Benchmarks snap 3-day losing streak as RBI keeps stance neutral

Snapping three-day losing streak, Indian equity benchmarks ended the Wednesday’s trade in green terrain, following the outcome of Reserve Bank of India’s (RBI’s) bi-monthly policy meet where the central bank maintained its neutral stance. However, the RBI for the first time in four-and-half-years raised key interest rate by 25 basis points to 6.25% on inflation concerns arising from surge in international oil prices. Markets, after making a flat to positive start, gained traction and traded jubilantly throughout the day, as traders took some encouragement with a private report stating that the government has effected a major overhaul of its credit guarantee scheme to make adequate loans available to micro and small enterprises easily by more than tripling its corpus to Rs 8,000 crore and allowing non-banking financial companies (NBFCs), along with banks, to avail of official guarantees to extend credit to such units. Market-men also took some support from a report stating that riding high on the success of UPI-based payments system, the digital payments in India has tripled to 7% of GDP from 2.5% three years ago.

However, domestic bourses witnessed some selling in last leg of trade with RBI raising repo rate by 0.25%. The reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 6%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%. The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. The selloff proved short-lived and markets ended near intraday high levels with Sensex and Nifty ending tad below their crucial 35,200 and 10,700 levels, respectively. Sentiments also remained upbeat with World Bank in its latest report stated that India is projected to regain its position as the world's fastest growing major economy advancing 7.3% this fiscal year and 7.5% in the next two ‘as factors holding back growth in India fade’.

Global cues too remained supportive with European markets trading in green in early deals, with investors focusing on political developments in Europe and the latest chapter in the trade dispute between the US and China. Asian equity markets ended mostly higher on Wednesday, after tech sector strength lifted Wall Street shares while concerns about Italy’s debt prompted investors to move into lower-risk government debt elsewhere, pushing US Treasury yields down from recent highs.

Back home, domestic sentiments were also optimistic with Prime Minister Narendra Modi’s statement that the government is taking several steps to promote young entrepreneurs in the country, adding that startups are no longer confined to big cities. Separately, a private report stated that higher public spending has been an important source of support for the economy, and it is likely to remain so this fiscal as well, as the country heads to an election heavy calender next year. 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 (GNPAs) in the banking system, which stood at 11.2% in FY2018, is likely to touch 11.5% in this fiscal. In FY18, GNPAs increased to around Rs 10.3 trillion, or 11.2% of advances compared with Rs 8 trillion, or 9.5% of advances, as on March 31, 2017.

Finally, the BSE Sensex surged 275.67 points or 0.79% to 35,178.88, while the CNX Nifty was up by 91.50 points or 0.86% to 10,684.65.

The BSE Sensex touched a high and a low of 35,230.54 and 34,896.37, respectively and there were 27 stocks on gaining side as against 4 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index surged 1.28%, while Small cap index was up by 1.53%.

The top gaining sectoral indices on the BSE were Telecom up by 3.02%, Consumer Durables up by 2.32%, Metal up by 1.72%, Auto up by 1.57% and Industrials was up by 1.55%, while there were no losers on the BSE sectoral front.

The top gainers on the Sensex were Bharti Airtel up by 4.55%, Tata Motors up by 3.56%, Sun Pharma up by 3.21%, SBI up by 2.43% and Tata Motors - DVR up by 2.07%. On the flip side, ONGC down by 0.47%, Asian Paints down by 0.16%, HDFC Bank down by 0.07% and ICICI Bank down by 0.04% were the top losers.

Meanwhile, in the wake of contradictory orders passed by Authority for Advance Rulings (AARs) in different states, the government is planning to revamp the advance ruling mechanism under the Goods and Services Tax (GST) by setting up either a centralised authority or 4 regional authorities. As per the GST law, all states are required to set up at least one AAR comprising one member from the central tax department, and the other from the respective state.

In view of the confusion being created by contradictory rulings given by different authorities on the same or similar issues, the Finance Ministry is weighing the option of setting up either a centralised AAR or regional AARs. As tax officers are members of the authorities, there can be a conflict of interest as they often try to protect the interest of revenue while giving their rulings. The AARs in different states have so far passed about 60 orders under the new tax regime, while most states are yet to set up the GST appellate authority to entertain appeal against AAR verdict.

Recently, the New Delhi bench of the AAR had held that international passengers purchasing goods at airport 'Duty-Free' shops are liable to deduct GST from passengers. However, these shops were exempt from service tax, and Central Sales Tax in the earlier regime. The revenue department is planning to come up with a clarification exempting 'duty-free' shops from GST.

The CNX Nifty traded in a range of 10,698.35 and 10,587.50. There were 39 stocks in green as against 10 stocks in red, while one stock remained unchanged on the index.

The top gainers on Nifty were Bharti Airtel up by 4.50%, Titan Company up by 4.40%, Tata Motors up by 3.68%, Sun Pharma up by 3.45% and Bajaj Finance up by 3.22%. On the flip side, HPCL down by 1.19%, Tech Mahindra down by 0.89%, Cipla down by 0.69%, GAIL down by 0.49% and Asian Paints down by 0.44% were the top losers.

The European markets were trading mostly in green; UK’s FTSE 100 increased 31.03 points or 0.4% to 7,717.83 and Germany’s DAX was up by 48.1 points or 0.38% to 12,835.23, while France’s CAC was down by 0.29 points or 0.01% to 5,460.66.

Asian equity markets ended mostly higher on Wednesday as higher commodity prices lifted resource stocks and the Japanese yen weakened on solid US non-manufacturing activity data released overnight. But overall market gains were limited as investors remained wary about global trade tensions and geopolitical risks, and as the market awaited the US Federal Reserve’s policy meeting next week where it is expected to raise interest rates. Japanese shares ended higher, as technology stocks edged up after their US peers rallied. Chinese shares ended almost flat, as gains in transport and material firms were offset by losses in banking and real estate shares. Meanwhile, the markets in South Korea are closed on Wednesday for the Memorial Day holiday.