Late hour selloff drag benchmarks lower on Thursday

Indian equity benchmarks ended the volatile day of trade with a cut of over one third of a percent. Markets traded choppy for most part of the day, as sentiments remained dampened after former RBI governor D Subbarao cautioned against India’s deficit challenge and said the country is no longer the sweet spot due to rising oil prices. Some anxiety also came after India reported a fiscal deficit of Rs 6.77 trillion ($103.72 billion) for April-January or 113.7 per cent of the target originally set for the fiscal year that ends in March. After trading negative in morning deals, Indian equity benchmarks made splendid recovery to get back in green terrain, as traders took some solace with  report that the Indian economy grew at five-quarter high of 7.2% in the October-December period reflecting overall recovery due to good show by agriculture, manufacturing, construction and certain services. The economy is expected to grow at 6.6% in the current fiscal ending March 31, as per the second advanced estimates of the Central Statistics Office (CSO), compared to 7.1% in 2016-17. The earlier estimate was 6.5%. The growth for the second quarter (July-September) has been revised upwards to 6.5%, from 6.3% estimated earlier by the CSO.

But, selloff in last hour of trade mainly played spoil sport for the domestic markets and dragged Sensex below their crucial 34,100 mark. Traders shrugged off report that India’s core sectors grew at a faster clip in January from a year ago than in the previous month, with an uptick in cement, electricity, coal, refinery products and steel industries, indicating a strong start to the last quarter of 2017-18. The combined index of the eight core industries rose 6.7% in January compared to 4.2% in December 2017. Traders failed to get any relief with Prime Minister’s Economic Advisory Council Chairman Bibek Debroy’s statement that the economy is on the right track and the current expansion in the growth rate suggests that the reforms initiated by the government have started showing results.

Weak opening in European markets too dampened sentiments after a survey showed that euro zone’s manufacturing boom slowed a little further last month but factories across the bloc still appear to be enjoying their best growth spell in almost two decades. Asian markets exhibited mixed trend. Chinese markets edged higher with a private survey showing that growth in China’s manufacturing sector unexpectedly picked up to a six-month high in February as factories rushed to replenish inventories to meet rising new orders.

Back home, banking stocks continued to reel under pressure for yet another day, as the impact of Punjab National Bank (PNB) scam continued to hit. Canara Bank has filed a complaint with Central Bureau of Investigation (CBI) on fraudulent transactions worth Rs 515 crore against Kolkata based RP Infosystems and its directors. The alleged fraud comes amid CBI’s probe into recent complaints of massive frauds in the Corporation Bank, PNB, Bank of Baroda and Oriental Bank of Commerce. Separately, as per report the government has ordered shutting down 35 overseas branches of Indian public sector banks (PSBs) over viability and profitability. The report added that sixty nine more international branches of Indian PSU banks and their foreign offices, arms and JVs are being examined for closure.

Finally, the BSE Sensex shed 137.10 points or 0.40% to 34,046.94, while the CNX Nifty was down by 34.50 points or 0.33% to 10,458.35.

The BSE Sensex touched a high and a low of 34,278.63 and 34,015.79, respectively and there were 11 stocks on gaining side as against 20 stocks on losing side on the index.

The broader indices ended in red; the BSE Mid cap index declined 0.61%, while Small cap index was down by 0.24%.

The few gaining sectoral indices on the BSE were Oil & Gas up by 0.10% and FMCG was up by 0.08%, while Metal down by 0.95%, Bankex down by 0.85%, Realty down by 0.77%, Consumer Durables down by 0.71% and TECK was down by 0.65% were the top losing indices on BSE.

The top gainers on the Sensex were Coal India up by 1.05%, Indusind Bank up by 1.04%, Hindustan Unilever up by 0.71%, Mahindra & Mahindra up by 0.58% and Kotak Mahindra Bank up by 0.57%. On the flip side, ICICI Bank down by 2.63%, SBI down by 2.31%, Infosys down by 1.19%, Axis Bank down by 0.66% and HDFC Bank down by 0.63% were the top losers.

Meanwhile, cautioning against India’s deficit challenge, former Reserve Bank of India (RBI) governor D Subbarao has stated that the country is no longer the sweet spot, largely due to steadily increasing oil prices. He pointed out that it is therefore worrying that Finance Minister Arun Jaitley has loosened up on fiscal consolidation in the Union Budget 2018-19 in the face of a rising current account deficit. He added that the country's balance of payments crisis in 1991 and the near crisis in 2013 were consequences of unchecked fiscal profligacy spilling over into the external sector. 

Subbarao has said that raising customs duty on a range of products in the Budget will hurt government’s Make in India mission. He noted that this decision was ill advised also because it runs counter to the calibrated reduction in import tariffs over two decades, and is also in conflict with Prime Minister Narendra Modi's speech in Davos where he decried the growing protectionist tendencies in the rich world. He added that not walking the talk raises a credibility gap, which will hurt India's investment prospects.

Citing Indo-China trade, Former RBI governor indicated that during 2001-16, India's trade deficit with China shot up from nearly $1 billion to over $50 billion, and the tilt is a result of the latter's mercantilist policies. He also mentioned that during this period, the rupee actually depreciated against the yuan by as much as 70 per cent which, if anything, should have given India an advantage. He said that globalisation has never been a totally benign experience, it offers immense opportunities, but also poses ruthless challenges. He added that the task for India, as it is for every country, is to maximise the benefits and minimise the costs of integrating with the world.

The CNX Nifty traded in a range of 10,525.50 and 10,447.15. There were 18 stocks in green as against 32 stocks in red on the index.

The top gainers on Nifty were BPCL up by 3.08%, Coal India up by 1.41%, Aurobindo Pharma up by 1.40%, Indusind Bank up by 1.15% and Bajaj Finance up by 1.11%. On the flip side, ICICI Bank down by 2.83%, Vedanta down by 2.20%, ZEE down by 2.18%, SBI down by 2.16% and Hindalco down by 2.04% were the top losers.

European markets were trading in red; Germany’s DAX declined 182.07 points or 1.46% to 12,253.78, France’s CAC decreased 62.88 points or 1.18% to 5,257.61 and UK’s FTSE 100 was down by 45.26 points or 0.63% to 7,186.65.

Asian equity markets made a mixed closing on Thursday as investors awaited Federal Reserve chair Jerome Powell's second congressional testimony for further insight on inflation and interest rates. Gold prices dipped and the yen firmed up a little bit while oil held mostly steady in Asian trading. Japanese shares closed sharply lower as sentiments were hit by a rout in Wall Street overnight, while the euro’s weakness against the yen hit companies such as precision machinery makers. The manufacturing sector in Japan continued to expand in February, albeit at a slightly slower rate, the latest survey from Nikkei revealed with a manufacturing PMI score of 54.1, down from 54.8 in January. Capital spending in Japan topped expectations to rise 4.3 percent sequentially in the fourth quarter of 2017, while a gauge of consumer confidence weakened unexpectedly in February. Chinese shares ended higher after the latest survey from Caixin showed the country's manufacturing sector expanded at a slightly faster rate in February. The manufacturing PMI rose to 51.6 from 51.5 in January as total new work expanded at a slightly faster pace. Meanwhile, the markets in South Korea remained closed for Independence Movement Day.