Markets to make optimistic start ahead of RBI policy outcome

Indian shares continued to plunge on Tuesday, tracking weak global markets on concerns about rising inflation and potentially higher interest rates. Today the start is likely to be on positive side amid firm global cues. Traders will remain watchful ahead of outcome of Reserve Bank of India’s (RBI) policy review meeting. The RBI is widely expected to keep its key rate on hold, but toughen its rhetoric as inflation has accelerated sharply. Traders will get some support from report that as many as 67 foreign direct investment proposals (FDI) worth Rs 117 billion were approved during the first nine months of the ongoing financial year. Traders may remain concern on report that India’s fiscal deficit is expected to come in at 3.5 percent of GDP in financial year 2018-2019 , as policymakers seek to promote economic growth by reducing the pace of fiscal consolidation. According to the report by BMI Research, a unit of Fitch Group, there is room for fiscal slippage as the government seeks to achieve its 7.5 percent growth target. Steel stocks will be in focus after realising the importance of iron ore and coking coal to the competitiveness of steel making, the Union steel ministry said it wants to be consulted on all decisions concerning the two commodities. Sugar stocks too will be in focus after the government doubled import duty on sugar to 100 per cent to protect domestic farmers. At present, customs duty or import tax on sugar is 50 per cent. There will be lots of important earnings announcements too, to keep the markets buzzing.

U.S. markets traded jubilantly and ended with a gain of around two percent on Tuesday, as traders went for short covering after previous session’s sell-off. Asian markets were trading with traction on Wednesday, retracing losses made in the last session, after major U.S. indexes finished their Tuesday session higher. Japanese Nikkei edged higher by over three percent as weaker yen lifted exporters’ shares.

Back home, extending their losing streak for sixth straight session, Indian equity benchmarks ended the daunting day of trade with a cut of over one and a half percent on Tuesday, breaching their crucial 34,200 (Sensex) and 10,500 (Nifty) levels. Short covering in last leg of trade helped markets to pare most of their initial losses. Markets started the session with gap-down opening and shaved off around three and a half percent amid global sell off. Traders remained concerned ahead of the Reserve Bank of India’s (RBI’s) policy review meeting outcome on tomorrow amid expectations that the central bank will tighten its monetary policy stance in the wake of growing concerns over fiscal slippage. Investors also remained concerned on private report that lower indirect tax revenue collections may outweigh any upside risks from higher nominal GDP growth, non-tax revenue and direct tax collection. Traders also took note of foreign brokerage report which enlightened that the economy will grow 7.5 percent level in the first half on a lower base, but will slip down to 7 percent in the second half of the next fiscal. The report added that even with the jump, it will continue to trend 1 percentage point lower than the potential growth of the economy. Sentiments also remained dampened with private report that the budgeted fiscal deficit is in line with expectations but there are some risks of slippage in financial year 2018-19, unless economic activities formalize at a rapid pace. It estimates a 20 bps upside risk to the fiscal deficit in 2018-19, unless economic activities formalize at a rapid pace over the coming year to generate the necessary buoyancy in revenues. Markets even breached their crucial 33,600 (Sensex) and 10,300 (Nifty) levels in initial trades, but key gauges got strong support near those levels and managed to prune some of their initial losses, as traders took some relief with Finance Minister Arun Jaitley’s statement that expediting public services and ensuring fairness in procurement will supplement rapid economic growth in the South Asian region including India. Investors also took some comfort with CBDT chairman Sushil Chandra’s statement that a large number of taxpayers have been brought into the net taking the total base to 8 crore and underlined that the government has consolidated direct tax reforms. Finally, the BSE Sensex tumbled 561.22 points or 1.61% to 34,195.94, while the CNX Nifty was down by 168.30 points or 1.58% to 10,498.25.