Markets to start the New Year on a cautious note

Indian markets ended last day of CY19 in the red with investors shying away from taking fresh positions on concerns that the government will breach its fiscal deficit target.  Today, the start of the New Year is likely to be soft-to-cautious on sluggish regional cues. Traders may remain concern with Controller General of Accounts in its latest data showing that Fiscal deficit of the Union government rose to 114.8 per cent of the target in the first eight months of the fiscal year. The gap between the government’s revenue and spending stood at Rs 8.07 trillion at the end of November - Rs 1 trillion (13 per cent) more than the full-year target. Also, there will be some concern on report that the output of eight core infrastructure industries contracted for the fourth consecutive month in November by 1.5 per cent. Since August, the eight core industries are recording negative growth. The output of coal, crude oil, natural gas, steel, and electricity declined by 2.5 per cent, 6 per cent, 6.4 per cent, 3.7 per cent and 5.7 per cent respectively. However, some respite may come later in the day on report that India's current account deficit (CAD) narrowed to 0.9 per cent of GDP, or $6.3 billion, in the September 2019 quarter, on account of lower trade deficit. It had stood at 2.9 per cent of gross domestic product (GDP), or $19 billion, in the corresponding quarter of 2018-19. On a sequential basis, CAD had printed 2 per cent of GDP, or $14.2 billion, in the June 2019 quarter. Traders will be getting some encouragement with Finance Minister Nirmala Sitharaman unveiling Rs 102 trillion of infrastructure projects, including Mumbai–Ahmedabad High Speed rail, in the next five years to help achieve the target of $5 trillion (around Rs 356 trillion) economy by 2025. There will be some reaction in energy sector related stocks on report that to improve energy access and sustainability, the Central government’s National Infrastructure Pipeline (NIP) to enhance its focus on the power sector with more than Rs 24 trillion of investment envisaged for the sector. The government expects major private players to contribute a major share. There will be some buzz in the NBFC stocks with the Reserve Bank of India (RBI) extending the availability of relaxed terms for sale of assets by non-bank lenders to banks to June 30, 2020. The dispensation was earlier set to expire on December 31, 2019. The rules for securitisation transactions were first relaxed on November 29, 2018, months after a liquidity crisis emerged in the wake of the collapse of the Infrastructure Leasing & Financial Services (IL&FS) group.

The US markets ended higher as President Donald Trump said that Phase 1 of trade deal with China would be signed on January 15 at the White House. Most of theAsian markets are closed on Wednesday on account of the New Year holiday.

Back Home, Dalal Street bade adieu to the Calendar Year 2019 on a weak note, with Sensex & Nifty closing lower by over 0.70% each. After a sluggish start, indices remained negative throughout the session, amid a private report that the government might breach the fiscal deficit target this financial year amid drop in the revenue mobilisation and expected additional expenditure by the government. Adding more worries, rating agency ICRA stated that muted economic growth, lower working capital requirements and risk aversion among lenders have compressed the incremental credit growth in current financial year (April 2019 to March 2020). In last leg of the trade, markets extended losses, as Ind-Ra said that the aggregate fiscal deficit of states will touch 3 per cent gross domestic product in FY20 against the budgeted figure of 2.6 per cent. The fiscal slippage will originate from a decline in tax revenue, a lower nominal GDP & higher expenditure. The street overlooked Secretary in DPIIT, Guruprasad Mohapatra’s statement that enthused by a record foreign investment inflow, India is optimistic of continuing to be one of the world's favourite FDI destinations in 2020 on the back of the Modi government's liberalised norms & a significant jump in ease of doing business ranking. Finally, the BSE Sensex lost 304.26 points or 0.73% to 41253.74, while the CNX Nifty was down by 87.40 points or 0.71% to 12168.45.