Higher GDP forecast keeps markets high for third straight session

Higher gross domestic product (GDP) growth forecast kept Indian equity benchmarks higher for the third straight session on Tuesday. The Central Statistics Office (CSO) in its First Advance Estimates of National Income, 2018-19, showed that India’s economic growth is expected to grow at 7.2% in the current fiscal year (FY19) from 6.7% in the previous fiscal, mainly due to improvement in the performance of agriculture and manufacturing sectors. The start of the trading session was cautious, impacted by Credit ratings agency, Crisil Ratings’ latest report that India Inc is likely to register fall in revenue as well as profit growth numbers in Q3 (October-December) of 2018-19. Attributing the estimate mainly to high base in general and certain sector specific issues, it said that revenue growth will dip by up to 5 percentage points on average to 12-13%. The trade remained volatile for most part of the session, as Reserve Bank of India (RBI) governor Shaktikanta Das warned against farm loan waivers, saying a generalised loan waiver adversely hits the credit culture and suggested that states should look at their fiscal position before announcing these amnesty schemes.

However, in the last leg of the trade, the markets gained momentum to end with notable gains, as Economic Affairs Secretary Subhash Chandra Garg described the 7.2% GDP growth projection for 2018-19 as very healthy and noted that India remains to be the fastest growing economy in the world. Garg also highlighted that increase in gross fixed capital formation (GFCF) indicates a pickup in investment activities. Traders were seen taking encouragement with the Finance Ministry’s latest report indicating that in the first nine months (April-December) of current financial year (FY19), the direct tax collections surged by 14.1% to Rs 8.74 lakh crore. During the same period, the refunds amounting to Rs 1.30 lakh crore have also been issued, an increase of 17% from the year-ago period. Some comfort also came with a private report expecting that the government to maintain fiscal deficit target of 3.2-3.3%. Meanwhile, RBI Governor Shaktikanta Das has said that necessary steps will be taken by the central bank if there is a liquidity shortage in the economy. Das also said that he will meet representatives of non-banking finance companies to understand the liquidity crunch the sector is facing.

On the global front, European markets were trading green, as Eurozone retail sales grew for a second straight month in November and at a faster-than-expected pace, supported by lower oil prices and rising wages. The figures from Eurostat showed that retail sales rose a seasonally adjusted 0.6% from October, when sales increased at the same pace. October sales growth was earlier reported as 0.3%. The street overlooked survey data of the behavioral research institute Sentix which stated that Eurozone's investor confidence deteriorated for a fifth straight month in January to its lowest level in over four years, but the easing was less severe than expected. The Sentix investor confidence index dropped to -1.5 from -0.3, marking the lowest level since December 2014. But, Asian markets ended mixed, as investors awaited the outcome of the high-level US-China trade talks currently underway in Beijing. Deputy US Trade Representative Jeffrey Gerrish is leading the US team at the two-day meeting.

Back home, banking stocks ended in green, with RBI governor Shaktikanta Das’ expressing satisfaction over performance of the banking sector saying non-performing assets (NPAs) have declined, particulary that of public sector banks (PSU banks).  However, realty stocks ended lower, despite reports that housing sales rose six per cent in 2018 in eight major cities as developers reduced prices and offered indirect discounts to lure customers. Sale of residential units increased in six cities-Delhi-NCR, Mumbai, Bengaluru, Chennai, Hyderabad and Ahmedabad; but declined in two cities-Kolkata and Pune. Stocks related to cement industry remained in focus, amid credit rating agency, ICRA’s report showing that the domestic cement demand is expected to be at 7% in FY2019 and around 8% in FY2020, driven by housing, primarily rural housing and affordable housing and improved focus on infrastructure segments like roads, metro and irrigation projects.

Finally, the BSE Sensex gained 130.77 points or 0.36% to 35,980.93, while the CNX Nifty was up by 30.35 points or 0.28% to 10,802.15.

The BSE Sensex touched a high and a low of 36,037.35 and 35,753.95, respectively and there were 18 stocks advancing against 13 stocks declining on the index.

The broader indices ended mixed; the BSE Mid cap index lost 0.16%, while Small cap index was up by 0.17%.

The top gaining sectoral indices on the BSE were Telecom up by 1.34%, Bankex up by 1.31%, Healthcare up by 0.98%, PSU up by 0.65% and Metal up by 0.58%, while Utilities down by 0.36%, Capital Goods down by 0.35%, Power down by 0.30%, Realty down by 0.19% and Oil & Gas down by 0.17% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 3.98%, ICICI Bank up by 3.46%, SBI up by 3.18%, Yes Bank up by 2.86% and Tata Motors - DVR up by 2.40%. On the flip side, Kotak Mahindra Bank down by 1.41%, NTPC down by 0.98%, HDFC down by 0.81%, HDFC Bank down by 0.81% and Hindustan Unilever down by 0.79% were the top losers.

Meanwhile, credit ratings agency, Crisil Ratings in its latest report has said that India Inc is likely to register fall in revenue as well as profit growth numbers in Q3 (October-December) of 2018-19. Attributing the estimate mainly to high base in general and certain sector specific issues, it said that revenue growth will dip by up to 5 percentage points on average to 12-13 percent.

According to the report, auto companies will post a revenue growth of only 4 percent on rise in ownership costs and weaker finance options which have hit sales during the quarter while the same for the FMCG sector will be 8 percent on sluggish rural demand. It also noted that sugar, aluminium and telecom will face pressure from lower realisations. It also said that growth in operating profit will decline to 10 percent from 15 percent growth levels achieved over the preceding three quarters. Adding further, it said that commodity-linked sectors will see a jump in revenue growth, led by natural gas (37 percent), steel products (27 percent), cement (10 percent), while infrastructure-related sectors like construction are expected to clip at 12 percent.

Besides, the ratings agency has stated that the rupee was weaker by 11 percent during the quarter, which will benefit export-linked sectors such as software and pharma, which are estimated to grow by 21 percent and 10 percent, respectively. It noted that commodity- and infrastructure-linked sectors are expected to support revenue for the December quarter. In consumption spending-led sectors such as airlines and retail, it said that revenue will be supported by positive demand sentiment while in export-oriented segments such as software services and pharma, the boost would come from a weak rupee.

The CNX Nifty traded in a range of 10,818.45 and 10,733.25. There were 24 stocks advancing against 26 stocks declining on the index.

The top gainers on Nifty were Sun Pharma up by 4.17%, ICICI Bank up by 3.15%, SBI up by 3.10%, Tata Motors up by 2.62% and Yes Bank up by 2.48%. On the flip side, Zee Entertainment down by 2.99%, UPL down by 1.67%, Kotak Mahindra Bank down by 1.49%, BPCL down by 1.38% and HPCL down by 1.12% were the top losers.

European markets were trading in green, UK’s FTSE 100 gained 46.04 points or 0.68% to 6,856.92, France’s CAC rose 37.43 points or 0.79% to 4,756.60 and Germany’s DAX was up by 61.47 points or 0.57% to 10,809.28.

Asian markets ended mixed on Tuesday as traders awaits for the developments from the second day trade talks between China and United States. Japanese shares ended higher after Amazon and Microsoft Corp fueled a second straight session of gains on Wall Street overnight. Though, China stocks closed slightly lower amid investor caution as US and Chinese officials seek to reach a trade deal in Beijing. Seoul stocks fell as investors monitored the second day of trade talks between China and the United States.