Markets to make a soft-to-flat start

Indian shares fluctuated before closing modestly lower yesterday, as investors digested the government’s last full budget before the 2019 general election as well as disappointing manufacturing data after December’s stellar performance. Today, the start is likely to be mildly soft-to-cautious amid weak global cues. Traders will be taking bet after analyzing the budget fine prints. Finance Minister Arun Jaitley has reduced tax rate to 25% for companies that have a reported turnover of up to Rs 250 crore. This will benefit the entire MSME sector, which accounts for 99% of the companies’ filing their tax returns. However, traders may continue to remain concern with finance minister Arun Jaitley stating long-term capital gains from sale of equity shares and equity mutual fund schemes will now be taxed at 10%, if your total capital gains in a year cross Rs 1 lakh. Below Rs1 lakh, gains won’t be taxed. Some concern also crept with India’s fiscal deficit, for nine months of Financial Year 2018, stands at Rs 6,20,949 crore, overshooting the budgeted estimate (BE) target by 113.6%. The government has estimated Rs 5,46,532 crore of fiscal deficit for FY18 which during the same period of the last year stood negative at 93.9%. Traders will also remain on sidelines ahead of Service Purchasing Managers’ Index (PMI) data scheduled to be released on February 5. There will be lots of important earnings announcements too, to keep the markets buzzing.

The US markets ended the choppy trade slightly in red, as traders seemed reluctant to make significant moves ahead of the release of the closely watched monthly jobs report on Friday. Employment is expected to increase by 180,000 jobs in January after climbing by 148,000 jobs in December. Asian indices were trading mostly in red after the Wall Street closed mixed and yields on US government debt rose in the last session. Japanese markets were trading lower on a stronger yen. Rising U.S. bond yields also dented investor sentiment.

Back home, budget session turned out to be a quiet day of trade with Sensex and Nifty ending marginally lower after Finance Minister Arun Jaitley proposed a long-term capital gains tax. However, markets made firm start and traded with traction ahead of budget as traders took support with report that the Central Statistics Office revised the Gross Domestic Product (GDP) growth rate for 2015-16 to 8.2% from the earlier estimates of 8% and kept the 2016-17 growth unchanged at 7.1%. The real GDP or GDP at constant (2011-12) prices for the years 2016-17 and 2015-16 stands at Rs 121.96 lakh crore and Rs 113.86 lakh crore respectively, showing growth of 7.1% during 2016-17 and 8.2% during 2015-16. But, once the Finance Minister started announcing budget, markets witnessed a sharp sell-off and even breached their crucial 35,600 (Sensex) and 10,900 (Nifty) levels after Arun Jaitley proposed to levy long-term capital gains tax (LTCG) of 10% on gains exceeding Rs 100,000 from sale of equity shares. Moreover, finance minister Arun Jaitley revised the fiscal deficit for FY18 to 3.5% from 3.2% targeted earlier. Selling proved short-lived and markets got strong support near those levels and pared all of their losses to back into green terrain. However, selling in last leg of trade dragged markets slightly in red, as investors remained concerned with report that India’s core sector output grew at a slower pace of 4.0% in December 2017, from 7.4% in November 2017, on the back of declining coal and crude oil output. According to the data released by the ministry of Commerce and Industry showed the combined Index of eight core industries stood at 129.1 in December, 2017, which was 4.0% higher compared to the index of December, 2016. Meanwhile, consumers are continuing to hold back on discretionary spending with categories such as television, home appliances, fashion, lifestyle and apparel posting poor sales in the October-December quarter, with no recovery in sight in January as well, despite almost all brands and retailers running end-of-season and Republic Day sales. Finally, the BSE Sensex declined 58.36 points or 0.16% to 35,906.66, while the CNX Nifty was down by 10.80 points or 0.10% to 11,016.90.