Benchmarks end lower ahead of Budget

Tuesday turned out to be a daunting day of trade for Indian equity benchmarks, with frontline gauges settling below their crucial 36,100 (Sensex) and 11,050 (Nifty) levels. Markets kick-started the session on pessimistic note, as traders remained concerned over valuations after recent strong gains. Traders also remained on sidelines ahead of upcoming budget, as this will be the last full year budget of the government before next year’s Lok Sabha election. Afterwards, markets traded in a tight band throughout the session, as sentiments remained dampened with Chief Economic Adviser Arvind Subramanian’s statement that the scope for the Reserve Bank of India (RBI) to lower interest rate may be limited with growth picking up and inflation hardening. He added however that it would be inappropriate for him to comment on rate cut as it is the domain of the RBI. Traders also remained nervous with NITI Aayog Vice Chairman Rajiv Kumar’s statement that the government may settle for slightly higher fiscal deficit in 2018-19 as well. The government aims to restrain the fiscal deficit for 2017-18 to 3.2% of the GDP and 3% in 2018-19.

Some anxiety spread among the investors after yesterday’s Economic Survey, while painting a bright picture for India’s short and medium term growth, pointed out some pitfalls. It enlightened that despite better-than-expected GST revenue growth, India is headed for some fiscal slippage and could miss the target of 3.2% of GDP. The survey also added that agriculture income may fall by up to 25% in the medium term because climate change will hit crop yields, making it imperative to replace power and fertilizer subsidies by direct income support and to drastically expand irrigation. Market participants shrugged off report that 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.

Weak opening in European markets too dampened sentiments as global markets took a risk-averse turn, with cyclical sectors including mining and financials suffering the sharpest losses. Gross Domestic Product (GDP) in the euro zone rose as expected in the fourth quarter. The GDP rose a seasonally adjusted 0.6% in the final three months of 2017. Asian markets ended in red, as oil extended declines and US bond yields rose to their highest levels in nearly four years.

Back home, Oil marketing companies i.e. Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) edged higher after strong numbers from IOC. IOC’s Q3 earnings beat expectations and the company announced the bonus issue in the ratio of 1:1. The Gross Refining Margin (GRM) for the quarter ended December 2017 stood at $12.30 a barrel, which was far ahead of street expectation of $8.20 a barrel. Aviation companies like InterGlobe Aviation (IndiGo), SpiceJet and Jet Airways ended in green after CAPA report enlightened that backed by record capacity expansion, airlines will fly more than 150 million domestic passengers in FY19. The capacity addition will be led by IndiGo. Meanwhile, Amber Enterprises made stellar debut and ended with a gain of over 44% on the BSE.

Finally, the BSE Sensex declined 249.52 points or 0.69% to 36,033.73, while the CNX Nifty was down by 80.75 points or 0.73% to 11,049.65.

The BSE Sensex touched a high and a low of 36,291.82 and 35,993.41, respectively and there were 8 stocks on gaining side as against 23 stocks on losing side on the index.

The broader indices ended in red; the BSE Mid cap index declined 0.67%, while Small cap index was down by 1.34%.

The only gaining sectoral indices on the BSE were Oil & Gas up by 1.16% and PSU was up by 0.64%, while Consumer Durables down by 1.74%, Basic Materials down by 1.22%, Consumer Disc down by 1.10%, IT down by 1.07% and TECK was down by 1.02% were the top losing indices on BSE.

The top gainers on the Sensex were Coal India up by 1.71%, Hero MotoCorp up by 1.33%, Sun Pharma up by 0.72%, SBI up by 0.56% and Indusind Bank up by 0.24%. On the flip side, Asian Paints down by 2.22%, Kotak Mahindra Bank down by 2.20%, Axis Bank down by 1.98%, Dr. Reddy’s Lab down by 1.86% and Adani Ports down by 1.84% were the top losers.

Meanwhile, with the digital services segment growing at a healthy 30-35% annually, credit ratings agency, Crisil Ratings in its latest report has expected that the share of digital services in the export revenue of Indian information technology (IT) service companies to double to around 30% by fiscal year 2020. It added that this will be supported by initiatives like large-scale re-skilling of the tech workforce and more of mergers and acquisitions (M&A) in the digital space. On the other hand, the share of traditional IT services, which account for the bulk of the $140 billion-a-year Indian IT industry, will decline given the flaccid 2-4% annual growth currently. It also said that the overall IT revenue is expected to grow at 8% per annum until FY20, mainly due to digital services.

According to the report, with the late entry of domestic firms into digital services segment, the share of digital services revenue in India's IT export is currently around 15%. However, the segment also grew a little more than 25% in FY17 as Indian IT firms won digital deals, on the back of re-skilling of employees and this trend is set to accelerate. Besides, revenue growth slowed to below 10% between fiscals 2015 and 2017, from a very strong 27% compounded annual growth rate seen in the two decades through FY14. It also elaborated that with bulk of the revenue coming from exports of services, lower IT spend by major global clients and a shift in demand towards digital services have led to the decline.

Crisil Ratings also noted that the share of digital services in new global outsourcing contracts is estimated to have doubled to about 40% in FY17 from three years back, and will drive revenue growth going forward. It added that for major global IT players, more than a third of revenue already comes from digital services. It also foresees an increase in moderate-sized acquisitions in the digital space by both large and small firms to expand digital offerings and build scale. For smaller firms, acquisition activity will also be driven by the need to diversify existing offerings, an area of strength for larger firms already.

The CNX Nifty traded in a range of 11,121.10 and 11,033.90. There were 13 stocks in green as against 36 stocks in red, while one remained unchanged on the index.

The top gainers on Nifty were HPCL up by 4.36%, Indian Oil Corporation up by 4.09%, BPCL up by 2.36%, Hero MotoCorp up by 1.12% and Coal India up by 1.08%. On the flip side, Eicher Motors down by 2.84%, Kotak Mahindra Bank down by 2.63%, Bharti Infratel down by 2.38%, Bosch down by 2.24% and Bajaj Finance down by 2.23% were the top losers.

European markets were trading in red; Germany’s DAX decreased 60.23 points or 0.45% to 13,264.25, UK’s FTSE 100 declined 47.05 points or 0.61% to 7,624.48 and France’s CAC was down by 16.84 points or 0.3% to 5,504.75.

Asian equity markets ended in red on Tuesday as oil extended declines and US bond yields rose to their highest levels in nearly four years on concerns over higher inflation and a rise in real interest rates. Japanese shares closed lower, with a softer lead from Wall Street, a stronger yen and mixed data releases weighing on markets. Japanese household spending eased 0.1 percent in December from a year earlier and the unemployment rate rose slightly, while retail sales rose strongly in the month on increased spending on cars and clothes, separate reports showed. Further, Chinese shares extended losses, led by real estate and banking firms, as investors’ pocketed gains after a selloff in Apple shares knocked Wall Street.