Markets make smart recovery to end near day’s high

Indian equity benchmarks made a smart recovery on Tuesday to end the trading session near their intraday high points. The markets open on a cautious note, as India’s industrial production measured by Index of Industrial Production (IIP) grew at the slowest pace in four months at 4.5% in September 2018, with poor performance of mining sector and lower offtake of capital goods. Anxiety also came on the street with Moody's Investors Service report stating that global credit conditions will weaken in 2019 as economic growth decelerates, funding costs increase, liquidity tightens and market volatility returns. Some concerns came with the report that several ministries have flagged major concerns over ongoing negotiations for the Regional Comprehensive Economic Partnership (RECP) agreement, with cheap imports from China being the biggest fear, apart from expectations that there will only be limited gains for the country.

Domestic sentiments were weak during morning deals with SBI's report that the sharp decline in the headline inflation print to 3.31% for October a year-year-low will result in a prolonged pause in the rates, but raises a big question mark on the Reserve Bank’s inflation forecasting. However, the indices managed to erase all of their losses in afternoon deals, supported by firm opening of European markets coupled with easing inflation. India’s retail inflation based on Consumer Price Index (CPI) softened to a one-year low of 3.31% in the month of October 2018, the back of cheaper kitchen staples, fruits and protein-rich items. Traders took encouragement with a report stating that India is pushing for liberalising norms to promote services trade with 15 other countries including China as part of a mega free trade agreement as it looks for a balanced pact with these nations. 

On the global front, European markets were trading in green, as the French economy likely retained its growth momentum in the fourth quarter. The pace of growth accelerated to 0.4% in the third quarter from 0.2% in the second quarter, largely underpinned by domestic demand and exports. Besides, Italy's industrial production rose in September after declining in the previous two months. As per preliminary data from the statistical office ISTAT, industrial production grew a calendar adjusted 1.3% year-on-year in September, following a 0.8% fall in August and a 1.3% slump in July. Asian markets ended in red, as a slew of factors such as concerns about slowing global growth, falling oil prices, Italian budget woes and fears of a peak in corporate earnings growth prompted investors to dump riskier assets.

Back home, the aviation stocks flied high as India’s domestic air passenger traffic grew in double digits for the 49th consecutive month in September. India’s domestic revenue passenger kilometres (RPK) in the month under review rose by 19.8% compared to the corresponding month of the previous year, while select stocks of pharma sector ended higher, amid reports that after tepid single-digit growth in August and September, the Indian pharmaceutical industry is back on the double-digit track on strong anti-infectives and respiratory segments growth. Banking stocks also ended in green, despite report that banks have lost an additional income of Rs 4,000 crore due to the delay in resolution of the initial 12 large insolvency cases referred by the RBI last June. Further, agriculture stocks remained in focus with report that India has emerged as a major seed hub in Asia as 18 companies out of 24 leading firms evaluated, have invested in breeding and production activities in the country.

Finally, the BSE Sensex gained 331.50 points or 0.95% to 35,144.49, while the CNX Nifty was up by 100.30 points or 0.96% to 10,582.50.

The BSE Sensex touched a high and a low of 35,187.75 and 34,672.20, respectively and there were 26 stocks advancing against 5 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index rose 0.31%, while Small cap index was up by 0.20%.

The top gaining sectoral indices on the BSE were Energy up by 1.91%, Oil & Gas up by 1.80%, Capital Goods up by 1.25% and Bankex up by 1.01%, Auto up by 0.93%, while Healthcare down by 0.81%, Realty down by 0.59% and Consumer Durables down by 0.04% were the only losing indices on BSE.

The top gainers on the Sensex were ICICI Bank up by 2.44%, NTPC up by 2.36%, Axis Bank up by 2.05%, Reliance Industries up by 1.93% and Larsen & Toubro up by 1.77%. On the flip side, Sun Pharma down by 4.72%, Tata Motors down by 3.31%, Tata Motors - DVR down by 2.24%, Power Grid Corporation down by 0.94% and Indusind Bank down by 0.49% were the top losers.

Meanwhile, credit ratings agency, Crisil Ratings in its latest report has said that as many as 19 gigawatt (GW) capacity out of the 40 GW identified as stressed power assets can participate in the second phase of Coal linkage policy named SHAKTI or the Scheme to Harness and Allocate Koyla (Coal) Transparently in India. It noted that the Lok Sabha's standing committee on energy has identified 34 power plants with a cumulative capacity of 40 GW as stressed assets due to lack of adequate fuel supply, absence of power purchase agreements (PPAs), weak financials of promoters, among others.

The rating agency said “our assessment of the 34 power plants suggests 19 GW of the 40 GW capacities do not have medium or long term PPAs, and hence, can participate in Shakti -II provided they meet other eligibility criteria set by Coal India for participation in the auction.” However, it noted that successful bidders under Shakti -II may find it difficult to secure long-term PPAs, given the high fixed cost of many of these projects. It also pointed out that of the 19 GW, about 10.3 GW of untied capacity has incurred overall investment of more than Rs 6 crore per megawatt (MW) whereas the typical coal-based power plant costs Rs 4-5 crore per MW.

The report stated that this indicates huge cost overruns, leading to escalation in fixed costs, which makes these plants unattractive for medium/ long-term power procurers such as discoms and even traders. It also said that given the cost overruns and the issues around signing of PPAs, SHAKTI-II may be of little help to these assets. It added that a further 6.4 GW of untied capacity with overall investment of Rs 4-6 crore per MW have relatively better chances of resolution if they manage to secure fuel supply at competitive rates.

The CNX Nifty traded in a range of 10,596.25 and 10,440.55. There were 41 stocks advancing against 09 stocks declining on the index.

The top gainers on Nifty were Eicher Motors up by 6.23%, Indian Oil Corporation up by 4.44%, BPCL up by 3.95%, HPCL up by 3.29% and NTPC up by 3.01%. On the flip side, Sun Pharma down by 4.75%, Tata Motors down by 3.65%, Indiabulls Housing Finance down by 2.68%, Power Grid Corporation down by 1.05% and Cipla down by 0.82% were the top losers.

All European markets were trading in green; UK’s FTSE 100 gained 20.20 points or 0.29% to 7,073.28, France’s CAC rose 15.86 points or 0.31% to 5,074.95 and Germany’s DAX was up 63.59 points or 0.56% to 11,389.03.

Asian markets ended mostly lower on Tuesday, although Chinese stocks rose notably after reports that China and the United States have resumed high levels talks to reduce tensions ahead of Trump-Xi meeting later this month. Chinese Premier Li Keqiang said the country needs reforms and adjustments in policies to lift growth. Japanese shares ended lower, dragged down by technology stocks after one of Apple's suppliers, Lumentum Holdings slashed its fiscal outlook for the current quarter.