 28839.79, while the CNX Nifty was down by 46.05 points or 0.51% to 8,899.75.