Markets to make cautious start ahead of CPI, WPI data

Indian markets extended their losses for second straight session to end lower on Friday as traders were cautious ahead of the key macro-economic figures like forex reserves and Index of Industrial Production (IIP). Today, the markets are likely to make cautious start amid weak global cues and slow down in factory output growth. India’s industrial output hit a 17-month low of 0.5 per cent in November as compared to 8.1 per cent in October mainly on the back of contraction in manufacturing sector, mining, capital goods and consumer durable goods. The previous low was in June 2017, when IIP growth contracted by 0.3 per cent. Also, traders will be eyeing another macro data of wholesale price inflation (WPI) and consumer price index (CPI) for December scheduled to be released later in the day. There will be some cautiousness with a private report that meeting the fiscal deficit target of 3.3 per cent of Gross Domestic Product (GDP) for the current fiscal could be a challenge for the government, given the shortfall in Goods and Services Tax (GST) collections, rising expenditure and slowing factory output. Meanwhile, a data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed that India's fuel demand rose 3.2 per cent in December compared with the same month last year. Consumption of fuel, a proxy for oil demand, totalled 18.51 million tonnes. However, some support may come later in the day with the Reserve Bank of India’s (RBI) data showing that India’s foreign exchange (forex) reserves rose by nearly $2.7 billion as on January 4, 2019. This was the highest weekly gain since February 2018. besides, commerce and industry minister Suresh Prabhu said the government is coming out with a new industrial policy that will link the country with the global supply-chain that will be mutually beneficial. He added that businesses can only grow when there are partnerships among several other geographies. There will be some buzz in the banking sector stocks with report that the RBI deferred the implementation of the last tranche of Capital Conservation Buffer (CCB) by a year, a move that would leave about estimated Rs 37,000 crore capital in the hands of banks. This would help banks increase lending by over Rs 3.5 lakh crore by leveraging ten times of the capital. Also, there will be some reaction in power sector stocks with report that amid stress in the power sector, woes of electricity generating firms have increased further as their outstanding dues on state distribution companies (discoms) rose to Rs 39,498 crore in October 2018, up 24.7 per cent from a year-ago levels. There will be some result announcements to keep the markets in action.

The US markets snapped a five-day winning streak to settle marginally lower on Friday as concerns about the slowing of the Chinese economy and the continued shutdown of the US government dragged equities lower. Asian markets were trading mostly in red on Monday as investors kept a wary eye on looming Chinese trade data on increasing signs a slowdown in the world’s second-biggest economy is dragging on global growth.

Back home, 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. 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.