Benchmarks to make flat to positive start on Tuesday

Indian markets ended lower on Monday, after a volatile session, dragged by financials and heavyweights RIL and Bharti Airtel. Today, the start of session is likely to be flat to positive tracking gains in global peers. Traders will be taking encouragement with the government data showing that India’s consumer inflation in August came at 6.69%, slightly lower than 6.73% recorded in the previous month. Some support will come with the Reserve Bank of India’s (RBI) report that bank credit grew 5.49 percent to Rs 102.11 lakh crore, while deposits increased 10.92 percent to Rs 141.76 lakh crore in the fortnight ended August 28. Market participants may take note of SBI’s report that the country needs to adopt an activist fiscal policy rather than depending on the monetary accommodation alone for turning the economic fortunes. However, there may be some cautiousness as S&P Global Ratings cut India's FY21 GDP forecast to -9 percent from -5 percent as it believes that rising COVID-19 cases in the country will keep private spending and investment lower for longer. Also, investors may be concerned with over 81,000 new cases, India's coronavirus tally has reached 4,926,914. The death toll has risen by 1,073 to 80,827. Meanwhile, the government has banned the export of all varieties of onions with immediate effect, a move aimed at increasing availability and checking price of the commodity in the domestic market. Banking stocks will be in focus with report that banks' non-performing assets in large industry and services declined 31 percent in over two years to about Rs 4.36 lakh crore in June this year.

The US markets ended notably higher on Monday as signs of progress in developing a covid-19 vaccine and a spurt of multibillion-dollar deals lifted investor optimism. Asian markets are trading mostly in green on Tuesday as investors focused on the outcome of a Federal Reserve meeting for clues on monetary policy as economies recover from the pandemic.

Back home, erasing all of their intra-day gains, Indian equity benchmarks ended in the negative territory on Monday as telecom, banking, finance and energy shares came under selling pressure. The broader markets, however, outperformed after market regulator Securities and Exchange Board of India (Sebi) tweaked the asset allocation norms for Multi-Cap Funds. According to the new norms, multi-cap funds must invest 25 percent each in small, mid, and large-cap stocks. The benchmarks made an optimistic start and traded on a strong note for most part of the day, as sentiments got a boost as Chief Economic Adviser K V Subramanian exuded confidence that retail inflation will come down in the days ahead with the easing of lockdowns, attributing the rise in inflation to supply-side frictions. Some support also came in as the finance ministry said banks have sanctioned loans worth over Rs 1.63 lakh crore to more than 42 lakh business units under the Rs 3-lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector. However, local indices failed to carry forward positive momentum in late trade and ended with marginal losses, as traders got anxious with CARE Ratings’ report that India’s Gross Domestic Product (GDP) is likely to see a sharper contraction of 8-8.2 percent in the current financial year (FY21) under the assumption of there being no fiscal stimulus from the government. It said this would imply that there would be no increase in capital expenditure (capex) during the year beyond what is provided in the Budget. Some cautiousness also came as India’s industrial output contracted 10.4 percent in July as against a 4.9 percent growth year-on-year (YoY). Traders may be concerned as rating agency Moody's projected India's real gross domestic product (GDP) to contract by 11.5 percent in FY21. Besides, India’s inflation based on wholesale price index (WPI) surged 0.16% in the month of August, 2020 (over August, 2019) as compared to 1.17% during the corresponding month of the previous year. Finally, the BSE Sensex fell 97.92 points or 0.25% to 38,756.63, while the CNX Nifty was down by 24.40 points or 0.21% to 11,440.05.