Domestic indices to make pessimistic start; Manufacturing PMI eyed

Indian markets ended the day in red on Friday dragged by heavyweights like Reliance Industries, HDFC Bank, Kotak Mahindra Bank and auto stocks. Today, the start of new month is likely to be pessimistic amid lackluster trade in Asian peers coupled with weak economic data and concerns over rising coronavirus cases. India recorded over 50,000 coronavirus cases for a 5th consecutive day, taking its tally way past the 1,800,000 mark. India's death toll now stands at 38,161. Investors will be eyeing IHS Markit India Manufacturing PMI data to be out later in the day. Traders will be concerned with union Finance Minister Nirmala Sitharaman’s statement that the coronavirus pandemic has definitely hit the supply chains which is continuing to disrupt the economic revival. Markets participants will react to the Commerce and Industry Ministry’s data showing that contracting for the fourth consecutive month, the output of eight core infrastructure industries shrank by 15% in June due to fall in the production of coal, crude oil, natural gas, steel, cement and electricity. There will be some cautiousness with Finance Ministry’s statement that GST collections in July fell to Rs 87,422 crore from Rs 90,917 crore in June. However, July collections are higher than Rs 62,009 crore in May and Rs 32,294 crore in April. Meanwhile, the government data showed that India's fiscal deficit in the three months to end June stood at 6.62 trillion rupees ($88.52 billion), or 83.2% of the budgeted target for the current fiscal year. Though, some support may come later in the day with a report that foreign portfolio investors (FPI) remained net buyers for the second consecutive month in July by pumping in Rs 3,301 crore in Indian markets amid hopes of a coronavirus vaccine. The auto sector stocks will be in action, reacting to their monthly sales numbers. There will be some buzz in the pharma stocks as the Centre is reportedly looking to increase customs duty on imported active pharmaceutical ingredients (APIs) by 10-15%, in order to boost local manufacturing of the bulk drugs. Power stocks will also be in focus with power producers' total outstanding dues owed by distribution firms rose over 47% year-on-year to Rs 1.33 trillion in June 2020, reflecting stress in the sector. There will be some reaction in steel stocks with a private report that steel companies have increased prices by about Rs 2,000 a tonne during the past 10 days, on the back of an increase in domestic demand and international prices, taking it to near-pre-Covid levels. There will be lots of earnings reaction based on the performance of the companies.

The US markets ended higher on Friday as a slate of technology giants buoyed the S&P 500 and offset disappointing earnings from some industrials and weak economic data. Asian markets are trading mostly in red on Monday as US-China tensions continue to heat up.

Back home, Indian equity benchmarks struggled for direction on Friday and closed lower for the third day in a row, weighed down by heavyweights Reliance Industries (RIL) and the HDFC twins. After making a cautious start, markets managed to keep their heads over neutral lines, taking support from trade body CII’s statement that the new set of relaxations introduced while extending the lockdown till August 31 in Tamil Nadu would pave way for quick revival of the economy besides ensuring livelihood of people. Adding some optimism, Commerce and Industry Minister Piyush Goyal said that the government is working on production-linked incentives for 12 major sectors like Active Pharmaceutical Ingredients and electronics. But, key indices soon turned negative in late morning session as weak global markets following disappointing US gross domestic product (GDP) data, dented investor sentiment. Besides, another record spike in Covid-19 infections in the country kept the investors nervous. Investors also maintained cautious approach, as Reserve Bank of India is likely to leave repo rate unchanged in the upcoming policy review meeting and the Monetary Policy Committee may look for 'unconventional policy measures' to ensure financial stability. Market participants took a note of Former Reserve Bank of India (RBI) Governor Raghuram Rajan’s statement that bold government reform that triggers ‘animal spirits’ and implemented effectively is essential for India to come out of the Covid-19 setbacks. Rajan also made it clear that the space for expanding the balance sheet for RBI is not ‘infinite’, and the central bank will need to have a strong focus on monitoring inflation as it does that. Finally, the BSE Sensex lost 129.18 points or 0.34% to 37,606.89, while the CNX Nifty was down by 28.70 points or 0.26% to 11,073.45.