Markets to make pessimistic start ahead of RBI's decision

Indian equity benchmarks ended lower for third straight session on Tuesday, as sentiments remain dampened on the back of disappointing services sector data. Today, the markets are likely to make pessimistic start as investors await the Reserve Bank of India’s (RBI’s) bi-monthly policy outcome later in the day. The street is expecting the central bank to keep the repo rate unchanged at 6 percent despite uncertainty on the impact of some key inflationary risks. Sentiment will also remain dampened with former RBI Governor Raghuram Rajan expressing concern over escalation of trade war between the US and China saying it would be a lose-lose situation if the two major economies carry out their threats. He also cautioned that the situation can get out of control very quickly hampering global growth. Some concern may also be there on India Ratings and Research’s report that a combination of elevated crude oil price and weak rupee, if sustained for more than a quarter, will have an adverse impact on India’s current account position, inflation, monetary policy stance and fiscal balance. There will be buzz in energy related stocks on report that Buoyant with rapid growth of renewable energy in India, the government is aiming to add 225 Gw by 2022. India would achieve the earlier target of 175-Gw in the next two years. Stocks related to banking counter too will be buzzing on Crisil’s report that Gross non-performing assets in the banking system, which stood at 11.2 per cent in FY2018, is likely to touch 11.5 per cent in this fiscal. In FY18, GNPAs increased to around Rs 10.3 trillion, or 11.2 per cent of advances compared with Rs 8 trillion, or 9.5 per cent of advances, as on March 31, 2017.

The US markets ended higher on Tuesday as traders took some support with report from the Institute for Supply Management showing activity in the U.S. service sector grew at a faster than expected rate in the month of May. Asian stocks were trading mostly in green on Wednesday after tech sector strength lifted Wall Street shares, however concerns about Italy’s debt kept the gains in check.

Back home, extending southward journey for third day in a row, Indian equity benchmarks ended the session with a cut of around one third of a percent on Tuesday, as traders remained on sidelines ahead of Reserve Bank of India’s (RBI’s) second bi-monthly monetary policy outcome for 2018-19, due on June 6. Markets made a cautious start and traded choppy throughout the session with Commerce and Industry Minister Suresh Prabhu’s statement that unilateral trade restrictive actions by some developed countries could derail the fragile global economic recovery which would have implications on job scenario. Sentiments also remain dampened with private report that global economic growth could slow down by 1 percentage point - or more than a quarter of the expansion rates projected by various international bodies - if US President Donald Trump’s tariff threats against China and others escalate into a full-blown trade war. The markets also remained under pressure on a report stating that the demand for Indian goods has been on a decline in the Chinese market, India’s increasing dependence on China for items such as electric equipment, machines, medical and surgical instruments and fertilizers, among others, is widening India’s trade deficit with the country. Market extended losses in last leg of trade to end near intraday low levels on account of negative Services PMI data. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index contracted to 49.6 in the month of May from 51.4 in April. The Nikkei India Composite PMI Output Index, which measures both manufacturing and services, also fell to 50.4 in May from 51.9 in April. Traders failed to get any sense of relief with report that markets regulator SEBI has drastically slashed the additional expense charged by mutual funds to just 5 basis points to help increase the penetration of such products among investors. The move will help reduce the cost of investing in MFs and industry players believe that it may result in lower commissions for distributors. Traders also shrugged off report from International Monetary Fund which highlighted that India, the $2.85 trillion economy is currently the 7th largest in the world in terms of Gross Domestic Product, and all it needs is to add $90 billion to conquer not only the United Kingdom but also France. Finally, the BSE Sensex declined 108.68 points or 0.31% to 34,903.21, while the CNX Nifty was down by 35.35 points or 0.33% to 10,593.15.