Markets to make cautious start of holiday truncated week

Indian markets ended lower with cut of over a percent on Friday as RBI slashed its growth forecast for 2019-20 to 6.1% from 6.9%, saying domestic demand conditions remained weak amid subdued prospects for exports. Today, the start of a holiday truncated week is likely to be cautious amid economic slowdown concerns. Traders will be eyeing the release of Index of Industrial Production (IIP) data for the month of August on later in the week. Also, investors will be looking ahead to the start of July-September quarter earnings season, with IT bellwether TCS and Infosys reporting their Q2 numbers later in the week. Though, some support may come later in the day with India Inc’s statement that the reduction in key policy rate by the RBI is expected to revive investment and encourage consumption, thereby kick-starting the sluggish economy. Traders may also take note of NITI Aayog vice chairman Rajiv Kumar’s statement that the government expects economy to grow by 6.5% in the current fiscal and that all efforts were focused on bringing India to a higher growth trajectory. Besides, the foreign exchange reserves touched a record high of $434.6 billion as on October 1. Meanwhile, the finance ministry will kick-start the exercise to prepare annual Budget for 2020-21 from October 14 which, among other thing, will have to address critical issues pertaining to slowdown in growth and subdued revenue collection. Banking stocks will be in focus with report that Reserve Bank of India (RBI) Governor Shaktikanta Das tried to assuage fears about the banking sector, reeling from one crisis after another, by claiming that it was sound and stable. Referring to the crisis at the Punjab and Maharashtra Cooperative (PMC) Bank, he said the RBI will not allow any cooperative bank to collapse. There will be some reaction in non-banking financial companies-micro finance institutions (NBFC-MFIs) stocks as the RBI raised the lending cap for microfinance institutions to Rs 1.25 lakh, against the earlier limit of Rs 1 lakh, to improve credit availability in rural and semi-urban areas. Power stocks will be buzzing with report that India is unlikely to produce 175 gigawatts of renewable energy by 2022. In fact, it will miss the target by 42% amid record-low renewable power tariffs.

The US markets settled in green territory on Friday following US jobs data that eased recession fears even as investors continued to expect more Federal Reserve interest rate cuts. Asian markets are trading mostly higher on Monday as investors awaited a fresh round of US-China trade negotiations set to begin later this week.

Back home, repo rate cut by the Reserve Bank of India (RBI) failed to cheer Indian equity bourses on Friday, with Sensex & Nifty ending lower by over 1%. The RBI cut the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points (bps) to 5.15% from 5.40% with immediate effect. After a firm start, markets remained in green for the first half, aided with Niti Aayog CEO Amitabh Kant’s statement that there will be many more structural reforms by the government in the coming days to push economy to a high growth trajectory. He added that the government announced a series of economic boosters including capitalization of public sector banks, merging some of them, package for exports, and bringing down corporate tax rate. However, in the second half of the session, indices turned negative to settle in red, after the RBI sharply cut its economic growth projection for this fiscal to 6.1 percent from 6.9 percent earlier, but expressed hope that the growth will recover in the second half of 2019-20. The central bank's estimates come in the wake of GDP growth sliding to a six-year low of 5 percent in the June quarter, on a massive slowdown in consumption and private sector investments. Sentiments also remained pessimistic, as India’s services sector activity contracted in September 2019. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index eased to 48.7 in September from 52.4 in August. Finally, the BSE Sensex fell 433.56 points or 1.14% to 37,673.31, while the CNX Nifty was down by 139.25 points or 1.23% to 11,174.75.