Bulls back on Dalal Street; Nifty ends near 10k mark

Bulls made comeback on Dalal Street after a day’s break, with key gauges garnering gains of around a percent on Friday. Sentiments remained up-beat since start, as traders took some encouragement with Commerce and Industry Minister Suresh Prabhu’s statement that he is working closely with the finance ministry and other departments to firm up policy initiatives along with fiscal incentives to give a fillip to industrial growth and job creation. Markets continued with jubilation throughout the day after World Bank President Jim Yong Kim said that the Goods and Services Tax (GST) is going to have a hugely positive impact on the Indian economy. He added that the recent slowdown in India’s economic growth is an aberration mainly due to the temporary disruptions in preparation for the GST, pointing out that it will get corrected in the coming months. Some support also came with Minister of Railways and Coal Piyush Goyal’s statement that India is undergoing a change in the economic narrative and rebranding itself with technology driving growth.

Adding to the optimism, retirement fund body EPFO is mulling to give its subscribers an option to set aside a higher proportion of their provident fund money for equity asset class. EPFO has been raising the amount it invests in equities since 2015, when it started with 5% of the corpus. Its investment in FY16 was Rs 6,577 crore, rising to Rs 14,982 crore or 10% of its incremental corpus in the following year. Meanwhile, investors were eyeing the GST Council meet where it is expected to provide relief to businesses by tweaking rates and procedures. The package of measures expected to be taken up by the council may include an increase in the threshold limit for the composition scheme to Rs 1-1.5 crore from Rs 75 lakh to aid micro, small and medium enterprises, a more liberal exemption limit, and a lower compliance burden with quarterly rather than monthly filing apart from steps to boost exports.

Global cues too remained supportive with European counters making a firm start with investors’ focus turning from a separatist crisis in Catalonia. A survey showed that growth in the number of workers hired in Britain via recruitment agencies slowed last month and fell in London for the first time in nearly a year as Brexit makes it harder for companies to find staff. Asian markets ended mostly in green on Friday, riding on economic optimism ahead of a US job report later in the day.

Back home, banking stocks remained on buyers’ radar on the Moody’s latest report that the sale of stake by few Indian banks in their insurance arms is credit positive for these lenders as the proceeds received would strengthen their loss-absorbing buffers. Stocks related to garment sector too remained buzzing, as the government has slashed duty drawback to two per cent from 7.5 per cent with effect from October 1. Aviation stocks ended mixed on report that India’s domestic passenger traffic grew by 16 percent in August. India’s domestic demand -- revenue passenger kilometres (RPK) -- was highest amongst major aviation markets like Australia, Brazil, China, Japan, Russia and the US.

Finally, the BSE Sensex surged 222.19 points or 0.70% to 31,814.22, while the CNX Nifty was up by 91.00 points or 0.92% to 9,979.70.

The BSE Sensex touched a high and a low of 31,844.28 and 31,632.81, 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 gained 0.95%, while Small cap index was up by 1.09%.

The top gaining sectoral indices on the BSE were Metal up by 3.14%, Oil & Gas up by 2.09%, Basic Materials up by 1.84%, PSU up by 1.81% and Utilities up by 1.79%, while there were no losers on the BSE sectoral front.

The top gainers on the Sensex were Tata Steel up by 4.73%, Sun Pharma up by 3.19%, NTPC up by 2.72%, SBI up by 2.11% and Hindustan Unilever up by 1.85%. On the flip side, Hero MotoCorp down by 1.42%, Tata Motors - DVR down by 0.68%, Dr. Reddy’s Lab down by 0.40%, HDFC down by 0.38% and Power Grid Corporation down by 0.02% were the top losers.

Meanwhile, India Ratings and Research (Ind-Ra) in its latest report has said that the transition to the new nationwide goods and services tax (GST) regime would significantly affect the micro, small and medium enterprise (MSME) space more than other industries, as industry participants lack compliance infrastructure to map the entire outstanding inventory with tax invoices. It also noted that MSMEs’ weak credit profile and risk weights attached to the loans extended to this sector in banks’ books could force the sector to resort to borrowings from non-bank finance companies. Furthermore, it has warned that this is more costly than borrowing from banks and could aggravate the credit impact of the GST transition on the MSME space.

However, the rating agency said that large corporates and firms with streamlined infrastructure may find it easy to map the entire outstanding inventory with tax invoices. It also noted that the new tax regime would also result in higher working capital requirements for most participants in manufacturing sector like steel, textile, auto and auto ancillary, owing to their requirement to pay the entire tax at the point of the dispatch of goods from factory gates, and also for the movement to warehouses. It estimated that working capital requirement to rise by 200 - 450 basis points of revenue for steel sector, 500 basis points of net value addition across the value chain for the textile industry. It also indicated that the increase in working capital requirement, as a proportion of revenue, would aid bank credit growth for large corporates.

Ind-Ra believes that industry participants’ ability to tide over working capital mismatches during the implementation phase and beyond would be relative to their balance sheet strengths and capital market access. It also observed that the ability of banks to fund these mismatches depends on the risk weights attached to such lending. The report noted that while it would be beneficial for the banking system, given the low incremental credit deposit ratio, banks may refrain from providing additional financial supports to entities with a weak credit profile.

The CNX Nifty traded in a range of 9,989.35 and 9,906.60. There were 41 stocks in green as against 9 stocks in red on the index.

The top gainers on Nifty were GAIL India up by 5.83%, Tata Steel up by 4.92%, Hindalco up by 4.47%, Sun Pharma up by 3.55% and Bajaj Finance up by 3.20%. On the flip side, Bharti Infratel down by 1.30%, Hero MotoCorp down by 1.10%, HDFC down by 0.60%, Dr. Reddys Lab down by 0.51% and Power Grid down by 0.27% were the top losers.

European markets were trading mostly in green; Germany’s DAX increased 11.15 points or 0.09% to 12,979.20 and UK’s FTSE 100 was up by 17.37 points or 0.23% to 7,525.36, while France’s CAC was down by 9.7 points or 0.18% to 5,369.51.

Asian equity markets ended higher on Friday, tracking overnight gains on Wall Street after Congress passed a $4.1 trillion budget resolution and data on jobless claims, factory orders and trade balance pointed to underlying strength in the economy. However, overall gains remained muted ahead of the US September nonfarm payrolls report, due out later in the day. Employment is expected to rise by 90,000 jobs in September after climbing by 156,000 jobs in August. The unemployment rate is expected to hold at 4.4 percent. Japanese shares hit two-year high with a weakening yen on hopes for US tax reform as well as record highs on Wall Street. Hong Kong shares closed at its highest level in nearly 10 years, supported by Chinese automakers and banks. Chinese banks extended gains, still basking in the glow of the central bank’s announcement on Saturday that it is cutting the amount of cash that some banks must hold as reserves for the first time since February 2016 to encourage more lending to struggling smaller companies. Meanwhile, Chinese and South Korean markets were closed for holidays.