Markets to make cautious start amid weakness in Asian peers

Indian markets wiped out all of their early gains and ended Tuesday’s trading session in red territory for third straight day, mainly on the back of late hour sell-off amid higher crude oil prices. Today, the markets are likely to make a cautious start amid lackluster cues from Asian peers. There will be cautiousness with Care Ratings’ report warning that a possible increase in fuel prices due to the US sanctions on Iranian crude exports can have adverse impacts on the current account deficit (CAD), the rupee and inflation. It said a 10 percent spike in crude prices can result in a 0.40 percent widening of the CAD, which can consequently play out into a 3-4 percent depreciation in the rupee and also push up inflation by 0.24 percent. However, some respite may come in with the Reserve Bank of India’s (RBI) statement that it will buy government securities worth Rs 25,000 crore next month through two auctions of Rs 12,500 crore each. Based on a review of the evolving liquidity conditions and assessment of the durable liquidity needs going forward, RBI has decided to conduct purchase of government securities under (OMOs). Besides, the RBI on Tuesday conducted its second successful dollar swap auction of $5 billion, receiving bids worth $18.65 billion, or more than three times what was on offer. Unlike the last time, RBI accepted bids from a small number of bidders. Meanwhile, markets regulator SEBI has reduced the minimum subscription requirement as well as defined trading lots for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). REITs have to offer their units in lots worth at least Rs 50,000 in initial and follow on public offers. There will be some buzz in the micro finance industry stocks with ICRA’s report that the micro finance industry is on the path of recovery and is likely to see a growth of 20-22 per cent in 2019-20 despite last year’s liquidity squeeze. It added that as of December 31, 2018, the overall micro loan market size (including SHG Bank linkage programme) was Rs 2.37-lakh crore. There will be some reaction in power sector stocks with rating agency ICRA stating that it has estimated 7-7.5 GW solar power capacity addition during the current financial year, which includes 1 GW of rooftop solar.

The US markets rallied on Tuesday, as upbeat results from Coca-Cola, Twitter and a host of industrial companies allayed investor concerns about slowing profits. Asian markets are trading mostly in red on Wednesday, despite gains on Wall Street.

Back home, Indian equities gave up their all gains to end Tuesday’s session in red terrain, with Sensex and Nifty breaching their crucial psychological levels of 38,600 and 11,600, respectively. After a positive start, markets managed to keep their heads above water for the most part of the session, taking support from a private report stating that sales of Indian junk bonds have made a big comeback in 2019, almost tripling to hit a five-year high, boosted by a risk-on rally prompted by a dovish US Federal Reserve that has given the Asia market a record start to the year. Indian companies have sold $3.7 billion in high-yield, or junk-rated, bonds so far this year, an increase of 187% from 2018. Investors were encouraged as the Reserve Bank of India (RBI) is set to inject long-term liquidity worth $5 billion into the banking system through dollar-rupee buy-sell swap for a tenure of three years, the second such auction within a month. The RBI’s dollar-rupee swap auction would help absorb dollar inflows that could make the rupee stronger. However, in the last leg of the trade, key indices lost their ground, following weak European markets. Trading sentiments got hit, as the Employees State Insurance Corporation (ESIC) in its latest payroll data showed that job creation declined by 1.73% in February 2019 to 15.03 lakh compared to 15.30 lakh in the same month last year. Market participants also got cautious with a private report stating that the India Volatility Index shot up to a three-year high of 24.05 on April 22, amid rising uncertainty over the new government formation and soaring crude oil prices. The India VIX, the fear gauge for domestic equities, rose 5.76 per cent to settle at 24.05, after an intra-day high of 24.56. Meanwhile, PHD Chamber of Commerce and Industry (PHDCCI) Delegation has discussed concerns of the Chamber related to the growth of the economy, exports, liquidity , Micro, Small and Medium Enterprises (MSMEs), NBFCs, Affordable Housing and Real Estate sector with Reserve Bank of India (RBI) Governor. Finally, the BSE Sensex slipped 80.30 points or 0.21% to 38,564.88, while the CNX Nifty was down by 18.50 points or 0.16% to 11,575.95.