Indian benchmarks pare losses, end flat as Fed rate hike looms

Indian benchmark indices trimmed most of their losses, but failed to end the session on positive note, as traders remained cautious ahead of a speech by U.S. Federal Reserve Chair Janet Yellen, with expectations growing the Fed would raise interest rates soon. Several Fed officials have recently voiced their need for higher rates, which has seen the implied probability of a move this month shoot higher. On the domestic front, sentiments got hit by the GST Council deciding to peg the peak goods and services tax (GST) rate at 40% in the legislation instead of 28%, 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. However, investors were seen covering lot of short positions in late afternoon trades after some pessimism got petered out on the back of strong services PMI data. India's dominant services industry returned to growth in February for the first time in four months, as demand slowly recovers after the government's cash crackdown late last year. The Nikkei/IHS Markit Services Purchasing Managers' Index rose to 50.3 in February from 48.7 in January, marginally above the 50-mark that separates growth from contraction. Some support also came with the report that the Competition Commission of India is assessing regulations across sectors in efforts to weed out ‘obsolete regulatory restrictions’ and improve the ease of doing business.

On the global front, Asian markets concluded the week on pessimistic note as investors turned jittery after Wall Street retraced from record highs overnight, amid renewed expectations of an interest rate hike by the Federal Reserve later this month. Japanese market fell as the yen strengthened after four days of losses and a raft of data painted a mixed picture of the world's third-largest economy. In the latest sign of an uptick in inflation around the world, Japan's core consumer prices rose for the first time in over a year in January. The jobless rate dropped to 3.0 percent from 3.1 percent in December, while household spending fell for the 11th straight month, indicating the country's economic recovery remains fragile. The Markit/Nikkei Japan services PMI slipped to 51.3 in February from 51.9 in January. Further, the US dollar index, a measure of the currency against a basket of global peers, was down 0.1% on Friday, after a rise of more than 1% over the previous two sessions. Meanwhile, European stocks edged lower, with caution setting in as investors waited to hear what Federal Reserve Chairwoman Janet Yellen may say about a possible interest rate increase.

Back home, after trading on subdued note for most part of the session, the local benchmarks regained their strength in final hour of trade after India’s dominant services industry returned to growth in February for the first time in four months. Eventually, the NSE’s 50-share broadly followed index Nifty, registered single digit losses to settle below the crucial 8,900 support level, while Bombay Stock Exchange’s Sensitive Index, Sensex slipped by less than ten points and closed above the psychological 28,800 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 on the BSE was pessimistic, as there were 1388 shares on the gaining side against 1446 shares on the losing side, while 173 shares remained unchanged.

Finally, the BSE Sensex declined 7.34 points or 0.03% to 28832.45, while the CNX Nifty was down by 2.20 points or 0.02% to 8,897.55. 

The BSE Sensex touched a high and a low of 28860.13 and 28716.21, respectively and there were 14 stocks on gainers side as against 16 stocks on the losers side on the index.

The broader indices made a positive closing; the BSE Mid cap index gained 0.23%, while Small cap index was up by 0.34%.

The top gaining sectoral indices on the BSE were Telecom up by 1.21%, Oil & Gas up by 1.12%, Energy up by 1.09%, Utilities up by 1.02% and Realty up by 0.86%, while FMCG down by 0.39%, Bankex down by 0.26%, Auto down by 0.23% and Capital Goods down by 0.07% were the top losing indices on BSE.

The top gainers on the Sensex were GAIL India up by 3.47%, Reliance Industries up by 2.04%, Sun Pharma up by 1.44%, Hero MotoCorp up by 1.33% and Axis Bank up by 1.28%. On the flip side, HDFC down by 1.89%, Asian Paints down by 1.34%, ITC down by 0.98%, ICICI Bank down by 0.86% and SBI down by 0.69% were the top losers.

Meanwhile, Chief Economic Advisor Arvind Subramanian has said that Indian regulators are still at work in progress phase and have still not attained the kind of maturity for nuanced interventions and tend to take recourse to bans and restrictions. He also said that especially in the area of competition policy, they need to have nuanced analysis and nuanced interventions wherever problems arise.

However, Subramanian noted that capacity is still a problem. Therefore he said that building capacity in regulatory institutions is needed and these institutions need more talent to understand how to use data better and draw upon best practices internationally. He also stressed the need to find ways to expedite the process of taking and implementing decisions, adding that all regulatory institutions should be independent and free from political interference.

Arvind Subramanian further said that finally everything has to be adjudicated by the courts and the Supreme Court in particular. He also said that exit for businesses is also very difficult in the country as their bad loans have to be written off, and companies have to be failed for that. He also stated that civil aviation and public sector banks are few of the areas where exit is a problem and added that for this the bankruptcy law is going to be important.

The CNX Nifty traded in a range of 8,907.10 and 8,860.10. There were 24 stocks in green as against 27 stocks in red on the index.

The top gainers on Nifty were Bharti Infratel up by 6.14%, Hindalco up by 4.96%, GAIL India up by 3.53%, Grasim Industries up by 2.66% and Reliance Industries up by 1.77%. On the flip side, Bosch down by 2.21%, HDFC down by 2.04%, Ambuja Cement down by 1.55%, Asian Paints down by 1.34% and Eicher Motors down by 1.20% were the top losers.

The European markets were trading in red; UK’s FTSE 100 decreased 22.4 points or 0.3% to 7,359.95, Germany’s DAX decreased 53.24 points or 0.44% to 12,006.33 and France’s CAC decreased 7.64 points or 0.15% to 4,956.16.

Asian equity markets ended lower on Friday after Wall Street pulled back from a record overnight, on growing expectations of an interest rate hike by the Federal Reserve at its March 14-15 policy meeting. Japanese shares fell as the yen strengthened after four days of losses and a raft of data painted a mixed picture of the world's third-largest economy. In the latest sign of an uptick in inflation around the world, Japan's core consumer prices rose for the first time in over a year in January. The jobless rate dropped to 3.0 percent from 3.1 percent in December, while household spending fell for the 11th straight month, indicating the country's economic recovery remains fragile. The Markit/Nikkei Japan services PMI slipped to 51.3 in February from 51.9 in January. Further, Chinese shares slipped ahead of the opening of National People's Congress' annual session. While the largely ceremonial legislature is expected to steer clear of dramatic reforms, leaders may announce new measures to rein in debt and tighten oversight of financial markets.