Markets likely to make pessimistic start

Indian equity benchmark ended almost flat on Friday, as pharma stocks extended recent gains and IT stocks rose broadly. Today, the markets are likely to make negative start on renewed concerns over a global trade war after US President Donald Trump on Friday announced plans to impose a 25% tariff on $50 billion worth of Chinese goods that contain industrially significant technologies. Traders will react on rating agency Moody's sounding a note of caution that any reduction in excise duty on petrol and diesel would adversely affect fiscal deficit unless it is matched by a commensurate cut in expenditure. Observing that fiscal consolidation would be closely watched for assigning the sovereign rating, Moody’s said India’s biggest challenge is its fiscal strength which is relatively low as compared to -- Baa -- rated peers. Sentiment may get a hit with a private report that growth in the current fiscal year will be faster in the first half and will likely face pressure in the second half to end the year at 7.5%. Traders may take some support later in the trade with commerce ministry’s data that India’s exports grew 20.18% to $28.86 billion in May -- the highest in six months, even though the trade deficit widened to a four month high of $14.62 billion. Imports too rose by 14.85% to $43.48 billion during the month. Sentiment may also get some support with ICRA’s report that thirteen states have reported an average 25% decline in their fiscal deficit primarily due to a contraction in capital outlay, even though their revenue has gone up by 7.5% in the fiscal year to March 2018.

The US markets ended lower on Friday, but well off the lows of the sessions as investors looked past signs of escalating Washington-Beijing trade tensions. Asian markets were trading in red as investors digested the escalation in trade tensions between the US and China after both countries announced tariffs last week.

Back home, Indian equity benchmarks somehow managed to keep their head above water and settled with slender gains on Friday. Markets traded range bound throughout the day with key gauges swinging both ways touching intra-day high in first half and intra-day low in second half to finally end tad above their neutral lines. Markets started the session on a positive note as support came with India’s Oil Minister Dharmendra Pradhan conveying India’s concerns when he met ambassadors of OPEC countries in India over high international oil prices. Some support came with a report that India’s home loans touched double-digit mark as a percentage of GDP in the financial year 2018. Housing credit grew 16% in FY18, taking the mortgage penetration to a double-digit mark of 10% for the first time in FY18, up from 9.5% in FY17. The markets also drew some solace with a private report stating that the Centre is planning to change labour laws in order to raise the basic income of salaried employees. However, markets pared all of their early gains to enter into red terrain in noon deals after India’s trade deficit widened to four-month high of $14.62 billion in May as imports surged nearly 15%. Exports in May rose by 28.18% to $28.86 billion while imports were up 14.85% to $43.48 billion. Trade deficit widened to $14.62 billion from $13.84 billion in May 2017. Oil imports were up 49.46% to $11.5 billion on back of surge in international crude prices. Sentiments also remained dampened on report that Private equity (PE) investments saw 50% decline in value terms in May at $1,180 million amid fall in big-ticket deals and cautious investor approach. But, markets participants went for bargain hunting in last leg of trade which helped markets to reclaim their respective psychological levels of 10,800 (Nifty) and 35,600 (Sensex). Finally, the BSE Sensex gained 22.32 points or 0.06% to 35,622.14, while the CNX Nifty was up by 9.65 points or 0.09% to 10,817.70.