Local equities turn red; Sensex below 38,700 mark

Local equity benchmarks reversed gains in morning session, on account of selling in frontline counters. Traders turned concerned with 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. Sentiments remained cautious with a monthly date which showed that IHS Markit India Manufacturing PMI was at 51.4 in September, unchanged from August and thereby posting its joint-lowest reading since May 2018. Some concern also came with Reserve Bank of India’s (RBI) report 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. Valuation losses due to the depreciation of the US dollar against the rupee and other major currencies were placed at $1.7 billion. However, losses remain capped with RBI’s report that lower crude prices and higher invisible receipts have helped the country narrow the current account deficit to 2% of GDP or at $14.3 billion in the first quarter, down 30 basis points from year-ago. Some solace came in with a report that the government indicated its maiden offshore bonds issuance might not materialise this fiscal but stuck to its budgeted gross market borrowing target and the fiscal glide path, despite projecting a gross revenue forgone of Rs 1.45 lakh crore due to a sharp cut in the corporate tax rates.

On the global front, Asian markets were trading mostly higher, after Wall Street finished a volatile quarter on a positive note, while China began a week-long break to celebrate the 70th birthday of the People's Republic. Back home, Prime Minister Narendra Modi stated that Innovation and start-ups will play a crucial role for India to become a $5-trillion economy by 2024. He added India is already among the top three start-up-friendly ecosystems and during the last five years.

The BSE Sensex is currently trading at 38697.20, up by 29.87 points or 0.08% after trading in a range of 38434.25 and 38923.78. There were 19 stocks advancing against 12 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index slipped 0.01%, while Small cap index was down by 0.45%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.69%, PSU up by 0.80%, Energy up by 0.73%, Consumer Durables up by 0.60% and Auto was up by 0.55%, while Telecom down by 2.57%, TECK down by 1.55%, IT down by 1.46%, Realty down by 1.05% and Metal was down by 0.39% were the top losing indices on BSE.

The top gainers on the Sensex were Yes Bank up by 2.29%, Mahindra & Mahindra up by 1.64%, Tata Motors - DVR up by 1.51%, Hindustan Unilever up by 1.47% and Tata Motors was up by 1.23%. On the flip side, IndusInd Bank down by 4.10%, Bharti Airtel down by 2.85%, HCL Tech down by 2.17%, TCS down by 1.95% and Infosys was down by 1.24% were the top losers.

Meanwhile, rating agency ICRA has said government’s recent announcement of lowering corporate tax rate is a positive development for the power sector, as it will allow the power generators with cost plus power purchase agreements (PPAs) to pass on the lower tax benefit to the power distribution utilities (discoms). The government on September 20 slashed the income tax rate for companies by almost 10 percentage points to 25.17 percent and offered a lower rate to 17.01 percent for new manufacturing firms to boost economic growth rate from a six-year low by incentivising investments to help create jobs.

According to ICRA’s estimates, the extent of benefit that would accrue to discoms from power generation and transmission segments, mainly from central and state utilities, will be about Rs 2500 crore annually. The benefit so accrued to discoms in turn would enable them to lower their cost of supply and hence, reduce the gap between average tariff and cost of power supply by about 3 paise per unit sold at all India level. The agency however said that the extent of reduction in gap for discoms would vary across states depending on the mix of cost plus and bid-based PPAs and share of supply from central sector companies. Within the overall annual energy generation of 1250 billion units (1 unit =1 kwh) in FY’2019, about 67 per cent is cost-plus tariff based predominantly from central and state sector utilities.

The agency mentioned that central government entities like NTPC, NLC India, Damodar Valley Corporation, Power Grid Corporation of India and NHPC have cost plus tariff structures, leading to pass through of lower tax incidence to discoms. Also, it added state-owned power generating companies and power transmission companies, would be benefited from the lower tax incidence, which would be passed on to discoms under the regulated cost-plus tariff structure.

The CNX Nifty is currently trading at 11486.70, up by 12.25 points or 0.11% after trading in a range of 11406.50 and 11554.20. There were 25 stocks advancing against 25 stocks declining on the index.

The top gainers on Nifty were BPCL up by 5.67%, Yes Bank up by 2.42%, Indian Oil Corporation up by 2.20%, Mahindra & Mahindra up by 1.71% and Hindustan Unilever was up by 1.51%. On the flip side, IndusInd Bank down by 4.35%, Bharti Airtel down by 2.70%, HCL Tech down by 2.03%, TCS down by 1.99% and Coal India was down by 1.88% were the top losers.

Asian markets were trading mostly higher, Nikkei 225 surged 142.92 points or 0.66% to 21,898.76, Taiwan Weighted strengthened 114.20 points or 1.05% to 10,943.88, Straits Times advanced 33.02 points or 1.06% to 3,153.01 and KOSPI was up by 8.83 points or 0.43% to 2,071.88. On the other side, Jakarta Composite was down by 13.64 points or 0.22% to 6,155.46.