Markets likely to make positive start of new month

Indian markets erased early gains and ended lower on Friday, with cut of around half a percent, dragged down by metal stocks. Today, the start of new month is likely to be in green tracking global markets after positive development in US-China trade negotiations. Investors will be eyeing manufacturing PMI data to be out later in the day. Traders will be getting some encouragement with report the RBI relaxed the leverage ratio (LR) for banks to help them boost their lending activities. The leverage ratio stands reduced to 4 percent for Domestic Systemically Important Banks (DSIBs) and 3.5 percent for other banks effective from the quarter commencing October 1, 2019. Some support will also come with report that foreign investors infused a net amount of Rs 10,384 crore into the Indian capital markets in June and remained net buyers for the fifth month in a row on expectations of continued economic reforms. Meanwhile, the Controller General of Accounts’ (CGA) data showed that fiscal deficit touched 52% of the budget estimate for the full year in the first two months of 2019-20. In absolute terms, the fiscal deficit or gap between expenditure and revenue, was Rs 3,66,157 crore. The fiscal deficit was 55.3% of 2018-19 budget estimate in the year-ago period. Besides, kicking off celebration to mark two years of the GST implementation, the finance ministry will come up with further reforms in the indirect tax system with introduction of new return system, rationalisation of cash ledger system and a single refund-disbursing mechanism, among others. However, investors will remain cautious ahead of the Union Budget on July 5. Some cautiousness may also come with the Reserve Bank of India’s (RBI) statement that current account deficit (CAD) increased to $57.2 billion or 2.1% of GDP in FY19 as against 1.8% in the previous year. The CAD had stood at $48.7 billion in FY18. For FY19, the deficit widened despite a narrowing of the same in the March quarter to 0.7% of GDP or $4.6 billion, as against $27.7 billion or 2.7% in the December quarter and $13 billion or 1.8% in the March 2018 quarter. There will be some reaction in insurance stocks with report that the government may need to shell out close to Rs 13,000 crore to improve the financial health of public sector general insurers before initiating their consolidation. The government is exploring various consolidation options, including merger of state-owned general insurance companies with New India Assurance, with a view to create synergy and unlock value.

The US markets ended in green on Friday as traders looked ahead to the highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping on the sidelines of the G20 summit. Asian markets rose in early deals on Monday morning trade after US President Donald Trump and Chinese President Xi Jinping agreed to hold off on slapping additional tariffs in an effort to resume trade talks.

Back home, Indian equity bourses witnessed fall for the second straight day on Friday, with Sensex and Nifty closing lower by around 200 and 50 points respectively. Markets made a slightly higher opening of the day, as the Reserve Bank of India (RBI) in its bi-annual Financial Stability Report (FSR) stated that the financial system remains stable despite some dislocation of late. It said the proportion of commercial lenders' non-performing assets (NPAs) may fall slightly to 9% by March 2020. However, key indices soon turned negative, with a report that India’s monsoon rains were below average for the fourth straight week, with rainfall scanty over central and western parts of the country in the week ended on June 26, raising concerns about major crop production and the impact on the nation's economy. Markets extended their losses in late afternoon deals, as Governor Shaktikanta Das called for more cooperation between the government and the Reserve Bank to help boost the sagging growth engine and to ensure systemic stability. A dip in consumption and private investment has exerted pressure on the fiscal math. Some concerns also came after the Directorate General of GST intelligence (DGGI) detected good and services tax (GST) evasion amounting to Rs 300 crore across Nagpur zone, which includes Vidarbha, Marathwada and Nasik regions of Maharashtra. Besides, industry body FICCI’s National Committee on Transport Infrastructure and the Consulting Engineers Association of India (CEAI) said that Union Ministry of Finance should re-look at its Goods and Service Tax collection regime for Consulting and service-providing sector. Finally, the BSE Sensex fell 191.77 points or 0.48% to 39,394.64, while the CNX Nifty was down by 52.70 points or 0.45% to 11,788.85.