Markets likely to open in red territory; RBI monetary policy outcome eyed

Indian markets ended lower on Tuesday, with cut of around half a percent, as traders booked profits after benchmarks hit new record highs. Markets remained closed on Wednesday on account of Ramzan. Today, the markets are likely to start in red territory amid mixed cues from Asian peers over concerns of escalating trade disputes. Investors will also be cautious ahead of the outcome of second Reserve Bank of India (RBI) Monetary Policy Committee meeting. The RBI is widely expected to reduce the repo rate by 25 basis points (bps), a third in a row. There will be cautiousness with report that the India’s services sector activity increased at the slowest pace in a year in May, as disruptions arising from the elections in the earlier part of the month hampered growth of new work intakes. The seasonally adjusted Nikkei India Services Business Activity Index fell to 50.2 in May, from 51.0 in April, pointing to the slowest growth rate in the current 12-month stretch of expansion. Traders will also be concerned about the India Meteorological Department’s statement that the onset of monsoon is likely to be delayed by a week and it is now expected to arrive only by June 8. The normal onset date for monsoon over Kerala is June 1 which also marks the official commencement of the four-month-long rainfall season. There may be negative reaction on the National Council of Applied Economic Research’s (NCAER) report that business confidence among Indian companies fell by 9.1% in the fourth quarter of the 2018-19 fiscal. However, traders may get some support with the Department for Promotion of Industry and Internal Trade’s (DPIIT) statement that foreign direct investment in services sector grew 36.5% to $9.15 billion in 2018-19. Increasing FDI inflows in services sector is vital as it contributes over 60 per cent to the gross domestic product. Meanwhile, the World Bank has retained its forecast of India's growth rate at 7.5% for the current financial year. In its Global Economic Prospects report, the World Bank also said growth rate is expected to remain the same for the next two fiscals. There will be some reaction in steel industry stocks with credit rating agency ICRA’s report that while the performance of domestic steelmakers is likely to be lower in the first quarter of the current financial year as compared the previous year due to several headwinds, the construction sector will be at the forefront of demand recovery in the second half.

The US markets ended higher on Wednesday as investors further embraced the possibility that the Federal Reserve might cut interest rates to boost the economy. Asian markets are trading mixed on Thursday as the US and Mexico failed to reach a deal to avert proposed tariffs and investors weighed up the latest signs of fragility in the global economy.

Back home, Tuesday turned out to be a volatile day for Indian equity indices, with both larger peers, Sensex and Nifty, closing off their lifetime highs. After a negative start, markets remained lackluster throughout the day, with industry chamber, Confederation of Indian Industry’s (CII) statement that the US decision to withdraw export incentives from India has been taken in a haste and would hurt the domestic exporters. CII President Vikram Kirloskar expressed hope that both the US and India would discuss the matter and find an amicable solution to this issue. Adding more anxiety among market participants, the Reserve Bank of India said that over 6,800 cases of bank fraud involving an unprecedented Rs 71,500 crore have been reported in 2018-19. In the last 11 fiscal years, a total of 53,334 cases of fraud were reported by banks involving a massive amount of Rs 2.05 lakh crore. Weak trade persisted on the street, also with a private report stating that the pre-monsoon rainfall in the country was the second lowest in 65 years. The three-month pre-monsoon season March, April and May ended with a rainfall deficiency of 25%. As per the report, all the four meteorological divisions - Northwest India, Central India, East-Northeast India and South Peninsula - recorded deficit rainfall of 30%, 18%, 14% and 47%, respectively. Traders failed to take any sense of relief with IHS Markit’s latest report that India is likely to overtake the UK to become the world's fifth largest economy this year and added that by 2025, Indian GDP is also forecast to surpass Japan, which will make India the second-largest economy in the Asia-Pacific region. Investors also overlooked Finance Secretary Subhash Chandra Garg’s statement that declining global oil prices, stable rupee and falling interest rate are sure signs of high growth in coming months. Finally, the BSE Sensex slipped 184.08 points or 0.46% to 40,083.54, while the CNX Nifty was down by 66.90 points or 0.55% to 12,021.65.