Markets likely to continue sluggish momentum with gap-down opening

Indian markets ended lower with cut of over a percent each on Monday amid weak global cues and political uncertainty over the Kashmir issue. Today, the markets are likely to continue sluggish momentum with a gap-down opening, mirroring weakness in the global markets. Moreover, the tension in Jammu and Kashmir over scrapping of Article 70 and continued foreign capital outflow may also weigh on the markets. The Rajya Sabha had approved a resolution scrapping the special status to Jammu and Kashmir and passed another Bill approving the bifurcation of the state into two Union territories. However, some support may come later in the day with Finance Minister Nirmala Sitharaman’s statement that the government planned steps to improve the state of the economy fairly quickly after getting inputs from business leaders. Traders may take note of report that the ASSOCHAM expects the Reserve Bank of India to cut the benchmark policy Repo rate by 50 basis points or more, in the wake of a realistic assessment of the state of economy which needs an immediate demand push and investment support by way of reduced cost of borrowing. Besides, a private report indicated that India's economy needs external capital flow to grow at 9% and touch $5 trillion in the next five years. There will be some buzz in the Non-banking finance companies (NBFCs) stocks with report that bank credit to NBFCs fell by over Rs 6,000 crore between April and June, once again highlighting the risk aversion towards the sector. There will be some reaction in gems and jewellery stocks with report that India's gold imports in July plunged 55 per cent from a year ago to the lowest level in three years as a rally in local prices to a record high and a hike in import taxes curtailed demand. There will be lots of earnings reaction based on the performance of the companies.

The US markets  tumbled on Monday as fresh trade threats between Beijing and Washington raised fears of an economic slowdown. Asian markets are trading in red on Tuesday following overnight losses on Wall Street.

Back home, bears made a comeback on Dalal Street on Monday, amid escalating tensions concerning Jammu & Kashmir spooked investors. Markets made a negative start of the day, as Foreign investors withdrawn a net amount of Rs 2,881 crore from the Indian capital markets in the first two sessions of August on account of domestic as well as global headwinds. According to latest depositories data, FPIs pulled out a net sum of Rs 2,632.58 crore from equities and Rs 248.52 crore from the debt segment during August 1-2, taking the cumulative net outflow to Rs 2,881.10 crore. Investors paid no heed towards report that India’s services sector activity bounced back in the month of July, aided by rising new work intakes. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index jumped to 53.8 in July from 49.6 in June. Key indices remained under pressure throughout the session, also because of weak cues from global markets. Traders remained pessimistic as the Federation of Automobile Dealers Associations (FADA) feared that the job cuts may continue across automobile dealerships with more showrooms being shut in the near future and sought immediate government intervention such as reduction of GST to provide relief to the auto industry. It said that around two lakh jobs have been cut across automobile dealerships in India in the last three months as vehicle retailers take the last resort of cutting manpower to tide over the impact of the unprecedented sales slump. Market participants failed to take any sense of relief with former RBI Governor Bimal Jalan’s statement that the current slowdown in the Indian economy is cyclical and growth will pick up in one or two years. Finally, the BSE Sensex declined 418.38 points or 1.13% to 36,699.84, while the CNX Nifty was down by 134.75 points or 1.23% to 10,862.60.