Markets likely to make pessimistic start amid weak global cues

Indian equity benchmarks ended marginally lower on Tuesday, after the BJP emerged as the single-largest party in Karnataka, but fell short of majority to form the next government on its own. Today, the markets are likely to make pessimistic start, amid weak global cues. Traders will remain concern with report that India’s trade deficit slightly widened to $13.72 billion in April from $13.25 billion a year ago. Exports grew by 5.17% to $25.91 billion in April compared to the same month last year on account of healthy performance by engineering, chemicals and pharmaceutical segments. Imports too grew by 4.60% to $39.63 billion in the month on yearly basis. Traders will react negatively on a private report that inflation is set to rise further towards the second half of the fiscal, and could average 5.1% this financial year compared to 3.6% last year. According to the global financial services major, the factors that are likely to impact inflation going forward include higher oil prices, a weaker rupee, higher MSPs and more currency in circulation. However, traders may get some support later in the day with Commerce and Industry Minister Suresh Prabhu pitching for inclusion of the trade facilitation pact on services in the World Trade Organisation (WTO) saying it would help promote growth of the global economy. He said that the proposed agreement would help professionals move smoothly from one place to another. Meanwhile, NITI Aayog, the government’s premier think tank, plans to hold the fourth meeting of its governing council next month to discuss the agenda for ‘New India 2022’ to expedite economic growth over the next four years. There will be some important earnings announcements too, to keep the markets buzzing.

The US markets ended lower on Tuesday, as investors worried about a lack of progress in US-China trade talks and Treasury yields rose after US retail sales data indicated rising inflation. Asian markets were trading mostly lower on Tuesday, after North Korea cancelled high-level talks with Seoul and threatened to scrap a historic summit next month between US President Donald Trump and North Korean leader Kim Jong Un, saying the joint Air Force drills taking place in South Korea are ruining the diplomatic mood.

Back home, Tuesday’s trading session turned out to be a disappointing day of trade for Indian equity benchmarks where frontline gauges failed to hold their initial gains and ended slightly in red, as uncertainty with respect to formation of government in Karnataka loomed. Despite making cautious start to the session, markets gained traction to trade jubilantly for most part of the day, as sentiments remained up-beat with India Ratings and Research (Ind-Ra) expecting the Corporate Outlook for FY19 to remain stable, driven by profitability improvement in FY18, leading to deleveraging. However, the improvement remains restricted to the metals sector and a broader recovery could take much longer. Meanwhile, in order to meet the ever- increasing demands of India’s growing population, NITI Aayog CEO Amitabh Kant has said that the country’s real Gross domestic product (GDP) must register a growth of around 10 percent annually over the next three decades. However, market participants pared all of their initial gains in second half of the trade which dragged market lower after reports of Congress-JD(S) alliance in Karnataka. According to media reports, JD(S) has accepted Congress’ proposal of making HD Kumaraswamy the state’s chief minister. Sentiments also remained dampened on a private report stating that the Reserve Bank of India is expected to begin its rate hike cycle from December quarter, and may go for three rate hikes by 2019 taking the key policy rate to 6.75%. Adding to the pessimism, India’s Retail inflation, measured by the consumer price index (CPI) rose to 4.58% in April 2018 as compared to 4.28% in March 2018, while rural inflation increased to 4.67% and urban inflation surged to 4.42% in April 2018. However, CPI food inflation for April eased marginally to 2.80% versus 2.81% in last month. Finally, the BSE Sensex slipped 12.77 points or 0.04% to 35,543.94, while the CNX Nifty was up by 4.75 points or 0.04% to 10,801.85.