Post Session: Quick Review

Extending southward journey for third straight day, the local benchmarks ended Wednesday’s session lower, weighted down by selling in FMCG and Realty stocks. The key indices started on positive note and traded in green for the first half of the session, as the street remained up-beat with a report that the finance ministry on September 18 asked ministries to shortlist commodities and goods for import curbs by increasing customs duty, to ease the pressure on the rupee and keep the widening Current Account Deficit (CAD) on check. Some support came with a report stating that Indian farmers and US manufacturers of medical devices could be among the main winners in a trade package under negotiation, as the US and India look to remove long-standing irritants to ties.

However, in second half of the session, the markets erased all the gains to end with notable losses, amid private report stating that the country’s rainfall deficit in the ongoing monsoon season widened to 10%, hovering on borderline drought conditions, following below-normal showers every month - a pattern of consistent shortfall not seen since 2004. Domestic sentiments also got hit with another report that there has been a steep decline in economic confidence in India over the past year. In 2017, 83% of individuals surveyed thought the economy was doing good. But in 2018, it was down to 56%. This decline is in contrast to the trend in most countries where public confidence was similarly pronounced in 2017 and 2018.

On the global front, European markets were trading in green, despite Italy's industrial orders dropped for a second straight month in July and at the fastest pace in six months. As per data from the statistical office ISTAT, industrial orders dropped a seasonally adjusted 2.3% from the previous month, when they fell 1.5%. In May, orders grew 3.3%. The latest decline was the biggest since January’s 4.7% fall. In economic releases, consumer and producer prices from the UK and current account from euro area are due later in the day. Asian markets ended in green, as the US-China trade conflict failed to dent investors’ confidence in the global economy.

Back home, on the sectoral front, metal stocks remained in focus, amid reports that India’s steel ministry has proposed increasing the effective import duty on some steel products to 15% from current rates ranging from 5% to 12.5%. Besides, stocks related to agri companies also remained in limelight as Finance Minister Arun Jaitley made a case for blending subsidy with investment, in order to boost farm sector growth and make it sustainable and self-sufficient.

The BSE Sensex ended at 37121.22, down by 169.45 points or 0.45% after trading in a range of 37062.69 and 37530.63. There were 15 stocks advancing against 16 stocks declining on the index. (Provisional)

The broader indices ended in red; the BSE Mid cap index fell by 0.72%, while Small cap index was down by 0.98%. (Provisional)

The top gaining sectoral indices on the BSE were Metal up by 1.25%, Oil & Gas up by 0.98%, PSU up by 0.41%, Basic Materials up by 0.20% and IT up by 0.15%, while FMCG down by 1.09%, Realty down by 0.96%, Consumer Disc down by 0.82%, Consumer Durables down by 0.80% and Healthcare down by 0.59% were the top losing indices on BSE. (Provisional)

The top gainers on the Sensex were Coal India up by 2.76%, ONGC up by 2.25%, Tata Steel up by 1.48%, Sun Pharma Inds. up by 0.76% and ICICI Bank up by 0.69%. On the flip side, Bharti Airtel down by 3.08%, Indusind Bank down by 3.03%, Maruti Suzuki down by 2.39%, HDFC Bank down by 1.46% and HDFC down by 1.41% were the top losers. (Provisional)

Meanwhile, the India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, has warmed that the states are likely to miss the 20% debt-to-GDP ratio target by fiscal year 2022-23 (FY23) as most of them have not budgeted so far. However it said that the Centre may manage to achieve the debt-to-GDP ratio target of 40% by FY23. The NK Singh committee, which is reviewing the Fiscal Responsibility and Budget Management Act of 2003, has suggested that the fiscal policy try to reduce the debt-to-GDP ratio to 60% by FY23, with the Centre’s at 40% and the states’ combined at 20%, instead of improving the revenue to fiscal deficit ratio.

The rating agency noted that the states’ aggregate debt-to-GDP ratio for FY19 has been budgeted at 24.3% and according to their FY19 budgets, only 10 of the 20 states will have debt-to-GSDP ratio of under 25% in FY19. It highlighted that eight states namely Himachal, Jammu & Kashmir, Kerala, Manipur, Meghalaya, Nagaland, Punjab and Rajasthan had debt-to-GSDP ratios in excess of 30% in FY18, suggesting that the aggregate debt-to-GDP ratio needs to be corrected by 8.92 percentage points between FY18 and FY23.

Although there have been instances of debt-to-GDP ratio declining by over three percentage points in a single year and by over 11% for six years at a go, all these periods were characterised by an average minimum nominal GDP growth of about 14% per annum and average aggregate revenue receipt-to-GDP ratio of around 20%. It said achieving a nominal GDP growth of about 14% looks difficult, though the aggregate revenue receipt-to-GDP ratio has been budgeted at 22% for FY19. Sustainability of debt-to-GDP ratio relies on the primary balance-to-GDP and the rate spread (excess of nominal growth over average interest rate on debt).

According to Ind-Ra, while the median value of the consolidated debt-to-GDP 'BBB' countries was 37.8% in 2017, for India it was a high 69%. But European countries like Italy had a higher ratio at 131.8% and Portugal's stood at 125.7%. It attributed the low revenue base as the major factor for India having the highest debt-to-revenue ratio of 327.1% amongst the median of the 'BBB' countries in 2017 at 165.4%. Higher debt and low revenue levels make India an outlier even in terms of interest-to-revenue ratio, which was 23.7% as against 'BBB' median of 6.3% in 2017. Thus, the way forward is to expand revenue base, and GST is a big step in this direction.

The CNX Nifty is currently trading at 11234.35, down by 44.55 points or 0.39% after trading in a range of 11210.90 and 11332.05. There were 26 stocks advancing against 24 stocks declining on the index. (Provisional)

The top gainers on Nifty were BPCL up by 2.80%, Coal India up by 2.73%, GAIL India up by 2.60%, Tech Mahindra up by 2.02% and ONGC up by 1.78%. On the flip side, Bajaj Finserv down by 3.30%, Indusind Bank down by 3.09%, Zee Entertainment down by 2.96%, Bajaj Finance down by 2.76% and UPL down by 2.36% were the top losers. (Provisional)

All European markets were trading in green; UK’s FTSE 100 increased 1.64 points or 0.02% to 7,301.87, France’s CAC gained 15.69 points or 0.29% to 5,379.48 and Germany’s DAX was up by 29.36 points or 0.24% to 12,187.03.

Asian markets ended mostly higher on Wednesday amid hopes that China will increase economic stimulus to soften the blow of the higher US tariffs. Japanese shares ended higher as the yen slipped against its key counterparts and the Bank of Japan kept its ultra-loose monetary policy unchanged, as widely expected. Positive trade balance data also boosted sentiments. Japan posted a 444.594 billion yen trade deficit in August, the Ministry of Finance said. That beat forecasts for a shortfall of 483.2 billion yen following the 231.9 billion yen deficit in July. Exports climbed 6.6 percent on year to 6.691 trillion yen - exceeding expectations for 5.2 percent and up from 3.9 percent in the previous month. Imports jumped an annual 15.4 percent to 7.136 trillion yen versus forecasts for 14.5 percent and up from 14.6 percent a month earlier.