Markets snap 6-day winning run ahead of GDP data

Snapping their six-session winning run, Indian equity benchmarks ended Monday’s session near day’s low with massive losses of over two percent, amid reports of a fresh border flare-up between India and China. Indian markets opened trade on a strong note, as traders took support with report that the Ministry of Home Affairs (MHA) has issued new guidelines for opening up of more activities in areas outside the Containment Zones. In Unlock 4, which will come into effect from September 1, 2020, the process of phased re-opening of activities has been extended further. Under the new guidelines, states are not to impose any local lockdown (State/ District/ sub-division/City/ village level), outside the containment zones, without prior consultation with the central government. Some buoyancy also came with Public Enterprises Selection Board (PESB) chairman Rajiv Kumar’s statement that central public sector enterprises, which have a combined net worth of close to Rs 12 lakh crore, can boost India's GDP by 2-3 percent by leveraging funds and stepping up capital expenditure.

However, local indices wiped out all of their morning gains and slumped sharply in afternoon trade, as market participants remained on sidelines ahead of gross domestic production (GDP) data, scheduled to be released later in the day. Sentiments remain dampened with private report stating that India's fiscal deficit is expected to touch 7 percent of GDP in 2020-21 fiscal as against budget estimate of 3.5 per cent, with revenue collections being hit amid disruptions in economic activities due to lockdowns. Adding to the pessimism, apex exporters body FIEO has expressed concerns over freezing of bank accounts of some exporters by the Enforcement Directorate (ED) without giving any warning, hearing or reasons, and has sought Commerce Ministry's intervention in the matter.

On the global front, Asian markets ended mostly lower on Monday as investors reacted to mixed economic data. The latest survey from the National Bureau of Statistics revealed the manufacturing sector in China continued to expand in August, albeit at a slower pace, with a manufacturing PMI score of 51.0. That missed expectations for a reading of 51.2 and it's down from 51.1 in July. Meanwhile, the non-manufacturing index came in with a score of 55.2 - beating forecasts for 55.0 and up from 54.2 in the previous month in a hopeful sign of reviving consumer demand. European markets were trading in green, with hopes of more accommodative measures by major central banks and upbeat service sector activity data from China helping underpin investor sentiment. Back home, on the sectoral front, majority of telecom industry's stocks ended lower despite Cellular Operators' Association of India (COAI) said telecom industry's revenues are expected to rise 14-15 percent in FY21 led by some improvement in average revenue per user (ARPU), though the subscriber base may remain flat with rural growth offsetting SIM consolidation in urban locations. Agriculture stocks also were in watch with Agriculture Secretary Sanjay Agarwal’s statement that private companies have began investing in farm sector spurred by the recent reforms that will help increase farmers' income.

Finally, the BSE Sensex lost 839.02 points or 2.13% to 38,628.29, while the CNX Nifty was down by 260.10 points or 2.23% to 11,387.50.

The BSE Sensex touched high and low of 40,010.17 and 38,395.89, respectively and there were 2 stocks advancing against 28 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 3.79%, while Small cap index was down by 4.37%.

The top losing sectoral indices on the BSE were Realty down by 4.70%, Healthcare down by 4.62%, Basic Materials down by 4.26%, Utilities down by 3.85%, Power down by 3.79%, while there were no gaining sectoral indices on the BSE.

The few gainers on the Sensex were ONGC up by 1.74% and TCS up by 0.86%. On the flip side, Sun Pharma down by 7.34%, SBI down by 5.65%, Bajaj Finserv down by 5.34%, Bajaj Finance down by 5.10% and NTPC down by 5.07% were the top losers.

Meanwhile, India Ratings And Research (Ind-Ra) in its latest report has said that since the share of agriculture in India’s gross value added is about 17 percent, rural demand at best can extend support to consumption demand, but cannot be a substitute for urban demand. It said while the industrial and services sectors are still struggling to recover from the adverse impact of Coronavirus disease (COVID-19), the agriculture sector could become an engine for economic recovery. However, it said a large part of the rural demand, notwithstanding the encouraging sales number of motorcycles/tractors in June 2020, comes from consumer non-durables.

Ind-Ra expects the first quarter 2020-21 GDP growth to come in at negative 17.03 percent. It said the current account in the June quarter is expected to record a surplus of around $18 billion. It also said one sector that has largely not been impacted either during the lockdown or even thereafter is agriculture. Besides, it expects the agriculture sector to grow at 3.5 percent year-on-year in 2020-21. It pointed out that after several years, the agricultural sector has witnessed three consecutive good harvests - rabi 2019, kharif 2019 and rabi 2020. Moreover, it noted that the adequate pre-monsoon rainfall followed by the timely arrival of monsoons in most parts of the country has led to an increase in the total kharif sowing area in 2020 in comparison to the last year.

The report further stated that the rainfall and area sown so far indicate that the country is headed towards a good 2020 kharif harvest, notwithstanding the floods in several areas. However, it said the flip side of high agricultural production levels could be lower prices of agricultural commodities impacting agricultural income itself. Therefore, it said the government needs to have a well-crafted strategy in place, both to continuously monitor the progress of the kharif crop and prevent the distressed sale of kharif harvest.

The CNX Nifty traded in a range of 11,794.25 and 11,325.85 and there were 2 stocks advancing against 48 stocks declining on the index.

The top gainers on Nifty were ONGC up by 1.62% and TCS up by 0.65%. On the flip side, Sun Pharma down by 7.29%, SBI down by 5.96%, Cipla down by 5.51%, Bajaj Finserv down by 5.42% and Zee Entertainment Enterprises down by 5.35% were the top losers.

European markets were trading in green; France’s CAC increased 32.90 points or 0.66% to 5,035.84 and Germany’s DAX increased 53.70 points or 0.41% to 13,086.90.

Asian markets ended mostly lower on Monday after reaching a 29-month high earlier in the day in reaction to an upbeat reading on China's service sector activity data. Chinese shares ended lower as investors reacted to mixed economic data.  The manufacturing sector in China continued to expand in August, albeit at a slower pace, the latest survey from the National Bureau of Statistics revealed with a manufacturing PMI score of 51.0. That missed expectations for a reading of 51.2 and it's down from 51.1 in July. Meanwhile, the non-manufacturing index came in with a score of 55.2 - beating forecasts for 55.0 and up from 54.2 in the previous month in a hopeful sign of reviving consumer demand. However, Japanese shares outperformed on expectations there is likely to be continuity in both fiscal and monetary policy.