Benchmarks reverse early losses to end near intraday highs

Friday turned out to be a fabulous day of trade for Indian equity benchmarks where frontline gauges erased all of their early losses to end the session with a gain of three fourth of a percent, as traders opted to buy beaten down but fundamentally strong stocks in last leg of trade. Markets started the session on pessimistic note as sentiments remained downbeat with union minister Suresh Prabhu’s statement that India was seeing real challenge at World Trade Organsation and in the global trading system itself. He stated that because, first time, countries are putting roadblocks and it is going to be real, real issue. However, markets reversed all of their early losses in second half of the day as sentiments turned optimistic with report stating that exports from special economic zones (SEZs) grew by 38% in May to Rs 29,236 crore. The major sectors contributing to the growth include biotech, chemicals, pharmaceuticals, computers, electronics, non-conventional energy, plastic, rubber, trading and services. Some support also came with private report stating that India fared well on its early warning indicators (EWI) index showing no signs of domestic or financial risks during the last three years. On the other hand, economies of China, Hong Kong, Japan, Canada and Australia threw up several warning signals between 2015 and 2017.

But it was buying in last leg of trade, which mainly helped bourses to end near intraday highs with traders got encouragement with Prime Minister Narendra Modi calling for targeting double-digit GDP growth for breaking into the $5 trillion economy club and said India's share in world trade has to more than double to 3.4%. Sentiments got buoyed with World Bank’s data report that India continued to be the world’s top recipient of remittance from its diaspora, gathering $69 billion in 2017, nearly 1.5 times India’s defence budget for 2018-19, an increase of 9.5% from the previous year.

Firm opening in European counters too aided sentiments despite the eruption of a global trade war as Brussels slapped retaliatory tariffs on the United States. Asian markets ended mostly in red, on signs US trade battles with China and many other countries are starting to chip away at corporate profits, with oil prices choppy ahead of major producers meeting to discuss raising output.

Back home, shares related to cement sector firmed up on report that Mid-level companies, which have a localised footprint in India’s highly regional cement industry, have revealed plans to more than double their capacity, and enhance output to about 15-20 MT in the next four or five years through a combination of brownfield and greenfield expansions. The exercise also seeks to help diversify their geographic bases. However, banking stocks remained under pressure despite a report that bad loans worth Rs 15,000 crore will be wiped off the banking system with their reversal into standard accounts in the June quarter following new norms for differential treatment of defaults by small and mid-sized businesses. Power sector’s stocks edged lower with a report stating that the Reserve Bank of India (RBI) refused to give any special relief to the power sector from its February circular that mandates early detection and time-bound resolution of stressed assets.

Finally, the BSE Sensex gained 257.21 points or 0.73% to 35,689.60, while the CNX Nifty was up by 80.75 points or 0.75% to 10,821.85.

The BSE Sensex touched a high and a low of 35,741.26 and 35,344.49, respectively and there were 23 stocks on gaining side as against 8 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.46%, while Small cap index was up by 0.07%.

The top gaining sectoral indices on the BSE were Healthcare up by 1.31%, Telecom up by 1.31%, Bankex up by 1.01%, Power up by 0.90% and FMCG was up by 0.81%, while Energy down by 1.27%, Oil & Gas down by 0.41%, Realty down by 0.09% and IT was down by 0.06% were the few losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 3.91%, Mahindra & Mahindra up by 2.87%, HDFC up by 2.54%, Axis Bank up by 2.22% and SBI up by 1.69%. On the flip side, Reliance Industries down by 1.94%, Coal India down by 0.99%, TCS down by 0.44%, Wipro down by 0.41% and Adani Ports & SEZ down by 0.23% were the top losers.

Meanwhile, anticipating a 4 percent rise in coal availability to the power sector, the India Ratings and Research (Ind-Ra) in its latest report has said that demand for imported coal will increase to 62 million tonne (MT) in FY19 as compared to 56 MT in FY18 to meet this incremental generation. Therefore, it pointed out that there could be higher usage of imported coal in FY19 than that in FY16-FY18, when imported coal usage dropped.

Considering a 6-7 percent rise in electricity demand in the current fiscal, the report said that coal-based power generation is likely to increase to 996 billion units from 951 billion units. It stated that short-term power prices would continue to be determined by lower-than-required growth in domestic coal output. It added that this could lead to increased reliance on imported coal. Also, short-term power prices would remain range-bound at Rs 3.75-4.25 per unit in FY19 as against Rs 3.25 per unit FY18.

Besides, it noted that given the expectation of healthy power demand growth in FY19 and thermal-based capacity remaining the mainstay of power generation in India, domestic coal availability becomes a key determinant in deciding short-term power prices. It added that if domestic coal production grows at a lower rate than the demand growth rate, the reliance on imported coal could go up.

The ratings agency further said that in such a situation, short-term power prices would be determined by the marginal cost of energy production undertaken using imported coal. It stated that to ensure higher domestic coal availability to power producers, the government has increased the share of coal allocation to the power sector by diverting a part from other sectors.  It noted that this has led to higher coal availability for the power sector.

The CNX Nifty traded in a range of 10,837.00 and 10,710.45. There were 35 stocks in green as against 15 stocks in red on the index.

The top gainers on Nifty were Sun Pharma up by 4.43%, Bajaj Finance up by 3.75%, Bajaj Finserv up by 3.13%, Mahindra & Mahindra up by 2.99% and Indiabulls Housing Finance up by 2.71%. On the flip side, HPCL down by 2.09%, Reliance Industries down by 1.97%, UPL down by 1.08%, Coal India down by 0.97% and Eicher Motors down by 0.88% were the top losers.

The European markets were trading in green; UK’s FTSE 100 gained 62.63 points or 0.82% to 7,619.07, Germany’s DAX rose 55.85 points or 0.44% to 12,567.76 and France’s CAC was up by 42.75 points or 0.80% to 5,358.76.

Asian equity markets ended mixed on Friday as worries about tariffs and a potential trade war persisted and investors waited for the OPEC meeting outcome. Chinese shares rose but posted their worst weekly loss since early February on worries over a continuing trade battle with the US. Trade worries lingered after China's commerce ministry spokesman Gao Feng accused the US of using bullying tactics and blackmail in threatening to impose tariffs on hundreds of billions of dollars of Chinese imports. Separately, US Commerce Secretary Wilbur Ross said on Thursday the end goal of the trade negotiations is to reduce high trade barriers and tariffs for US firms. Meanwhile, Japanese shares fell as a firmer yen and tariff concerns pulled down automakers.