Last hour selloff drags benchmarks lower

Tuesday turned-out to be a disappointing day of trade for Indian equity benchmarks with frontline gauges ending near intraday low levels, breaching their crucial 37,300 (Sensex) and 11,300 (Nifty) mark. Markets started the session with cautious tone as traders remain concerned with report that in an escalation to the trade war with China, US President Donald Trump announced imposition of new tariffs on additional $200 billion worth of Chinese imports. On the domestic turf, market participants remained cautious with International Monetary Fund’s (IMF) estimates that the real effective depreciation of Indian rupees is between 6-7% compared to December 2017. It said broadly since the beginning of the year, Indian rupee has lost about 11% of its value in nominal terms vis-a-vis the US dollar. However, losses remain capped as some relief came with CBDT Chairman Sushil Chandra expressing confidence in exceeding Rs 11.5 lakh crore direct tax collection target in current fiscal. Some support also came with report stating that Markets regulator SEBI has relaxed initial public offer (IPO) norms to allow companies to announce the price band two days before an offering.

But selling in last leg of trade mainly played spoil sports for domestic markets and dragged key gauges near intraday lows as sentiments got hit with credit rating agency, India Ratings and Research’s latest report that banks' credit costs are likely to remain elevated at 2%-3% during FY19-FY20, on the back of ageing of non-performing assets (NPAs), accelerated provisioning and slippages especially from non-corporate accounts. Traders took note of a report that with interest rates cycle reversing, cost of borrowing for housing finance companies (HFCs) and microfinance institutions (MFIs) is likely to increase by over 30 basis points in the current fiscal year, and by another 40-50 basis in FY20. Separately, the indebtedness of Indian households nearly doubled in the year to March 2018, with their financial liabilities rising 80% to Rs 6.74 lakh crore. Traders overlooked Finance minister Arun Jaitley’s statement that the reforms undertaken by the government in the banking sector have started to yield results and recoveries increased on bad loans that had ballooned because of disproportionate lending during the Congress-led UPA rule.

On the global front, European markets were trading in green in early deals, as Eurozone inflation slowed as estimated in August. As per final data from Eurostat, harmonized inflation came in at 2% in August versus 2.1% in July. Asian markets ended mixed, after US President Donald Trump announced new tariffs on an additional $200 billion worth of Chinese imports, in a sharp escalation of the trade conflict between the world’s two biggest economies.

Back home, banking sector stocks edged lower with India Ratings’ mid-year outlook showing that banks are witnessing a spurt in asset quality stress in the non-corporate segment and the overall loan loss provisions for lenders are expected to stay elevated till fiscal year 2019-20. Stocks related to copper space remained in focus with report that India has initiated an anti-subsidy probe into increased imports of select copper wire rods from Indonesia, Malaysia, Thailand and Vietnam. Further, sugar companies stocks remained in focus, amid reports that the government may hike the minimum selling price (MSP) for over-supplied sugar mills, a week after an incentive package was announced under which it raised the price of ethanol.

Finally, the BSE Sensex declined 294.84 points or 0.78% to 37,290.67, while the CNX Nifty was down by 98.85 points or 0.87% to 11,278.90.

The BSE Sensex touched a high and a low of 37,745.44 and 37,242.85, 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 1.49%, while Small cap index was down by 1.51%.

The lone gaining sectoral indices on the BSE was FMCG up by 0.86%, while Realty down by 3.13%, PSU down by 2.43%, Power down by 2.00%, Industrials down by 1.77% and Telecom was down by 1.75% were the top losing indices on BSE.

The top gainers on the Sensex were Hindustan Unilever up by 3.87%, Yes Bank up by 1.43%, Wipro up by 1.02%, ONGC up by 0.93% and ITC up by 0.23%. On the flip side, SBI down by 4.06%, Tata Motors down by 3.36%, Bajaj Auto down by 2.84%, Axis Bank down by 2.81% and Tata Motors - DVR down by 2.45% were the top losers.

Meanwhile, Indian government has further postponed the deadline for the imposition of higher customs duties on some products imported from the United States for another 45 days until November 2. Earlier in June, India had decided to impose retaliatory tariffs on some US products, including almonds, walnuts and apples from August 4, but it was extended by another 45 days till September 18.

India and the US are holding two track discussions which include -- increasing trade in short and medium term, and identifying long term trade potentials. The country is stressing for exemption from high customs duty imposed by the US on certain steel and aluminium products, greater market access for its products from sectors, including agriculture, automobile, auto components and engineering and resumption of export benefits to certain domestic products under their Generalised System of Preferences (GSP). 

The central government has notified about higher tariffs on several products. Import duty on chickpeas, Bengal gram (chana) and masur dal will be hiked to 70% from 30%, while duty on walnut will be hiked to 120% from 30%. Furthermore, duty on lentils will be hiked to 40% from 30%. Apart from these products, boric acid, phosphoric acid, diagnostic reagent, flat-rolled products of iron, certain flat-rolled products of stainless steel, would attract higher duties.

India exports steel and aluminium products worth about $1.5 billion to the US every year. Indian exports to the US in 2017-18 stood at $47.9 billion, while imports were $26.7 billion. The trade balance is in favour of India. While, Exports to the US in 2016-17 stood at $42.21 billion, while imports were $22.3 billion.

The CNX Nifty traded in a range of 11,411.45 and 11,268.95. There were 9 stocks in green as against 41 stocks in red on the index.

The top gainers on Nifty were Hindustan Unilever up by 3.70%, Yes Bank up by 1.88%, ONGC up by 1.34%, Dr. Reddy’s Lab up by 1.18% and ITC up by 0.83%. On the flip side, SBI down by 4.10%, Indiabulls Housing Finance down by 3.57%, Tata Motors down by 3.46%, HPCL down by 3.06% and Bajaj Auto down by 2.96% were the top losers.

All European markets were trading in green; UK’s FTSE 100 increased 13.02 points or 0.18% to 7,315.12, France’s CAC gained 12.23 points or 0.23% to 5,361.10 and Germany’s DAX was up by 28.96 points or 0.24% to 12,125.37.

Asian markets ended mixed on Tuesday amid US President Donald Trump ordering the imposition of tariffs on $200 billion worth of Chinese goods, as widely expected. Trump threatened duties on about $267 billion more if China hit back on the latest US action. Chinese shares ended higher as investors shrugged off the 10 percent threshold for new US tariffs on Chinese goods. Further, Japanese shares rallied as traders returned to their desks after a long holiday weekend. Also, expectations that Prime Minister Shinzo Abe will win a third term as head of his political party on Thursday, supported Japanese shares.