Benchmarks make pessimistic start; Nifty declines below 11,300 mark

Indian equity benchmarks have made a pessimistic start and are trading with a cut of over half a percent, breaching their crucial 37,300 (Sensex) and 11,300 (Nifty) levels amid weak global cues. Traders remained concerned with RBI Governor Urjit Patel flagging the risks to macroeconomic stability from a potential currency war in the wake of rising global trade tensions. Also, traders reacted negatively on EEPC India chairman Ravi Sehgal’s statement that the 25 basis points increase in the interest rates by the RBI is a big negative for exporters, as they would become less competitive in a tough global market that is already facing the threat of tariff war. Market participants shrugged off report that RBI has maintained its growth outlook for the economy, estimating the country’s Gross Domestic Product (GDP) to grow at 7.4% in 2018-19. It noted that GDP growth would range between 7.5-7.6% in H1 and 7.3-7.4% in H2.

Global cues remained sluggish with all the Asian markets trading in red at this point of time with sentiment fragile after the latest escalation in Sino-US trade war while global bond markets were rattled by Washington’s increased borrowing and Japan’s new tolerance for higher yields. The US stocks ended mostly lower on Wednesday, after the Federal Reserve left interest rates unchanged but signaled another imminent rate increase.

Back home, the Cabinet has approved GST laws amendments which included hiking threshold limit for availing composition scheme dealers to Rs 1.5 crore, among other things. There will be lots of earnings announcements too, to keep the markets in action. In scrip specific developments, Manappuram Finance advanced on getting approval to raise Rs 50.50 crore via NCDs and Shivam Autotech gained on reporting 20% growth in July sales.

The BSE Sensex is currently trading at 37287.98, down by 233.64 points or 0.62% after trading in a range of 37273.20 and 37529.69. There were 8 stocks advancing against 23 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index shed 0.68%, while Small cap index was down by 0.51%.

The only gaining sectoral indices on the BSE were Healthcare up by 0.53% and FMCG was up by 0.09%, while Auto down by 1.50%, Metal down by 1.38%, Basic Materials down by 1.26%, Consumer Disc down by 0.93% and Realty was down by 0.90% were the losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 1.05%, ONGC up by 0.84%, Coal India up by 0.81%, Hindustan Unilever up by 0.69% and Power Grid was up by 0.62%. On the flip side, Vedanta down by 2.48%, Yes Bank down by 2.46%, Tata Steel down by 2.17%, Maruti Suzuki down by 1.84% and Tata Motors was down by 1.81% were the top losers.

Meanwhile, in order to curb inflation and pre-empt a rout of the rupee as the global trade war escalates, the Reserve Bank of India (RBI), in its third bi-monthly monetary policy review of 2018-19, has hiked repo rate under the liquidity adjustment facility (LAF) by 25 basis points (bps) to 6.50%. Consequently, the reverse repo rate under the LAF stands adjusted to 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%. This is the first time since October 2013 that the central bank has hiked borrowing costs at two consecutive policy meetings. The RBI has maintained a ‘neutral’ stance in the policy as it aimed to contain inflation while not chocking growth.

The central bank said that the MSP hike is the primary factor stoking inflation this year. The government has fixed MSP at 150% of the cost of production of all kharif crops. It added that this increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation. It also highlighted its concerns over crude oil prices, which remain elevated, despite seeing a slight moderation. Considering these factors, the RBI has projected inflation at 4.6% in Q2, 4.8% in H2 of 2018-19 and 5.0% in Q1FY20, with risks evenly balanced. Excluding the HRA impact, CPI inflation is projected at 4.4% in Q2, 4.7-4.8% in H2 and 5.0% in Q1FY20.

On the economic front, the RBI retained the Gross Domestic Product (GDP) forecast for the current fiscal at 7.4% on robust corporate earnings and buoyant rural demand, though it flagged global trade tensions for Indian exports. It added that the growth would be in the range of 7.5-7.6% in first half of the fiscal and 7.3-7.4% in October-March 2018-19 period, with risks evenly balanced. The central has also projected the GDP growth for first quarter of the next financial year at 2019-20 at 7.5%. It further said that increased FDI flows in recent months and continued buoyant domestic capital market conditions bode well for investment activity. It also said that activity in the manufacturing sector is expected to remain robust in Q2, though there may be some moderation in pace.

However, the RBI Governor Urjit Patel warned global protectionism may snowball into a currency war and impact growth prospects. He said ‘We have already had a few months of turbulence behind us and it looks like it is likely to continue. For how long, I don’t know. But the trade skirmishes have evolved into tariff wars and now we are possibly at the beginning of currency wars.’ He added that rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity.

The CNX Nifty is currently trading at 11275.15, down by 71.05 points or 0.63% after trading in a range of 11268.95 and 11328.90. There were 14 stocks advancing against 36 stocks declining on the index.

The top gainers on Nifty were Dr. Reddys Lab up by 1.53%, HPCL up by 1.46%, Lupin up by 1.27%, Sun Pharma up by 1.20% and BPCL up by 1.12%. On the flip side, Grasim Industries down by 2.60%, Vedanta down by 2.54%, Yes Bank down by 2.43%, Tata Steel down by 2.39% and Eicher Motors was down by 2.05% were the top losers.

All the Asian market are trading in red; Jakarta Composite slipped  15.26 points or  0.25% to 6,018.16, Straits Times declined  44.38 points or  1.35% to 3,284.63, Taiwan Weighted lost  141.25 points or  1.29% to 10,956.88, KOSPI fell  39.35 points or 1.74% to 2,267.72, Nikkei 225 dropped  234.80 points or  1.04% to 22,511.90, Hang Seng declined  657.69 points or  2.38% to 27,683.05 and Shanghai Composite was down  69.31 points or  2.52% to 2,755.22.