Post Session: Quick Review

Indian equity benchmarks traded between green and red terrain throughout the session and ended flat on Wednesday, as traders remained on sidelines ahead of Futures and Options (F&O) derivative expiry for July series due tomorrow. Domestic indices made a positive start and traded marginally in green as market participants got some support 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 exported to nations from whom the country used to import. Some support also came in 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.

Soon traders turned cautious with report that the International Monetary Fund (IMF) has cautioned that India 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). Some cautiousness also prevailed in the markets with a private report which stated that India’s low trade-to-gross domestic product (GDP) ratio, favourable demographics, high commodity imports and pro-reform government will shield it to a large extent should trade tensions escalate and lead to a global economic slowdown. Anxiety also persisted with Minister of State for Agriculture Parshottam Rupala’s statement that Union Government, at present, is not considering any loan waiver Scheme for farmers, as such, waivers may impact the credit culture of a State by incentivising the defaulters, even if they are in a position to repay the loan, and thus, create/amplify the moral hazard by discouraging those borrowers who have been regular in repaying their loans.

On the global front, Asian markets ended mixed, as optimism about corporate earnings results and China's stimulus plan were offset by speculation that the Bank of Japan may not make immediate changes to its monetary policy. European markets were trading mostly in red in early deals on Wednesday, as investors awaited a key meeting between the European Commission and President Donald Trump and digested fresh earnings.  Back home, Shares of cement majors ended lower as investors reacted to an order, which upheld Rs 6,300 crore penalty imposed by Competition Commission of India (CCI).

The BSE Sensex ended at 36833.24, up by 8.14 points or 0.02% after trading in a range of 36803.15 and 36947.18. There were 13 stocks advancing against 17 stocks declining on the index. (Provisional)

The broader indices ended mixed; the BSE Mid cap index was down by 0.28%, while Small cap index was up by 0.13%. (Provisional)

The top gaining sectoral indices on the BSE were Metal up by 0.44%, Energy up by 0.13%, Oil & Gas up by 0.12%, Bankex up by 0.06% and FMCG up by 0.01%, while Power down by 1.67%, Realty down by 1.47%, Utilities down by 1.21%, Consumer Durables down by 0.94% and Telecom down by 0.85% were the top losing indices on BSE. (Provisional)

The top gainers on the Sensex were SBI up by 1.56%, ONGC up by 1.34%, Tata Steel up by 1.26%, Adani Ports &SEZ up by 1.09% and Indusind Bank up by 1.03%. (Provisional)

On the flip side, NTPC down by 4.01%, Axis Bank down by 2.74%, Asian Paints down by 1.62%, Power Grid down by 1.29% and Mahindra & Mahindra down by 1.23% were the top losers. (Provisional)

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 ended at 11117.80, down by 16.50 points or 0.15% after trading in a range of 11113.25 and 11157.15. There were 21 stocks advancing against 29 stocks declining on the index. (Provisional)

The top gainers on Nifty were Indiabulls Housing Finance up by 3.55%, SBI up by 1.71%, Bajaj Finserv up by 1.69%, Tata Steel up by 1.49% and UPL up by 1.48%. (Provisional)

On the flip side, NTPC down by 4.10%, Lupin down by 3.16%, HCL Tech. down by 2.80%, Axis Bank down by 2.62% and Ultratech Cement down by 2.40% were the top losers. (Provisional)

European markets were trading mostly in red; UK’s FTSE 100 dropped by 47.61 points or 0.62% to 7,661.44 and Germany’s DAX was down by 33.53 points or 0.26% to 12,655.86, while France’s CAC surged 5.05 points or 0.09% to 5,439.24.

Asian equity markets ended mixed on Wednesday on fears that the Bank of Japan will scale back stimulus next week. Investors also looked ahead to a key meeting between US President Donald Trump and European Commission President Jean-Claude Juncker for directional cues. Meanwhile, encouraging earnings results from the US and hopes that China will boost fiscal support for its economy helped support underlying sentiment. Japanese shares extended gains for a second day running as commodity-related steel and metal firms rallied on promises of more stimulus from Beijing.