Indian markets fall for second day

Indian equity indices fell for the second consecutive day on Friday, with Sensex and Nifty posting losses of around 0.25% each. The markets made firm start of the day, aided by Goods and Services Tax (GST) Council’s decision to double the limit for exemption from payment of GST to Rs 40 lakh from the earlier cap of Rs 20 lakh. It also decided that from the next fiscal year, businesses with annual turnover of Rs 1.5 crore will be able to pay GST at a fixed rate of their earnings under the composition scheme, while the current limit is Rs 1 crore. Domestic sentiments were optimistic with Commerce & Industry Minister Suresh Prabhu’s statement that ‘we are considering giving transport subsidy to states. It is under active consideration to promote agriculture exports’. On credit issues being faced by exporters, he said the financial services secretary would hold meeting with banks on the matter. Meanwhile, the Securities and Exchange Board of India (SEBI) announced portfolio concentration norms for equity exchange-traded funds (ETFs) and index funds. SEBI’s new guidelines are meant to address risks related to portfolio concentration in ETFs and index funds. According to the new norms, the index shall have a minimum of 10 stocks as its constituents.

However, the markets soon turned lackluster and remained weak for the rest of the session, on the back of heavy selling by the traders, despite positive cues from global markets.  Anxiety spread among the market participants, with reports that the unemployment rate rose to a four-year high in 2016-17, when the government demonetised old currency notes, at the same time as more people joined the labour force looking for jobs. According to the findings of the Labour Bureau, the unemployment rate stood at 3.9%, compared to 3.7% in 2015-16 and 3.4% in 2013-14. Adding more worries, the Annual Survey of Industries (ASI) showed that in 2016-17-the year in which high-value currency was scrapped-gross value added (GVA) by the industry grew at the slowest pace since the Narendra Modi government took over. GVA grew by 7.2% at current prices in FY17, down from 9.3% in FY16 and 9.4% in FY15. Trading sentiments were also got with a private report stating that in the first eight months of FY 2018-19, India's fiscal deficit target has overshot by 15%, largely due to a revenue shortfall rather than front-loading of expenditure. It also said that lower than budgeted indirect tax revenues and weak divestment proceeds are a source of worry.

On the global front, European markets were trading in green, as investors closely monitored US politics and kept an eye on Brexit developments ahead of the House of Commons vote. Traders took note of minutes from the last meeting of the European Central Bank suggesting that the central bank generally remains upbeat on growth. The trade was in green, even though French industrial production declined in November, defying expectations for a modest increase. The preliminary data from the statistical office INSEE showed that industrial production decreased a seasonally and working-day adjusted 1.3%, reversing a similar size increase in the previous month. Asian markets ended in green, after Federal Reserve Chairman Jerome Powell predicted no recession in 2019 and said the US central bank will be patient in determining when to hike interest rates. Fed Vice Chairman Richard Clarida also said the Fed could afford to take a wait-and-see stance on interest rates if headwinds to the economy from financial markets or global growth prove persistent.

Back home, select stocks of healthcare industry ended higher, as the Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval for establishment of three new AIIMS with an aim to boost Healthcare Infrastructure in the country. The establishment of new AIIMS will provide super speciality health care to the population, while metal stocks remained in focus, after India has sought consultations with the European Union (EU) under the aegis of WTO against a move of the 28-nation bloc to impose safeguard duties on certain steel products. The country has sought these consultations under WTO's Agreement on Safeguards. Further, textile stocks remained in limelight, as the GST council in its 32nd meeting, doubled the exemption threshold limit of textile players from the existing Rs 2 million to Rs 4 million effective April 1, 2019. For the north eastern states, the threshold has been doubled to Rs 2 million from Rs 1 million.

Finally, the BSE Sensex lost 96.66 points or 0.27% to 36,009.84, while the CNX Nifty was down by 26.65 points or 0.25% to 10,794.95.

The BSE Sensex touched a high and a low of 36,214.26 and 35,840.60, respectively and there were 09 stocks advancing against 22 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 0.13%, while Small cap index was down by 0.19%.

The only gaining sectoral indices on the BSE were FMCG up by 0.54% and Oil & Gas up by 0.13%, while Realty down by 1.43%, Telecom down by 1.11%, Capital Goods down by 0.93%, Industrials down by 0.86% and Auto down by 0.76% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 2.02%, ONGC up by 0.80%, Vedanta up by 0.74%, Infosys up by 0.58% and Axis Bank up by 0.53%. On the flip side, Indusind Bank down by 3.26%, Tata Motors down by 2.83%, TCS down by 2.45%, Tata Motors - DVR down by 2.35% and Yes Bank down by 1.47% were the top losers.

Meanwhile, with an aim to enhance the Reserve Bank of India’s (RBI) ability to manage exchange rate volatility, the Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a proposal for Bilateral Swap Arrangement (BSA) between India and Japan and authorized the RBI to sign the Agreement for BSA between the RBI and the Bank of Japan for a maximum amount of $75 billion.

The swap arrangement is an agreement between India and Japan to essentially exchange and re-exchange a maximum amount of $75 billion for domestic currency, for the purpose of maintaining an appropriate level of balance of payments for meeting short-term deficiency in foreign exchange. The BSA is a good example of mutual cooperation between India and Japan for strategic objective of assisting each other in times of difficulty and for restoring international confidence. This facility will enable the agreed amount of capital being available to India on tap for use.

Also, with this arrangement in place, prospects of Indian companies would improve in tapping foreign capital as there would be greater confidence in stability of country's exchange rate. Availability of such swap line to tide over difficulties arising out of balance of payment (BOP) would deter speculative attacks on the domestic currency and greatly enhance the RBI's ability to manage exchange rate volatility. The arrangement is another milestone in mutual economic cooperation and special strategic and global partnership between India and Japan.

The CNX Nifty traded in a range of 10,850.15 and 10,739.40. There were 16 stocks advancing against 34 stocks declining on the index.

The top gainers on Nifty were ITC up by 1.76%, UPL up by 1.10%, Wipro up by 1.07%, IOC up by 0.89% and Hindalco up by 0.78%. On the flip side, Indusind Bank down by 3.45%, Tata Motors down by 3.20%, Bharti Infratel down by 2.96%, TCS down by 2.39% and Yes Bank down by 1.87% were the top losers.

European markets were trading in green; UK’s FTSE 100 gained 57.50 points or 0.83% to 7,000.37, France’s CAC rose 12.56 points or 0.26% to 4,818.22 and Germany’s DAX was up by 12.24 points or 0.11% to 10,933.83.

Asian markets ended higher on Friday after China's commerce ministry said trade talks with the United States in Beijing were extensive and helped to establish a ‘foundation’ to resolve differences. Prospects for more Chinese stimulus to arrest the slowdown in growth and growing expectations that the US Federal Reserve will pause its rate tightening cycle this year also underpinned sentiment. Chinese and Hong Kong shares ended higher amid a strengthening yuan and mounting expectations that Beijing will roll out more stimulative policies. However, concerns about a slowing economy continued to weigh on investor sentiments. Further, Japanese stocks ended up, tracking strong US shares and overcoming falls by convenience stores which reported dismal quarterly earnings the previous day.