Massacre continues on Dalal Street on Budget woes

Continuing their southward journey, Indian equity benchmarks made gap-down start and are trading with a cut of around a percent in early deals on Monday, as traders remained concerned that Union Budget could push up inflation and prompt the central bank to raise interest rates soon. Traders also remained pessimistic with Fitch Ratings’ statement that high debt burden of the government constrains India’s rating upgrade, after Finance Minister Arun Jaitley projecting a fiscal deficit of 3.5 per cent of GDP against the earlier target of 3.2 per cent. Meanwhile, Arun Jaitley said that the economy has entered into a phase of consolidation after a series of structural reforms which were initiated in the past two years.

Global cues too dampened sentiments with Asian markets trading mostly in red at this point of time, following large declines in the U.S. and Europe on Friday. Also, investors were worried that rising inflation could prompt central banks to tighten monetary policy faster than expected. The US markets witnessed slaughter on Friday and with major indices went home with a cut of over two percent.

Back home, stocks related to chemical sector remained in focus on report that the government planning to impose antidumping duty on import of a chemical, used in industries like plastics, from four countries, including China, for three years to guard domestic players from cheap shipments. In scrip specific development, IOC edged higher on planning to invest Rs 3,400 crore in Assam to expand operations, while GMR Infrastructure gained with arm inking agreement to acquire 11% stake in GHIAL.

The BSE Sensex is currently trading at 34768.65, down by 298.10 points or 0.85% after trading in a range of 34520.80 and 34774.29. There were 7 stocks advancing against 24 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index declined 1.65%, while Small cap index was down by 2.31%.

The only gaining sectoral indices on the BSE were IT up by 0.26% and TECK was up by 0.13%, while Basic Materials down by 2.76%, Metal down by 2.72%, Capital Goods down by 2.13%, Industrials down by 1.60% and Realty was down by 1.54% were the top losing indices on BSE.

The top gainers on the Sensex were Bharti Airtel up by 2.12%, Tata Motors - DVR up by 1.36%, Tata Motors up by 1.17%, Power Grid Corporation up by 0.83% and Infosys up by 0.43%. On the flip side, Yes Bank down by 4.03%, HDFC down by 2.56%, Tata Steel down by 1.90%, Bajaj Auto down by 1.90% and SBI down by 1.80% were the top losers.

Meanwhile, after Finance Minister Arun Jaitley projected fiscal deficit of 3.5% of gross domestic product (GDP) against the target of 3.2% set earlier, global ratings agency, Fitch Ratings has said that high debt burden of the government is an obstacle to India’s sovereign rating upgrade. For the next fiscal year 2018-19, the government projected fiscal deficit at 3.3% of GDP. Besides, the US-based agency had kept India's sovereign rating unchanged at ‘BBB-’, the lowest investment grade with stable outlook, citing weak fiscal position.

Fitch Ratings Director and Primary Sovereign analyst for India Thomas Rookmaaker has said that if implemented well, spending on such measures would likely reach a large part of the electorate, which is not insignificant with general elections coming up. He also said that weak public finances constrain India’s sovereign ratings, given a high general government debt burden of around 68% of GDP and a wide fiscal balance of 6.5% of GDP if states are included.

The government has kicked out its steady 3% fiscal deficit target further to 2020-21, well beyond its term. Rookmaaker said this compares to its initial medium-term fiscal plan of 2014, when it first announced to postpone the 3% target by one year from 2016-17 to 2017-18. He further said that the government’s commitment to embrace the recommendation of the FRBM committee to adopt a ceiling of 40% of GDP for central government debt is positive, even though the temporary delay in consolidation makes it unlikely that this debt level will be reached by 2022-23, as recommended by the committee last year.

The CNX Nifty is currently trading at 10666.55, down by 94.05 points or 0.87% after trading in a range of 10586.80 and 10667.30. There were 12 stocks advancing against 38 stocks declining on the index.

The top gainers on Nifty were Bharti Airtel up by 2.38%, HPCL up by 1.52%, Tata Motors up by 1.32%, BPCL up by 1.02% and Tech Mahindra up by 0.80%. On the flip side, Vedanta down by 4.79%, Yes Bank down by 3.85%, HDFC down by 2.54%, Hindalco down by 2.40% and Ambuja Cement down by 2.22% were the top losers.

Asian markets were trading in red; Nikkei 225 contracted 567.83 points or 2.44% to 22,706.70, Hang Seng dipped 578.99 points or 1.78% to 32,022.79, Taiwan Weighted dropped 200.25 points or 1.8% to 10,925.98, KOSPI Index decreased 32.19 points or 1.27% to 2,493.20, Jakarta Composite slipped 28.01 points or 0.42% to 6,600.81, FTSE Bursa Malaysia KLCI declined 17.84 points or 0.95% to 1,852.64, Shanghai Composite crumbled 6.18 points or 0.18% to 3,455.90, and Straits Times was down by 48.45 points or 1.37% to 3,481.37.