Bulls take a breather on Tuesday

After 2-day euphoric rally, bulls took a breather on Tuesday’s trading session, with the Sensex and the Nifty ending on flat note. Key indices made a cautious start of the day and traded sluggish for the most part of the session, as former Union finance minister Yashwant Sinha said that a contraction in demand and reluctance to invest are key reasons for the current slowdown in the Indian economy, which grew at its slowest pace in over six years in the June quarter. Adding more worries, the latest data released by the Agriculture Ministry showed that the country's foodgrains production is estimated slightly lower at 140.57 million tonnes in the kharif season of 2019-20 crop year on likely fall in rice and pulses output.

However, markets managed to stage recovery in late afternoon session. Sentiments got comfort, after Reserve Bank Governor Shaktikanta Das said that the government's recent decision to cut corporate tax rates is a bold measure and augurs well for the economy. Adding some relief, Crisil Research also said that the reduction in corporate tax announced by Finance Minister Nirmala Sitharaman could help the top 1,000 listed companies in the country save at least Rs 37,000 crore this fiscal year. Separately, NITI Aayog vice chairman Rajiv Kumar said that India has become a more attractive investment destination following the reduction in corporate tax rates but relocation of units from competitors such as China will depend on other factors as well, such as the ability of states to make their environment more business-friendly.

On the global front, European markets were trading in green, as Germany's business confidence strengthened slightly in September on a better assessment of the current situation, while expectations for coming months worsened again. The survey results from the ifo Institute showed that the ifo business confidence index climbed to 94.6 from 94.3 in August. Asian markets ended mostly in green terrain, after Japan's leading index rose marginally in July. The final data from the Cabinet Office showed that the leading index, which measures the future economic activity, rose to 93.7 in July from 93.6 in June. According to initial estimate, the score had remained unchanged at 93.6 in July.

Back home, auto mobile industry stocks ended lower, despite rating agency ICRA’s latest report that the automotive industry, which accounts for almost half the manufacturing GDP of India, is likely to be one of the key beneficiaries of recent corporate tax revision. It noted that the reduction of corporate tax rates to globally competitive levels will incentivise original equipment manufacturers (OEMs) and their vendors to increase localisation, which augurs well for the industry. Further, stocks reacted to mining sector remained under pressure, after Federation of Indian Mineral Industries (FIMI) said that mining industry in India is still the highest taxed in the world despite the government's decision to slash corporate tax rate.

Finally, the BSE Sensex gained 7.11 points or 0.02% to 39,097.14, while the CNX Nifty was down by 12.00 points or 0.10% to 11,588.20.

The BSE Sensex touched a high and a low of 39,306.37 and 38,913.06, respectively and there were 16 stocks advancing against 15 stocks declining on the index.

The broader indices ended mixed; the BSE Mid cap index fell 0.51%, while Small cap index was up by 0.17%.

The top gaining sectoral indices on the BSE were IT up by 2.31%, TECK up by 1.98%, Energy up by 1.65%, FMCG up by 0.44% and Healthcare up by 0.24%, while Capital Goods down by 1.80%, Metal down by 1.70%, PSU down by 1.52%, Bankex down by 1.25% and Realty down by 1.06% were the top losing indices on BSE.

The top gainers on the Sensex were Infosys up by 3.78%, Reliance Industries up by 3.22%, Tech Mahindra up by 3.12%, Tata Motors up by 2.35% and Maruti Suzuki up by 1.60%. On the flip side, SBI down by 3.56%, Axis Bank down by 3.13%, Larsen & Toubro down by 3.03%, Hero MotoCorp down by 2.42% and Asian Paints down by 2.06% were the top losers.

Meanwhile, global rating agency Moody’s Investors Service in its latest report has said that the recommendations of the Reserve Bank of India’s (RBI) Housing Finance Committee, if implemented, will be credit positive for Indian residential mortgage-backed securities (RMBS) because it will increase the likelihood that a suitable replacement can step in and take the place of a failed operator. In May 2019, the RBI had constituted a committee on the development of housing finance securitisation market to look into the current state of mortgage securitisation in the country and make recommendations to address various issues relating to originators/investors as well as market micro structure.

It has said the report recommended specific measures for facilitating secondary market trading in mortgage securitisation instruments. Besides, it said the recommendations to standardize loan servicing processes across home loan lenders will make it easier to transfer loan servicing from one provider to another, if the original provider fails. Adding further, it said the committee recommended linking of home loans pricing to an external, such as the repo rate. It stated that such a correlation will mitigate interest rate risk in RMBS transactions as it will remove the interest rate mismatch between a lenders own benchmark rate and coupon rates.

Moody’s further said that the RBI also recommended standardizing loan documentation criteria and establishing minimum loan eligibility and disclosure requirements for RMBS deals. It noted that the move will increase transparency in the country's mortgage sector, reducing risks in the underlying loans backing RMBS deals. It added that the recommendation on the tax treatment of securitization transactions will remove uncertainty for originators and investors.

The CNX Nifty traded in a range of 11,655.05 and 11,539.20. There were 22 stocks advancing against 28 stocks declining on the index.

The top gainers on Nifty were Infosys up by 3.88%, Zee Entertainment up by 3.66%, Tech Mahindra up by 3.11%, Reliance Industries up by 3.09% and Tata Motors up by 2.74%. On the flip side, JSW Steel down by 4.19%, SBI down by 4.06%, Eicher Motors down by 3.84%, IOC down by 3.08% and Axis Bank down by 3.08% were the top losers.

European markets were trading mostly in green; France’s CAC increased 15.25 points or 0.27% to 5,646.01 and Germany’s DAX rose 21.54 points or 0.17% to 12,363.87, while UK’s FTSE 100 was down by 15.47 points or 0.21% to 7,310.61.

Asian markets ended mostly higher on Tuesday as investors looked forward to the next round of US-China trade talks, set to resume in couple of weeks. Chinese shares ended higher on optimism that policymakers will step up efforts to stabilize economic growth. China cut its new one-year benchmark lending rate for the second month in a row on Friday, as the central bank seeks to lower borrowing costs to support smaller firms affected by the trade war and wider slowdown. Meanwhile, Japanese shares ended almost flat as traders returned to their desks after a long holiday weekend. Investors shrugged off survey results from IHS Markit showing that Japan's private sector expanded at a slightly slower pace in September as manufacturing activity contracted further amid rising external headwinds.