Geopolitical tension leads to massacre on Dalal Street in early deals

Indian equity benchmarks have made a gap-down start and are trading dreadfully in early deals on Friday with Nifty and Sensex breaching their crucial 9,750 and 31,300 levels respectively, as geopolitical concerns continued to weigh sentiments amid an ongoing escalation in tensions between the U.S. and North Korea. Apart from the geo-political worries, markets continued reeling under pressure of SEBI’s crackdown on shell companies and a stand-off in the Doklam area of the Sikkim sector between Indian and Chinese troops. Traders also remained concerned with report that the Reserve Bank of India (RBI) has halved its dividend payout to the government to Rs 30,659 crore for the fiscal ended June 2017. Last fiscal, the RBI had transferred Rs 65,876 crore surplus as dividend to the government.

Global cues too dampened sentiments with all the regional peers were trading in red at this point of time, with some indices witnessing cut of over a percent in early deals, tailing the slump in US markets. Investors headed for havens leaving the equity on rising Korean tension. The US markets suffered sell-off in the last session, adding to the modest losses posted in the two previous sessions.

Back home, selling was both brutal and wide-based, as none of sectoral indices on BSE were spared. Counters, which featured in the list of worst performers, include capital goods, industrials and auto. The broader indices too were reeling under pressure, while the market breadth on the BSE was negative; there were 318 shares on the gaining side against 1,734 shares on the losing side while 63 shares remain unchanged.

The BSE Sensex is currently trading at 31224.32, down by 307.01 points or 0.97% after trading in a range of 31194.87 and 31355.92. There were 3 stocks advancing against 28 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index declined 1.35%, while Small cap index was down by 1.74%.

The top losing sectoral indices on the BSE were Capital Goods down by 2.19%, Industrials down by 2.17%, Auto down by 1.59%, Metal down by 1.50% and Basic Materials was down by 1.49%, while there were no gainers on the BSE sectoral front.

The few gainers on the Sensex were Wipro up by 0.99%, TCS up by 0.43% and Lupin up by 0.25%. On the flip side, Tata Motors down by 2.93%, Larsen & Toubro down by 2.54%, Cipla down by 2.10%, ONGC down by 2.02% and Kotak Mahindra Bank down by 2.01% were the top losers.

Meanwhile, the government in the Medium-term Expenditure Framework Statement (MTEF) has said that the capital expenditure has been budgeted to be Rs 309,801 crore in fiscal year 2017-18 which is likely to increase by 10% to Rs 3,41,000 crore in the next fiscal and will rise by 25% to Rs 390,000 crore in FY 2019-20, mainly supported by a jump in defence and infrastructure spending. Together with revenue expenditure, the government’s total spending is projected to rise from Rs 21.46 lakh crore in 2017-18 to Rs 23.4 lakh crore in the next financial year and Rs 25.95 lakh crore in 2019-20.

As per the Mid-Year Review of expenditure, Defence, which accounts for about 30% of the government’s capital outlay, will see the spending rise from Rs 91,580 crore in the current fiscal to Rs 1,01,137 crore in the next one and Rs 1,11,706 crore in 2019-20. While outgo on fertiliser subsidy is projected to be flat at Rs 70,000 crore between the current fiscal and 2019-20, the food subsidy bill will rise to Rs 1.75 lakh crore in 2018-19 and Rs 2 lakh crore in the following fiscal. The food subsidy bill in the current fiscal is pegged at Rs 1.45 lakh crore.

The petroleum subsidy would drop to Rs 18,000 crore in 2018-19 from Rs 25,000 crore in the current fiscal and to Rs 10,000 crore in 2019-20. Petrol and diesel prices have been decontrolled and the subsidy outgo on petrol has been restricted to LPG and kerosene. In continuation of the efforts of the government to rationalise subsidises, the MTEF said, the government has decided to increase the cost of LPG cylinders by Rs 4 per month. The ultimate aim of the government is to eliminate the subsidy on LPG cylinders by end-March 2018. After successful implementation of paying subsidies directly into the bank accounts of LPG users, the government is now focused on reducing kerosene subsidies.

MTEF also said that introduction of the Goods and Services Tax (GST) from July 1 this year as also the increased surveillance post-demonetisation would expand the tax base in next two fiscal years. According to the review, the tax-GDP ratio will increase by 30 basis points in 2018-19 and 2019-20 and are projected to be 11.6% in 2018-19 and 11.9% in 2019-20. While the revenue deficit target of 2% of GDP will be met in the current fiscal, the deficit would be 1.9% in the next. However, it added that the elimination of effective revenue deficit will have to be re-calibrated.

The CNX Nifty is currently trading at 9719.70, down by 100.55 points or 1.02% after trading in a range of 9704.35 and 9742.95. There were 5 stocks advancing against 46 stocks declining on the index.

The top gainers on Nifty were Tech Mahindra up by 1.24%, Wipro up by 0.94%, TCS up by 0.49%, Lupin up by 0.35% and Power Grid Corporation up by 0.11%. On the flip side, Tata Motors down by 2.68%, Eicher Motors down by 2.39%, Larsen & Toubro down by 2.39%, Hindalco down by 2.37% and Indiabulls Housing down by 2.17% were the top losers.

All the Asian markets were trading in red; Hang Seng declined 517.62 points or 1.89% to 26,926.38, Jakarta Composite dropped 62.88 points or 1.08% to 5,763.07, Shanghai Composite decreased 52.08 points or 1.6% to 3,209.67, KOSPI Index shed 39.75 points or 1.68% to 2,319.72, Taiwan Weighted slipped 24.01 points or 0.23% to 10,305.73 and FTSE Bursa Malaysia KLCI was down by 8.43 points or 0.47% to 1,769.34.