Benchmarks to make pessimistic start on weak global cues

Indian equity benchmarks ended at fresh record highs after finance minister Arun Jaitley, presenting Economic Survey 2017-18, stated that the Indian economy is expected to expand at 7-7.5% in the next financial year, 2018-19. Today, the start is likely to be on the negative side, tracking weak global cues amid concerns over valuations after recent strong gains. The focus will remain on upcoming budget as this will be the last full year budget of the government before next year’s Lok Sabha election. However, some optimism may come later in the day with report that the Securities and Exchanges Board of India (SEBI) may tighten net worth norms, bring in new shareholding rules and ease directorship conditions for stock exchanges, depositories and clearing corporations. Traders will also get some solace with chief economic adviser Arvind Subramanian’s statement that there is robust and broad-based revival in the Indian economy that coexists with macroeconomic challenges. Traders may also draw some support from Economic Survey stating that measures to curb black money and encourage tax formalisation, including demonetisation and GST, have increased personal income-tax collections substantially. From about 2% of GDP between 2013-14 and 2015-16, they are likely to rise to 2.3% of GDP in 2017-18, a historic high. There will be lots of important earnings announcements to keep the market buzzing for the day.

The US markets ended lower on Monday after the 10-year treasury yield shot higher, raising concerns higher interest rates would snuff out the bull market. Selling pressure was somewhat subdued, however, with traders reluctant to sell stocks and miss out on any further upside. Asian markets were trading in red terrain in early deals on Tuesday, tracking declines seen on the Wall Street in the previous session. Japanese market edged lower on stronger yen denting investor sentiment. Investors also digested mixed local economic data.

Back home, Indian equity benchmarks ended at fresh record high levels on Monday, after a government report predicted growth would accelerate in the coming fiscal year. Markets started the session with a gap-up opening and traded firmly throughout the day as traders remained optimistic after the economic survey released earlier in the day projected economic growth would be 7.0-7.5% in the year starting in April, up from a projected 6.75% for the current fiscal year. But the survey also noted a pause in general government fiscal consolidation relative to 2016-17 cannot be ruled out, sending benchmark 10-year bond yields up 4 basis points to 7.52% from its previous close. It added that, gross value added is likely to grow at 6.1% in FY18 against 6.6% in FY17 and Industry growth is likely to be at 4.4% for the current fiscal year. Traders also took some encouragement with the government expecting tax collections to improve in the coming months as measures to raise compliance have begun to show results. The total collections for December rose to Rs 86,703 crore, as on January 24. GST receipts had slipped to Rs 80,808 crore in November from more than Rs 83,000 crore in October and over Rs 92,000 crore in September. Some support also came with report that the share of Foreign Portfolio Investments (FPI) in domestic capital markets through participatory notes (P-notes) has jumped to a six-month high of over Rs 1.5 lakh crore at the end of December after declining in the month of November, despite stringent norms put in place by markets regulator Securities and Exchange Board of India (SEBI) to check their misuse. This is the highest level since June when the cumulative value of such investments stood at Rs 1.65 lakh crore. Separately, a private report enlightened that the government is expected to continue its fiscal consolidation at a slower pace in the ensuing budget with a fiscal deficit target of 3.2% of GDP for 2018-19. The street shrugged off the private report that India’s factory output growth in December 2017 is projected to come down to 5.5-6%, from a 17-month high of 8.4% in November last year. Finally, the BSE Sensex surged 232.81 points or 0.65% to 36283.25, while the CNX Nifty was up by 60.75 points or 0.55% to 11130.40.