Markets falter for 2nd straight day amid rising inflation

Indian equity bourses faltered for the 2nd straight day on Friday, with Sensex & Nifty losing around 0.50% each. The start of the day was on firm note, as rating agency Standard and Poor's affirmed India's sovereign rating at BBB- with stable outlook, saying the country's GDP growth is likely to gradually recover towards longer-term trend rates over the next two to three years. But soon, indices turned weak, with the International Monetary Fund’s communications director Gerry Rice’s statement that India's economy looks weaker than the IMF projected earlier in January and the government needs to focus on more ambitious structural and financial sector reform measures.

Volatility remained over the Dalal Street till the end of the trading session, on the back of weak cues from the European markets along with rising inflation in the country. India’s Wholesale price index (WPI) inflation spiked sharply to 3.1 percent in the month of January 2020 as against 2.59 percent for the previous month and 2.76 percent during the corresponding month of the previous year. Adding more anxiety among investors, a report by Moody's said that the Reserve Bank of India's recent asset recognition norms that allows banks not to treat real estate loans as restructured for one year is credit negative for Indian banks.

On the global front, European markets were trading in red, as German economy stagnated in the fourth quarter of 2019 amid slower consumption and weaker exports. The preliminary figures from Destatis showed that gross domestic product was unchanged from the previous quarter on a seasonally and calendar-adjusted basis.  Asian markets ended mostly higher, even after Japan's tertiary industry activity declined unexpectedly in December. The data from the Ministry of Economy, Trade and Industry showed that the tertiary industry activity index fell 0.2 percent month-on-month in December.

Back home, the realty sector stocks remained in watch, as credit rating agency India Ratings revised its outlook for the construction industry to negative for FY21 on the back of muted order inflows and subdued bank credit flow. Further, stocks related to the logistics sector also remained in focus, amid a private report stating that logistics leasing activity increased 30 percent in 2019 to touch 33 million sqft, mainly driven by policy announcements made by the government which boosted e-commerce and retail sectors.

Finally, the BSE Sensex lost 202.05 points or 0.49% to 41,257.74, while the CNX Nifty was down by 61.20 points or 0.50% to 12,113.45.

The BSE Sensex touched high and low of 41,702.36 and 41,183.13, respectively and there were 08 stocks advancing against 22 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 0.79%, while Small cap index was down by 0.40%.

The few gaining sectoral indices on the BSE were Telecom up by 2.50%, Energy up by 0.47% and TECK up by 0.22%, while Utilities down by 2.58%, Power down by 2.31%, PSU down by 1.85%, Metal down by 1.48% and FMCG down by 1.25% were the top losing indices on BSE.

The top gainers on the Sensex were Bharti Airtel up by 4.69%, HCL Tech. up by 1.42%, ICICI Bank up by 0.90%, Reliance Industries up by 0.86% and Tech Mahindra up by 0.72%. On the flip side, Indusind Bank down by 4.38%, Power Grid down by 3.26%, SBI down by 2.41%, Hero MotoCorp down by 2.24% and NTPC down by 2.00% were the top losers.

Meanwhile, Commerce and Industry Minister Piyush Goyal has said that the government is focusing on 12-13 sectors such as textiles where India has a competitive edge to boost exports. He said that exports grow when there is both comparative and competitive edge on different sectors.

Citing an example of man-made textiles, the minister said the government is putting attention as over the years, India has always focused on cotton textiles, whereas the world has moved on to man-made textiles. He noted that man-made textiles industry has the potential to increase exports to $100 billion in the next 10 years from the current level of about $37 billion. He added that services sector exports are recording healthy growth rates.

On India entering into the phase of protectionism, Goyal said protection is necessary where the country has domestic capacity. He said that such practices also become evident when there is an unfair competition or high domestic cost of production. He said ‘also we are conscious that some countries give subsidies both open and opaque, due to which import sometimes become very attractive and therefore certain degree of protection is required for our domestic industry.’

The CNX Nifty traded in a range of 12,246.70 and 12,091.20. There were 15 stocks advancing against 35 stocks declining on the index.

The top gainers on Nifty were Yes Bank up by 5.38%, Bharti Airtel up by 4.38%, UPL up by 2.46%, BPCL up by 1.72% and HCL Tech. up by 1.58%. On the flip side, GAIL India down by 5.49%, Bharti Infratel down by 5.45%, Indusind Bank down by 3.72%, Eicher Motors down by 3.08% and Power Grid down by 2.97% were the top losers.

European markets were trading mostly in red; UK’s FTSE 100 decreased 7.61 points or 0.1% to 7,444.42 and France’s CAC decreased 12.06 points or 0.2% to 6,081.08, while Germany’s DAX increased 16.37 points or 0.12% to 13,761.80.

Asian markets ended mostly higher on Friday amid expectation that the Chinese government would unveil more measures to contain the corona virus outbreak and limit its economic impact. Nearly 64,000 people are now recorded as having been made ill by the virus - named COVID-19 - in China, with the last two days showing a steep rise after a change in diagnostic methods. Further, the United States and China have lowered tariffs on each other's goods today as part of the ‘Phase One’ trade agreement. However, Japanese shares ended lower as investors continued to worry about the economic impact as well as spread of the corona virus outbreak, while a firmer yen too hurt export-related stocks.