Bulls tighten grip on Dalal Street as Moody’s lifts India’s rating

Extending their previous session’s rally, Indian equity benchmarks ended the Friday’s trade with a gain of over half a percent, with Sensex and Nifty recapturing their crucial 33,300 and 10,250 levels respectively. Sentiments remained buoyant throughout the session, despite some profit booking in last leg of trade, as Moody’s Investor Service raised India’s government bond rating, citing continued progress in the nation’s economic and institutional reforms. The rating agency upgraded India’s bond rating to ‘stable’ (Baa2) from ‘positive’ (Baa3) and said reforms being pushed through by the government will help stabilize debt. The agency has also upgraded India’s local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. Traders also took some encouragement with RBI Governor C Rangarajan’s statement who said the inflation, which rose to 3.58% in October, may ease by December and end up below 4% by the end of the current fiscal.

Adding to the optimism, Commerce and Industry Minister Suresh Prabhu exuded confidence that exports will gather momentum going forward as the economy is on course to double to $5 trillion and become the third largest in the world, over the next few years. Meanwhile, highlighting ‘massive’ economic reforms undertaken by India, Finance Minister Arun Jaitley has said that the country’s economic slowdown has bottomed out and now it should start moving upwards after recovering from the temporary blip. He acknowledged that there was a ‘temporary blip’ as a result of structural changes initiated by the government. However, markets pare some of their gains to end off day’s highs, as there were some cautiousness too in India Inc. as the Reserve Bank of India is likely to come up with a fresh list of around 50 loan accounts that are either under stress or close to being classified as non-performing assets. The regulator may set a March 31 deadline for banks to find a resolution on these or commence bankruptcy proceedings against the borrowers.

On the global front, the European markets were trading in red with investors eyeing an upcoming speech by European Central Bank President Mario Draghi due later in the day. Asian markets ended mostly in green, building up on their last session’s rally, as risk appetite returned amid rising odds of US corporate tax cuts and encouraging earnings.

Back home, the markets took support with Niti Aayog Vice Chairman Rajiv Kumar’s statement that India’s credit rating upgrade by Moody’s is a reflection of the country’s growth story. He also expressed hope that other global agencies such as S&P and Fitch would follow suit. On the sectoral front, realty stocks remained in focus, as the government has decided to increase the carpet area of houses eligible for interest subsidy under the Credit Linked Subsidy Scheme (CLSS) for the Middle Income Group (MIG) under Pradhan Mantri Awas Yojana (PMAY). The move also means that the private developers will have incentives to increase scale. Meanwhile, HDFC Standard Life Insurance Company has made a decent debut and ended the session with a gain of around 19% on the BSE.

Finally, the BSE Sensex soared 235.98 points or 0.71% to 33,342.80, while the CNX Nifty was up by 68.85 points or 0.67% to 10,283.60.

The BSE Sensex touched a high and a low of 33,520.82 and 33,278.91, respectively and there were 23 stocks on gaining side as against 8 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index surged 1.03%, while Small cap index was up by 0.81%.

The top gaining sectoral indices on the BSE were Realty up by 3.70%, Metal up by 1.80%, Consumer Durables up by 1.47%, Bankex up by 1.17% and Basic Materials was up by 1.03%, while IT down by 1.38% and TECK was down by 1.10% were the top losing indices on BSE.

The top gainers on the Sensex were Cipla up by 2.29%, Maruti Suzuki up by 2.15%, Tata Steel up by 2.14%, Tata Motors up by 1.92% and ICICI Bank up by 1.86%. On the flip side, Infosys down by 1.79%, TCS down by 1.33%, ONGC down by 1.03%, Wipro down by 0.97% and Asian Paints down by 0.76% were the top losers.

Meanwhile, citing improved growth prospects driven by the government’s wide-ranging program of economic and institutional reforms, Global credit rating agency Moody's Investors Services has upgraded India's sovereign credit rating by one notch to 'Baa2' with a stable outlook. The surprise move comes after a gap of 13 years - the rating agency had last upgraded India’s rating to 'Baa3' in 2004. The 'Baa3' rating was the lowest investment grade - just a notch above 'junk' status. In 2015, the rating outlook was changed to 'positive' from 'stable'.

The US-based agency believes that continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term. However, it cautioned that high debt burden remains a constraint on the country's credit profile. It also believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.

Adding further, Moody's mentioned that while a number of important reforms remain at the design phase, those implemented to-date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth. It also stated that reforms like Goods and Services Tax (GST) regime will promote productivity by removing barriers to interstate trade. Also, improvements to the monetary policy framework, measures to address the overhang of non-performing loans (NPLs) in the banking system and those like demonetisation, the Aadhaar system of biometric accounts, and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system are intended to reduce informality in the economy.

On the GDP front, rating agency expects that the country’s economic growth to moderate to 6.7 percent in the fiscal year ending in March 2018. However, it said that as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5 percent next fiscal, with similarly robust levels of growth from FY2019 onward. It added that longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns.

The CNX Nifty traded in a range of 10,343.60 and 10,268.05. There were 28 stocks in green as against 21 stocks in red, while one stock remained unchanged on the index.

The top gainers on Nifty were HDFC up by 2.27%, Cipla up by 2.18%, Maruti Suzuki up by 2.12%, Tata Motors up by 2.00% and ICICI Bank up by 1.76%. On the flip side, Tech Mahindra down by 3.18%, Infosys down by 2.32%, Bosch down by 1.54%, TCS down by 1.40% and HCL Tech. down by 1.37% were the top losers.

European markets were trading in red; UK’s FTSE 100 decreased 22.45 points or 0.3% to 7,364.49, Germany’s DAX slipped 19.82 points or 0.15% to 13,027.40 and France’s CAC was down by 13.4 points or 0.25% to 5,322.99.

Asian equity markets ended mostly in green on Friday after US House Republicans voted to approve the tax reform bill, a step forward on President Donald Trump's tax reform plan. The sentiments improved further following the firmer lead on Wall Street in the last session. The dollar weakened against the yen while oil held steady but was on track for its first weekly fall in six on supply worries. Chinese shares ended lower on worries over the health of the world’s second largest economy. Data released on Tuesday showed China’s economy cooled further last month, with industrial output, fixed asset investment and retail sales missing expectations as the government extended a crackdown on debt risks and factory pollution. Further, Japanese shares ended higher, helped by gains in most sectors while chip-related stocks such as Sumco and Tokyo Electron outperformed. Although, the yen's strength limited Japanese shares gains.