Benchmarks eke out slender gains from a choppy session

Indian equity benchmarks ended the choppy day of trade with marginal gains, where frontline gauges, despite some hiccups, managed to keep their head above water, as traders opted for bargain hunting after registering losses in the preceding two trading sessions. Markets traded mostly in green through the session with traders taking support with DIPP’s report that FDI flow into the country grew 37% to $10.4 billion during the first quarter of this financial year. India received $7.59 billion FDI during April-June 2016-17. Some support also came with foreign brokerage firm’s report that India is expected to see a modest recovery in GDP growth at 6.6% for the April-June quarter as compared to 6.1% in January-March, which was affected by demonetization. Meanwhile, Prime Minister Narendra Modi is slated to interact with 200 CEOs to attain their views and suggestions to carry forward the 'New India' initiative. The two-day discussion involves groups consisting of around 35 industry leaders and government secretaries, who will deliberate on an array of topics, namely- New India by 2022, Make in India, Cities of Tomorrow, World Class Infrastructure, Doubling Farmers Income and Fixing Finance: Reporting the Financial Sector.

However, gains remained capped as some cautiousness crept in on report that leading stock exchange BSE announced on Monday that it will ‘compulsorily’ delist 200 firms this week and bar their promoters from the markets for 10 years as trading in these shares have remained suspended for over a decade. All these companies will be delisted from August 23. Traders also remained concerned with a private survey stating that consumer confidence in India declined in the second quarter of this year amid concerns regarding job security and lower optimism on employment prospects.

Strong leads from global markets too provided much needed support to domestic sentiments with European markets making a positive start ahead of the annual central banking conference in Jackson Hole later this week. Morale among German investors deteriorated for a third consecutive month in August. Asian markets ended mostly in green. Malaysia’s consumer price index likely rose 3.3% in July from a year earlier, a poll showed, slowing in pace for the fourth month in a row.

Back home, investors also took note of foreign brokerage firm’s report that retail inflation is likely to stay well within the RBI’s 2-6% mandate in the coming months and accordingly, the central bank is expected to cut policy rates by 25 bps on December 6. The report enlightened that inflationary pressures are expected to remain contained by good rains, low growth and subdued imported inflation amid decrease in global commodity prices. On the sectoral front, stocks related to oil & gas sector remained buzzing, as the government clarified that upstream oil and gas companies can avail an input tax credit (ITC) on Goods and Services Tax paid only on the value added products that are manufactured and covered under GST.

The NSE’s 50-share broadly followed index Nifty gained marginally to hold its psychological 9,750 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex increased over thirty points to end tad below its crucial 31,300 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 921 shares on the gaining side against 1,650 shares on the losing side, while 135 shares remain unchanged.

Finally, the BSE Sensex gained 33.00 points or 0.11% to 31,291.85, while the CNX Nifty was up by 11.20 points or 0.11% to 9,765.55.

The BSE Sensex touched a high and a low of 31,484.28 and 31,241.50, respectively and there were 16 stocks on gaining side as against 15 stocks on losing side on the index.

The broader indices ended in red; the BSE Mid cap index declined 0.41%, while Small cap index was down by 0.51%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.31%, Healthcare up by 0.77%, Energy up by 0.69%, PSU up by 0.27% and Bankex up by 0.20%, while Realty down by 1.14%, Power down by 1.10%, Utilities down by 0.87%, Auto down by 0.75% and Consumer Discretionary Goods & Services was down by 0.70% were the top losing indices on BSE.

The top gainers on the Sensex were Dr. Reddy’s Lab up by 2.67%, Lupin up by 2.32%, Sun Pharma up by 2.24%, ONGC up by 1.11% and Axis Bank up by 1.01%. On the flip side, NTPC down by 2.56%, Hero MotoCorp down by 1.64%, Bajaj Auto down by 1.09%, TCS down by 0.85% and Larsen & Toubro down by 0.64% were the top losers.

Meanwhile, the domestic rating agency, ICRA in its latest report has said that the growth of renewable energy (RE) sector is likely to be hit adversely if power distribution companies (discoms) in states like Andhra Pradesh, Karnataka and Uttar Pradesh implement renegotiation or cancellation of signed power purchase agreements (PPAs) with the wind and solar power developers. If attempts by these state-owned discoms are implemented, ICRA noted that this would also impact the credit profile of the independent power producers (IPPs) and investment interest from the private sector in this sector.

As per the report, given the circumstances, significant uncertainty exists for wind-based IPPs, which have recently signed PPAs based on feed-in tariffs. It also said that the resolution of the PPA renegotiation or cancellation issue remains crucial to retain investors’ interest in the sector. However, ICRA explained that such cancellation or renegotiation by discoms may be legally challenged by the affected power producers and its resolution could be a protracted affair. It also noted that the wind capacity in the states like Andhra Pradesh and Karnataka is around 830 MW and 490 MW, respectively.

The rating agency understands that the central government is trying to dissuade state discoms from such unilateral action on PPAs. Apart from this, it noted that several PPAs tied-up by wind and solar power developers with state-owned discoms do not have any termination penalty clause related to any discom event of default. The report further indicated that that these PPAs usually do not have any deemed generation clause and are based on single part tariff – which is linked to actual generation.  As a result, it pointed out that the wind and solar energy projects with PPAs at a relatively higher tariff in comparison with average power purchase cost of the off-taker discom remains exposed to a risk of forced back-down or grid curtailment, a situation which has occasionally been seen in a few states in the past.

The CNX Nifty traded in a range of 9,828.45 and 9,752.60. There were 29 stocks in green as against 22 stocks in red on the index.

The top gainers on Nifty were Dr. Reddy’s Lab up by 2.75%, BPCL up by 2.53%, Indian Oil Corporation up by 2.42%, Lupin up by 2.27% and Sun Pharma up by 2.15%. On the flip side, NTPC down by 2.50%, Hero MotoCorp down by 2.11%, Eicher Motors down by 2.08%, Bank of Baroda down by 1.94% and Indiabulls Housing Finance down by 1.86% were the top losers.

European markets were trading in green; France’s CAC rose 25.28 points or 0.5% to 5,112.87, UK’s FTSE 100 increased 47.43 points or 0.65% to 7,366.31 and Germany’s DAX was up by 82.08 points or 0.68% to 12,148.07.

Asian equity markets closed mostly higher on Tuesday, although gains remained modest ahead of the upcoming Jackson Hole central banking conference beginning on Thursday, with markets awaiting speeches by Fed chair Janet Yellen and Mario Draghi. Chinese shares ended higher as a unit of China Unicom surged by the daily limit for a second day and as financial and materials firms also experienced strong gains. Shares in the China Unicom unit have risen following a statement from the China Securities Regulatory Commission on Sunday that it would treat China Unicom’s $11.7 billion ownership reform plan ‘as an exceptional case’, granting it approval. Meanwhile, Japanese shares ended lower even as the yen weakened to snap four days of gains.