Markets eke out slender gains from a choppy session

Indian equity benchmarks managed to keep their head above water on Monday and went home with slender gains. Markets traded choppy throughout the session, as street digested Moody’s India upgrade and focused on Gujarat Assembly elections that will take place next month. The street took note of US-based rating agency Moody’s report that lower taxes and higher public expenditure could widen budget deficit in 2017-18, but steps taken by the government to broaden the tax base and improve spending efficiency would help in narrowing it going forward. Though, market participants took some comfort with the IMF data, which forms part of the latest World Economic Outlook report of the International Monetary Fund, stating that India has moved up one position to 126th in terms of per capita GDP of countries, though it still ranked lower than all its BRICS peers. Some support also came with SBI research report stating that India might not have to wait for 13 long years for next sovereign upgrade by a rating agency, as the government is firm and committed to adhere with the fiscal consolidation path.

Traders also took some solace with Finance Secretary Hasmukh Adhia’s statement that the latest changes have resolved nearly 90% of problems and discontentment related to the indirect tax regime. Separately, Department of Economic Affairs Secretary Subhash Chandra Garg has said that he hopes the growth rate to touch 7% by the end of fiscal year. Garg called the current financial year a transitional one, bearing the impact of major reforms like such as the demonetization and the implementation the new indirect tax system-Goods and Services Tax (GST).

Weak opening in European markets kept the gains in domestic markets in check with CAC, DAX and FTSE trading in red in early deals after preliminary coalition talks in Germany collapsed. The Free Democrats have apparently signaled that they could support a minority government made up of the CDU-CSU bloc and the Green party. Asian markets closed mixed, with investors’ sentiments hurt by a retreat on Wall Street. China’s new home prices rose at a slightly faster pace in October after gains had held steady the previous month, as prices remained resilient in the face of falling sales and a tighter liquidity environment.

Back home, the aviation stocks remained on buyers’ radar with report that India’s domestic air traffic registered a growth of 20.52% in October when airlines flew 10.45 million passengers as compared to 8.67 million during the corresponding period last year. Stocks related to the logistics sector edged higher on report that government may grant infrastructure status to logistics sector soon, a move that will help the industry raise funds at competitive rates and boost India's trade. However, the cement stocks witnessed some pressure on reports that the government is considering banning import of pet coke - a cheap fuel used by cement, paper, brick kiln, chemicals and textile industries-to cut industrial pollution that’s contributing to hazy skies. The possible ban will be discussed on Tuesday, when oil minister Dharmendra Pradhan deliberates the issue with secretaries of several departments.

Finally, the BSE Sensex gained 17.10 points or 0.05% to 33,359.90, while the CNX Nifty was up by 15.15 points or 0.15% to 10,298.75.

The BSE Sensex touched a high and a low of 33,449.53 and 33,288.21, respectively and there were 15 stocks on gaining side as against 16 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.63%, while Small cap index was up by 0.81%.

The top gaining sectoral indices on the BSE were Realty up by 2.22%, Utilities up by 1.42%, Metal up by 1.33%, Power up by 0.96% and Telecom was up by 0.94%, while IT down by 0.41%, TECK down by 0.23% and Bankex was down by 0.07% were the few losing indices on BSE.

The top gainers on the Sensex were Coal India up by 1.98%, NTPC up by 1.52%, ONGC up by 1.41%, Kotak Mahindra Bank up by 1.30% and Reliance Industries up by 1.01%. On the flip side, Dr. Reddy’s Lab down by 2.05%, ICICI Bank down by 2.03%, SBI down by 1.29%, Cipla down by 0.99% and Infosys down by 0.99% were the top losers.

Meanwhile, global rating agency, Moody's Investors Service has said that India’s budget deficit would widen in 2017-18, due to lower taxes and higher public expenditure. But it also said that steps taken by the government to broaden the tax base and improve spending efficiency would help in narrowing it going forward. Moody's V-P (Sovereign Risk Group) William Foster has said the agency believes that the government's commitment to fiscal consolidation remains and sustained growth would help it reduce debt burden. India's debt-to-GDP ratio stood at 68.6% and a government-appointed panel has recommended lowering it to 60% by 2023.

Foster said that they forecast the general government budget deficit at 6.5% of GDP this fiscal year, similar to the last two fiscal years. Lower government revenues than planned in the Budget and somewhat higher government spending could lead to a deficit somewhat wider than targeted. However, over time, measures aimed at broadening the tax base and improving the efficiency of government spending will contribute to a gradual narrowing of the deficit. Together with robust and sustained nominal GDP growth, this would be conducive to a gradual decline in the government debt burden.

Moody's V-P (Sovereign Risk Group) added that a material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating. General budget deficit includes expenditure incurred and revenue earned by both the Centre and states. He further said that the rating could also face downward pressure if the health of the banking system deteriorated significantly or external vulnerability increased sharply.

Moody’s had recently upgraded India’s sovereign rating for the first time in over 13 years and Foster said the upgrade reflects the expectation that continued progress on economic and institutional reforms will 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.

The CNX Nifty traded in a range of 10,309.85 and 10,261.50. There were 27 stocks in green as against 22 stocks in red, while one stock remained unchanged on the index.

The top gainers on Nifty were GAIL India up by 3.99%, Yes Bank up by 2.48%, Vedanta up by 2.39%, Bosch up by 2.39% and Coal India up by 1.70%. On the flip side, Ambuja Cement down by 3.53%, Dr. Reddy’s Lab down by 2.17%, Ultratech Cement down by 1.92%, ICICI Bank down by 1.91% and SBI down by 1.41% were the top losers.

The European markets were trading in red; UK’s FTSE 100 decreased 22.32 points or 0.3% to 7,358.36, Germany’s DAX shed 40.66 points or 0.31% to 12,953.07 and France’s CAC was down by 5.43 points or 0.1% to 5,313.74.

Asian equity markets ended mixed on Monday as US tax reform uncertainty and a political impasse in Germany dented investor risk appetite and helped spur demand for safe-haven assets. Japanese shares ended lower as the yen strengthened and data showed Japanese export growth weakened unexpectedly in October. Meanwhile, Chinese shares ended higher, aided by a rebound in banking shares even after Beijing set sweeping new guidelines to regulate asset management products. The central bank issued the guidelines on Friday to more strictly regulate asset management businesses, in the government’s latest effort to rein in the risky shadow banking sector which had been channeling money into Chinese stocks, bonds and property.