Markets likely to make flat-to-positive start

Indian equity markets ended at record closing highs on Monday, extending rally to a second consecutive session, owing to healthy buying in select bank, auto, metal and energy stocks, amid mixed global cues. Today, the markets are likely to make flat-to-positive start, amid firm global cues. Traders will be getting encouragement with rating agency ICRA’s report that revenues of Indian corporates have grown by 22% in the June quarter from a year ago. It added that the increase in revenues has been attributed to the strong growth in both consumer-based industries such as consumer goods, and auto; and commodity sectors such as cement, iron, steel, and oil and gas. Traders may take note of a report that the government will set up a group of ministers (GoM) to look into issues related to the proposed mega free trade agreement the Regional Comprehensive Economic Partnership (RCEP). However, there will be some cautiousness with president of the International Economic Association, and former chief economist at the World Bank, Kaushik Basu’s statement that in the event of US-China currency war there will be a sideline effect on India and a depreciation of the rupee, which, if managed well by policymakers, will be good for the country. There will be some buzz in the steel sector stocks with India Ratings and Research’s (Ind-Ra) statement that there is a moderate risk of global trade war with domino effect due to US trade restrictions on steel imports but rebounding steel margins could help domestic steel companies withstand the challenges. There also will be buzz in the auto component sector stocks with report that auto component industry sought uniform 18 percent GST across the sector stating that low taxation would lead to better compliance and larger tax base.

The US markets ended higher Monday, as investors continued to focus on healthy corporate earnings, instead of the escalating trade threats the US and China made last week. Asian markets were trading mostly in green on Tuesday, following positive Wall Street lead, but gains remained capped with worries over the US-China trade conflict.

Back home, Indian equity benchmarks ended the Monday’s trade at new all-time closing high levels, though key indices lost some sheen in the last hour of trade to end off day’s high. Markets started the session on an optimistic note with, as sentiments remained up-beat with the Confederation of Indian Industry’s (CII) statement that with the US imposing an additional 25% duty on imports worth $34 billion from China, certain Indian products may become more competitive. Traders also took note of Principal Economic Adviser to the Finance Ministry, Sanjeev Sanyal’s statement that the Goods and Services Tax (GST) slabs may come down to three in addition to the exempted category, in the long-term. He also said the three slabs could be a low of 5%, a central 15% (merging the 12% and 18% slabs that exist now) and a top rate of 25%. Sentiments on the street also remained optimistic with a report showing that foreign investors have poured in over Rs 2,300 crore in the Indian capital markets in July, after pulling out funds for three months in a row. Meanwhile, Central government suggested that there is a need to pause on rate cuts for the time being due to the shortfall of over Rs 40,000 crore in GST collection. However, traders booked some of their gains in last leg of trade which pull market off from day’s high, as street got cautious, as the government said it will take action against over 2.25 lakh companies as they have not filed requisite financial statement for 2015-16 and 2016-17. Anxiety also spread with credit rating agency, Care Ratings’ latest report that the monsoon deficit is likely to lead to lower production. The report further noted that the country is still facing a rainfall deficit of 7%, on a cumulative basis and the overall sown area is 7.5% less than last year. Despite some profit booking, markets managed to end at record closing highs, as market participants reacted positively to a report that the GST Council headed by Finance Minister Piyush Goyal approved setting up of a group of ministers (GoM) to tackle taxation related issues faced by micro, small and medium enterprises (MSMEs). Finally, the BSE Sensex soared 135.73 points or 0.36% to 37,691.89, while the CNX Nifty was up by 26.30 points or 0.23% to 11,387.10.