Domestic equity trade flat with negative bias

Domestic equity benchmarks were trading flat with negative bias in morning session, as renewed trade war concerns restricted investors from making fresh purchases. Sentiments remained down-beat with a report that India’s trade deficit widened to $14.62 billion during the month under review as against $13.84 billion in May 2017, the highest in nearly four months mainly because of rising oil imports. Adding to the pessimism a private report stated 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%. The traders overlooked NITI Aayog’s statement that development agenda for 'New India 2022' would be finalised in a month or so after seeking comments from states. The government think tank has been working on the strategy document for a while. Traders also shrugged off a report stating that states have collected taxes to the tune of Rs 10,000 crore online since the rollout of Transport Mission Mode Project (MMP), which has also automated regional transport operations (RTOs), under the Centre's ambitious e-Governance initiative. Investors failed to take any sense of relief from report that Prime Minister Narendra Modi wants to lift India’s economic growth rate to double digits after it recovered to a seven quarter high of 7.7% in the March quarter, with the onus on states to do their bit to contribute to the effort while cautioning the country that the task will be challenging. The Centre will continue to focus on farm income and mining and reiterated the work done by the government across social sectors in the past four years.

On the global front, 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. Trade is likely to be top of mind for investors after the Trump administration last week said it will impose a 25% tariff on a list of 818 items of Chinese goods worth around $34 billion beginning July 6. Measures affecting an additional 284 products worth $16 billion will be subject to review before taking effect. Back home, in scrip specific development, NTPC gained on inking agreement with Noida Authority to use treated sewage water at its Dadri power plant. Besides, SMS Lifescience advanced on receiving EIR from USFDA for Kazipally Unit.

The BSE Sensex is currently trading at 35608.21, down by 13.93 points or 0.04% after trading in a range of 35529.25 and 35721.55. There were 16 stocks advancing against 15 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index gained 0.19%, while Small cap index was down by 0.44%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.85%, Energy up by 0.86%, Auto up by 0.71%, PSU up by 0.40% and Healthcare up was by 0.26%, while Metal down by 2.38%, Basic Materials down by 1.31%, Realty down by 0.38%, Power down by 0.34% and Utilities was down by 0.32% were the top losing indices on BSE.

The top gainers on the Sensex were ICICI Bank up by 2.55%, Tata Motors up by 1.47%, Tata Motors - DVR up by 1.33%, Maruti Suzuki up by 1.03% and Mahindra & Mahindra was up by 1.03%. On the flip side, Vedanta down by 3.69%, Tata Steel down by 2.14%, Kotak Mahindra Bank down by 1.53%, Coal India down by 1.25% and Power Grid was down by 0.98% were the top losers.

Meanwhile, rating agency ICRA in its latest report has said that India’s thirteen states have reported an average 25.1% decline in their fiscal deficit in last financial year ( FY18) to Rs 3.2 trillion as compared to Rs 4.3 trillion in financial year 2017, mainly  on account of a contraction in capital outlay. Even though, their revenue has surged 7.5% in the last financial year, which is sharply lower from 11.5% a year ago. As per the report, this slowdown in revenue growth was led by a contraction in the non-tax revenue, comprising grants from the Centre and states' own non-tax revenues, and a mild slowdown in the pace of growth of tax revenue, comprising Central tax devolution and states' own-tax revenues.

However, the agency estimates in its report that the pace of growth of the aggregate tax revenue of 13 states improved to 10.1% in FY18 from 7.7% in FY17, as the CAG data is only provisional. The pre-actuals for FY18 indicate that growth of aggregate revenue expenditure of these 13 states eased to 8.8% as compared to 13.1% in Financial year 2017, while the capital outlay contracted by 9.4% in FY18 in contrast to the healthy growth of 17.1% in FY17. It said that the contraction in capital outlay can be on account of a combination of factors, including the lack of fiscal space led by the slowing growth of revenue receipts, re-prioritisation of spending after the farm loan waiver announcement by some leading states, base effect related to the Uday scheme (of the power sector) and the delay in presentation of budgets by a few states in FY18 due to the assembly elections.

Additionally, the report also highlighted that the pace of growth of tax revenue collected on items, which at present are not under the Goods and Services Tax (GST), would impact the revenue of the states. As per the report, higher tax collection in this fiscal as it believes that they may net more VAT from petroleum products given the spike in crude prices. VAT is typically levied on an ad valorem basis by the states, and higher crude prices would ensure that they net higher revenues from higher retail prices, provided the Centre does not reduce the basic excise duty. For the FY19, sales tax collections of the states on oil products are likely to continue to grow at a healthy pace.  The annual growth of the aggregate VAT collection on oil products of all states could exceed 20% in Q1 FY19.

The CNX Nifty is currently trading at 10814.80, down by 2.90 points or 0.03% after trading in a range of 10787.35 and 10830.20. There were 22 stocks advancing against 28 stocks declining on the index.

The top gainers on Nifty were HPCL up by 5.06%, Indian Oil Corporation up by 4.56%, BPCL up by 3.55%, ICICI Bank up by 2.44% and Tata Motors was up by 1.29%. On the flip side, Vedanta down by 3.77%, Hindalco down by 2.46%, Tata Steel down by 2.35%, Kotak Mahindra Bank down by 1.55% and Grasim Industries was down by 1.31% were the top losers.

Asian market were trading in red, Nikkei 225 slipped 188.83 points or 0.83% to 22,662.92, KOSPI Index declined 35.85 points or 1.49% to 2,368.19 and FTSE Bursa Malaysia KLCI was down by 13.71 points or 0.78% to 1,748.07.