Markets to make cautious start ahead of IIP, CPI data

The Indian markets witnessed a bloodbath for the second straight day on Tuesday as Sensex and Nifty fell over 1% after the rupee hit a fresh record low of 72.62, reversing initial gains. Today, the markets are likely to make a cautious start amid mixed global cues. Investors will be looking ahead to macroeconomic data such as Index of Industrial Production (IIP) and Consumer Price Index (CPI) to be announced after the market hours, for clues to whether the Reserve Bank of India (RBI) will front-load its hiking cycle to keep inflation under check. Investors will be also closely watching rupee movement. Traders will be concerned about a private report that regulatory policies pose the biggest risks for companies over the next three years, followed by cyber security and technology disruptions. The report showed a divide on the viewpoint of risk management amongst Indian organisations. However, traders may get some encouragement with Moody’s Investors Service’s report that the sharp depreciation in rupee’s valuation is unlikely to impact India’s sovereign credit profile as rupee-denominated government bonds and robust foreign exchange reserves mitigate the risk. Also, traders may get some support with the Finance Ministry’s statement that the decision to double the limit to Rs 20 lakh for filing applications in debt recovery tribunals will help them focus on high value matters leading to quicker recovery of bad loans. Meanwhile, SBI Ecowrap report stated that the recent increase in petrol and diesel prices is likely to give state governments a windfall gain of around Rs 22,700 crore over and above the budget estimates for current fiscal. It said the this windfall gain will have positive impact on state finances, which might push down the states’ fiscal deficit by 15-20 bps, other things remaining unchanged. The power stocks will keep buzzing after the Supreme Court asked banks to maintain status quo and not to initiate insolvency proceedings against loan defaulting power companies in the country. There will be some buzz in the steel sector stocks with the Steel Ministry’s statement that India is hopeful of occupying the second slot in global steel output after China while the government has also taken steps to encourage secondary steel producers to boost performance.

The US markets shrugged off trade worries and ended higher on Tuesday as gains in technology stocks helped the markets to regain footing and curbed losses in the materials and industrials sectors due to fears of an escalation in Sino-US trade spat. Asian markets were trading in red on Wednesday, as investor confidence was chilled by the latest round of verbal threats in an intensifying US-China trade conflict.

Back home, Bears tightened their grip on Dalal Street with frontline gauges extending southward journey for second straight session to settle below their crucial 11,300 (Nifty) and 37,500 (Sensex) levels. Markets made a cautious start and traded choppy for most part of day’s trade with private report suggesting India’s economic growth is expected to moderate in the second half of this financial year after a strong first quarter, owing to tighter financial conditions, high oil prices and slowing global growth. It expects real GDP growth to slow to 7-7.3% in the second half of this fiscal from 8.2% in June 2018 quarter. Adding to the pessimism, India Meteorological Department (IMD) data showed that the countrywide monsoon saw the highest rain deficiency of the season in August -- ironically the month when a large part of Kerala was submerged and many other states received excess rainfall. Traders also reacted negatively to another private report that a depreciating currency will impact the economy adversely, as India imports around 83% of its crude oil requirement. A surge in the oil import bill can widen fiscal and current account deficits. Sharp selloff in final hour of trade mainly played spoil sports for Indian equities and dragged key gauges near intraday lows. Sentiments remained downbeat with former RBI Governor Raghuram Rajan’s statement that over optimistic bankers, slowdown in government decision making process and moderation in economic growth mainly contributed to the mounting bad loans. Caution also crept in ahead of Consumer Price Index-based (CPI) inflation and Index of Industrial Production data slated to be announced tomorrow. Traders shrugged off Asian Development Bank’s (ADB) latest report on ‘Key Indicators for Asia and the Pacific 2018’, where it has stated that share of India in the Gross Domestic Product (GDP) of Asia and Pacific region moved up to 17.3% in 2017 from 14.6% in 2000. It added that the Asia and Pacific region accounts for more than two-fifths of the share of global GDP in Purchasing Power Parity (PPP) terms. Finally, the BSE Sensex declined by 509.04 points or 1.34% to 37,413.13, while the CNX Nifty was down by 150.60 points or 1.32% to 11,287.50.