Markets likely to make gap-down opening of new week

03 Feb 2020

Indian markets ended sharply lower on Saturday as Budget 2020 announcements failed to live up to the expectations of the Street. Today, the markets are likely to make gap-down opening of new week following sell-off in Asian peers and concerns over economic growth of India. Investors will be looking ahead to IHS Markit India Manufacturing PMI for the month of January schedule to be released later in the day. Market participants will also be looking ahead to the Reserve Bank of India (RBI) bi-monthly monetary policy meeting which is scheduled during February 4-6, 2020. There will be some cautiousness as economists at domestic rating agency Crisil doubt the budget attaining its targets on growth, given the rural boost and thus consumption and revenue realisations, saying planned budgetary measures are not expected to provide a short-term boost. Noting that the economy is facing its worst slowdown in over a decade, a Crisil report has said this was because consumption and investment have stopped firing for too long. Also, traders will be concerned with the Consumer Electronics and Appliances Manufacturers Association’s (CEAMA) statement that prices of consumer goods like refrigerators, ACs, coolers and washing machines may rise in the short-term after the government's proposal to increase basic customs duty on components like compressors and motors. Though, some support may also come with SBI Research stating that the revised 3.8 percent fiscal deficit for FY20 looks ambitious as it is based on projected 18 percent rise in tax collections against a paltry 5.1 percent higher realisaition so far, and around Rs 65,000 crore mop-up through disinvestment in the last two months of the current fiscal. Also, foreign investors have pumped in more than Rs 12,000 crore in stock markets in January, remaining net buyers of Indian equities for the fifth consecutive month. In the equities segment, FPIs invested Rs 7,547.8 crore in September, Rs 12,367.9 crore in October, Rs 25,230.6 crore in November and Rs 7,338.4 crore in December. There will be some buzz in the coal stocks with a private report stating that India's coal import increased by 7.6% to 185.88 million tonnes (MT) in the April-December period of the current fiscal. Coal imports in December rose by 13.3% to 20.52 MT compared to 18.10 MT in the year-ago month. There will be some reaction in insurance stocks as the Budget set aside Rs 6,950 crore for recapitalisation of the three public sector general insurance companies - National Insurance, Oriental Insurance and United India Insurance.

All the Asian markets are trading in red on Monday on fears about the hit to world growth from the rapidly spreading coronavirus.

Back home, the Union Budget disappointed Indian markets on Saturday, as Sensex and Nifty settled with losses of around 2.50% each. Indices made a cautious start of the day, as the Controller General of Accounts’ data (CGA) showed that the government's fiscal deficit touched 132.4 per cent of the full-year target at December-end mainly due to slower pace of revenue collections. Weakness remained over the street during the whole trading day, amid the FICCI’s Business Confidence Survey Report stating that India Inc is facing huge risks from delays in necessary structural reforms in the factor markets and lack of adequate credit availability to micro, small and medium enterprises (MSMEs). In the second half of the trading session, losses got intensified, after the government in its Union Budget announcements raised fiscal deficit target to 3.8 per cent of the GDP from 3.3 per cent pegged earlier for 2019-20 due to revenue shortage. Adding more worries, the Reserve Bank of India (RBI) said that non-food bank credit growth decelerated to 7.0 per cent in December 2019 from 12.8 per cent in December 2018. Market participants paid no heed towards Finance Minister Nirmala Sitharaman’s announcements over cut in personal income tax, extended tax benefits for affordable housing and gave relief to companies on payment of dividend in the Union Budget for 2020-21. Finally, the BSE Sensex slipped 987.96 points or 2.43% to 39,735.53, while the CNX Nifty was down by 300.25 points or 2.51% to 11,661.85.

Puchho Befikar
SEBI Registered: Investment Adviser - INA000013323
Research Analyst - INH000000719