Benchmarks extend southward journey for second straight day

Extending previous session’s southward journey, Indian equity benchmarks ended the choppy day of trade with a cut of around half a percent, with frontline gauges breaching their crucial 38,200 (Sensex) and 11,550 (Nifty) levels. Local bourses traded lackluster for most part of the day, as traders remained little concerned with a private report that the Indian stock markets could tumble and the rupee may fall further ahead of the general elections if a contentious KYC circular issued by the stock market regulator is not scrapped soon. Traders reacted negatively to a private report highlighting that a sustained weakness in the rupee may push the Reserve Bank of India to further tighten monetary policy, perhaps as early as next month. However, key gauges managed to cap losses till noon deals as some solace came with Fitch Ratings’ statement that the currency volatility will have only a limited impact on India’s sovereign credit profile as the country benefits from strong external finances. In a report on APAC sovereigns, Fitch said the recent sell-offs in Indian and Indonesian currency markets underline their sensitivity to shifts in global sentiment, and suggest further bouts of pressure are likely as global monetary tightening progresses.

But, selling in last leg of trade played spoil sports for Indian markets and dragged key gauges below their respective psychological levels, as Reserve Bank of India’s report stated that export credit provided by banks fell sharply by about 47% to Rs 21,900 crore as of July 20 from a year earlier. This is despite the fact that total lending to the priority sector rose 7.5%. The persistent decline in export credit, especially, to small players in the current year. Adding some woes, ICRA in its latest report stated that India’s apparel exports are likely to remain subdued in the near term, even as the worst appears to be over. With the base effect setting in, ICRA expects India’s apparel exports to grow at a modest pace of 1%-2% Y-o-Y for the rest of FY2019, vis-a-vis a sharp de-growth of 14% Y-o-Y in first four months of FY2019.

Weak opening in European markets too dampened sentiments, as the UK manufacturing sector expanded at the weakest pace in just over two years in August. The manufacturing Purchasing Managers’ Index dropped to 52.8 in August from 53.8 in July. The slowdown was driven by a contraction in new export orders for the first time since April 2016. Asian markets exhibited mixed trend, as Argentina announcing emergency measures to restore investor confidence in its government.

Back home, traders also took note of NITI Aayog Vice Chairman Rajiv Kumar’s statement that the revised mechanism introduced by former RBI governor Raghuram Rajan to identify NPAs stopped banks from issuing fresh credit, resulting in slowdown of the economy in post demonetisation period. On the sectoral front, banking sector stocks ended lower despite India Ratings’ report that showing further traction for asset resolution, bad loans over Rs 4 trillion are expected to be resolved by 2018. Besides, stocks related to telecom sector remained under pressure with private report stating that the sector continues to reel under acute financial stress, weighed down by nearly Rs 8 lakh-crore debt and bruising price wars reflected in slumping revenue and operating income.

Finally, the BSE Sensex declined by 154.60 points or 0.40% to 38,157.92, while the CNX Nifty was down by 62.04 points or 0.54% to 11,520.30.

The BSE Sensex touched a high and a low of 38,518.56 and 38,098.60, respectively and there were 6 stocks advancing against 25 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index lost 2.60%, while Small cap index was down by 2.04%.

The only gaining sectoral indices on the BSE were IT up by 1.93% and TECK was up by 1.31%, while Consumer Durables down by 2.58%, Basic Materials down by 2.49%, PSU down by 2.42%, Realty down by 2.11% and FMCG was down by 2.09% were the top losing indices on BSE.

The top gainers on the Sensex were Infosys up by 2.64%, TCS up by 1.86%, Wipro up by 1.42%, Axis Bank up by 1.39% and Reliance Industries up by 0.97%. On the flip side, Asian Paints down by 3.49%, SBI down by 3.20%, Adani Ports & SEZ down by 2.95%, Hindustan Unilever down by 2.80% and Coal India down by 2.61% were the top losers.

Meanwhile, highlighting that there was no direct link between demonetisation and the economic slowdown, Niti Aayog Vice Chairman Rajiv Kumar has said that the slowdown in the growth rate in six quarters starting from the last quarter of 2015-16 was due to rising non-performing assets (NPAs) in the banking sector and not because of the note ban drive.

Niti Aayog Vice Chairman further noted that credit disbursal to the industry got stalled on the back of rising NPAs and in the case of the micro, small and medium enterprises (MSME) industry, credit actually shrank. He further said that fall in Gross Domestic Product growth in two quarters immediately after demonetization was just simply in continuation of a declining trend and not because of the shock of demonetization.

Besides, Rajiv Kumar said that following the decline in growth rate, ramping up of capital expenditure was necessary to counter the decline in credit disbursal to industry players, adding that the government is compensating for this by ramping up public capital expenditure and so it has been because of the government there is a rise in the quarterly growth rate since the second quarter of 2017-18.

The CNX Nifty traded in a range of 11,602.55 and 11,496.85. There were 9 stocks in green as against 41 stocks in red on the index.

The top gainers on Nifty were Tech Mahindra up by 2.73%, HCL Technologies up by 2.56%, TCS up by 2.29%, Infosys up by 2.21% and Wipro up by 2.08%. On the flip side, Grasim Industries down by 4.09%, Indiabulls Housing Finance down by 3.97%, Ultratech Cement down by 3.72%, Asian Paints down by 3.57% and Titan Company down by 3.54% were the top losers.

European markets were trading in red; UK’s FTSE 100 decreased 20.09 points or 0.27% to 7,484.51, France’s CAC shed 61.79 points or 1.15% to 5,352.01 and Germany’s DAX was down by 114.18 points or 0.93% to 12,232.23.

Asian stocks ended mixed on Tuesday as rising trade tensions and the sell-off in emerging market currencies, particularly in Argentina and Turkey, kept investors in a defensive mode. Japanese shares ended lower in choppy trade as lingering global trade concerns saw investors staying on the sidelines. US President Donald Trump gave fresh impetus to trade worries at the weekend when he said there was no need to keep Canada in the North American Free Trade Agreement and warned Congress not to meddle with the trade talks. On economic front, Japanese companies' capital spending increased the most in more than a decade in April to June period, data from the Finance Ministry revealed. Capital spending surged 12.8 percent year-on-year in the June quarter, faster than the 3.4 percent increase a quarter ago. This was the strongest growth since 2007. Meanwhile, Chinese shares ended lower, as investors hunted for bargains in beaten-down real estate and banking stocks, but the threat of US tariffs on $200 billion worth of imported Chinese goods still clouded the market.