Benchmarks continue weak trade; services PMI at 4-year low

Indian equity benchmarks continued their weak trade in the morning session on account of selling in blue chip counters. The rupee extended its ongoing rally and opened higher against the US currency. Foreign Portfolio Investors stood net sellers in domestic equity markets on Wednesday and sold shares worth Rs 919.82 crore with gross purchases and gross sales of Rs 4,579.68 crore and Rs 5,499.50 crore, respectively. Traders remained on sidelines after the monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Wednesday cut its key policy rate by 25 bps. The panel maintained the neutral policy stance, citing uncertainties in the inflation trajectory stemming from factors such as the impact of farm loan waivers on state finances. NITI Aayog Member Bibek Debroy said that while the rate cut by the RBI was warranted, a reduction of barely 25 basis points won’t matter significantly except to serve as a signal. Separately, IHS Markit survey said business conditions in India’s service economy deteriorated markedly in July following the implementation of the goods and services tax (GST). The seasonally adjusted Nikkei India Services PMI Business Activity Index plunged from June’s eight-month high of 53.1 to 45.9 in July, its lowest level since September 2013. Output and new work declined for the first time since January, with rates of reduction the quickest since September 2013. This had an adverse effect on the labour market, with employment contracting over the month.

Investors took note of private survey which enlightened that more than 31% of the Chief Financial Officers (CFOs) from various companies feel implementation of GST is challenging and manufacturing is the most affected sector. Further, over 54% CFOs believe that the impact of demonetization has been neutral, while 56% are highly optimistic of the country’s macro-economic growth in the next 4-5 years. Separately, mobile industry body Indian Cellular Association (ICA) criticized the business climate in India saying cumbersome processes have emerged out of distrust between tax officials and customs authorities.

Traders were seen piling up position in Oil & Gas, Healthcare and Energy stocks, while selling was witnessed in Metal, Bankex and Basic Materials sector stocks. In scrip specific development, UCO Bank was trading in red after the bank reported net loss of Rs 663.02 crore in the quarter ended June 30 as against net loss of Rs 440.56 crore during the previous quarter ended June 2016. Emami was trading in red on reporting 98.16 % drop in consolidated net profit at Rs 1.04 crore for first quarter ended June 30, hit by destocking ahead of GST implementation in domestic market and overseas inventory correction.

On the global front, Asian markets were trading mostly in red, on weak regional data and a look ahead to nonfarm payroll data from the US at the end of the week. 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.  Back home, the BSE Sensex and NSE Nifty were trading below the psychological 32,400 and 10,050 levels respectively. The market breadth on BSE was negative in the ratio of 716:1372, while 106 scrips remained unchanged.

The BSE Sensex is currently trading at 32312.83, down by 163.91 points or 0.50% after trading in a range of 32282.46 and 32502.55. There were 11 stocks advancing against 20 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.10%, while Small cap index was down by 0.46%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 0.93%, Healthcare up by 0.63%, Energy up by 0.44%, Telecom up by 0.36% and Consumer Durables up by 0.18%, while Metal down by 1.22%, Bankex down by 1.09%, Basic Materials down by 0.75%, Industrials down by 0.54% and Capital Goods down by 0.43% were the top losing indices on BSE.

The top gainers on the Sensex were Lupin up by 2.03%, Hindustan Unilever up by 1.13%, TCS up by 1.06%, Cipla up by 0.74% and Power Grid up by 0.68%.

On the flip side, Adani Ports & Special Economic Zone down by 1.69%, HDFC down by 1.59%, Tata Steel down by 1.52%, SBI down by 1.51% and Axis Bank down by 1.33% were the top losers.

Meanwhile, citing reduction in upside risk to inflation, the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) decided to cut repo rate or its key lending rate by 25 basis points to 6% from 6.25%, it is lowest in six-and-a-half years since November 2010, as a slump in food prices sent June consumer inflation to a more than five-year low of 1.54%. Consequently, the reverse repo rate has also been reduced by 25 bps to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%. Besides, RBI kept the Statutory Liquidity Ratio (SLR) unchanged at 20%. The RBI’s move was in line with market expectations and will lower EMIs for home, auto and personal loans.

In its third bi-monthly monetary policy review for FY18, the RBI also decided to keep the policy stance neutral with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. It stressed on urgent need to reinvigorate private investments, clear infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana. The RBI reiterated its projection of April-September inflation at 2-3.5%, rising to 3.5-4.5% over the next six months. It has also retained its forecast of economic growth (gross value added) at 7.3% in the year through March.

The central bank in its policy statement also pointed out several factors contributing to uncertainty around inflation trajectory. It said implementation of farm loan waivers by states may result in possible fiscal slippages and undermine the quality of public spending, entailing inflationary spillovers. Moreover, the timing of the States’ implementation of the salary and allowances award is critical - it is not factored into the baseline projection in view of lack of information on their plans. It added that there is a scope for banks to cut rates further, especially for those sectors which have not benefited in the past rate cuts. The rate cut decision was not unanimous , as four members of the Monetary Policy Committee voted to cut rates by 25 bps, while one voted for a 50 bps cut and one voted for leaving rates unchanged. The next meeting of the MPC is scheduled on October 3 and 4, 2017.

The CNX Nifty is currently trading at 10034.85, down by 46.65 points or 0.46% after trading in a range of 10023.15 and 10081.15. There were 19 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were Indian Oil Corporation up by 4.01%, Lupin up by 2.14%, Bharti Infratel up by 1.45%, Aurobindo Pharma up by 1.44% and BPCL up by 1.30%.

On the flip side, Hindalco down by 2.65%, Tata Steel down by 1.91%, Yes Bank down by 1.86%, HDFC down by 1.60% and Adani Ports & Special Economic Zone down by 1.56% were the top losers.

The Asian markets were trading mostly in red; Taiwan Weighted decreased 58.33 points or 0.55% to 10,460.94, Nikkei 225 decreased 57.41 points or 0.29% to 20,022.63, Hang Seng decreased 45.48 points or 0.16% to 27,561.90, KOSPI Index decreased 41.26 points or 1.7% to 2,386.37, Jakarta Composite decreased 21.82 points or 0.37% to 5,802.43 and Shanghai Composite decreased 6.13 points or 0.19% to 3,278.92.

On the other hand, FTSE Bursa Malaysia KLCI increased 0.11 points or 0.01% to 1,770.72.