Indian equities remain in red terrain

Indian equity benchmarks continued their trade in red territory in afternoon session, as selling momentum in the equities persisted. Cautiousness remained in markets 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. A weak trend at other Asian markets also dented the trading sentiments. Traders took a note of Chief Economic Advisor (CEA) Krishnamurthy Subramanian’s statement that investment is crucial to make country $5 trillion economy in five years. He has identified three engines to promote investment - land reform (land acquisition laws need reform), labour reform (ease labour laws to encourage employment), and power (price it better to provide access to encourage a more balanced growth across the country). Separately, India has advanced four places to 44th position in terms of digital competitiveness in the world as the country has made improvement in terms of knowledge and future readiness to adopt and explore digital technologies. 

On the global front, Asian markets were trading mostly in red, as traders weighed data showing slower U.S. economic growth and the possible impact of an impeachment inquiry of President Donald Trump. Back home, the BSE Sensex is currently trading at 38873.48, down by 116.26 points or 0.30% after trading in a range of 38797.02 and 39107.37. There were 8 stocks advancing against 23 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index fell 0.16%, while Small cap index was down by 0.48%.

The few gaining sectoral indices on the BSE were FMCG up by 0.39%, Energy up by 0.26% and Consumer Durables was up by 0.02%, while Metal down by 2.87%, Realty down by 1.92%, Auto down by 1.55%, Basic Materials down by 1.32% and Industrials was down by 1.08% were the top losing indices on BSE.

The top gainers on the Sensex were ITC up by 1.86%, Bajaj Finance up by 1.54%, Reliance Industries up by 1.04%, Tech Mahindra up by 0.48% and HDFC Bank was up by 0.45%. On the flip side, Vedanta down by 4.97%, Tata Motors - DVR down by 4.76%, Tata Motors down by 4.42%, Tata Steel down by 4.08% and ONGC was down by 4.02% were the top losers.

Meanwhile, an internal working group (IWG) of the Reserve Bank of India (RBI) has suggested introduction of longer-term repo operations at market-related rates of up to one-year tenor as an alternative to open market operations conducted by the central government to manage liquidity in the banking system. The RBI had constituted the working group to review the current liquidity management framework with a view to simplify it and suggest measures to clearly communicate the objectives and the toolkit for liquidity management.

The panel has recommended that the current liquidity management framework should largely continue in its present form -- a corridor system with the call money rate as the target rate.  The framework should be flexible. While the corridor system would normally require the system liquidity to be in a small deficit, if financial conditions warrant a situation of liquidity surplus, the framework should be adaptable. It also said minimizing the number of operations should be an efficiency goal of the liquidity framework. Consequently, there should be ideally one single overnight variable rate operation in a day, supported by fine-tuning operations, if required.

On managing durable liquidity, the working group has recommended that, as an alternative to OMO purchases, longer-term variable rate repos, of more than 14 days and up to one-year tenor, be considered as a new tool for injection if system liquidity is in a large deficit. Similarly, longer-term variable-rate reverse-repos could be used to absorb excess liquidity. As these are possible substitutes for OMOs, these instruments should be operated at market determined rates. Further, it has suggested that the current difference of 25 basis points between the repo rate and the reverse-repo rate, as well as between the repo rate and the marginal standing facility (MSF) rate, be retained.

The CNX Nifty is currently trading at 11532.15, down by 39.05 points or 0.34% after trading in a range of 11505.80 and 11593.60. There were 13 stocks advancing against 37 stocks declining on the index.

The top gainers on Nifty were ITC up by 1.98%, Bajaj Finance up by 1.68%, Cipla up by 1.22%, Reliance Industries up by 1.12% and Indian Oil Corporation was up by 0.93%. On the flip side, Vedanta down by 4.85%, Tata Motors down by 4.38%, ONGC down by 4.23%, Tata Steel down by 3.79% and Zee Entertainment was down by 3.68% were the top losers.

Asian markets were trading mostly in red; Hang Seng decreased 54.71 points or 0.21% to 25,987.22, Jakarta Composite lost 28.16 points or 0.45% to 6,202.17, Nikkei 225 slipped 169.34 points or 0.77% to 21,878.90, KOSPI fell 24.59 points or 1.19% to 2,049.93, Straits Times trembled 6.72 points or 0.21% to 3,119.09 and Taiwan Weighted was down by 42.31 points or 0.39% to 10,829.68.

On the flip side, Shanghai Composite was up by 4.27 points or 0.15% to 2,933.36.