Markets to make slightly positive start amid mixed economic data

Indian markets ended lower on Monday due to a massive sell-off in banking stocks as investors turned cautious on the financial services space. Today, the start of third quarter of current fiscal year (Q3FY20) is likely to be slightly in green following positive global cues amid lower crude oil prices. Traders will be getting some encouragement with the Reserve Bank of India’s (RBI) statement that lower crude prices and higher invisible receipts have helped the country narrow the current account deficit (CAD) to 2% of GDP or at $14.3 billion in the first quarter, down 30 basis points from year-ago. CAD contracted on an annualised basis primarily due to higher invisible receipts at $31.9 billion compared to $29.9 billion a year ago. Though, some cautiousness may come with a private report that India’s real GDP growth for the current financial year is likely to be 5.2% as muted business confidence, subdued demand conditions and concerns in the financial sector are hurting investments. Investors may be concerned with the Commerce and Industry Ministry’s data showing that the eight core industries in August contracted to over three-and-half year low of 0.5%, due to decline in output of coal, crude oil, natural gas, cement, and electricity. Also, the RBI’s data showed that the country’s external debt stood at $557.4 billion in the June quarter, an increase of $14.1 billion over the quarter ended March 2019. Besides, the Controller General of Accounts (CGA) in its latest data showed that the country's fiscal deficit touched Rs 5.54 lakh crore at the end of August, which was 78.7% of the Budget Estimate for 2019-20. Traders will be eyeing manufacturing PMI data to be out later in the day. Banking stocks will be in focus with Moody’s Investors Service’s statement that among the 13 Asia-Pacific economies, India’s banking system is the most vulnerable to a deterioration in corporate debt repayment capacity along with Indonesia, followed by Singapore, Malaysia and China. It added that slower economic growth and rising trade and geopolitical tensions could weaken debt servicing abilities of corporates in the region. There will be some buzz in the metal stocks with India Ratings and Research’s report that the reduction in raw material prices since July 2019 will provide a major respite to India steel players. Also, there will be some reaction in power stocks with ICRA’s statement that the corporate tax cut is a positive development for power sector as it will result in an estimated annual savings of Rs 2,500 crore for the power distribution segment. The auto sector stocks will also be in action, reacting to their monthly sales numbers.

The US markets settled higher on Monday on improved Chinese data and better sentiment on US-China trade talks. Asian markets are trading mostly in green on Tuesday amid report that the talks between US/China are expected to be positive and decisive.

Back home, Indian equity indices ended Monday’s session below their neutral lines. The start of the day was sluggish, impacted with RBI’s report showing that India's forex reserves declined by $388 million to $428.572 billion for the week ended September 20 due to a slide in core currency and gold assets. In the week to September 20, foreign currency assets, a major component of overall reserves declined by $125 million to $396.670 billion. Traders remained worried amid report that India had a ‘worrisome’ debt burden of over Rs 88 lakh crore at the first financial quarter of 2019 with the government apparently having no inkling to deal with the country’s economic slowdown. However, key benchmarks managed to cut some of their losses in the last hour of the trade after capital markets regulator SEBI eased its norms for buyback of shares by listed companies, especially those having subsidiaries in housing finance and NBFC segments. The markets also took some support with a report that the World Bank in its Doing Business 2020 report ranked India as one of the ‘top 20 improvers’ based on the number of reforms which aid ease of doing business. It said that India’s achievements this year build on a sustained multi-year reform effort. Since 2003/04, India has implemented 48 reforms captured by Doing Business. Finally, the BSE Sensex fell 155.24 points or 0.40% to 38,667.33, while the CNX Nifty was down by 37.95 points or 0.33% to 11,474.45.