Weak industrial growth pulls down markets on Monday

Weak Indian industrial growth pulled key equity benchmarks down on Monday, with both the larger peers extending their losing streak for third consecutive session. Industrial growth measured by Index of Industrial Production (IIP) slipped to a 17-month low of 0.5% in November 2018, as compared to 8.5% in November 2017, on account of contraction in manufacturing sector, particularly consumer and capital goods. The previous low was in June 2017, when IIP growth contracted by 0.3 per cent. The markets made a negative opening of the week, impacted by Asian Development Bank (ADB) Country Director Kenichi Yokoyama’s statement that farm loan waivers were against economic principles and cannot effectively address the agrarian distress. Domestic sentiments also got hit with private report stating that meeting the fiscal deficit target of 3.3 per cent of GDP for the current fiscal could be a challenge for the government, given the shortfall in GST collections, rising expenditure and slowing factory output. Further, in noon deals, easing wholesale price index (WPI) inflation failed to provide relief to the markets. WPI inflation eased for the second straight month in December 2018. According to the latest data released by the government, WPI slowed down to 3.80 percent in December from 4.64 percent in November.

The trade remained lackluster throughput the day, following weak global markets. The street remained cautious as the Reserve Bank remained a net seller of dollars in November 2018, as it sold $ 644 million of the greenback on a net basis in the spot market. As against this, in November 2017, the Central bank had purchased $ 2.570 billion from the spot market and sold $ 1.706 billion, while in the reporting month, the monetary authority bought $ 3.127 billion from the spot market, and sold $ 3.771 billion. The trading sentiments failed to cheer with Finance Minister Arun Jaitley’s statement that the government will forego revenue of close to Rs 1 trillion on all the items whose rates have revised to lower slabs under the goods and services tax (GST) regime. He also said that the various income tax benefits given to the middle class during the Narendra Modi government's existing tenure will lead to revenue foregone of Rs 97,000 crore. Investors also overlooked industry minister Suresh Prabhu’s statement that the government wants to focus on the districts as part of a bottoms-up approach for boosting growth.

On the global front, European markets were trading in red, as Italy's industrial production decreased at the fastest pace in four months in November and the fall was worse than expected. The preliminary data from the statistical office ISTAT showed that industrial production fell a seasonally adjusted 1.6 percent in November, after a 0.1 percent drop in October. Adding some worries, UK economic growth eased further in the three months to November with the pace of expansion slowing to a six-month low, driven by the weak performance in manufacturing, as activity was damped by uncertainties linked mainly to global trade and Brexit. The monthly estimates from the Office for National Statistics showed that growth in the gross domestic product slowed to 0.3 percent from 0.4 percent in the three months to October. Asian markets ended in red, as Chinese trade data for December disappointed investors. China's exports unexpectedly fell 4.4 percent from a year earlier in the month - the biggest monthly drop in two years, while imports also fell 7.6 percent, marking the biggest decline since July 2016. Investors also looked ahead to US bank earnings this week and Tuesday's key Commons vote on Brexit for directional cues.

Back home, auto stocks ended lower, impacted with data released by the Society of Indian Automobile Manufacturers (SIAM) that domestic passenger vehicle (PV) sales declined to 2,38,692 units in December from 2,39,723 units in the same month previous year. Besides, domestic car sales declined 2.01 per cent to 1,55,159 units compared to 1,58,338 in December 2017. Further, metal stocks also ended in red, amid reports that India's crude steel production fell by 1.4 percent to 8.936 million tonnes (MT) in December 2018. The country had produced 9.067 MT crude steel in December 2017. Stocks related to the power sector remained under pressure, with a report noting 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.

Finally, the BSE Sensex lost 156.28 points or 0.43% to 35,853.56, while the CNX Nifty was down by 57.35 points or 0.53% to 10,737.60.

The BSE Sensex touched a high and a low of 36,124.94 and 35,691.75, respectively and there were 07 stocks advancing against 24 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 0.49%, while Small cap index down by 0.44%.

The only gaining sectoral indices on the BSE were Healthcare up by 0.38% and IT up by 0.09%, while Capital Goods down by 1.93%, Utilities down by 1.43%, Metal down by 1.14%, Power down by 1.13% and Industrials down by 0.99% were the top losing indices on BSE.

The top gainers on the Sensex were Yes Bank up by 6.22%, Infosys up by 2.52%, Sun Pharma up by 1.68%, Bajaj Finance up by 1.43% and Maruti Suzuki up by 1.13%. On the flip side, Larsen & Toubro down by 2.64%, Indusind Bank down by 2.07%, Vedanta down by 1.78%, NTPC down by 1.56% and TCS down by 1.50% were the top losers.

Meanwhile, in order to provide relief and protection to the consumers, the revenue department is likely to mandate composition dealers and service providers to declare their goods and services tax (GST) registration status in invoices to ensure that they do not charge any tax from buyers. The move, once implemented, would check the widespread practice of composition dealers of charging GST from purchasers and not depositing it with the exchequer. The revenue department is also planning to launch a campaign to educate consumers that the dealers opting for composition scheme are not required to charge the GST from purchasers.

Under the GST composition scheme, traders and manufacturers are required to pay only 1 percent GST on goods which otherwise attract a higher levy of either 5, 12 or 18 percent. Such dealers are also not permitted to charge GST from the purchaser. There are over 1.17 crore businesses that have registered under GST and among these, among 20 lakh have opted for the composition scheme. It has come to the notice of the government that a large number of composition dealers are levying GST at higher rates and not depositing it with the government.

To ease the burden of compliance for small businesses, the GST law provides for composition scheme under which traders and manufacturers with an annual turnover of up to Rs 1 crore can pay 1 per cent GST. This threshold will increase to Rs 1.5 crore from April 1. Also, the GST Council, headed by Arun Jaitley and comprising state ministers, in its meeting on January 10 permitted service provider and those dealing in both goods and services with a turnover of Rs 50 lakh to opt for the GST composition scheme.

The CNX Nifty traded in a range of 10,808.00 and 10,692.35. There were 12 stocks advancing against 38 stocks declining on the index.

The top gainers on Nifty were Yes Bank up by 5.83%, Infosys up by 2.60%, Sun Pharma up by 1.60%, Bajaj Finance up by 1.46% and Maruti Suzuki up by 1.43%. On the flip side, Wipro down by 4.93%, GAIL India down by 3.96%, Indiabulls Housing Finance down by 3.27%, Tech Mahindra down by 2.77% and Larsen & Toubro down by 2.56% were the top losers.

European markets were trading in red; UK’s FTSE 100 lost 46.68 points or 0.67% to 6,871.50, France’s CAC fell 36.77 points or 0.77% to 4,744.57 and Germany’s DAX was down by 58.75 points or 0.54% to 10,828.71.

Asian markets ended lower on Monday as a shock contraction in Chinese exports and concerns surrounding the ongoing US government shutdown and the vote on Brexit this week kept investors on the sidelines. Investors also awaited cues from the US earnings season, with several banks set to unveil their quarterly results this week. Chinese shares ended lower as the latest trade data indicated a further slowdown in the world's second-largest economy. China's exports unexpectedly fell 4.4 percent from a year earlier in the month -- the biggest monthly drop in two years, while imports also fell 7.6 percent, marking the biggest decline since July 2016. Meanwhile, the Japanese market was closed for the 'Coming of Age Day' holiday.