Benchmarks end lower as RBI maintains status quo

Indian equity benchmarks extended southward journey for seventh straight session and settled with a cut of around quarter a percent, as Reserve bank of Indian (RBI) kept repo rate unchanged. Markets started the session on optimistic note amid firm global cues. Traders took some encouragement with 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. Some support also came with report that Indian firms mobilized Rs 21,000 crore by issuing shares to institutional investors during the December quarter of the current fiscal, resulting into an over 13-fold rise from the year-ago period. The firms had mopped up Rs 1,576 crore in the same period of the previous fiscal. The funds have been mobilized for business expansion, refinancing of debt, working capital requirements and other general corporate purposes. Meanwhile, Finance Secretary Hasmukh Adhia said that the import duty hike in 45 items announced in the Budget will earn about Rs 7,000 crore revenues to the government and is mainly intended to give a push to the MSMEs for domestic manufacturing.

However, markets turned choppy after RBI kept the key policy rate unchanged at 6% for the third consecutive time in view of firming inflation. Reverse Repo rate was also maintained at 5.75%. The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel had last reduced the benchmark lending rate by 0.25 percentage points to 6% last August, bringing it to a 6-year low. Sentiments also remained dampened with RBI cutting its FY18 GVA growth to 6.6%. The policy added that retail inflation, measured by the year-on-year change in the Consumer Price Index (CPI), increased for the sixth consecutive month in December on account of a strong unfavourable base effect. Traders also remained concerned on report that India’s fiscal deficit is expected to come in at 3.5% 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% growth target.

On the global front, European markets were trading in green in early deals breaking a seven-day losing streak as investors took heart from a strong bounce on Wall Street at the end of a rollercoaster session. Asian markets ended mixed, as investors monitored oil price movements and kept a cautious eye on bond markets after a brutal selloff in global equity markets earlier this week.

Back home, RBI enlightened that financial markets have become volatile in recent days due to uncertainty over the pace of normalization of the US Fed monetary policy in view of January payrolls data showing rapidly accelerating wage growth and better than expected employment. Meanwhile, sugar stocks remained on buyers’ radar after the government doubled import duty on sugar to 100% to protect domestic farmers. At present, customs duty or import tax on sugar is 50%. Steel stocks ended mixed on report that 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.

Finally, the BSE Sensex declined 113.23 points or 0.33% to 34,082.71, while the CNX Nifty was down by 21.55 points or 0.21% to 10476.70.

The BSE Sensex touched a high and a low of 34,666.33 and 34,008.42, respectively and there were 16 stock on gaining side as against 15 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.43%, while Small cap index was up by 1.95%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.69%, Realty up by 1.54%, PSU up by 1.22%, Energy up by 1.10% and Healthcare was up by 1.08%, while Telecom down by 1.12%, TECK down by 0.63%, IT down by 0.55%, Capital Goods down by 0.46% and Bankex was down by 0.43% were the top losing indices on BSE.

The top gainers on the Sensex were Coal India up by 2.48%, ONGC up by 2.24%, Asian Paints up by 0.91%, Tata Motors up by 0.81% and Dr. Reddy’s Lab up by 0.79%. On the flip side, Bharti Airtel down by 2.03%, Wipro down by 1.85%, Yes Bank down by 1.58%, Larsen & Toubro down by 1.58% and HDFC Bank down by 1.37% were the top losers.

Meanwhile, Fitch Ratings in its latest report stated that the Indian government’s budget has pushed back fiscal consolidation, leaving much of the task of strengthening weak public finances to the next administration after the 2019 general elections. However, it said that the budget target revisions are modest, and are balanced by positive reform momentum and a strong economic outlook. Besides, it noted that postponement of consolidation in part reflects policies to support the economy, which was held back last year by weak investment and disruptions caused by demonetisation and the introduction of the Goods and Services Tax (GST).

The US-based agency has stated that in the Union Budget for 2017-18, the government announced new spending initiatives including measures to boost rural incomes, an ambitious National Health Protection Scheme intended to provide health insurance cover to 50 crore Indians, and funding for the construction and upgrading of medical colleges and hospitals. It noted that this spending will benefit a large section of the public ahead of general elections due by May 2019. Adding further, it said that the government has revised the fiscal deficit target at 3.5% of GDP for 2017-18 and projected 2018-19 deficit at 3.3% of GDP, compared with original targets of 3.2% and 3%, respectively. It indicated that the fiscal slippage of 0.3% of GDP in both 2017 -18 and 2018-19 is relative to last year’s budget targets of 3.2% and 3% of GDP, respectively.

According to the report, the target for FY18 was missed largely because of higher expenditure. It also said that this government’s initial fiscal plan, set out in 2014, aimed to reduce the deficit to 3% of GDP by FY18 - the level consistent with the Fiscal Responsibility and Budget Management (FRBM) Act of 2003. It pointed out that despite this slippage, the government stated in the budget that it plans to adopt a ceiling of 40% of GDP for central government debt, as recommended by the FRBM Committee in January 2017, compared to an estimated 50% of GDP in 2017-18. It added that this would be a positive step towards a more prudent fiscal framework, if eventually adhered to, even if debt is unlikely to fall below the ceiling by 2022-23, as recommended by the committee.

The CNX Nifty traded in a range of 10,614.00 and 10,446.40. There were 24 stocks in green as against 26 stocks in red on the index.

The top gainers on Nifty were HPCL up by 4.86%, Aurobindo Pharma up by 3.77%, BPCL up by 2.42%, ONGC up by 2.08% and Coal India up by 2.05%. On the flip side, Ambuja Cement down by 3.25%, Vedanta down by 2.63%, Bharti Airtel down by 2.52%, Indisbulls Housing Finance down by 2.34% and Yes Bank down by 2.30% were the top losers.

European markets were trading in green; France’s CAC surged 34.94 points or 0.68% to 5,196.75, UK’s FTSE 100 increased 46.54 points or 0.65% to 7,187.94 and Germany’s DAX was up by 82.2 points or 0.66% to 12,474.86.

Asian equity markets ended mixed on Wednesday as investors monitored oil price movements and kept a cautious eye on bond markets after a brutal selloff in global equity markets earlier this week. Chinese shares ended sharply lower as investors booked some profits in recent outperformers. However, Japanese shares closed modestly higher in volatile trade as investors stayed on guard for more losses in global equity markets after US futures slipped.