Benchmarks make weak opening on Monday

Indian equity benchmarks made a pessimistic start and are trading with a cut of over half a percent in early deals, tracking negative cues from other Asian markets. Traders remain concerned about Exporters’ body Federation of Indian Export Organisations’ (FIEO) statement that the rupee depreciation is increasing the cost of imported capital goods, inputs and various services used by exporters paid in foreign currency, particularly the freight charges. Traders also reacted negatively to the Reserve Bank of India’s (RBI) statement that the Centre and states should stick to the fiscal deficit target as any slippage will have an adverse bearing on inflation and increase market volatility. Some cautiousness also crept in with a private report that foreign investors have pulled out over Rs 9,300 crore ($1.3 billion) from the Indian capital markets in the last four trading sessions on unabated fall in rupee and rise in crude oil price.

Global cues too remained sluggish with most of the Asian counters trading in red at this point of time, as investors waited with bated breath as China’s markets prepare to reopen following a week-long holiday and after its central bank cut banks’ reserve requirements in a bid to support growth. The US markets declined on Friday after strong US jobs numbers signaled a continued tightening of the labor market and increased inflation pressures, while Treasury yields rose again to multi-year highs.

Back home, sentiments remain dampened on report that the share of private investments in the infrastructure sector has fallen to a decadal low of around 25% in FY18 steeply down from a high of 37% in FY08. However, traders failed to get any support with the World Bank stating that growth in India is firming up and projected to accelerate to 7.3% in the 2018-19 fiscal and 7.5% in the next two years. In scrip specific developments, PNB Housing Finance surged on raising $200 million via ECB and Sagar Cements strengthened on reporting 27.18% growth in cement production in September.

The BSE Sensex is currently trading at 34183.54, down by 193.45 points or 0.56% after trading in a range of 34031.98 and 34436.83. There were 9 stocks advancing against 21 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index declined 1.77%, while Small cap index was down by 1.53%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.70%, PSU up by 0.59%, Bankex up by 0.42%, Energy up by 0.38% and Utilities was up by 0.07%, while Metal down by 3.62%, Basic Materials down by 2.71%, Realty down by 1.82%, Consumer Durables down by 1.57% and Healthcare was down by 1.51% were the top losing indices on BSE.

The top gainers on the Sensex were Yes Bank up by 2.13%, Coal India up by 1.71%, ONGC up by 1.22%, SBI up by 1.12% and Kotak Mahindra Bank up by 1.00%. On the flip side, Vedanta down by 7.83%, Tata Steel down by 3.60%, Wipro down by 2.78%, Adani Ports down by 2.00% and Tata Motors - DVR down by 1.87% were the top losers.

Meanwhile, after two successive rate hikes, the Reserve Bank of India (RBI), surprising the street expectation of at least a quarter percentage rate hike, has kept its repo rate, the rate it lends to commercial banks, unchanged at 6.5% in its fourth bi-monthly monetary policy review of 2018-19. It repo rate has been kept unchanged citing a benign inflation trajectory and downward revision to inflation projections. However, the Central Bank has changed its stance from neutral to ‘calibrated tightening’. Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) stood at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

The decision of the monetary policy committee (MPC) is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. It flagged off a list of upside risks to inflation even as it slashed its forecast for the headline number. On the inflation front, the RBI has projected inflation at 4.0% in Q2:2018-19, 3.9-4.5% in second half (H2) and 4.8% in Q1:2019-20, with risks somewhat to the upside. Excluding the HRA impact, consumber price index (CPI) inflation is projected at 3.7% in Q2:2018-19, 3.8 - 4.5% in H2 and 4.8% in Q1:2019-20.

The RBI said inflation outlook is expected to be influenced by several factors as food inflation remained unusually benign, which imparts a downward bias to its trajectory in the second half of the year. Inflation in key food items such as pulses, edible oils, sugar, fruits and vegetables remains exceptionally soft at this juncture. The risk to food inflation from spatially and temporally uneven rainfall is also mitigated, as confirmed by the first advance estimates that have placed production of major kharif crops for 2018-19 higher than last year’s record. Another factors include, the price of the Indian basket of crude oil has increased sharply, by $13 a barrel, since the last resolution. Besides, international financial markets remained volatile with emerging market economies (EMEs) currencies depreciating significantly.

On the economic front, the Central Bank has retained its gross domestic product (GDP) growth projection at 7.4% for 2018-19 as in the August resolution (7.4% in Q2 and 7.1-7.3% in second half), with risks broadly balanced; the path in the August resolution was 7.5% in Q2:2018-19 and 7.3-7.4% in H2. GDP growth for Q1:2019-20 is now projected marginally lower at 7.4% as against 7.5% in the August resolution, mainly due to the strong base effect.

The CNX Nifty is currently trading at 10257.05, down by 59.40 points or 0.58% after trading in a range of 10201.95 and 10310.15. There were 16 stocks advancing against 34 stocks declining on the index.

The top gainers on Nifty were HPCL up by 5.66%, Indian Oil Corporation up by 3.81%, BPCL up by 3.07%, GAIL India up by 2.32% and Yes Bank up by 2.23%. On the flip side, Vedanta down by 7.71%, Hindalco down by 5.00%, Tata Steel down by 3.40%, Wipro down by 2.66% and Bajaj Finance down by 1.98% were the top losers.

Asian markets are trading mostly in red; Taiwan Weighted decreased 84.68 points or 0.81% to 10,432.44, Straits Times declined 18.55 points or 0.58% to 3,191.24, Hang Seng tumbled 226.67 points or 0.86% to 26,345.90, KOSPI fell 9.70 points or 0.43% to 2,257.82 and Shanghai Composite was down by 83.31 points or 3.04% to 2,738.04. On the flip side, Jakarta Composite was up by 17.08 points or 0.3% to 5,749.02.