Geopolitical worries drag benchmarks lower; Nifty breaches 9,800 mark

Tuesday turned out to be a daunting day of trade for Indian equity benchmarks, with frontline gauges shaving off over a percent, breaching their crucial 31,400 (Sensex) and 9,800 (Nifty) levels. After a negative opening, market never looked confident of recovering and gradually extended its losses till end to close near intraday lows, as the firing of a missile over Japan by North Korea rattled investors. Back on regional front, sentiments remained down-beat with NITI Aayog’s report highlighting that there is a huge gap between what the state governments have done to improve ease of doing business and what the enterprises know of these improvements. NITI Aayog has recommended reforming labour laws and a greater flexibility in their implementation to enhance ease of doing business. Some selling also crept in on reports that RBI sent fresh list of defaulters to be send to NCLT by mid-December if unresolved. Videocon Industries, JP Associates, Uttam Galva, Monnet Power, Jai Balaji, Shakti Bhog, SEL Manufacturing, Castex, Visa Steel, Ruchi Soya, Orchid Chemicals and IVRCL are list of companies to be sent to NCLT.

Market participants failed to get any sense of relief with domestic rating agency Care Ratings’ report projecting acceleration in the Gross Domestic Product (GDP) growth to 6.5% in the first quarter (April-June) of fiscal year 2017-18 over the last year, up from the 6.1% in the preceding quarter. Traders shrugged off Moody’s Investors Services’ latest note where it has said that merging India’s public sector banks will improve their ratings because it will provide efficiencies of scale and enhance the quality of corporate governance. Also, investors paid no heed towards the India Ratings and Research’s (Ind-Ra) latest report which enlightened that a new nationwide goods and services tax (GST) rollout will have positive impact on state governments’ finances in the medium to long term.

Weak opening in European markets too dampened sentiments, while Asian markets ended mostly in red, as geopolitical concerns surrounding North Korea raised fresh jitters across global markets. North Korea fired a ballistic missile over Japan’s northern Hokkaido island into the sea, prompting warnings for residents and escalating tensions in the Korean peninsula.

Back home, shares of some sugar companies edged lower, as government imposed stock limits on sugar mills for the next two months to keep prices under control during the festival season. Telecom stocks remained buzzing, as the Telecom Regulatory Authority of India (TRAI) released a consultation paper on the next round of spectrum auctions seeking stakeholders’ response.

The NSE's 50-share broadly followed index Nifty edged lower by over one hundred and ten points to end below its psychological 9,800 support level, while Bombay Stock Exchange's Sensitive Index -- Sensex declined by over three hundred and sixty points to end below its crucial 31,400 mark. The broader markets too struggled to get traction and ended the session in red. The market breadth was in the favour of decliners, as there were 828 shares on the gaining side against 1,736 shares on the losing side, while 136 shares remain unchanged.

Finally, the BSE Sensex lost 362.43 points or 1.14% to 31,388.39, while the CNX Nifty was down by 116.75 points or 1.18% to 9,796.05.

The BSE Sensex touched a high and a low of 31,739.80 and 31,360.81, respectively and there were 2 stocks on gaining side as against 29 stocks on losing side on the index.

The broader indices ended in red; the BSE Mid cap index was down by 0.85%, while Small cap index down by 1.05%.

The top losing sectoral indices on the BSE were Telecom down by 1.87%, Energy down by 1.59%, Power down by 1.56%, Consumer Durables down by 1.47% and Utilities down by 1.40%, while there were no gainers on the BSE sectoral front.

The only gainers on the Sensex were Mahindra & Mahindra up by 0.25% and Wipro was up by 0.02%. On the flip side, NTPC down by 2.80%, Tata Motors - DVR down by 2.57%, Sun Pharma down by 2.35%, HDFC down by 2.20% and Reliance Industries down by 2.17% were the top losers.

Meanwhile, in a bid to give a big push to startups in India, the Department of Industrial Policy and Promotion (DIPP), an arm of the Commerce Ministry, in its newly consolidated foreign direct investment (FDI) policy document has included start-ups for the first time and allowed them to raise up to 100 percent of funds from Foreign Venture Capital Investor (FVCI). The document, which incorporates in simplified form all the changes made in FDI policy over the past year, has stated that the start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance. It also said that startups can issue convertible notes to person resident outside India under certain conditions.

According to the updated FDI policy, a person resident outside India (other than citizens/ entities of Pakistan and Bangladesh) will be permitted to purchase convertible notes issued by an Indian startup company for an amount of Rs 25 lakh or more in a single tranche. It also said that Non-resident Indian (NRIs) can also acquire convertible notes on non- repatriation basis. Adding further, it said that a startup company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government. It noted that the startup issuing convertible notes would be required to furnish reports as prescribed by the Reserve Bank of India (RBI).

In order to promote job creation and innovation, the government is focusing on startup companies. The whole exercise is aimed at providing an investor friendly climate to foreign players and, in turn, attract more FDI to boost economic growth and create jobs. The government updates the FDI policy every year. In the past year, the government has liberalised FDI policy in a number of sectors including food retail, construction and development, civil aviation, defence and private security agencies.

The CNX Nifty traded in a range of 9,887.35 and 9,783.75. There were 4 stocks in green as against 47 stocks in red on the index.

The few gainers on Nifty were Tech Mahindra up by 1.23%, Mahindra & Mahindra up by 0.14%, Zee Entertainment up by 0.12% and Wipro up by 0.05%. On the flip side, Bank of Baroda down by 2.98%, NTPC down by 2.91%, Hindalco down by 2.65%, Tata Power down by 2.35% and Sun Pharma down by 2.29% were the top losers.

European markets were trading in red; Germany’s DAX declined 213.46 points or 1.76% to 11,910.01, UK’s FTSE 100 decreased 89 points or 1.2% to 7,312.46 and France’s CAC was up by 68.91 points or 1.36% to 5,010.84.

Asian equity markets ended mostly lower on Tuesday and safe heaven assets climbed after North Korea launched a ballistic missile over Japan, reigniting geopolitical worries. The missile flew over the northern Japanese island of Hokkaido and landed in the sea. Japanese shares ended lower as the yen surged to four-month highs against the dollar and data on household spending and employment painted a mixed picture of the economy. While household spending unexpectedly fell in July, the jobless rate held steady at a seasonally adjusted 2.8 percent in the month. Though, Chinese shares shrugged off weak regional cues to end marginally higher as investors looked ahead to the latest readings on the country's manufacturing and service sectors.