Benchmarks extend pessimism a day after RBI cut key rates

Extending southward journey for second straight session, Indian equity benchmarks ended the session with a cut of around three fourth of a percent, breaching their crucial 32,300 (Sensex) and 10,050 (Nifty) levels. Markets showed solemnity since beginning and never looked confident of recovering till end to close near intraday lows, as investors opted to remain on sidelines pondering rate outlook, a day after the RBI maintained its neutral stance, citing record low inflation. Most of the market participants are not expecting any further rate cut this year, saying the present low inflation print is not sustainable. Sentiments also remained dampened with report showing that the services sector contracted in July and fell to its lowest level in nearly four years following implementation of the Goods and Services Tax (GST). Nikkei India Services Purchasing Managers’ Index fell to 45.9 in July. Some concern also came with the Reserve Bank’s third bi-monthly monetary policy statement that farm loan waivers by state governments could result in possible fiscal slippages and undermine the quality of public spending.

Some concerns also came with the private report stating that more than 31 percent of the chief financial officers (CFOs) from various companies feel implementation of GST is challenging and manufacturing is the most affected sector. Market participants shrugged off Finance Minister Arun Jaitley’s indications that there could be scope for rationalisation of rates under the GST as its implementation progresses. Jaitley also said that he was under pressure to change the GST Network which people said was faulty but felt the structure was correct. Traders also failed to get any solace with John Chambers’, Chairman of the newly-formed US-India Strategic Partnership Forum, prediction that India would turn out to be a role model for the world economies. He said India will figure among the top three economic powers in the world over the next 10-15 years.

Weak trend in Asian counters too dampened sentiments with most of the regional peers ended in red on Thursday on weak regional data. China’s services sector expanded at a slightly slower pace in July as new business growth eased, pointing to potential softening in a key part of the world’s second-largest economy. However, European markets were trading mostly in green as a fresh round of corporate earnings is set to be released and as investors eyed the Bank of England’s monetary policy decision due later in the day.

Back home, sharp appreciation in Indian rupee too failed to revive sentiments. The rupee strengthened against the US dollar at the time of equity markets closing, buoyed by hopes of more capital inflows, coupled with more selling of the American currency by banks and exporters. On the sectoral front, stocks related to telecom sector rang louder on report that the government may soon consider the telecom industry’s demand of doing away with telecom circles and will work towards the concept of one nation, one network and one licence. However, stocks from auto sector edged lower despite healthy sales in July, allaying concerns over a likely fall in demand due to transition to the GST regime.

The NSE’s 50-share broadly followed index Nifty declined around seventy points to end below its psychological 10,050 support level, while Bombay Stock Exchange's Sensitive Index -- Sensex was down by around two hundred and forty points to end below its crucial 32,300 mark. The broader markets however struggled to get any traction and ended the session in red. The market breadth was in the favour of decliners, as there were 814 shares on the gaining side against 1,805 shares on the losing side, while 154 shares remain unchanged.

Finally, the BSE Sensex declined 238.86 points or 0.74% to 32,237.88, while the CNX Nifty was down by 67.85 points or 0.67% to 10,013.65.

The BSE Sensex touched a high and a low of 32,502.55 and 32,194.58, respectively and there were 8 stocks on gaining side as against 22 stocks on losing side, while one stock remain unchanged on the index.

The broader indices ended in red; the BSE Mid cap index declined 0.50%, while Small cap index was down by 0.95%.

The few gaining sectoral indices on the BSE were Oil & Gas up by 1.35%, Telecom up by 1.08%, Energy up by 1.08% and Consumer Durables up by 0.11%, while Metal down by 1.68%, Bankex down by 1.66%, Healthcare down by 1.03%, Industrials down by 0.89% and Basic Materials down by 0.75% were the top losing indices on BSE.

The top gainers on the Sensex were Bharti Airtel up by 2.01%, Reliance Industries up by 1.38%, Bajaj Auto up by 1.14%, TCS up by 0.90% and Hero MotoCorp up by 0.73%. On the flip side, Lupin down by 3.80%, Coal India down by 3.36%, Tata Motors - DVR down by 2.56%, SBI down by 2.24% and Cipla down by 2.04% were the top losers.

Meanwhile, ahead of the implementation of the Basel III capital regulations in India from March 31, 2019, the Reserve Bank of India (RBI) has amended a slew of previous regulations on the same. This will help banks to shore up their capital buffers along with improve liquidity coverage ratios (LCR). Therefore, the new amendments widen the assets of banks such as the excess CRR; excess G-secs holdings in SLR, and also excess g-secs under marginal standing facility, which all would now be included in the stock of liquid assets without any limit as also without applying any haircut.

The central bank has stated that liquid stock will also include marketable securities issued/guaranteed by foreign sovereigns which have only zero percent risk weight under the Basel II standardized approach for credit risk; actively traded repo or cash markets operations with zero risks, reserves held with foreign central banks in excess of the reserve requirement.

The regulator further said that the RBI reserves would include banks’ overnight deposits and term deposits with the central bank which are explicitly and contractually repayable on notice from the depositing bank or that constitute a loan against which the bank can borrow on a term or on an overnight basis but automatically renewable basis. It also noted that other term deposits with the central bank are not eligible for this. However, it pointed out that if the term expires within 30 days, the term deposits could be considered as an inflow.

The CNX Nifty traded in a range of 10,081.15 and 9,998.25. There were 20 stocks in green as against 31 stocks in red on the index.

The top gainers on Nifty were Indian Oil Corporation up by 4.58%, ACC up by 2.17%, Ambuja Cement up by 2.06%, Bharti Airtel up by 2.01% and Bharti Infratel up by 1.53%. On the flip side, Lupin down by 4.01%, Coal India down by 3.63%, Hindalco down by 3.18%, Bank of Baroda down by 3.18% and Tata Motors - DVR down by 2.63% were the top losers.

European markets were trading mostly in green; UK’s FTSE 100 increased 6.81 points or 0.09% to 7,418.24 and France’s CAC was up by 13.61 points or 0.27% to 5,120.86, while Germany’s DAX was down by 36.02 points or 0.3% to 12,145.46.

Asian equity markets closed mostly lower on Thursday, as investors locked in recent gains, awaiting fresh direction from the Bank of England's interest rate decision later in the day and the all-important US jobs report, due on Friday. Chinese shares lost ground as liquidity concerns persisted and a private survey showed growth in China's services sector slowed in July as new business growth eased. The Caixin China services PMI slipped to 51.5 from 51.6 in June. Further, Japanese shares ended lower as the yen's strength pulled down exporters and investors took profits in tech shares. Market participants also digested the latest news from Prime Minister Shinzo Abe's cabinet reshuffle and disappointing data on service sector growth.