Markets to make negative start amid weak Asian markets

Continuing recovery for the second straight day, the Indian markets ended the Friday’s session with notable gains as better-than-expected macro data and further recovery in the rupee supported the sentiments. Today, the start of holiday truncated week is likely to be in negative terrain following weak regional cues amid trade war concerns. On the domestic front, traders will be concerned about report that foreign exchange reserves fell below $400 billion, for the first time since November 11, 2017, in the first week of September. As on September 7, foreign exchange reserves stood at $399.28 billion, a result of the Reserve Bank of India’s intervention at a time when portfolio flows were witnessing some reversals. Also, there will be some cautiousness with ICRA’s report that funding of farm loan waivers, poll-related spending and other populist measures are likely to ensure that states are set to miss their fiscal consolidation targets budgeted at the beginning of the year. However, traders may get some encouragement later in the day with the commerce ministry’s data showing that India’s exports rose at the fastest pace in three months to reach $27.84 billion in August on account of healthy growth in petroleum products, engineering, pharma, and gems and jewellery shipments. Besides, trade deficit during the month narrowed to $17.4 billion as against $12.72 billion in the same month last year. In July, the trade deficit soared to a near five-year high of $18.02 billion. Traders may take note of a report that the government on Friday announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for FPIs, and curbs on non-essential imports, to contain the widening CAD and check the rupee fall. There will be some buzz in steel sector stocks with report that the decision to impose steep tariffs by the US on steel and aluminium may impact the domestic metal sector. Separately, steel minister Chaudhary Birender Singh said negotiations are under way with the US over the 25% tariff it had imposed on steel imports.

The US markets ended tad higher on Friday, with worries about higher interest rates and the US-China trade fight weighing on sentiment. President Trump instructed aides to proceed with tariffs on about $200 billion in Chinese products, despite Treasury Secretary Steven Mnuchin’s attempts to restart talks with Beijing. Asian markets were trading mostly in negative territory on Monday, amid reports over the weekend that the US could be imposing new tariffs on $200 billion of Chinese goods as early as this week.

Back home, Friday turned out to be a fabulous day of trade for Indian equity benchmarks with frontline gauges recapturing their crucial 11,500 (Nifty) and 38,000 (Sensex) levels, as traders gave thumbs up to the strong macro-economic data. Sentiments remained up-beat since beginning with key gauges making gap-up opening with retail inflation of India cooling to an 10-month low of 3.69% in August mainly due to a fall in prices of kitchen items, including fruits and vegetables, while industrial production grew at 6.6% in July, slightly faster than the expected 6.5% expansion, on the back of good performance by the manufacturing sector and higher offtake of capital goods and consumer durables. Some support also came with a private report that private equity (PE) and venture capital (VC) investments stood at $1.6 billion across 50 deals in August, with buyout deals recording two times increase in value compared to the year-ago period. Traders also took note of a report that the government is determined to keep fiscal deficit within the budgeted level of 3.3% of GDP as the country cannot afford to have a twin deficit problem. Markets extended their gains in second half of the session, as India’s Wholesale price index (WPI) inflation eased for the second straight month in August 2018, supported by declining minerals prices. According to the latest data released by the government, WPI slowed down to 4.53% in August from 5.09% in July and 3.24% during the corresponding month of the previous year. Traders also took note of the prime minister's economic advisory panel member’s statement that India needs to be extremely vigilant to check weakness in the rupee and the task was to minimise volatility and avoid contagion to other macro policies. Meanwhile, the government has notified October 1 as the date for implementing the tax deducted at source (TDS) and tax collected at source (TCS) provisions under GST law. As per the Central GST (CGST) Act, the notified entities are required to collect TDS at 1% on payments to goods or services suppliers in excess of Rs 2.5 lakh. Also, states will levy 1% TDS under state laws. Finally, the BSE Sensex surged 372.68 points or 0.99% to 38,090.64, while the CNX Nifty was up by 145.30 points or 1.28% to 11,515.20.