Benchmarks likely to make cautious start on Wednesday

Indian markets ended lower on Monday on nervousness as political uncertainty in the US and concern over slowing global growth. Today, the markets are likely to make cautious start mirroring weakness in Asian counterparts. There will be some cautiousness with former chief economic advisor Kaushik Basu’s statement that distress in some sectors of the economy has slowed India’s GDP growth, the consequences of which could be far reaching. Basu said distress has been very much visible in the agriculture sector as the condition of farmers is bad. Traders will also be concerned about a private report that as India near 2019 general elections, populist steps by the government may exert pressure on India’s fiscal scenario. It expected the general government debt at 70.1% of the GDP in FY19. Traders may take note of a report that despite a global trade war, India managed to grow its exports in 2018 but high crude prices and rising domestic demand continued to inflate the trade deficit at a faster rate. The year started with monthly trade deficit soaring to a 56-month high. By October, it had risen to more than $153 billion. However, traders may take some support later in the day with a couple of days after cuts in the goods and services tax (GST) rates, Finance Minister and GST Council Chairman Arun Jaitley raised hopes of further pruning the peak rate (28%) and merging the 12% and 18% slabs. He further said the single standard rate would take some time after GST revenues see a significant rise. There will be some buzz in the motor insurance industry related stocks with report that the reduction in GST rate for third-party motor insurance of commercial vehicles to 12% from 18% may improve renewal rates for the segment. Also, there will be some reaction power sector stocks with report that fresh capacity addition in thermal and hydro power plunged 69% in the April-November period of this fiscal, as green energy gained momentum.

The US markets remained closed on Tuesday on account of Christmas Day holiday. Asian markets were trading mostly in red in early deals on Wednesday following the losses on Wall Street on Christmas eve in the face of a series of unnerving US political developments, including a US federal government shutdown and President Donald Trump’s increasingly hostile stance toward the Federal Reserve chairman.

Back home, Indian equity benchmarks ended in red on Monday, with the both the larger peers closing trading session in deep red. The start of the day was positive, as the Goods and Services Tax (GST) Council, at its 31st meeting decided to lower tax rates on 23 goods and services, including movie tickets, TV and monitor screens and power banks, and exempted frozen and preserved vegetables from the levy. The new rates would come into effect from January 1, 2019. Sentiments were positive in early morning deals, with Finance minister Arun Jaitley expressing that the government is confident of meeting the fiscal deficit target of 3.3% of GDP for the current financial year (FY19) despite revenue loss on account of reduction in Goods and Services Tax (GST) rates. Traders also took note of Niti Aayog CEO Amitabh Kant’s statement that the government needs to incentivise angel investors eyeing startups and not tax them to give a boost to Prime Minister Narendra Modi’s flagship Startup India initiative. But, the markets soon turned volatile, after Finance Commission Chairman N.K. Singh has sounded a note of caution against fiscal slippage, saying it would adversely impact the country’s macroeconomic stability as well as investment climate. He expressed apprehension that some states are not according priority to fiscal discipline, which was not the case earlier. In the last leg of the trade, key indices extended losses to end the session near day’s low point, impacted by Reserve Bank of India’s (RBI) data report showing the country’s foreign exchange reserves declined by $613.9 million to $393.12 billion in the week to December 14, due to fall in foreign currency assets. In the reporting week, foreign currency assets, a major component of the overall reserves, dropped by $631.6 million to $367.86 billion. Adding some more concerns, the Directorate General of GST Intelligence (DGGI) has busted a racket of fraudulent companies engaged in raising fake tax invoices worth Rs 220 crore to avail input-tax credit. Domestic sentiments also got cautious with Sebi Chairman Ajay Tyagi’s statement that the capital markets, globally, have been quite volatile during the current year and are likely to remain so in coming times on account of various factors such as US Fed rate hikes, volatile oil prices, intensifying trade conflicts and sanctions. Besides, some concerns came with reports that Reserve Bank of India has cancelled the registration of 1,490 non-banking financial companies (NBFCs). These included NBFCs that failed to meet prudential norms and those that voluntarily surrendered registration. Finally, the BSE Sensex plunged by 271.92 points or 0.76% to 35,470.15, while the CNX Nifty was down by 90.50 points or 0.84% to 10,663.50.