Last hour rally helps markets to end near intraday highs

Last hour rally helped Indian equity benchmarks to close Wednesday’s trading session with strong gains. After a firm start, the key indices remained upbeat for the most part of the session, as the World Bank forecasted that Indian economy is expected to grow at 7.3% in the current fiscal year 2018-19 (FY19) and will grow further at average 7.5% in the following two years. It also said that India registered quite a bit of pick up in doing business ranking. Adding some optimism, the finance ministry said that the recovery of evaded indirect taxes shot up in 2018-19, after a low in 2017-18, the year when the goods and services tax (GST) was implemented. Recovery as a percentage of the evaded taxes dropped from 26% in 2016-17 to 14% in 2017-18. Then, it went up to 29% in 2018-19 (April to December period). Some support also came with a report stating that the central government has released Rs 48,202 crore as GST compensation to states during April-November 2018, higher than the Rs 48,178 crore paid in the previous financial year.

However, in last hour of trade markets witnessed volatility with key gauges reversing all of their gains to enter into red terrain for brief period of time, as sentiments got hurt with a private reports stating that the battered Indian rupee will take another bruising this year, despite a recent revival, weighed down by uncertainty around national elections in May and an expected economic slowdown.  Some anxiety came on the street, with the World Bank’s report showing that the growth of the global economy is expected to slow to 2.9 percent in 2019 compared with 3 percent in 2018, citing elevated trade tensions and international trade moderation. But soon, the markets regained momentum to end the session near day’s high points, tracking firm European markets. The rally also buoyed with the World Economic Forum report stating that India is poised to become the third-largest consumer market behind only the US and China; and consumer spending in India is expected to grow from $1.5 trillion at present to nearly $6 trillion by 2030.

On the global front, European markets were trading in green, even though Eurozone's economic sentiment index decreased more-than-expected in December to its lowest level since the start of 2017. The survey data from the European Commission showed that the economic sentiment index dropped to 107.3 from 109.5 in November. The street had predicted a score of 108.2. Besides, Germany's industrial production unexpectedly decreased for a third straight month in November, amid a sharp fall in consumer goods and energy output, worsening fears of a technical recession in the biggest euro area economy. The preliminary data from the Federal Statistical Office showed that overall industrial production fell a calendar and seasonally adjusted 1.9 percent from October, when it decreased 0.8 percent, revised from 0.5 percent. Asian markets ended in green, amid optimism that the US and China will reach a trade deal after US President Donald Trump said that talks were going very well.

Back home, jewellery stocks ended mixed, amid Gem and Jewellery Domestic Council (GJC) report stating that the gold jewellery industry in the country has not witnessed any significant growth in the last two years, particularly after demonetisation and GST, while stocks related to power sector ended lower, despite report that power plants across the country generated 1,047.3 billion units (BU) of electricity in April-December, 2018, registering a 6.7% year-on-year (y-o-y) growth. Further, airline stocks remained in focus with civil aviation secretary R N Choubey’s statement that India will issue new safety protocols for airlines operating Airbus A320neo aircraft fitted with Pratt & Whitney engines, while  textile sector stocks remained in limelight with Confederation of Indian Textile Industry (CITI) stating that the stressed advance ratio of the textile sub-sector has been improving continuously. As per Reserve Bank of India’s (RBI) financial stability report, the ratio has improved from 23.70% in September 2017 to 18.70% in September 2018.

Finally, the BSE Sensex gained 231.98 points or 0.64% to 36,212.91, while the CNX Nifty was up by 53.00 points or 0.49% to 10,855.15.

The BSE Sensex touched a high and a low of 36,250.54 and 35,863.29, respectively and there were 19 stocks advancing against 12 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index lost 0.04%, while Small cap index was down by 0.17%.

The top gaining sectoral indices on the BSE were FMCG up by 1.11%, Bankex up by 0.69%, Realty up by 0.66%, Auto up by 0.55% and Healthcare up by 0.48%, while Oil & Gas down by 1.74%, Metal down by 1.21%, PSU down by 0.95%, Basic Materials down by 0.87% and Utilities down by 0.83% were the top losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 2.94%, ITC up by 2.29%, Tata Motors up by 2.09%, Bharti Airtel up by 1.92% and HDFC up by 1.74%. On the flip side, Yes Bank down by 3.07%, Tata Steel down by 2.44%, Hero MotoCorp down by 1.51%, ONGC down by 1.26% and Bajaj Finance down by 0.67% were the top losers.

Meanwhile, the rating agency ICRA in its latest report has said that the government’s decision to infuse additional Rs 41,000 crore into cash-starved public sector banks (PSBs) for the financial year 2019 is optimistic for these lenders as it will assist them lower their losses on dud loans. It noted that the government had sought Parliament’s approval for infusion of an additional Rs 41,000 crore, taking the total fund infusion to Rs 1.06 trillion in FY19.  It added that with this round, the overall capital infusion into state-run banks during FY15-FY19 stands at Rs 2.56 trillion.

According to the report, the current round of recapitalisation would enhance the lending capacity of these banks and help them come out of the Reserve Bank's prompt corrective action (PCA) framework. It also pointed out that of the 21 state-owned banks, as many as 11 are under the PCA framework, which imposes lending restrictions on weak banks. It stated that after the merger of Dena and Vijaya Bank with Bank of Baroda (BoB), the number of state-run banks will come down to 19. It added that as a part of capital allocation plan for FY19, recently some state-run lenders have been allocated a relatively higher quantum of capital.

ICRA further said that this capital will enable lenders to reduce their net non-performing advances below the PCA threshold of 6 percent as well as achieving regulatory capital ratios (including capital conservation buffer of 1.875 percent required as of March 2019). Notwithstanding a higher share of capital allocation to some state-owned banks under the PCA, the agency expects capital allocation to other banks under PCA to be limited to enable them to meet the regulatory minimum capital ratios-- 7 percent of tier 1 and 9 percent of CRAR. Despite additional capital infusion, it expects most of these banks currently under the PCA to report second consecutive year of losses in FY19.

The CNX Nifty traded in a range of 10,870.40 and 10,749.40. There were 24 stocks advancing against 26 stocks declining on the index.

The top gainers on Nifty were Axis Bank up by 3.12%, ITC up by 2.55%, Tata Motors up by 2.00%, UPL up by 1.70% and HDFC up by 1.65%. On the flip side, HPCL down by 3.95%, GAIL India down by 3.84%, BPCL down by 3.40%, Yes Bank down by 3.02% and UltraTech Cement down by 2.71% were the top losers.

European markets were trading in green; UK’s FTSE 100 increased 51.15 points or 0.75% to 6,912.75, France’s CAC rose 54.76 points or 1.15% to 4,828.03 and Germany’s DAX was up by 110.96 points or 1.03% to 10,914.94.

Asian markets ended mostly higher on Wednesday, buoyed by optimism that trade talks between the United States and China are progressing. With talks getting extended to Wednesday and US President Donald Trump saying in a tweet that discussions between the world's two largest economies were ‘going very well’, investors are optimistic that a trade deal can be struck ahead of a March 1 deadline established by Trump and Chinese President Xi Jinping last month at the G-20 summit in Argentina. Beijing approved the import of five genetically modified crops on Tuesday, the first in about 18 months in a bid to boost its purchases of US grains.