Benchmarks trade firm in early deals; Nifty above 12,100 mark

Indian equity benchmarks made optimistic start on Tuesday and are trading firm with gains of around half a percent each in early deals amid sustained foreign fund inflow. Gains in Metal, IT and TECK stocks are supporting the markets. Sentiments got support with Reserve Bank of India (RBI) Governor Shaktikanta Das’ statement that the central bank saw economic growth slowdown in February, prompting it to cut rates ahead of the curve and wondered why markets were surprised with the decision to pause rate reduction. Noting that there is a need for an informed and objective discussion on the country's economy, Das said the RBI would do whatever is necessary to address growth slowdown, spikes in inflation as well to ensure good health of banks and non-bank lenders. Some support also came with report that after a delay of over two months, the Centre has released Rs. 35,298 crore as GST compensation to the states for the August-September period. Traders took note of IMF’s statement that the government should undertake structural reforms such as bank clean-up and labour reforms to address the slowdown in domestic demand.

Global cues also remained supportive with most of the Asian markets were trading in green following the record closing highs overnight on Wall Street reflecting continued positive sentiment after the US and China finally reached an agreement on a phase one trade deal last week. Back home, reality stocks were in focus as rating agency ICRA maintained a negative outlook for housing because of subdued demand, slow sales, over-supply and liquidity crunch. In scrip specific development, State Bank of India rose after Rajnish Kumar, Chairman of the country's largest bank, said the resolution of Essar Steel will boost profitability of the bank by about Rs 12,000 crore in the third quarter of the current financial year.

The BSE Sensex is currently trading at 41162.23, up by 223.51 points or 0.55% after trading in a range of 41005.18 and 41162.23. There were 27 stocks advancing against 4 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.30%, while Small cap index was up by 0.44%.

The top gaining sectoral indices on the BSE were Metal up by 1.13%, IT up by 0.96%, TECK up by 0.91%, Auto up by 0.83% and Telecom was up by 0.68%, while Consumer Durables down by 0.22%, Utilities down by 0.15% and Power was down by 0.03% were the few losing indices on BSE.

The top gainers on the Sensex were Vedanta up by 2.00%, Tata Steel up by 1.56%, Maruti Suzuki up by 1.50%, Infosys up by 1.41% and Yes Bank up by 1.28%. On the flip side, ONGC down by 0.68%, NTPC down by 0.61%, Power Grid Corporation down by 0.59% and Bajaj Auto down by 0.20% were the top losers.

Meanwhile, expressing concern over India’s economic growth, Moody's Investors Service has lowered Gross Domestic Product (GDP) growth projection for the country to 4.9% from 5.8% for the fiscal year 2019-20 (FY20). It said that the nation’s weak household consumption will curb economic growth and weigh on the credit quality of Indian issuers in a range of sectors. It added that the major factors responsible for weakening economic growth were rural financial stress, low job creation and liquidity constraints.

As per the report what was once an investment-led slowdown has now broadened into weakening consumption, driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation due to rigid land and labour laws. Household consumption has been the backbone of India's growth, making up about 57% of GDP in FY19. Like other major markets, India's growth has decelerated, with GDP growth falling to 4.5% in Q3 2019 from 5.0% in Q2 2019. The report further noted that the credit crunch among non-bank financial institutions (NBFIs), the major providers of retail loans in recent years, has ‘exacerbated’ this slowdown.

Moody's expects that government measures to stimulate domestic demand - including income support for farmers and low-income households, monetary policy easing and a broad corporate tax cut - will be limited in offsetting this slowdown. Although a modest recovery is expected for next year, supported partly by spillovers from policy stimulus, economic growth will be weaker than in recent years, which will have negative credit implications for Indian issuers in a range of sectors. In automotive, weak demand and tight liquidity will constrain automakers' earnings. Moreover, slower economic growth over the last few quarters will also reduce debt servicing capabilities of households, which in turn will weaken the asset quality of retail loans across all segments.

The CNX Nifty is currently trading at 12109.80, up by 55.85 points or 0.46% after trading in a range of 12070.35 and 12113.40. There were 42 stocks advancing against 8 stocks declining on the index.

The top gainers on Nifty were Vedanta up by 1.80%, Zee Entertainment up by 1.42%, Infosys up by 1.40%, Maruti Suzuki up by 1.40% and Tata Steel up by 1.35%. On the flip side, GAIL India down by 1.44%, UPL down by 1.17%, ONGC down by 0.76%, Indian Oil Corporation down by 0.67% and NTPC down by 0.61% were the top losers.

Asian markets were trading mostly in green; Hang Seng increased 307.08 points or 1.12% to 27,815.17, Nikkei 225 surged 112.85 points or 0.47% to 24,065.20, Taiwan Weighted strengthened 103.54 points or 0.87% to 12,043.31, Shanghai Composite gained 28.86 points or 0.97% to 3,013.25, KOSPI rose 23.62 points or 1.09% to 2,191.77 and Jakarta Composite soared 6.56 points or 0.11% to 6,218.15. On the flip side, Straits Times was down by1.38 points or 0.04% to 3,204.71.