Post Session: Quick Review

Indian equity benchmarks oscillated between positive and negative terrain and ended on a flat note on Friday, with frontline gauges holding their crucial 36,500 (Sensex) and 11,000 (Nifty) levels. The benchmarks started the trade on a positive note and traded in fine fettle tracking a firm trend in Asian markets. The street also got some support with Finance Minister Arun Jaitley’s statement that India could soon emerge as the world’s fifth largest economy if it continues to maintain its current pace of growth. However, key indices pared all of their early gains to trade flat as investors took cautious approach on disappointing macroeconomic data. India’s retail inflation surged to five-month high of 5% in June 2018, for the third straight month, as compared to 4.87% in May, while India’s industrial production measured by Index of Industrial Production (IIP) declined to a seven-month low of 3.2% in the month of May 2018, as compared to a revised 4.8% growth in April. Traders also remained anxious with Reserve Bank of India’s report stating that loan waivers have reduced burden on the farmers but there may be no visible benefits to the overall economy. Some cautiousness also came in with Organisation for Economic Cooperation and Development’s (OECD) statement that big emerging economies like China and India will suffer more than developed countries if trade tariffs return to 1990 levels. Traders also took note of Niti Aayog vice chairman Rajiv Kumar’s statement that emergence of India as the sixth largest economy was very much expected but still there is a long way to go as the per capita income of the country is still low.

On the global front, Asian markets ended mostly in green, following a record close on Wall Street as trade war fears are tempered by hopes China and the US will eventually reach a compromise, while attention turns to the start of earnings season. European markets were trading in green in early deals on Friday, tracking overnight gains on Wall Street amid elevated expectations of strong U.S. earnings.

Back home, tourism sector was in limelight after tourism Minister Kadkampally Surendran said the state government is planning to create 5 lakh new employment opportunities in the state tourism sector in the next three years.

The BSE Sensex ended at 36567.07, up by 18.66 points or 0.05% after trading in a range of 36501.61 and 36740.07. There were 15 stocks advancing against 16 stocks declining on the index. (Provisional)

The broader indices ended in red; the BSE Mid cap index was down by 0.80%, while Small cap index was down by 1.40%. (Provisional)

The top gaining sectoral indices on the BSE were Consumer Durables up by 0.91%, Energy up by 0.73%, IT up by 0.63%, TECK up by 0.03% and Oil & Gas up by 0.03%, while Telecom down by 2.21%, Realty down by 1.24%, Industrials down by 1.15%, Basic Materials down by 1.15% and Capital Goods down by 1.05% were the losing indices on BSE. (Provisional)

The top gainers on the Sensex were Infosys up by 1.85%, Reliance Industries up by 1.26%, Bajaj Auto up by 1.26%, Maruti Suzuki up by 0.90% and Kotak Mahindra Bank up by 0.84%. (Provisional)

On the flip side, ONGC down by 2.61%, Axis Bank down by 2.47%, ITC down by 2.19%, SBI down by 2.11% and ICICI Bank down by 1.51% were the top losers. (Provisional)

Meanwhile, the Reserve Bank of India (RBI) in its study on state finances based on state budgets has said that higher expenditure on salaries and farm loan waivers, coupled with a revenue shortfall on GST implementation, led to a slippage of 0.35 per cent in states’ fiscal targets to 3.1 per cent in FY18. This is the third consecutive year where the states have failed to meet their gross fiscal deficit (GFD) target, despite expectations of an improvement on higher devolution from the Centre. 

The apex bank highlighted, in the last financial year, (FY18), farm loan waivers touched 0.32 per cent of the GDP as against budget estimates of 0.27 per cent, and more such moves are pending for the fiscals ahead. States which have announced the waivers have also reported a decline in capital expenditure, and development has also been a casualty because of it. Waivers impact credit discipline, vitiate credit culture and dis-incentivise borrowers to repay loans, thus engendering moral hazard. Hikes in salaries, mainly as a higher proportion of states implement proposals in line with the seventh pay panel, resulted in 0.09 per cent slippage on the revenue expenditure. There was a 0.27 per cent impact in the GFD on account of the revenue shortfall, and the study attributed the same to implementation of the goods and services tax (GST). The decline in states’ tax revenues is essentially associated with the pending accounting issues related to GST implementation.

The central bank further stated that for Current financial year (FY19), states are hoping for a 0.2 per cent revenue surplus as against a revenue deficit of 0.4 per cent as per the revised estimates, which will lead to an overall GFD of 2.6 per cent, against 3.1 per cent in FY18.  At a country-wide level, farm loan waivers alone contributed to a third of the overall slippage worries, with a 0.05 per cent slippage of the overall 0.13 per cent on revenue expenditure. It reiterated its concerns on the ‘moral hazard’ farm loan waivers, saying their track record for improving productivity is ‘unproven’.   

The CNX Nifty is ended at 11020.40, down by 2.80 points or 0.03% after trading in a range of 10999.75 and 11071.35. There were 22 stocks advancing against 28 stocks declining on the index. (Provisional)

The top gainers on Nifty were Titan Co up by 3.76%, BPCL up by 2.57%, Bajaj Finance up by 2.43%, Infosys up by 2.14% and Bajaj Auto up by 1.85%. (Provisional)

On the flip side, Zee Entertainment down by 4.41%, Bharti Infratel down by 4.20%, ONGC down by 2.93%, UPL down by 2.83% and Axis Bank down by 2.65% were the top losers. (Provisional)

European markets were trading in green; Germany’s DAX increased 16.83  points or 0.13% to 12,509.80, UK’s FTSE 100 was up by 15.63 points or 0.29% to 5,421.53 and France’s CAC added 30.26 points or 0.39% to 7,681.59.

Asian equity markets ended mostly higher on Friday amid easing trade tensions after US Treasury Secretary Steven Mnuchin said the US could reopen trade talks if Beijing was milling to make serious efforts to make structural changes. Better-than-expected Chinese exports data also offered some support. Japanese shares ended higher as the dollar hit a fresh six-month high against the yen and heavyweight Fast Retailing posted record Q3 profit on the back of brisk sales at its overseas Uniqlo stores. Though, Chinese shares ended lower after data showed China's trade surplus with the United States swelled to a record in June, adding to fears the US may increase tariffs on Chinese products. Reports showed that Chinese exports climbed 11.3 percent year-over-year in dollar terms in June, faster than the expected rise of 9.5 percent. Imports advanced 14.1 percent from a year ago, well below economists' forecast for a growth of 21.3 percent. The trade surplus totaled $41.61 billion in the month versus the expected surplus of $27.72 billion.