Better-than-expected GDP numbers fails to cheer Dalal Street

Friday turned out to be a disappointing day of trade for Indian equity benchmarks, with frontline gauges ending the session with marginal losses, as better-than-expected Q4 GDP numbers failed to cheer Dalal Street. Indian economy grew at 7.7% during January-March quarter of financial year 2017-18 compared to 6.1% a year ago, driven by gains in manufacturing and consumer spending. However, the GDP growth for the entire fiscal of 2017-18 was at 6.7%, lower than 7.1% in 2016-17. Though, domestic gauges made a positive start as traders took some support with report that eight infrastructure industries recorded 4.7% growth in April helped by healthy performance in segments like coal, natural gas and cement. The growth rate of eight core sectors, which also include fertilisers and steel, was 2.6% in April 2017. Traders took some solace with Moody's Investors Service’s statement that tax reforms are likely to expand revenue base in fast growing economies like India but they will be most effective when accompanied by lowering of fiscal deficit and effective management of expenditure.

However, frontline gauges pared all of their initial gains to enter into red terrain, as sentiments turned pessimistic with a report that activity in India’s manufacturing sector declined marginally in May on the back of weaker expansion in output, new order growth and employment. A buildup of inflationary pressures, amid persistent crude oil rally led to the input and output cost rising at the fastest pace since February, thereby impacting activity growth. The Nikkei India Manufacturing Purchasing Managers Index (PMI) fell from 51.6 in April to 51.2 in May. Sentiments also remained dampened on report that India’s per capita income grew at a slower pace of 8.6% to Rs 1,12,835 during the last fiscal ended March 2018. The per capita net national income in 2016-17 stood at Rs 1,03,870, witnessing a growth of over 10.3% from the preceding fiscal ended March 2016 (at Rs 94,130). Some anxiety also spread among the investors report showing that GST collections in May declined to Rs 940.16 billion from over Rs 1.03 trillion in April. As many as 6.247 million businesses filed their summary sales return GSTR-3B in the month of May.

On the global front, European markets were trading in green in early deals on Friday, as a deal for a new Italian government spurred a rebound in the country’s markets. Asian markets exhibited mixed trend, as fears of a trade war blasted back to the fore after Donald Trump imposed stiff tariffs on European, Mexican and Canadian steel and aluminium.

Back home, select automobile stocks viz. Bajaj-Auto and Tata Motors edged higher on the back of good sales figure for month of May. Bajaj Auto has registered a rise of 30% in total sales to 4,07,044 units in May 2018 against 3,13,756 units in May 2017. Tata Motors has registered an impressive growth of 58% at 54,295 units in May 2018, as against 34,461 units over last year. Select gems and jewellery related stocks gained sheen after Commerce and Industry Minister Suresh Prabhu said that the government is mulling a proposal to import gold from Russia to help gems and jewellery exporters provided they agree to ship out the entire consignment after value addition.

Finally, the BSE Sensex declined 95.12 points or 0.27% to 35,227.26, while the CNX Nifty was down by 39.95 points or 0.37% to 10,696.20.

The BSE Sensex touched a high and a low of 35,438.22 and 35,177.35, 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 1.01%, while Small cap index was down by 1.57%.

The few gaining sectoral indices on the BSE were Auto up by 0.67%, Telecom up by 0.43% and Energy was up by 0.18%, while Power down by 1.89%, Utilities down by 1.68%, Basic Materials down by 1.26%, PSU down by 1.19% and Realty was down by 1.07% were the top losing indices on BSE.

The top gainers on the Sensex were Bajaj Auto up by 5.13%, Maruti Suzuki up by 3.01%, Bharti Airtel up by 2.73%, Tata Motors - DVR up by 2.27% and Hero MotoCorp up by 2.25%. On the flip side, Tata Steel down by 2.62%, ONGC down by 2.48%, Mahindra & Mahindra down by 2.38%, Hindustan Unilever down by 1.96% and Indusind Bank down by 1.95% were the top losers.

Meanwhile, Moody’s Investors Service in its latest report has said that India’s tax reforms are likely to expand revenue base in fast growing economies like India. However, it recommended that tax reforms must be accompanied by lowering of fiscal deficit and effective management of expenditure. It also said that tax administration and compliance is likely to be most effective in the Philippines, India, Indonesia and Thailand.

According to the report, most sovereigns including India have embarked on tax administration and compliance reforms, especially through the centralisation of multiple agencies and increased usage of technology. It also said that for many sovereigns, measures to broaden the tax base are unlikely to boost fiscal strength unless accompanied by enhanced tax administration and measures that effectively manage expenditure growth. It pointed out that the credit profiles of fast growing economies that are undertaking fiscal consolidation and which have relatively strong or strengthening institutions - such as the Philippines, India and Indonesia - are likely to garner the most support from ongoing tax reforms in the medium term.

On indirect revenue mobilization, the report stated that India and Sri Lanka have both recently streamlined and levied their value-added tax (VAT) or goods and services tax (GST) regimes. For India, it said that this was the result of replacing a system of taxation at multiple points of production with taxation at a sole point. Overall, it noted that indirect revenue mobilisation is likely to be most effective in the Philippines, India and Sri Lanka, as these economies benefit from ongoing reforms.

The CNX Nifty traded in a range of 10,764.75 and 10,681.50. There were 15 stocks in green as against 34 stocks in red, while 1 stock remained unchanged on the index.

The top gainers on Nifty were Bajaj Auto up by 5.26%, Maruti Suzuki up by 3.05%, Bharti Airtel up by 2.78%, Hero MotoCorp up by 2.17% and Hindalco up by 1.81%. On the flip side, Bajaj Finserv down by 3.10%, ONGC down by 2.87%, Eicher Motors down by 2.86%, Tata Steel down by 2.54% and GAIL down by 2.37% were the top losers.

The European markets were trading in red; UK’s FTSE 100 increased 49.87 points or 0.65% to 7,728.07, France’s CAC surged 63.3 points or 1.17% to 5,461.70 and Germany’s DAX was up by 110.54 points or 0.88% to 12,715.43.

Asian equity markets ended mixed on Friday, with investors cautious over trade tensions after the US announced tariffs on steel and aluminum imports from several of its allies would be reapplied. Investors look ahead to the release of US jobs data for May, due later in the day for direction. Japanese shares ended slightly lower as fears of a global trade war resurfaced and US President Donald Trump downplayed the chances of reaching a quick resolution with North Korea in the upcoming summit. Further, Chinese shares ended lower even as global index provider MSCI Inc. added around 230 mainland-listed Chinese stocks to its flagship Emerging Markets Index and other indexes. On the data front, China's manufacturing activity expanded at a steady pace in May, survey data from IHS Markit showed. The Caixin Purchasing Managers' index remained unchanged at 51.1 while expected it to rise to 51.2. Meanwhile, the markets in Malaysia and Indonesia are closed on Friday in observance of the King's Birthday and Pancasila Day, respectively.