Benchmarks trade in fine fettle ahead of RBI policy decision

Snapping three days of losing streak, Indian equity benchmarks made a positive start and are trading in fine fettle, ahead of the RBI’s bi-monthly policy meet outcome due 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. Traders paid no heed towards 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. Traders shrugged off 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. 

Supportive global cues too aided sentiments with Asian markets trading mostly in green at this point of time after tech sector strength lifted Wall Street shares, however concerns about Italy’s debt kept the gains in check. 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.

Back home, energy related stocks firmed up 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 edged higher despite 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 BSE Sensex is currently trading at 35009.83, up by 106.62 points or 0.31% after trading in a range of 34896.37 and 35011.90. There were 25 stocks advancing against 6 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.63%, while Small cap index was up by 0.50%.

The top gaining sectoral indices on the BSE were Power up by 1.23%, Consumer Durables up by 0.98%, Metal up by 0.94%, Telecom up by 0.90% and Realty was up by 0.87%, while Oil & Gas down by 0.11% was the lone losing index on BSE.

The top gainers on the Sensex were Coal India up by 1.96%, Bharti Airtel up by 1.76%, Tata Motors - DVR up by 1.66%, Sun Pharma up by 1.62% and Wipro up by 1.17%. On the flip side, Asian Paints down by 1.23%, Indusind Bank down by 0.57%, ICICI Bank down by 0.23%, ONGC down by 0.12% and Hindustan Unilever down by 0.08% were the top losers.

Meanwhile, the India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, in its latest report has said that higher crude oil prices coupled with 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. The report stated that the current account deficit (CAD) could widen $22 billion-31 billion in FY19, if crude basket averages $68-72.86/bbl and rupee averages 66.6-67 per dollar for FY19. It added that wholesale inflation could also increase 70-80bp from its current forecast of 3.4% and retail inflation 30-35bp from its current forecast of 4.3%.

The ratings agency also said that the value added tax imposed by the states is on ad valorem basis. Thus, with a rise in oil prices, the state governments garner higher revenue from the sale of same quantity of oil as opposed to the central government whose excise duty is fixed in terms of Rs/litre. Therefore, a surge in crude oil prices gives the state governments more headroom to rationalise the tax rate without compromising much on their fiscal arithmetic.

On the Reserve Bank of India’s (RBI’s) policy rate, Ind-Ra stated that the RBI’s Monetary Policy Committee (MPC) will keep the policy rate unchanged in its upcoming review. Although the MPC minutes from April’s policy review indicate a potential shift in the RBI’s liquidity stance to ‘withdrawal of accommodation’ from current ‘neutral’ stance, it believes the MPC will wait for the outturn of monsoon and its distribution, and further movement in crude oil prices before deciding on the rate hike.

The CNX Nifty is currently trading at 10623.35, up by 30.20 points or 0.29% after trading in a range of 10587.50 and 10625.15. There were 35 stocks advancing against 15 stocks declining on the index.

The top gainers on Nifty were Indiabulls Housing up by 2.01%, Coal India up by 2.00%, Sun Pharma up by 1.73%, Lupin up by 1.53% and Bharti Airtel up by 1.48%.

On the flip side, Tech Mahindra down by 1.43%, Asian Paints down by 1.38%, HPCL down by 1.08%, Indusind Bank down by 0.54% and Indian Oil Corporation down by 0.40% were the top losers.

Asian markets are trading mostly in green; FTSE Bursa Malaysia KLCI rose 4.72 points or 0.27% to 1,759.86, Taiwan Weighted increased 80.28 points or 0.72% to 11,180.39, Nikkei 225 gained 95.18 points or 0.42% to 22,634.72 and Hang Seng was up by 141.01 points or 0.45% to 31,234.46.

On the flip side, Jakarta Composite decreased 7.14 points or 0.12% to 6,081.65 and Shanghai Composite was down by 4.59 points or 0.15% to 3,109.61.