RBI’s policy decision fails to provide any relief to equity markets

Indian equity markets failed to take any sense of relief with the Reserve Bank of India’s (RBI) policy decision to keep the repo rate unchanged on Wednesday, as both Sensex and Nifty ended in red, breaching their crucial psychological level of 35,900 and 10,800 respectively. The RBI on expected lines kept the repo rate unchanged at 6.50%, taking into account easing global crude prices, benign inflation and moderation in economic growth. The start of the day was pessimistic, as the trade was impacted by Niti Aayog Vice Chairman Rajiv Kumar’s statement that the country’s economy is likely to bounce back during the fourth quarter at a faster rate to match the overall projection for the current fiscal, but, he added that the economy is unlikely to recover in the third quarter from the slow pace during the last quarter. Traders reacted negatively to the private report showing that the sudden move to demonetise a bulk of Indian currency in circulation and the deteriorating agrarian distress in the country have exposed the consequences of financial exclusion. Some worries also came with another private report stating that listed companies accounted for a little less than a third of the corporate tax in FY18, down from nearly 40% in FY17 and 49% a decade ago.

However, fall in the markets remained restricted, after India’s services sector activity strengthen further in month of November, amid an upsurge in demand. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index rose to 53.7 in November from 52.2 in October. Further, the Nikkei India Composite PMI Output Index -- which measures both manufacturing and services -- too improved to 54.5 in November from 53.0 in October. Adding some relief, Engineering Export Promotion Council (EEPC) said that India’s engineering exports are likely to touch $80 billion this fiscal on account of healthy growth in key markets, including the US and Europe. Some support also came with Economic Affairs Secretary Subhash Chandra Garg’s statement that the PMI data for November shows overall strong increase in business activity as well as demand and should augur well for economic growth in October-December quarter. Meanwhile, SBI research report stated that incremental credit to micro and small enterprises (MSEs) has increased five times to Rs 1.23 lakh crore compared to Rs 25,700 crore during corresponding period pre-GST.

On the global front, European markets were trading in red, as Eurozone producer price inflation accelerated further in October, defying expectations. The figures from Eurostat showed that producer prices rose 4.9% year-on-year after a revised 4.6% in September. The street had expected the rate to remain unchanged at September's original figure of 4.5%. Sentiments were lackluster even as British construction sector expanded at the fastest pace in four months in November, thanks to an increase in new work and consequent gains in job creation, though Brexit concerns damped expectations for the months ahead. As per survey data from IHS Markit, the CIPS construction Purchasing Managers' Index climbed to 53.4 from 53.2 in October. Asian markets ended in red, amid concerns over the inversion in the yield curve and confusion surrounding the US-China trade agreement struck between US President Donald Trump and Chinese President Xi Jinping in Argentina. Investors paid no attention to upbeat China services data. The China Caixin Services PMI rose to 53.8 in November-it's highest in five months-as compared to 50.8 in October.

Back home, on the sectoral front, realty stocks ended lower, despite Crisil Ratings’ latest report indicating that residential real estate demand may pick up in the medium-term following improvement in end-user participation on rising affordability, increasing launch of units with mid-income ticket sizes and implementation of RERA. Sugar stocks also plunged, amid a private report stating that Indian sugar mills have 39.73 lakh tonnes of sugar till November 30, which is almost similar to the sugar production of 39.14 lakh tonnes during same period of previous year. Meanwhile, stocks related to the agri remained in focused, with Union Minister for Chemicals and Fertilisers D V Sadananda Gowda’s statement that the government is prepared to fulfil the complete fertiliser demand of farmers during the ongoing rabi season, while shares of paper companies remained in limelight, amid reports that the government has imposed anti-dumping duty on uncoated copier paper imports from Indonesia, Thailand and Singapore.

Finally, the BSE Sensex plunged 249.90 points or 0.69% to 35,884.41, while the CNX Nifty was down by 86.60 points or 0.80% to 10,782.90.

The BSE Sensex touched a high and a low of 36,048.65 and 35,777.81, respectively and there 6 stocks advancing against 25 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 1.22%, while Small cap index was down by 1.21%.

The top losing sectoral indices on the BSE were Metal down by 3.81%, Auto down by 2.40%, Basic Materials down by 2.28%, Healthcare down by 2.01% and Power down by 2.00%, while there were no gaining sectoral indices on the BSE.

The top gainers on the Sensex were Hindustan Unilever up by 2.07%, HDFC up by 1.75%, HDFC Bank up by 0.51%, Wipro up by 0.40% and Reliance Industries up by 0.29%. On the flip side, Sun Pharma down by 6.59%, Tata Steel down by 4.27%, Tata Motors - DVR down by 3.85%, Vedanta down by 3.74% and Tata Motors down by 3.70% were the top losers.

Meanwhile, the World Trade Organisation's (WTO) dispute settlement body has decided to establish a panel to assess if high customs duties imposed by the US on certain steel and aluminium products infringes global trade norms. India had asked the Geneva-based multilateral body to set up the dispute panel against the US for imposing high import duties on certain steel and aluminium products, as both the countries failed to resolve the issue in a bilateral consultation process under the dispute settlement mechanism of the WTO.

Consultation is the first step of the dispute settlement process in the organization. If the two countries are not able to reach a mutually agreed solution through consultation, a country can request for a WTO dispute settlement panel to review the matter. Imposition of high import duties on these items by the US has impacted exports of these products by Indian businesses. The US move is also not in compliance with global trade norms.

Besides, India, Russia, Norway, Canada, Mexico, Switzerland, and European Union have also dragged the US in the WTO on Washington's move to impose 25% and 10% import duties on certain steel and aluminium products, respectively, which triggered global trade tensions. India has a significant export interest to the US on the steel and aluminium sector. As per estimates, India exports steel and aluminium goods worth about $1.6 billion a year to the US. The US had imposed these duties on grounds of national security.

The CNX Nifty traded in a range of 10,821.05 and 10,747.95. There were 10 stocks advancing against 40 stocks declining on the index.

The top gainers on Nifty were Hindustan Unilever up by 2.45%, HDFC up by 1.60%, Bharti Infratel up by 1.24%, HCL Tech. up by 0.95% and HDFC Bank up by 0.84%. On the flip side, Sun Pharma down by 5.80%, Hindalco down by 5.19%, Tata Steel down by 4.03%, Indiabulls Housing Finance down by 3.94% and Vedanta down by 3.93% were the top losers.

European markets were trading in red; UK’s FTSE 100 decreased 75.06 points or 1.08% to 6,947.70, France’s CAC fell 46.82 points or 0.94% to 4,965.84 and Germany’s DAX dipped 100.56 points or 0.9% to 11,234.76.

Asian markets ended lower on Wednesday amid concerns over trade and worrying signals of economic health after the difference between three- and five-year US Treasury yields dropped below zero. Traders were skeptical around the Trump-Xi agreement announced over the weekend. In China, traders paid little attention to encouraging services data. The services sector in China continued to expand in November, and at an accelerated rate, the latest survey from Caixin revealed with a PMI score of 53.8. That beat expectations for 50.8, which would have been unchanged from the October reading. While, the latest survey from Nikkei showed that the services sector in Japan continued to expand in November, albeit at a fractionally slower pace with a PMI score of 52.3, down from 52.4 in October. Chinese shares ended lower as investor doubts mounted over whether China and the United States will be able to settle their trade dispute before the 90-day deadline expires, and as new data showed a worsening business outlook. Further, Japanese shares fell after a plunge on Wall Street overnight on growth and trade concerns.