Markets likely to make negative start

The Indian markets rallied on Wednesday after the government approved a hike in the minimum support price for Kharif crops and India’s services sector activity expanded at the fastest pace in a year in June. Today, markets likely to make pessimistic start, as concerns about the outbreak of a global trade war persisted and oil prices moved lower after US President Donald Trump sent a tweet urging OPEC to reduce prices for crude. Traders may also react on report that the Securities and Exchange Board of India has issued a fresh show-cause notice to the National Stock Exchange and some of the key officials - including former CEOs Ravi Narain and Chitra Ramkrishna - on Wednesday, asking them to explain the allegations of preferential access to a few high-frequency traders and brokers to its trading platform. However, traders may get some support later in the day with Union Minister Arun Jaitley’s statement that the government’s fiscal deficit target would not be breached on account of higher MSP for 14 crops as large provisioning for food subsidy has already been made in the Budget for current fiscal. Also, Rajiv Kumar, Vice-Chairman, Niti Aayog said that food and fuel are not contributing to the overall inflationary pressures in the economy. So this constant talk about inflationary pressures because of the MSP is quite misplaced. Meanwhile, the government approved extension of recapitalisation scheme for Regional Rural Banks (RRBs) for next three years up to 2019-20 with an aim to strengthen their lending capacity. The scheme started in 2010-11 and was extended twice in 2012-13 and 2015-16. The last extension was up to March, 2017. Traders may get some support with report that Income Tax refunds worth over Rs 70,000 crore have been issued to the taxpayers and nearly all refund claims pending as on June-end has been processed.

The US markets remained closed in last session on account of Independence Day and unable to give any cues to the other markets, while the Asian markets are trading mostly in red in early session on Thursday, as investors remained cautious ahead of a deadline when tariffs from the US and China are due to be implemented.

Back home, extending previous session’s northward journey, Indian equity benchmarks ended the Wednesday’s trade in green terrain with frontline gauges recapturing their crucial 35,600 (Sensex) and 10,750 (Nifty) levels, as sentiments remained up-beat on kharif crop MSP hike and Services PMI bounces back. However, markets made cautious start as sentiments remained downbeat with the rating agency ICRA’s report that Reserve Bank of India’s (RBI) plan to change disbursement norms of working capital would exert pressure on the liquidity profile of borrowers, specifically those having a high dependence on cash credit or overdraft facilities while lacking alternative sources of liquidity. Some cautiousness also crept in with a report that the five-pronged strategy recommended by the panel of bankers for resolution of bad loans is a useful long-term concept, but tighter deadlines and near-term funding challenges remain. Meanwhile, Moody’s Investors Service’s latest report highlighted that higher crude price is a key risk to India’s growth, but subsidy reform in petrol and diesel has diminished the risk to sovereign credit profile. However, markets took U-turn and entered into green terrain in second half of the trade, as traders turned optimistic with private report showing that activity in India’s service industry rebounded in June from a mild contraction last month, expanding at its quickest pace in a year on the back of a surge in new business orders. The Nikkei/IHS Markit Services Purchasing Managers’ Index (PMI) climbed to 52.6 last month, its highest since June 2017, from 49.6 in May. Buying got intensified in last leg of trade to take markets near intraday highs, after Union Cabinet approved the proposal to hike the Minimum Support Price (MSP) for Kharif crops, which was made in the Budget 2018 by Finance Minister Arun Jaitley. The MSP for paddy has been raised by around Rs 250 per quintal. The hike in MSP is one of the measures taken by the Narendra Modi government to end farmers woes in the country. Some support also came with NITI Aayog Vice Chairman Rajiv Kumar’s statement that the Indian economy is on the cusp of a major sustained and ongoing recovery and poised to grow above 8% from the next year, thanks to a slew of measures taken by the government in the last few years. Finally, the BSE Sensex rose 266.80 points or 0.75% to 35,645.40, while the CNX Nifty was up by 70.00 points or 0.65% to 10,769.90.