Markets resume southward journey on global sell-off

Resuming southward journey after a session’s halt, Indian equity benchmarks ended the session with a cut of over a percentage point, as global equity markets continued to tumble on worries about rising inflation and higher interest rates. After a gap-down start markets traded in red terrain throughout the session, as traders remained anxious with Former Reserve Bank of India (RBI) governor Duvvuri Subbarao’s statement that Finance Minister Arun Jaitley’s decision to relax on fiscal consolidation to give himself more room to spend is a questionable, and by far the most disappointing decision of the budget. He added that the finance minister inherited a fiscal deficit of 4.2% of GDP and he brought it down to 3.5%. But this was at a time when oil price was low and food prices were soft because of good monsoons. Sentiments remained dampened on report that foreign portfolio investors (FPIs) have turned wary on Indian shares again owing to the recent global market sell-off triggered by rising bond yields in developed markets including in the US and the euro zone. FPIs have sold shares worth Rs 3,665.6 crore in the domestic stock market (including provisional data of Wednesday and Thursday) in February after pumping close to Rs 13,000 crore into Indian equities in January.

Traders failed to get any sense of relief with private report highlighting that fears of the Reserve Bank of India going for a rate hike are overdone and there is still room for a 25 bps rate cut in the August monetary policy review, provided rains are normal. Traders also shrugged off Nasscom’s report that outlook for the Indian information technology (IT) sector is cautiously positive in 2018 as challenges remain amidst prospects of greater IT spending with global and US economies improving.

Weak opening in European markets too dampened sentiments. Output in the UK manufacturing sector grew 0.3% in December, according to figures published on Friday by the Office for National Statistics (ONS). The 0.4% rise in November was revised down to a gain of 0.2%. All the Asian markets ended in red on renewed worries about rising inflation and higher interest rates. Chinese markets edged lower weighed down by factors such as investors attempting to stay liquid ahead of the Lunar New Year holidays and pressure to meet rising margin calls.

Back home, stocks related to public sector banks (PSBs) edged lower after India Ratings and Research stated that PSBs may need capital of Rs 2.06 trillion for a credit growth of the 8-9 per cent in the financial year 2019. However, stocks related to sugar space edged higher after the central government put a ceiling on the amount of sugar mills can sell by imposing significant minimum stocks for the next two months to check falling prices. Stocks of Aviation space viz. Interglobe Aviation, Jet Airways (India) and SpiceJet edged higher amid report that the country is likely to have 855 million air travellers in 2030-31, indicating a three-fold increase in the number of air travellers which was 265 million in 2016-2017. As per the data shared by the government, the growth in air traffic over a period of around 15 years will also be more than double the existing passenger handling capacity of airports in the country, which is at 334 million.

Finally, the BSE Sensex declined 407.40 points or 1.18% to 34,005.76, while the CNX Nifty was down by 121.90 points or 1.15% to 10,454.95.

The BSE Sensex touched a high and a low of 34,070.73 and 33,849.65, respectively and there were 6 stock on gaining side as against 25 stocks on losing side on the index.

The broader indices ended mixed; the BSE Mid cap index declined 0.09%, while Small cap index was up by 0.23%.

The top gaining sectoral indices on the BSE were Metal up by 1.25%, Realty up by 0.56%, Power up by 0.37%, Basic Materials up by 0.34% and Utilities was up by 0.33%, while Bankex down by 1.75%, Telecom down by 1.15%, Auto down by 0.95%, TECK down by 0.90% and IT was down by 0.77% were the top losing indices on BSE.

The top gainers on the Sensex were Tata Steel up by 1.83%, Dr. Reddy’s Lab up by 0.73%, Asian Paints up by 0.67%, Hindustan Unilever up by 0.57% and TCS up by 0.20%. On the flip side, Yes Bank down by 2.84%, ICICI Bank down by 2.33%, HDFC down by 2.13%, Infosys down by 2.01% and Axis Bank down by 1.93% were the top losers.

Meanwhile, the commerce ministry has asked its finance counterpart to increase the rate of subsidy under the interest subvention scheme to 5 percent from the existing 3 percent on credit provided to exporters. Director General of Foreign Trade (DGFT) Alok Vardhan Chaturvedi has said that the government has increased allocations towards interest equalisation scheme in the Budget to Rs 2500 crore from Rs 1,000 crore earlier for 2018-19 to encourage exports.

Commerce and Industry Minister Suresh Prabhu has said that the cost of capital in India is much higher as compared to other countries. Besides, he pointed out that infrastructure inefficiencies and logistics costs too are high as compared to India’s competitors including Singapore and Malaysia. He noted that products being sold in global markets need to be at a level playing field. He added that interest subsidy to some extent neutralises infrastructure inefficiencies.

The minister further said that the incentives for exports would add up to over Rs 1 lakh crore, including the duty forgone on schemes such as Merchandise Exports from India Scheme (MEIS) and advance authorization. Besides, he noted that work is in progress to see ways to increase exports of goods and services to $1 trillion in the coming years. On whether increase in customs duties on certain items could be seen as a protectionist measure, he said that it is not, and India is one of the most open economies in the world.

The CNX Nifty traded in a range of 10,480.20 and 10,398.20. There were 12 stocks in green as against 38 stocks in red on the index.

The top gainers on Nifty were HCL Tech up by 2.24%, Cipla up by 2.18%, Tata Steel up by 1.95%, Lupin up by 1.11% and Asian Paints up by 1.06%. On the flip side, Yes Bank down by 2.96%, Aurobindo Pharma down by 2.33%, Tech Mahindra down by 2.22%, SBI down by 1.99% and Infosys down by 1.96% were the top losers.

European markets were trading in red; Germany’s DAX decreased 21.53 points or 0.18% to 12,238.76, France’s CAC shed 12.99 points or 0.25% to 5,138.69 and UK’s FTSE 100 was down by 8.02 points or 0.11% to 7, 162.67.

Asian stocks ended in red on Friday on renewed worries about rising inflation and higher interest rates after the yield on the 10-year US Treasury note neared its highest levels in four years and the Bank of England hinted at somewhat earlier and deeper-than-expected rate hikes. Japan’s Nikkei share average declined after another torrid day for Wall Street, with oil-related stocks leading the broad declines as crude prices slumped. Chinese shares led regional losses as liquidity conditions tightened before the Chinese New Year break starting next week. Meanwhile, Hang Seng Index tumbled and capped its biggest weekly drop since the depths of the global financial crisis in 2008, as tumult on Wall Street rippled across Asia. Further, South Korea's Kospi average fell on worries about inflation and the possibility that the Federal Reserve will raise interest rates faster than expected.