Benchmarks end volatile day with marginal losses

Indian equity benchmarks ended the volatile day of trade with marginal losses on Wednesday amid feeble global cues as Italy’s political turmoil roiled global markets. Markets started the session on pessimistic note as sentiments remained down-beat on report that hardening domestic fuel prices are likely to weigh on the Reserve Bank’s rate setting panel, MPC, at its 3-day meet from June 4. The monetary policy review will take into account the retail inflation which rose to 4.58% in April mainly on account of increasing prices of petrol and diesel. Investors failed to take any sense of relief with CRISIL’s report stating that direct tax collection has surged dramatically post 2016 due to the Income Declaration Scheme and demonetisation. The income tax growth increased from 8.2% in FY16 to 26.8% in FY17 and 21.0% in FY18. The corporate tax growth in the corresponding years were 5.7%, 7.0% and 16.3% respectively. This indicates a significant jump in the number of new income tax filers.

However, markets pared all of their losses to enter into green terrain in noon deals as some support came with FICCI’s report that India’s GDP growth is expected at 7.1% for the January-March quarter of the last fiscal and 6.6% for the entire 2017-18. The Central Statistics Office (CSO) is scheduled to release GDP numbers for the fourth quarter as well as the 2017-18 fiscal on May 31. Market participants also got some solace with exporters body FIEO’s statement that India’s exports are expected to record a growth of about 15-20% and touch $350 billion in the current fiscal on account of a host of factors including rise in commodity prices. But, the recovery proved short-lived as markets once again slipped into red terrain to end marginally lower after Moody’s Investors Service has cut India's GDP growth forecast to 7.3% in 2018, from previous forecast of 7.5% due to higher oil prices and tighter financial conditions. It, however, kept growth expectation for 2019 unchanged at 7.5%. Meanwhile, India Meteorological Department (IMD) said that the southwest monsoon may be slightly below normal in southern and northeastern parts of the country in 2018, but normal in the northwestern and central regions. The region-wise forecast comes with a model error of plus and minus 8%.

Cautious opening in European counters too dampened sentiments as investors await the latest political developments in Italy. However, Germany’s equity benchmark trade higher after the country reported better-than-expected unemployment rate, which stood at record low since reunification. The unemployment rate fell to 5.2%, down from 5.3% and the lowest since the reunification of West and East Germany in 1990. Asian markets closed in red, as turmoil in Italy sparked a frantic dash for safety, while investors have also been spooked by fresh worries about the China-US trade row.

Back home, most of the stocks related to banking counter edged lower after audits undertaken by the Reserve Bank of India revealed that bad loans at the country’s five biggest state-run banks are about Rs 47,000 crore more than what the lenders had assessed. Consumer durable stocks remained under pressure with a private report stating that price of air-conditioners, refrigerators, washing machines and microwave ovens are set to get costlier by 2-5% from June 2018 on account of rupee depreciation, rising crude oil prices and rates of key raw material steel and copper hardening up.

Finally, the BSE Sensex declined 43.13 points or 0.12% to 34,906.11, while the CNX Nifty was down by 18.95 points or 0.18% to 10,614.35.

The BSE Sensex touched a high and a low of 35,017.45 and 34,735.11, respectively and there were 11 stocks on gaining side as against 20 stocks on losing side on the index.

The broader indices ended mixed; the BSE Mid cap index rose 0.03%, while Small cap index was down by 0.19%.

The few gaining sectoral indices on the BSE were Utilities up by 0.25%, Power up by 0.20%, Metal up by 0.15% and Bankex was up by 0.11%, while Healthcare down by 0.77%, Capital Goods down by 0.68%, Industrials down by 0.65%, Oil & Gas down by 0.62% and Consumer Durables down by 0.45% were the top losing indices on BSE.

The top gainers on the Sensex were Mahindra & Mahindra up by 3.08%, Coal India up by 2.34%, Yes Bank up by 1.64%, Kotak Mahindra Bank up by 1.48% and Hindustan Unilever up by 1.34%. On the flip side, Tata Motors - DVR down by 2.00%, Tata Motors down by 1.92%, ICICI Bank down by 1.86%, Bajaj Auto down by 1.11% and Axis Bank down by 1.10% were the top losers.

Meanwhile, Federation of Indian Export Organisations (FIEO) President Ganesh Gupta has said that refund of over Rs 20,000 crore is still pending with the government on account of IGST (integrated GST) and ITC (input tax credit). He also said that many exporters have not been able to file the refund of ITC due to technical glitches as input tax credit and exports happened in different months. Besides, he said that the delay in refund is mainly impacting small exporters who provide jobs in labour intensive sectors. He pointed out that liquidity is a major area of concern particularly for Micro, Small and Medium Enterprises (MSME) exporters, who constitute the bulk of exports in high employment intensive sectors.

According to Gupta, the challenges on GST front are continuing though the fortnight clearance drive, which was highly successful and gave hopes of refund on real-time basis. He noted that while claims over Rs 7,000 crore were cleared during March, 2018, the amount in April, 2018 is little over Rs 1,000 crore. He also said that the GST refund process has considerably slowed down and the federation has urged the Finance Minister to look into the refund problem and organise a clearance drive to liquidate the pendency and bring the refund process on track. He noted that majority of the problems relate to ITC refund which have to be done by the states as well.

FIEO President further said that the manual intervention in the tax credit refund process has added to the transaction time and cost of exporters. He also said that the provision that 90 percent of ITC refund will be issued within seven days is not being implemented by tax authorities. He noted that some of the states say that they do not have funds to clear the refund. Further, he said that after the incidents of bank frauds, banks have become extra cautious while providing credit to exporters. He stated that withdrawal of letter of offer and letter of comfort after the Nirav Modi fraud, has added to the cost of funds for exporters by 1-3 percent. He added that while banks should adhere to the procedure, they have to be pro-active to the needs of the sector.

The CNX Nifty traded in a range of 10,648.70 and 10,558.45. There were 18 stocks in green as against 32 stocks in red on the index.

The top gainers on Nifty were Mahindra & Mahindra up by 2.79%, Bajaj Finance up by 2.55%, Coal India up by 2.27%, Yes Bank up by 1.73% and Bajaj Finserv up by 1.45%. On the flip side, HPCL down by 2.78%, Hindalco down by 1.98%, Tata Motors down by 1.95%, Tata Motors down by 1.93% and ICICI Bank down by 1.69% were the top losers.

The European markets were trading mixed; UK’s FTSE 100 increased 9.67 points or 0.13% to 7,642.31, Germany’s DAX rose 26.14 points or 0.21% to 12,692.65, while France’s CAC was down by 42.76 points or 0.79% to 5,395.30.

Asian equity markets ended lower on Wednesday due to heavy selling pressure as lingering concerns over US-China trade talks, political uncertainty in Spain and fears that a snap election in Italy will turn into referendum on the country's euro membership sapped investors' appetite for risk. Chinese shares ended lower following reports that the Trump administration is considering imposing a hefty 25 percent tariff on the $50 billion worth of Chinese goods even as a US delegation is set to travel to Beijing for talks to resolve the dispute. Further, Japanese shares fell sharply as global bourses extended losses and the yen gained ground against the dollar and euro on fears over the stability of euro zone. Investors ignored preliminary figures showing that Japan's retail sales increased at a faster-than-expected pace in April. Retail sales climbed 1.6 percent year-over-year in April, faster than the 1.0 percent rise in March.