Weakness hits over Indian markets on Friday

Weakness hit over Indian equity benchmarks on the last trading day of the week, with Sensex & Nifty closing lower by over 150 and 50 points, respectively. Markets made a negative start of the day, impacted 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. But soon, indices entered into green terrain, as Finance Minister Nirmala Sitharaman said that she is hoping the country’s economy will start looking up in the second half of the current financial year as consumption rises and banks increase their lending operations.

However, Indian markets failed to hold their heads above their neutral lines and remained lackluster for the whole day, after the Finmin report showed that total liabilities of the government increased to Rs 88.18 lakh crore at end-June 2019 from Rs 84.68 lakh crore at end-March 2019. According to the latest data, public debt accounted for 89.4 per cent of total outstanding liabilities at end-June 2019. The street paid no heed towards IHS Markit’s report that the steepest ever cut in tax that companies pay will improve relative competitiveness of India and should help boost corporate investment over the medium-term.

On the global front, European markets were trading in green, as France's consumer price inflation slowed in September on energy and food prices. The preliminary data from the statistical office Insee showed that consumer price inflation slowed to 0.9 percent in September from 1 percent in August. The rate was expected to remain unchanged at 1 percent. Asian markets ended mostly in red, after China's industrial profits declined in August as trade disputes with the United States weighed on the corporate sector. The data from the National Bureau of Statistics showed that industrial profits decreased 2 percent year-on-year, in contrast to July's 2.6 percent increase.

Back home, the banking industry stocks ended in red territory, even though the data released by the Reserve Bank of India (RBI) showed that bank credit and deposits grew at 10.26 percent and 10.02 percent to Rs 97.01 lakh crore and Rs 127.22 lakh crore, respectively, in the fortnight ended September 13, 2019. However, stocks related to the telecom industry ended higher, aided with credit rating agency, 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.

Finally, the BSE Sensex fell 167.17 points or 0.43% to 38,822.57, while the CNX Nifty was down by 58.80 points or 0.51% to 11,512.40.

The BSE Sensex touched a high and a low of 39,107.37 and 38,782.60, respectively and there were 10 stocks advancing against 21 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index lost 0.62%, while Small cap index was down by 0.81%.

The only gaining sectoral indices on the BSE were Telecom up by 1.11% and Energy up by 0.13%, while Metal down by 2.77%, Realty down by 2.56%, Healthcare down by 1.55%, Auto down by 1.43% and Basic Materials down by 1.38% were the top losing indices on BSE.

The top gainers on the Sensex were Bajaj Finance up by 1.61%, Bharti Airtel up by 1.41%, ITC up by 1.02%, Reliance Industries up by 0.94% and Kotak Mahindra Bank up by 0.91%. On the flip side, Vedanta down by 5.39%, Yes Bank down by 4.41%, Tata Steel down by 4.40%, Indusind Bank down by 4.12% and ONGC down by 3.98% 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 traded in a range of 11,593.60 and 11,499.75. There were 11 stocks advancing against 39 stocks declining on the index.

The top gainers on Nifty were Bharti Airtel up by 2.89%, Bajaj Finance up by 1.61%, ITC up by 1.36%, Bajaj Finserv up by 1.13% and Kotak Mahindra Bank up by 0.97%. On the flip side, Vedanta down by 5.69%, Yes Bank down by 5.00%, Indusind Bank down by 4.92%, Tata Steel down by 4.70% and Zee Entertainment down by 4.64% were the top losers.

European markets were trading in green; UK’s FTSE 100 increased 85.72 points or 1.17% to 7,436.80, France’s CAC rose 22.10 points or 0.39% to 5,642.67 and Germany’s DAX was up by 95.53 points or 0.78% to 12,384.07.

Asian markets ended mostly lower on Friday as concerns surrounding a potential impeachment inquiry into US President Donald Trump and weak data from China offset renewed Sino-US trade talk optimism. Meanwhile, reports showed that the US economy grew more slowly in the second quarter, updated figures confirm, and is slow growth is expected to persist through the end of the year largely because of the festering trade fight with China. Japanese shares ended lower due to worries about corporate governance after report that executives from Kansai Electric Power Co Inc received payments from a former official of a town that hosts one of the utility's nuclear power plants. Though, Chinese shares ended higher even as data showed the country's industrial profits contracted in August after a brief recovery in July. China’s industrial profits for August dropped 2% from a year earlier, according to the country’s National Bureau of Statistics. That followed a 2.6% gain in July and a 3.1% in June.