Feeble global cues drag benchmarks lower; Nifty ends below 9400 mark

Indian benchmark indices failed to extend the gains on Tuesday as jittery investors chose to take profits off the table amid weak global cues. An explosion struck an Ariana Grande concert in northern England late yesterday, killing at least 19 people and injuring dozens. Britain’s terrorist threat level has been set at ‘severe’ in recent years, indicating an attack is highly likely.  The sentiment was also dragged down by geopolitical tensions as Indian army strikes Pakistan military posts. Indian Army spokesperson Major General Ashok Narula said Pakistan Army has been supporting armed infiltration in Kashmir and targeted attacks have been carried out to put an end to such activities. Sentiments also remained dismal with India Ratings and Research’s (Ind-Ra) latest report indicating that Goods & Service Tax (GST) implementation will affect the working capital cycle of business in the initial phase owing to the lock up of input credit. It noted that easy liquidity in the system is essential to minimise the magnitude of such disruption at the earliest and to absorb the sudden changes in requirement of short term finance. Furthermore, with the prices of crude oil starting to recover, investors remained concerned over the report that India’s petroleum self-sufficiency fell to 17.9% in 2016-17, its lowest annual level since 2011. The self-sufficiency percentage is calculated by using the total production from Indigenous Crude & Condensate and the total petroleum consumption of the country. For the month of April, this percentage fell further to 16.6%, lower from 17.9% seen for the month of April 2016. India’s fast-growing demand for petroleum products has been the significant contributor to the fall in its self sufficiency in meeting these demands. Investors failed to get any sense of relief with a new survey by the Confederation of Indian Industries (CII) and Indian Bank’s Association (IBA) showing that the outlook towards the financial condition of the country has taken a positive turn during the first quarter of the ongoing fiscal. The CII-IBA Financial Conditions Index stood at 56.9 for first quarter of 2017-18, as compared to 48 during the previous quarter. 

On the global front, Asian markets ended mixed on Tuesday as investors digested news of a terrorist attack in Manchester, northern England, and fresh revelations provided additional evidence that the White House actively sought to undermine the FBI investigation into Russia.  Japanese market failed to get any sense of relief from healthy exports data and ended lower.  Japan's exports rose in April to mark their fifth straight month of gains, as shipments of semiconductors and steel expanded, signaling that more robust overseas demand could underpin a steady economic recovery. Exports rose 7.5% in April from a year ago, below the median estimate of 7.8% annual growth. It followed a 12.0% rise in March. Meanwhile, oil prices fell after US President Donald Trump proposed the sale of half of the country’s strategic oil reserves in his budget plan, just as producer club OPEC and its allies are cut back output to tighten the market.

Back home, after getting a cautious start, the local benchmarks plunged below their psychological levels 30,450 (Sensex) and 9400 (Nifty) respectively in early trade as funds and retail investors engaged in reducing positions amid weak global cues. Thereafter, the indices traded in tight range throughout the morning trade and witnessed a good recovery in early afternoon session, tracking positive opening of European Markets. However, the key gauges suffered a setback in final hour of trades as sudden bouts of profit booking emerged in the local markets. Finally, the NSE’s 50-share broadly followed index Nifty, slipped by over half a percent to settle below the crucial 9,400 support level, while Bombay Stock Exchange’s Sensitive Index Sensex deposed over two hundred points and closed below the psychological 30,400 mark. Moreover, the broader markets had to bear a brutal assault as they went on to underperform their larger peers by quite a margin with BSE’s midcap shaving off 1.56% and BSE’s smallcap shelving  1.89%.

The market breadth remained in favor of decliners, as there were 688 shares on the gaining side against 2,058 shares on the losing side while 164 shares remain unchanged.

Finally, the BSE Sensex lost 205.72 points or 0.67% to 30365.25, while the CNX Nifty was down by 52.10 points or 0.55% to 9,386.15. 

The BSE Sensex touched a high and a low of 30610.64 and 30316.92, respectively and there were 8 stocks on gaining side as against 22 stocks on the losing side.

The broader indices ended deep in red; the BSE Mid cap index declined 1.56%, while Small cap index was down by 1.89%.

The sole gaining sectoral index on the BSE was Auto up by 0.43%, while Healthcare down by 2.72%, Realty down by 2.59%, Utilities down by 1.90%, Power down by 1.89% and Industrials down by 1.55% were the top losing indices on BSE.

The top gainers on the Sensex were Maruti Suzuki up by 2.70%, Mahindra & Mahindra up by 1.71%, Wipro up by 1.15%, Tata Steel up by 0.78% and Hero MotoCorp up by 0.58%. On the flip side, Adani Ports & SEZ down by 6.19%, Cipla down by 4.89%, Sun Pharma down by 4.33%, Bajaj Auto down by 3.02% and GAIL India down by 2.74% were the top losers.

Meanwhile, as the implementation of Goods & Service Tax (GST) is nearing, there are concerns that it could put pressure on the working capital of industries. According to credit rating agency- India Ratings and Research (Ind-Ra), GST implementation will affect the working capital cycle of business in the initial phase owing to the lock up of input credit and noted that easy liquidity in the system is essential to minimise the magnitude of such disruption at the earliest and to absorb the sudden changes in requirement of short term finance.

The agency’s study on a sample set of 11,000 corporates has found that the input credit lock up for this sample could be Rs 1 trillion of which about Rs 500 billion could be blocked for about two months and this may result in higher short term working capital requirement for businesses in the near term. Ind-Ra has further said that the task is humongous and can be gauged from the size of closing inventory of around Rs 11.2 trillion as at fiscal year 2016, which are at various stages of production process. Besides, service tax rates which are likely to increase by 3 percent to 18 per cent from 15 per cent may put further pressure on short-term working capital needs.

The credit agency further said that though the GST impact on individual companies could vary widely, around 85 per cent of the blocked input credit will be with companies having more than Rs 5 billion of revenue and added that larger companies may be in a better position to deal with the problems during transition compared to the smaller ones. Besides, it has noted that since the overall credit offtakes is low and banking system liquidity is at its high level, banks will also be in a position to tackle any unanticipated volatility in fund requirements.

The CNX Nifty traded in a range of 9,448.05 and 9,370.00. There were 18 stocks in green as against 33 stocks in red on the index.

The top gainers on Nifty were Maruti Suzuki up by 2.48%, Mahindra & Mahindra up by 1.69%, Eicher Motors up by 1.43%, Wipro up by 0.90% and HCL Tech up by 0.86%. On the flip side, Adani Ports & SEZ down by 6.71%, Aurobindo Pharma down by 6.11%, Cipla down by 5.35%, Sun Pharma down by 3.87% and Bajaj Auto down by 3.49% were the top losers.

The European markets were trading in green; UK’s FTSE 100 increased 7.88 points or 0.11% to 7,504.22, Germany’s DAX increased 36.8 points or 0.29% to 12,656.26 and France’s CAC increased 32.65 points or 0.61% to 5,355.53.

Asian equity markets made a mixed closing on Tuesday as investors digested news of a terrorist attack in Manchester, northern England, and fresh revelations provided additional evidence that the White House actively sought to undermine the FBI investigation into Russia. Nineteen people have been killed and around 50 others injured at an Ariana Grande concert late Monday in Manchester, England, police have said. Separately, the Washington Post reported that US President Donald Trump urged two senior intelligence officials in March to publicly deny any evidence of collusion between the Trump campaign and Russia. The focus also remained on this week's FOMC minutes from the May meeting expected to reinforce the case for a June 14 Fed funds rate hike. Japanese shares ended lower as news of a suspected terrorist attack in Britain and the political crisis gripping Washington lifted the safe-haven yen and kept export-oriented shares under selling pressure. Further, Chinese shares ended lower on renewed concerns over a regulatory crackdown on shadow banking and speculative trading.