Benchmarks trade lower in early deals

Indian equity benchmarks made a pessimistic start and are trading lower with a cut of around half a percent in early deals on Monday, as investors remained on sidelines ahead of the first Reserve Bank of India (RBI) policy meeting under the new governor later in the week. Some cautiousness came with Moody’s Investors Service’s statement that the government will find it difficult to meet the fiscal deficit target of 3.4% in 2019-20 on account of higher spending and low revenue growth. Observing that Indian government’s debt is stubbornly high as a percentage of GDP, Moody's said it could be brought down only if the Centre sticks to the fiscal consolidation path. Traders remain concerned about a report that Foreign Portfolio Investors (FPIs) withdrew over Rs 5,300 crore from the Indian capital markets in January, indicating their wait and watch approach ahead of the general election. Also, traders reacted to report that the government has reduced the allocation for Startup India programme in the Budget 2019-20 but added more monies to the Make in India kitty. According to the budget documents, the allocation for Startup India programme has been slashed to Rs 25 crore for 2019-20 from the revised estimate of Rs 28 crore in 2018-19.

On the global front, Asian markets exhibiting mixed trend at this point of time following strong US economic data and positive comments out of Washington on the trade talks. The US markets ended mostly higher on Friday after the US created more jobs than expected in January.

Back home, stocks related to construction equipment sector remained in focus with report that the growth of construction equipment sector has hit a bumper after liquidity crisis gripped NBFCs following the IL&FS default. As per the report, the construction equipment sector was growing around 20% prior to the IL&FS crisis. In scrip specific developments, BEML gained on reporting 3-fold jump in Q3 net profit and Laurus Labs surged on getting approval from USFDA for TLD.

The BSE Sensex is currently trading at 36322.54, down by 146.89 points or 0.40% after trading in a range of 36287.05 and 36456.22. There were 9 stocks advancing against 22 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index declined 0.80%, while Small cap index was down by 0.69%.

The gaining sectoral indices on the BSE were Consumer Durables up by 1.52%, Energy up by 0.50%, IT up by 0.19% while, Telecom down by 2.27%, Basic Materials down by 1.16%, Bankex down by 1.10%, Power down by 1.09%, PSU down by 1.09% were the losing indices on BSE.

The top gainers on the Sensex were ONGC up by 1.34%, HCL Tech up by 1.15%, Reliance Industries up by 1.02%, Hindustan Unilever up by 0.71% and Bajaj Auto up by 0.70%. On the flip side, Yes Bank down by 2.77%, Indusind Bank down by 2.45%, Tata Steel down by 2.28%, Bharti Airtel down by 2.14% and Mahindra & Mahindra down by 2.04% were the top losers.

Meanwhile, with higher spending and low revenue growth, Moody's Investors Service has said that the Indian government will find it difficult to meet the fiscal deficit target of 3.4% in 2019-20 (FY20). Observing that government's debt is ‘stubbornly high’ as a percentage of Gross Domestic Product (GDP), Moody's said it could be brought down only if the Centre sticks to the fiscal consolidation path. Deviating from the path laid down in the Fiscal Responsibility and Budget Management (FRBM) Act, the government has pegged the fiscal deficit for the next financial year at 3.4% of GDP, as against the original target of 3.1%.

The rating agency said ‘while the government's growth assumptions appear reasonable, we think the government will continue to face challenges in meeting its fiscal targets, primarily due to structural increases in spending and difficulties in raising revenue further’. He further said the 3.4% fiscal deficit target for the year ending March 2020 is wider than expected, largely driven by increased spending to provide income support to small farmers and tax rebates ahead of the general elections in April-May this year. The Interim Budget for 2019-20 doled out a scheme under which farmers holding up to 2 hectares of land would get an annual payout of Rs 6,000 -- a move intended to benefit about 12 crore farmers, among other measures for middle-class taxpayers. However, there was a 0.1% slip in the fiscal deficit estimate for the current financial year to 3.4%.

Talking about India risks a rating downgrade following the breach in fiscal deficit target, Moody's said the country's 'Baa2' rating has a 'Stable' outlook, which indicates a balance of upside and downside risks. It said India's government debt remains stubbornly high as a percent of GDP, but it's mostly domestically funded with a relatively long dated maturity structure. India's economic growth also offers the potential to bring debt/GDP down, but only if the medium term fiscal objectives of the FRBM are realised. As per the FRBM Act, debt-to-GDP ratio was to be brought down to 40% by 2024-25 from 50.1% in 2017-18.

The CNX Nifty is currently trading at 10846.20, down by 47.45 points or 0.44% after trading in a range of 10831.40 and 10878.75. There were 15 stocks advancing against 34 stocks declining on the index.

The top gainers on Nifty were Titan Co up by 4.29%, Dr. Reddys Lab up by 1.54%, ONGC up by 1.45%, HCL Tech up by 1.07% and Eicher Motors up by 1.00%. On the flip side, Zee Entertainment down by 3.63%, HPCL down by 3.38%, Tata Steel down by 3.03%, Indiabulls Housing down by 2.94% and Yes Bank down by 2.61% were the top losers.

Asian markets are trading mixed; Nikkei 225 gained 79.43 points or 0.38% to 20,867.82 and Hang Seng rose 59.47 points or 0.21% to 27,990.21.

On the flip side, Straits Times slipped 2.10 points or 0.07% to 3,186.58 and Jakarta Composite was down by 33.66 points or 0.51% to 6,504.98.