Benchmarks snap record hitting spree after RBI raises repo rate

Snapping record hitting spree, Indian equity benchmarks ended the volatile day of trade with marginal losses, after Reserve Bank of India (RBI) raised repo rate. Markets started the session in green terrain with traders taking encouragement from the commerce and industry ministry’s data showing that growth of eight core sectors expanded to 7-month high of 6.7% in June on the back of better performance by cement, refinery and coal segments. Some support also came with a private report that the Indian economy is likely to have witnessed solid economic growth in the April-June quarter but leading indicators suggest a slowdown in the coming months. The report stated that GDP growth to peak in April-June quarter and then moderate to 7.2% in the second half of 2018 from around 7.8% in first half. Traders also took note of report that the United States on Monday designated India as a Strategic Trade Authorization-1 (STA-1) country - a status that will allow the country to buy highly advanced and sensitive technologies from America.

However, sentiments turned pessimistic after the RBI’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 6.50%. It is the first time since October 2013 that the rate has been increased at consecutive policy meetings. Markets showed some strength to pare all of their losses in last leg of trade, but the recovery proved short lived and key gauges settled in red terrain, as sentiments turned downbeat on report that growth in India’s manufacturing industry slowed last month, largely pressured by a modest weakening in demand and output, though overall conditions remained solid. The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, decreased to 52.3 in July from June’s 53.1. Market participants also remained anxious with the Minister of State for Finance Shiv Pratap Shukla indicting that gross bad loans in Indian banks surged to more than Rs 9.61 lakh crore by the end of 2017-18, while loans to industries formed a major chunk of such non-performing assets. Traders also got cautious after the All-India Consumer Price Index for Industrial Workers (CPI-IW) for June, 2018 increased by 2 points and pegged at 291. The maximum upward pressure to the change in current index came from Food group contributing (+) 1.86 percentage points to the total change.

Weakness in European counters too dampened sentiments, as investors remained focused on the Federal Reserve’s monetary policy decision later today and the BoE’s ‘Super Thursday’ event. Asian markets exhibited mixed trend, as investors digested news related to the US-China trade dispute. Chinese equities ended in negative territory as sentiment took a hit on news that the Trump administration intended to propose higher tariffs.

Back home, the government has detected GST evasion worth Rs 3,026 crore in the last one year in relation to misuse of input tax credit and non-payment of taxes. On the sectoral front, stocks related to banking sector ended lower despite S&P Global Ratings stating that India’s weak banking system will strengthen over couple of years as stressed loans are cleared and capital base expanded by government’s fund infusion in state-owned lenders. Besides, auto sector’s stock remained in limelight with companies reporting their July month sales number.

Finally, the BSE Sensex declined 84.96 points or 0.23% to 37,521.62, while the CNX Nifty was down by 10.30 points or 0.09% to 11,346.20.

The BSE Sensex touched a high and a low of 37,711.87 and 37,432.91, respectively and there were 13 stocks advancing against 18 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.19%, while Small cap index was up by 0.26%.

The top gaining sectoral indices on the BSE were Healthcare up by 1.11%, Oil & Gas up by 0.99%, Energy up by 0.84%, PSU up by 0.80% and FMCG was up by 0.77%, while Auto down by 0.77%, Metal down by 0.62%, Bankex down by 0.55%, Telecom down by 0.55% and Consumer Discretionary Goods & Services was down by 0.33% were the top losing indices on BSE.

The top gainers on the Sensex were Coal India up by 3.29%, TCS up by 1.74%, Sun Pharma Industries up by 1.61%, ITC up by 1.51% and Power Grid Corporation up by 1.02%. On the flip side, Vedanta down by 1.84%, Maruti Suzuki down by 1.75%, Bharti Airtel down by 1.68%, ICICI Bank down by 1.61% and Tata Steel down by 1.46% were the top losers.

Meanwhile, business activity in Indian manufacturing sector eased in the month of July 2018 as new orders and output rose at slower pace. As per the survey report, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) - a composite single-figure indicator of manufacturing performance -fell to 52.3 in July from 53.1 in June 2018. Nevertheless, despite a slight deceleration, the manufacturing sector activity expanded for the twelfth consecutive month as the PMI reading stood above the watershed 50 mark, which differentiates growth from contraction.

The report further noted that strong demand and favourable market conditions led to the growth of new business and output in the reported month, despite easing from June’s six-month high. Reflecting the trend for new business, new export orders rose for the ninth month in succession during July, on the back of strong demand from international markets for Indian goods. However, job creation slowed down marginally, even though firms were encouraged to raise their staffing levels for the fourth successive month in July.

On the inflation front, inflationary pressures in the Indian manufacturing economy rose in July, thereby stretching the period of inflation to 34 months amid rising steel and crude oil prices. However, the rate of increase eased from June’s near four-year high and was in line with the series trend.  Subsequently, firms raised their output charges at a modest and slower pace.

The CNX Nifty traded in a range of 11,390.55 and 11,313.55. There were 26 stocks in green as against 24 stocks in red on the index.

The top gainers on Nifty were Coal India up by 3.60%, Lupin up by 2.38%, Indian Oil Corporation up by 2.34%, Bharti Infratel up by 2.25% and Dr. Reddy’s Lab up by 2.22%. On the flip side, Hindalco down by 2.53%, ICICI Bank down by 2.38%, Maruti Suzuki down by 2.03%, Vedanta down by 1.91% and Tata Steel down by 1.70% were the top losers.

European markets were trading in red; UK’s FTSE 100 declined 101.96 points or 1.33% to 7,646.83, France’s CAC slipped 3.30 points or 0.06% 5,508.00 and Germany’s DAX was down by 34.85 points or 0.27% to 12,770.65.

Asian equity markets ended mixed on Wednesday as Chinese manufacturing data disappointed and investors remained focused on the US Federal Reserve's monetary policy decision due later in the day. The Federal Reserve is widely expected to leave interest rates unchanged, but the accompanying statement may offer clues about the outlook for US interest rates. Traders also digested news that the Trump administration is considering more than doubling its planned tariffs on $200 billion in Chinese imports. Chinese shares ended lower after the release of weak data. The manufacturing sector in China continued to expand in July, albeit at a slower pace, the latest survey from Caixin revealed with a PMI score of 50.8, down from 51.0 in June. Meanwhile, Japanese shares closed higher on weaker yen and upbeat corporate earnings results from the likes of Sharp, Sony and Nintendo.