Benchmarks trade slightly in green in early deals

Indian equity benchmarks are trading marginally higher on Wednesday with frontline gauges hitting fresh record high. Sentiments remained up-beat with Prime Minister Narendra Modi’s statement that India is emerging as a global manufacturing and start-up hub and many of the Made-in-India products, including cars and smartphones, are today exported to nations from whom the country used to import. Traders took some encouragement with Chairman of the PHD Chamber of Commerce and Industry, Anil Khaitan’s statement that India needs to focus on exports and regulatory reform to propel the Indian economy forward. However, gains remained capped with report that the International Monetary Fund (IMF) has cautioned India it should not rely on global financial markets to finance its current account deficit (CAD) when it goes above 3% of gross domestic product (GDP). The Fund basically advised India to rely more on stable sources of foreign inflow - foreign direct investment (FDI).

On the global front, Asian markets were trading mostly in green at this point of time, following gains on Wall Street and hopes that China will boost fiscal support for its economy, while long-term US yields hovered near six-week highs on speculation the Bank of Japan could be less accommodative. The US markets ended mostly higher on Tuesday, as investors welcomed strong corporate earnings reports.

Back home, a private report stated that the Reserve Bank of India (RBI) will go for status quo in key policy rates in its August policy review. PSU banking stocks exhibiting mixed trend with the minister of state for finance Shiv Pratap Shukla’s statement, citing data from the Reserve Bank of India, that the gross bad loans of public sector banks (PSBs) hit 15% of advances in 2017-18, while the gross non-performing assets (NPA) ratio for PSBs stood at 14.6% in 2017-18.

The BSE Sensex is currently trading at 36881.56, up by 56.46 points or 0.15% after trading in a range of 36809.45 and 36928.06. There were 16 stocks advancing against 15 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index rose 0.48%, while Small cap index was up by 0.46%.

The top gaining sectoral indices on the BSE were Metal up by 1.47%, Basic Materials up by 0.67%, Industrials up by 0.56%, Energy up by 0.53% and Capital Goods was up by 0.46%, while Telecom down by 0.80%, Consumer Durables down by 0.65%, TECK down by 0.59%, IT down by 0.55% and Consumer Disc was down by 0.04% were the losing indices on BSE.

The top gainers on the Sensex were Adani Ports up by 1.95%, Hero MotoCorp up by 1.52%, Tata Steel up by 1.29%, Vedanta up by 1.27% and ONGC was up by 1.24%. On the flip side, Asian Paints down by 1.64%, Bharti Airtel down by 1.60%, NTPC down by 1.18%, TCS down by 0.57% and Coal India was down by 0.56% were the top losers.

Meanwhile, amid expectations that India’s current account deficit (CAD) will rise to 2.5% of gross domestic product (GDP) in the first quarter of current fiscal year (FY19), the International Monetary Fund (IMF) in its latest external sector report has expressed caution on India and said that it should not depend on global financial markets to finance its CAD when it goes above 3% of GDP. IMF has suggested the country should focus more on stable sources of foreign inflow that is foreign direct investment (FDI). It also said that the country needs to allow its rupee to be driven by market forces to minimize external risks and should intervene only to address disorderly market concerns. It noted that the real effective exchange rate (REER) is in line with the fundamentals with the range of -7 to +5 per cent for 2017-18.

The report said that India’s CAD has sharply deteriorated over the past few quarters. Besides, the CAD is estimated to rise to about 1.9% of GDP in FY18 from 0.7% of GDP in the previous year. Reflecting a recovery in commodity (especially oil) prices, imports surged by 19% in FY18, following a slight decline in the previous year. Export growth also picked up to 10% in FY18, from 5% in FY17, in line with the global growth recovery. Over the medium term, the CAD is expected to increase to about 2½ percent of GDP, on the back of strengthening domestic demand.

The IMF estimates that the sum of FDI, foreign portfolio investments (FPI) and financial derivatives flows on a net basis slowed to 1.9% of GDP in 2017-18 from 2.3% in 2016-17 despite larger portfolio inflows. On the use of portfolio inflows to finance the deficit, it noted that while ‘portfolio inflows into government and corporate securities were strong in 2017, leading to almost fully exhausting ceilings on non-resident investment’, they are volatile and are ‘susceptible to changes in the global risk appetite’ as seen during the infamous taper tantrum of 2013. It cautions that given the volatility in portfolio debt flows, attracting more stable sources of financing is needed to reduce vulnerabilities. It added that implementation of structural reforms to improve business climate would help to attract FDI.

On the external debt front, the IMF notes that at about 20% of GDP, India's external obligations are moderate, compared with other emerging market economies. 48% of the external debt is denominated in US dollars and another 37% is dominated in Indian rupees. The debt maturity profile is favorable, as long-term external debt accounts for about 81% of the total, and the ratio of short-term external debt to foreign exchange (FX) reserves is low.

The CNX Nifty is currently trading at 11142.55, up by 8.25 points or 0.07% after trading in a range of 11124.80 and 11153.00. There were 22 stocks advancing against 28 stocks declining on the index.

The top gainers on Nifty were Indiabulls Housing up by 3.33%, Bajaj Finserv up by 2.83%, Hindalco up by 1.71%, Bajaj Finance up by 1.65% and Adani Ports was up by 1.63%. On the flip side, Bharti Airtel down by 2.16%, HPCL down by 1.92%, HCL Tech. down by 1.66%, Grasim Industries down by 1.56% and BPCL was down by 1.55% were the top losers.

Asian Markets were trading in green and red; Jakarta Composite surged 7.28 points or 0.12% to 5,939.12, Hang Seng advanced 230.55 points or 0.8% to 28,893.12, Shanghai Composite rose 2.58 points or 0.09% to 2,908.14, Straits Times gained 26.90 points or 0.81% to 3,319.55 and Nikkei 225 was up 107.65 points or 0.48% to 22,618.13. On other hand, Taiwan Weighted declined 28.77 points or 0.26% to 10,966.62 and KOSPI was down 3.96 points or 0.17% to 2,276.24.