Markets trade slightly higher in early deals

Indian equity benchmarks turned volatile after a pessimistic start and are trading slightly higher in early deals on Friday. Market participants took some support with report that Union Finance Minister Nirmala hoped the economy will start looking up in the second half of the current financial year as consumption rises and banks increase their lending operations. She also said private sector banks were not facing any liquidity crisis while exuding confidence that demand would return and motivate the economy to move at a faster rate. However, traders were cautious with Fitch Ratings’ statement that the steep cut in tax paid by companies may stimulate investments and economic growth only in the medium term, but it will lead to breach fiscal targets in the current fiscal itself. It expects India to miss its fiscal deficit target of 3.3% of GDP for the current financial year by about 40 basis points following last week's decision to reduce corporate tax rates, resulting in the loss of an estimated Rs 1.45 trillion in tax revenue.

On the global front, all the Asian markets were trading lower following the negative cues overnight from Wall Street amid renewed political uncertainty in the US following the release of the whistleblower complaint that sparked the impeachment inquiry into US President Donald Trump. The document outlined concerns about Trump using the power of his office to solicit interference from a foreign country in the 2020 US election. Investors also remained cautious following mixed reports on the US-China trade front. Besides, the Ministry of Internal Affairs and Communications said that overall consumer prices in Tokyo were up just 0.4% on year in September. That was shy of expectations for an increase of 0.5% and down from 0.6% in August.

Back home, the telecom stocks were in focus with ICRA’s statement that after scaling a high propelled by 4G network expansion, the capex intensity of the telecom industry is expected to witness moderation till the point there is technology upgrade to 5G, which is still some time away. In scrip specific development, Yes Bank came under pressure as Yes Capital (India) (YCPL), part of the promoter group of Yes Bank sold 1.8% shareholding in the bank. The proceeds will be utilized to prepay entire balance outstanding Non-Convertible Debentures (NCDs) of YCPL subscribed by various schemes of Franklin Templeton Asset Management (India).

The BSE Sensex is currently trading at 39071.31, up by 81.57 points or 0.21% after trading in a range of 38814.79 and 39107.37. There were 11 stocks advancing against 20 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.04%, while Small cap index was up by 0.18%.

The few gaining sectoral indices on the BSE were FMCG up by 0.87%, Energy up by 0.75%, Power up by 0.25% and IT was up by 0.07%, while Realty down by 1.29%, Metal down by 1.17%, Auto down by 0.85%, Telecom down by 0.80% and Consumer Discretionary was down by 0.54% were the  top losing indices on BSE.

The top gainers on the Sensex were ITC up by 2.72%, Bajaj Finance up by 1.32%, Reliance Industries up by 1.26%, HDFC up by 0.99% and NTPC up by 0.90%. On the flip side, Yes Bank down by 3.62%, Tata Motors down by 3.45%, Tata Motors - DVR down by 3.26%, ONGC down by 2.78% and Vedanta down by 2.02% were the top losers.

Meanwhile, Fitch Ratings has said that the steep cut in tax paid by companies may support efforts to stimulate investment and Gross Domestic Product (GDP) growth in the medium term, but will cause the fiscal deficit to widen in the near term. It added that as such, slippage from previous government fiscal targets this year (FY19-20) is now very likely. It said a positive impact on FDI would be more likely if the tax cuts were accompanied by further measures to improve India's business environment. In particular, corporate tax rates are likely to be only one in a list of factors determining investment decisions, along with the legal environment, labour market regulations, infrastructure development and enhancements to the overall business climate.

The rating agency said faltering domestic demand, a weak global trade environment, asset-quality challenges at banks and funding pressure on non-banking finance companies have contributed to economic slowdown. Fitch said it will later this month release its revised growth estimate for FY19-20 for India which will be significantly lower than the 6.6% forecast in June. It added that the policy measures taken will likely support a gradual recovery in FY20-21 and FY21-22. In contrast to the growth impact of tax cuts, the fiscal impact will be felt in this fiscal year and the corporate tax reduction will cost around 0.7% of GDP in lower revenue - about two-thirds to the central government and one-third for state governments.

As per the report, expenditure postponements are more difficult for the government given weak growth, and it expect the central government to miss its 3.3% of GDP deficit target for FY19-20 by about 0.4 percentage points. It expects a general government deficit of 7.5% of GDP, well above the 'BBB' category median of 1.9%. The rating agency said the general government debt ceiling of 60% of GDP is unlikely to be met by March 2025, as stipulated by the Fiscal Responsibility and Budget Management Act, as this would require significant deficit reduction. Besides, Finance Minister Nirmala Sitharaman had announced the lowering of the base corporate tax rate to 22% from 30% for companies.

The CNX Nifty is currently trading at 11580.80, up by 9.60 points or 0.08% after trading in a range of 11516.80 and 11593.60. There were 17 stocks advancing against 33 stocks declining on the index.

The top gainers on Nifty were ITC up by 2.64%, Bajaj Finance up by 1.38%, NTPC up by 1.12%, HDFC up by 1.07% and Reliance Industries up by 1.07%. On the flip side, Yes Bank down by 3.72%, Tata Motors down by 3.57%, ONGC down by 3.06%, Vedanta down by 2.35% and Zee Entertainment down by 2.09% were the top losers.

All Asian markets were trading in red; Shanghai Composite declined 0.12 points to 2,928.97, Straits Times trembled 8.58 points or 0.27% to 3,117.23, Taiwan Weighted dropped 16.16 points or 0.15% to 10,855.83, KOSPI fell 21.21 points or 1.02% to 2,053.31, Jakarta Composite lost 21.67 points or 0.35% to 6,208.66, Hang Seng decreased 78.65 points or 0.3% to 25,963.28 and Nikkei 225 was down by 264.81 points or 1.2% to 21,783.43.