Benchmarks extend gains for second day; Nifty reclaims 9,850 mark

Wednesday turned out to be a fabulous day of trade for Indian equity benchmarks, with frontline gauges recapturing their crucial 31,500 (Sensex) and 9,850 (Nifty) levels. Sentiments remained up-beat since morning, as markets made a gap-up opening with a blog on Asian Development Bank’s website, stating that the Goods and Services Tax (GST) in India will benefit the lower and lower-middle income class as it is likely to reduce the tax rate on goods. It further stated that in general, GST is likely to reduce the tax rate on goods as compared to previously, while tax rates on services are expected to increase. Afterwards, markets traded with confidence in a tight band for most part of the session with traders taking encouragement with the Financial Stability & Development Council’s (FSDC) statement that India has macro-economic stability today on the back of improvement in its macro-economic fundamentals and structural reforms with the launch of the GST. The Council, comprising regulators, took note of the overall stability that has been achieved on the back of improvements in macro-economic fundamentals, structural reforms with the launch of the GST, action being taken to address the twin balance sheet challenge and financial market confidence.

Markets extended gains in last leg of trade which mainly helped markets to end near intraday high levels, as some support came with the report that the loan portfolio of micro-finance institutions (MFIs) increased by 26% to Rs 35,045 crore in the first quarter ended June 2017. Some support also came with the launch of the Mentor India Campaign, a strategic nation building initiative to engage leaders who can nurture and guide students at more than 900 Atal Tinkering Labs. 

On the global front, European markets were trading in red in early deals amid sharp declines in advertising giant WPP after it cut sales forecasts on weakening demand. Markets also shrugged off a PMI survey showing euro zone manufacturing businesses had their best month of growth in six and a half years in August. Asian markets exhibited mixed trend ahead of Jackson Hole, Wyoming conclave of central bankers this week that could provide fresh insight into policy options.

Back home, investors shrugged off rating agency ICRA’s latest report which has estimated that India’s gross value added (GVA) growth is likely to slow down to 6.3% in April-June quarter (Q1) of fiscal year 2017-18 from 7.6% in the same period of pervious year. On the sectoral front, PSU banks remained on buyers’ radar after the Cabinet approved setting up of an alternative mechanism for merger of public sector banks. Telecom stocks remained buzzing, as the Inter-Ministerial Group (IMG) on telecom industry hinted on extending the timeline for deferred spectrum payment by telcos to 16 years instead of 10 at present. In scrip specific development, Infosys edged higher on report that Nandan Nilekani is likely to re-join the company as the head. The clarity on Nilekani’s role is expected in the next 48 hours. The developments come a few hours after Narayana Murthy postponed his conference call with Infosys investors citing health issues.

The NSE’s 50-share broadly followed index Nifty gained around ninety points to reclaim its psychological 9,850 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex increased around two hundred and eighty points to end above its crucial 31,500 mark. The broader markets too traded with traction and ended the session with a gain of over a percent. The market breadth was in the favour of advances, as there were 1,617 shares on the gaining side against 962 shares on the losing side, while 135 shares remain unchanged.

Finally, the BSE Sensex surged 276.16 points or 0.88% to 31,568.01, while the CNX Nifty was up by 86.95 points or 0.89% to 9,852.50.

The BSE Sensex touched a high and a low of 31,593.39 and 31,379.25, respectively and there were 25 stocks on gaining side as against 6 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index soared 1.38%, while Small cap index was up by 1.21%.

The top gaining sectoral indices on the BSE were Realty up by 3.48%, Metal up by 1.81%, Telecom up by 1.78%, Basic Materials up by 1.52% and Bankex was up by 1.39%, while Consumer Durables down by 0.75% and FMCG was down by 0.04% were the only losing indices on BSE.

The top gainers on the Sensex were Adani Ports & SEZ up by 2.79%, Bharti Airtel up by 2.41%, Tata Steel up by 2.28%, Dr. Reddy’s Lab up by 2.25% and Infosys up by 1.98%. On the flip side, Hindustan Unilever down by 1.05%, Sun Pharma down by 0.45%, ITC down by 0.28%, Power Grid Corporation down by 0.21% and Mahindra & Mahindra down by 0.13% were the top losers.

Meanwhile, India Ratings and Research (Ind-Ra) in its latest report has said that 11 states may require additional compensation of Rs 9,500 crore from the Centre under the goods and services tax (GST) regime in the financial year 2017-18. Under the new tax regime, it is expecting that revenues of all states combined will grow at a compound annual growth rate (CAGR) of 16.6% in FY18 over FY16.

However, the ratings agency said that since the picture at the individual state level differs, eight states namely Andhra Pradesh, Chhattisgarh, Gujarat, Himachal Pradesh, Madhya Pradesh, Odisha, Punjab and Tamil Nadu would need compensation from the central government for any revenue loss under baseline scenario worth Rs 5,600 crore in this fiscal year, whereas three more states namely, Goa, Jammu and Kashmir and Jharkhand would need Rs 3,900 crore compensation.  It also expects that the growth of GST component of states’ own tax revenue for all states in such a case would drop to 15.5% in FY18 with a base line scenario 16.6% as input tax credit is available on both goods and services under GST. 

Therefore, the report noted that the total compensation amount would rise to Rs 9,500 crore in FY18 (baseline scenario Rs 5,600 crore).  It also explained that this is based on the assumption that in the final production of goods and services, service tax accounts for 10%. Adding further, it said that unlike the value added tax (VAT), which was rolled out from April 2005 to January 2008, implementation of GST will also bring in more efficiency gains in tax mop up. To be able to absorb the positive impact of GST on state governments’ finances, Ind-Ra believes that states will have to keep a constant vigil on the buoyancy of taxes that are outside the purview of GST as also their own non-tax revenues.

The CNX Nifty traded in a range of 9,857.90 and 9,786.75. There were 36 stocks in green as against 15 stocks in red on the index.

The top gainers on Nifty were Indiabulls Housing Finance up by 3.90%, Bharti Airtel up by 2.70%, Tata Steel up by 2.53%, Adani Ports & SEZ up by 2.49% and Vedanta up by 2.41%. On the flip side, Tech Mahindra down by 1.74%, Tata Power down by 1.69%, Bharti Infratel down by 1.29%, Eicher Motors down by 1.28% and Hindustan Unilever down by 0.80% were the top losers.

European markets were trading in red; Germany’s DAX slipped 3.13 points or 0.03% to 12,226.21, UK’s FTSE 100 decreased 1.97 points or 0.03% to 7,379.77 and France’s CAC was down by 0.87 points or 0.02% to 5,130.99.

Asian equity markets ended mixed on Wednesday as US President Donald Trump's comments that he may end the North American Free-Trade Agreement which raised concerns over its impact on global trade. Also, Trump threatened to shut down the government if he fails to generate funds to build his controversial wall along the Mexican border. Geopolitical risks also remained in focus after the United States announced new sanctions on Chinese and Russian entities for their alleged ties to North Korea's nuclear weapons program. Chinese shares ended on a flat note as steelmakers succumbed to profit taking, offsetting gains in the banking sector on optimism over earnings. Meanwhile, Japanese shares eked out modest gains to snap a five-day losing streak as the yen weakened and a survey showed activity in Japan's manufacturing sector continued to expand in August and at a faster pace. Trading in Hong Kong was suspended due to tropical cyclone Hato.