Indian benchmarks settle with marginal gains but outclass global peers

Indian benchmark indices managed to extend the winning momentum for the fourth consecutive day and settled at fresh closing highs on Tuesday, as arrival of monsoon rains cheers, but the gains were capped as the investors booked profit in recent outperformers. The monsoon, which delivers about 70% of India's annual rainfall, arrived at the southern Kerala coast today, in line with forecasts, brightening the outlook for higher farm output and robust economic growth. Simultaneously, the onset is also likely over Lakshadweep, coastal Karnataka, some parts of Tamil Nadu and most parts of northeastern states in the next 24 hours.  Despite settling with only two tens of a percent gains, the frontline indices managed to outclass all the peers in Asia and Europe by quite a margin. The global markets continued to exhibit somber trends as investors at large remained cautious on worries about a Greek bailout and the possibility of an early election in Italy.

Sentiments got some support with World Bank's expectation that India, the fastest growing major economy in the world, will grow at 7.2% in the current fiscal and further up to 7.7% by 2019-20 on strong fundamentals, reform momentum and improving investment scenario. It noted that demonetisation in November 2016 caused a slight disruption to India's growth recovery, following a favourable monsoon last fiscal, but things seem to be bettering. However, weak trend in global markets, continued foreign fund outflows and muted earnings posted by some blue-chip companies, have limited the gains. Meanwhile, India's capital market regulator has proposed to tighten rules on offshore derivative instruments (ODI) by imposing 'regulatory fees' and prohibiting the sales of such products unless they are issued for hedging purposes.

On the global front, concerns about a Greek bailout, early Italian elections and comments by the European Central Bank chief about the need for continued stimulus, sapped risk appetite, weighing on Asian markets and lifting safe havens including the yen and gold, though trading was thin with several markets closed for holidays. Sentiments remained downbeat on the report that North Korean leader Kim Jong-un supervised the test of a new ballistic missile controlled by a precision guidance system and ordered the development of more powerful strategic weapons. Japan's Nikkei ended flat, held back by a stronger yen whereas South Korea's KOSPI edged lower as investors took profits following the market's record-breaking rally this month. Markets are awaiting economic indicators including French first quarter gross domestic product, German inflation data for May, and US inflation for April later in the session. Meanwhile, China, Hong Kong and Taiwan markets are closed for holidays on Tuesday.

Back home, after getting a cautious start, the local benchmarks traded in tight range near neutral lines, altering between positive and negative territory, for most part of the session and ended the trading day once again at record highs. Finally, the NSE's 50-share broadly followed index Nifty, convalesced by close to quarter percent to settle above the crucial 9,600 support level, while Bombay Stock Exchange's Sensitive Index, Sensex accumulated over fifty points and closed above the psychological 31,150 mark.  Moreover, broader markets managed to outperform the larger peers as the BSE's midcap and smallcap indices settled with around half a percent.  The market breadth remained pessimistic, as there were 1229 shares on the gaining side against 1450 shares on the losing side, while 157 shares remained unchanged.

Finally, the BSE Sensex gained 50.12 points or 0.16% to 31159.40, while the CNX Nifty was up by 19.65 points or 0.20% to 9,624.55. 

The BSE Sensex touched a high and a low of 31220.38 and 31064.04, respectively and there were 20 stocks on gainers side as against 10 stocks on the losers side on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.83%, while Small cap index was up by 0.46%.

The top gaining sectoral indices on the BSE were Healthcare up by 2.28%, Realty up by 1.16%, Utilities up by 0.86%, Basic Materials up by 0.81% and Bankex up by 0.59%, while Capital Goods down by 1.01%, FMCG down by 0.98%, Telecom down by 0.98%, Consumer Durables down by 0.86% and Power down by 0.20% were the top losing indices on BSE.

The top gainers on the Sensex were Adani Ports & SEZ up by 3.43%, NTPC up by 3.17%, Dr. Reddy’s Lab up by 2.33%, Hero MotoCorp up by 2.21% and ICICI Bank up by 1.89%. On the flip side, Power Grid down by 2.16%, ITC down by 1.77%, Larsen & Toubro down by 1.18%, HDFC down by 1.18% and Bharti Airtel down by 1.09% were the top losers.

Meanwhile, amid high levels of stressed assets in the Indian banking system, Niti Aayog Vice Chairman Arvind Panagariya has said that the government does not have any immediate plans to create a bad bank to resolve the bad loans issue. He said “Immediately, I don`t see any plans to create a bad bank. In the three-year agenda, we suggested that let us do it through private sector asset reconstruction companies (ARCs) instead of bad bank.”

Referring to the non-performing asset (NPA) ordinance which empowers Reserve Bank of India (RBI) to direct banks to initiate insolvency process against any defaulter, Arvind Panagariya said that it has opened the doors to genuine resolution of this problem. He also said that each of these NPAs will now be put on a path to resolution as there is no other way to resolve the problem. He further said that the first set of 45-50 bad assets are likely to be taken up for resolution in the next six months and added not that they will be resolved, but at least they will be taken out of the books of banks.

Suggesting that the government needs to increase the amount for bank recapitalisation beyond Rs 70,000 crore allocated for four years, Panagariya said “We do a three-year fiscal framework for the country, which is a bit more ambitious than Rs 70,000 crore currently allocated. Fiscally, it is feasible to move up that figure a bit.” He further said that eventually lot of recapitalisation needs to happen, but the banks too need to take initiative.

The CNX Nifty traded in a range of 9,635.30 and 9,581.20. There were 34 stocks in green as against 17 stocks in red on the index.

The top gainers on Nifty were Aurobindo Pharma up by 13.58%, Adani Ports & SEZ up by 4.03%, Bank of Baroda up by 3.08%, NTPC up by 2.88% and Tech Mahindra up by 2.40%. On the flip side, Power Grid down by 1.98%, BPCL down by 1.97%, Bharti Infratel down by 1.67%, ITC down by 1.38% and IndusInd Bank down by 1.06% were the top losers.

The European markets were trading in red; UK’s FTSE 100 decreased 27.63 points or 0.37% to 7,520.00, Germany’s DAX decreased 4.85 points or 0.04% to 12,624.10 and France’s CAC decreased 29.03 points or 0.54% to 5,303.44.

Asian equity markets ended mostly in red on Tuesday as fears about political risks in Europe sapped investors' appetite for risk and helped spur demand for safe-haven assets such as the Japanese yen and gold. Trading volumes remained thin across the region amid public holidays in China, Hong Kong and Taiwan. Investors kept an eye on the US jobs report due this Friday after Fed Bank of San Francisco President John Williams said three interest-rate increases this year makes sense. Japanese shares ended marginally lower as the yen strengthened amid the prospect of early elections in Italy and concerns about a Greek bailout. In economic releases, Japanese household spending declined again in April, official figures showed today, while retail sales rose more than expected and the jobless rate held steady at a two-decade low in the month, Consumer price inflation rose an annual 0.3 percent, well below the BOJ's 2 percent target.