Benchmarks end higher on softening retail inflation

Indian equity benchmarks traded in green throughout the session and ended over half a percent higher on Tuesday, as positive cues from global markets and hopes of an early vaccine kept the mood sanguine. Markets opened on strong note as the government data showed the country’s annual retail inflation eased slightly in August, against expectations. India's retail inflation in August of 6.69 percent was lower than the 6.73 percent recorded in July, but it remained above the upper end of the Reserve Bank of India's (RBI) medium-term target for the fifth straight month. However, markets soon trimmed most of gains in late morning session, as traders turned wary with S&P Global Ratings stating that India’s Gross Domestic Product (GDP) is likely to contract by 9 percent in the current financial year (FY21).  Earlier, it had a projection of 5 percent de-growth in GDP for FY21. It said that rising coronavirus disease (COVID-19) cases in the country will keep private spending and investment lower for longer. For 2021-22 fiscal, it expects economic growth at 10 percent.

Though, benchmark indices regained traction in afternoon session, taking support from Minister of State for Finance Anurag Singh Thakur’s statement that the lowering of corporate tax rate has made India a globally competitive and favoured destination for investment and the impact of this landmark reform will be felt in the coming years. The government last year slashed the base corporation tax rate to 22 percent from 30 per cent, leading to revenue implication of Rs 1.45 lakh crore. Market participants took 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. Meanwhile, the government has introduced a bill in the Lok Sabha to amend the Banking Regulation Act to bring cooperative banks under the supervision of the Reserve Bank of India (RBI) in order to protect the interests of depositors.

On the global front, Asian markets ended mostly higher on Tuesday, following the positive cues from Wall Street. Some support also came as China’s industrial output accelerated the most in eight months in August, while retail sales grew for the first time this year, suggesting the economic recovery is gathering pace. However, investors turned cautious as they shifted focus to upcoming central bank meetings this week for further direction. The U.S. Federal Reserve's monetary policy statement is due on Wednesday, while the Bank of Japan and the Bank of England are scheduled to announce their respective monetary policy decisions on Thursday. European markets were trading higher, as renewed optimism about coronavirus vaccine following AstraZeneca resuming final-stage clinical trial of its coronavirus vaccine after getting the nod from regulators lifted sentiment. Back home, on the sectoral front, banking stocks were 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. Stocks related to textile sector also were in watch with India Ratings’ report stating that man-made fibres and yarn segments are expected to recover on the back of pent-up demand and strong export order build up in all the segments. Both man-made fibres and cotton segments should start benefiting from the low raw material prices in the third quarter this financial year.

Finally, the BSE Sensex rose 287.72 points or 0.74% to 39,044.35, while the CNX Nifty was up by 81.75 points or 0.71% to 11,521.80.

The BSE Sensex touched high and low of 39,102.25 and 38,753.68, respectively and there were 21 stocks advancing against 9 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index rose 0.85%, while Small cap index was up by 1.44%.

The top gaining sectoral indices on the BSE were Telecom up by 1.94%, Healthcare up by 1.93%, Bankex up by 1.73%, Basic Materials up by 1.39% and Finance up by 1.37%, while Realty down by 0.58% was the lone losing index on BSE.

The top gainers on the Sensex were Indusind Bank up by 4.03%, Bharti Airtel up by 2.33%, Axis Bank up by 2.17%, Bajaj Finance up by 2.15% and ICICI Bank up by 2.14%. On the flip side, Titan Company down by 1.20%, Maruti Suzuki down by 1.02%, ITC down by 0.85%, Asian Paints down by 0.67% and Mahindra & Mahindra down by 0.35% were the top losers.

Meanwhile, S&P Global Ratings has said that India’s Gross Domestic Product (GDP) is likely to contract by 9 percent in the current financial year (FY21).  Earlier, it had a projection of 5 percent de-growth in GDP for FY21. It said that rising coronavirus disease (COVID-19) cases in the country will keep private spending and investment lower for longer. For 2021-22 fiscal, it expects economic growth at 10 percent. 

The US-based rating agency said risks to the growth outlook include a weaker recovery in informal sectors of the economy and deeper economic losses for micro and small enterprises. In addition, it said if credit quality worsens materially following the expiration of loan moratoriums, the recovery will slow. It pointed out that one factor that presents potential upside to growth is the availability of a widely-distributed COVID vaccine earlier than its current estimate around mid-2021. It added that the 23.9 percent contraction in for April-June quarter of fiscal year 2020-21 (Q1FY21) was larger than expected.

While India eased lockdowns in June, S&P believed the pandemic will continue to restrain economic activity. It said as long as the virus spread remains uncontained, consumers will be cautious in going out and spending and firms will be under strain. Adding further, it said even as industrial activity is recovering faster than services, high frequency indicators suggest that output is still lower relative to the same period last year and hence growth for the July–September quarter will be negative year on year. The potential for further monetary support is curbed by India's inflation worries.

The CNX Nifty traded in a range of 11,535.95 and 11,442.25 and there were 32 stocks advancing against 18 stocks declining on the index.

The top gainers on Nifty were Indusind Bank up by 4.68%, Cipla up by 2.88%, UPL up by 2.75%, Axis bank up by 2.34% and Bharti Airtel up by 2.31%. On the flip side, Titan Company down by 1.35%, Maruti Suzuki down by 1.11%, HDFC Life Insurance down by 0.91%, Eicher Motors down by 0.85% and ITC down by 0.82% were the top losers.

European markets were trading higher; UK’s FTSE 100 increased 48.62 points or 0.81% to 6,074.87, France’s CAC rose 10.90 points or 0.22% to 5,062.78 and Germany’s DAX was up by 17.20 points or 0.13% to 13,210.86.

Asian markets ended mostly higher on Tuesday, tracked by gains from Wall Street overnight, while investors are cautiously focused to the upcoming central bank meetings this week for further direction. The US Federal Reserve's monetary policy statement is due on Wednesday, while the Bank of Japan and the Bank of England are scheduled to announce their respective monetary policy decisions on Thursday. Though, Japanese shares closed lower on profit taking after a three-day rally in the run up to the ruling party election, where Abe ally Yoshihide Suga was picked as the new leader. The Japanese yen's surge also pressured exporters. Chinese shares ended higher on optimism about the economic recovery in China after data showed that the country's industrial production and retail sales increased in August from a year ago and beat expectations, while fixed asset investment declined for the January-to-August period.