Markets take winning run to 5th day

Indian equity benchmarks ended the day in the positive territory for the fifth straight session and settled at record closing highs on Tuesday, with major contribution from Banking, Finance and IT stocks. The benchmarks staged a gap up opening, as traders took encouragement with FICCI’s report stated that India could benefit from the likely shift in global supply chains from China to other economies in the aftermath of the COVID-19 pandemic, likely to boost sentiments in markets. Sentiments remained positive as the Finance Ministry released the ninth installment of Rs 6,000 crore to the states to meet GST compensation shortfall, taking the total amount of fund released to Rs 54,000 crore. The Centre had set up a special borrowing window in October 2020 to meet the estimated shortfall of Rs 1.10 lakh crore in revenue arising on account of implementation of GST. Market participants also took a note of Reserve Bank of India (RBI) paper stating that maintaining the inflation target at 4 percent is appropriate for India as targeting a lower rate could impart deflationary bias to the monetary policy. It said under the current dispensation, the RBI has been mandated by the government to maintain retail inflation at 4 percent with a margin of 2 percent on either side.

However, domestic indices trimmed some of their gains in late morning deals, as some anxiety remained among traders with the rating agency ICRA’s report that banks' gross non-performing assets (NPAs) and net NPAs are expected to rise to 10.1-10.6 percent and 3.1-3.2 percent, respectively by March 2021 from 7.9 percent and 2.2 percent, respectively as of September 2020. But, local gauges regained traction to end higher, taking support from report of UN stating that the India's economy could prove to be the ‘most resilient’ in the subregion of South and South-West Asia over the long term, the positive but lower economic growth post COVID-19 pandemic and the country's large market will continue to attract investments. The growth, however, was mainly driven by India, which accounted for 77 percent of the total inflows and received $51 billion in 2019, up 20 percent from the previous year. Adding optimism, Union minister Nitin Gadkari said that the Micro, Small and Medium Enterprises Ministry is contemplating fresh plans and laws to find a solution of the receivables issue as outstanding dues are creating working capital problem for the sector.

On the global front, Asian markets ended mixed on Tuesday, while European markets were trading higher, as news about U.S. President Donald Trump signing a $2.3 trillion pandemic bill, and a post-Brexit trade agreement between European Union and the U.K. lifted sentiment. Investors also reacted to reports that the U.S. House of Representatives have also backed Trump's proposal to increase the stimulus checks to $2,000 from $600. The proposal will now go to the Republican-controlled Senate for a vote. Back home, on the sectoral front, sugar stocks were in focus as Crisil Ratings said the Centre's export subsidy for the October-September sugar season 2020-21 (SS21) will help sustain the commodity's exports at almost last year's level. There was some buzz in agriculture stocks as Prime Minister Narendra Modi flagged off the 100th run of the Kisan Rail service in the country between Sangola in Maharashtra and Shalimar in West Bengal, and asserted that his government has undertaken historic reforms in the farm sector to boost agriculture and strengthen farmers.

Finally, the BSE Sensex rose 259.33 points or 0.55% to 47,613.08, while the CNX Nifty was up by 59.40 points or 0.43% to 13,932.60.

The BSE Sensex touched high and low of 47,714.55 and 47,361.90, respectively and there were 15 stocks advancing against 15 stocks declining on the index.

The broader indices ended mixed; the BSE Mid cap index fell 0.07%, while Small cap index was up by 0.16%.

The top gaining sectoral indices on the BSE were Bankex up by 1.41%, Finance up by 1.o6%, IT up by 0.65%, TECK up by 0.50% and Consumer Durables up by 0.13%, while Metal down by 1.32%, Power down by 0.81%, Energy down by 0.67%, Basic Materials down by 0.36% and Healthcare down by 0.30% were the top losing indices on BSE.

The top gainers on the Sensex were Indusind Bank up by 5.41%, Axis Bank up by 2.06%, Tech Mahindra up by 1.95%, HDFC up by 1.92% and ICICI Bank up by 1.68%. On the flip side, Nestle down by 1.74%, NTPC down by 1.69%, Power Grid down by 1.02%, Dr. Reddys Lab down by 0.91% and Reliance Industries down by 0.70% were the top losers.

Meanwhile, Reserve Bank of India (RBI) paper has said that maintaining the inflation target at 4 percent is appropriate for India as targeting a lower rate could impart deflationary bias to the monetary policy. It said under the current dispensation, the RBI has been mandated by the government to maintain retail inflation at 4 percent with a margin of 2 percent on either side.

The paper, authored by RBI Deputy Governor Michael Debabrata Patra and another official Harendra Kumar Behera, has found a steady decline in trend inflation to 4.1-4.3 percent since 2014. It also noted that a target set too below the trend imparts a deflationary bias to monetary policy because it will go into overkill relative to what the economy can intrinsically bear in order to achieve the target. Analogously, it said a target that is fixed above-trend renders monetary policy too expansionary and prone to inflationary shocks and unanchored expectations. The paper notes that estimating trend inflation with regular updates is important for the formulation of monetary policy, irrespective of the country setting.

In a bid to keep inflation under specified level, the government in 2016 had decided to set up Monetary Policy Committee headed by the RBI Governor entrusted with the task of fixing the benchmark policy rate (repo rate). The six-member panel, which had its first meeting in October 2016, was given the mandate to maintain annual inflation at 4 percent until March 31, 2021, with an upper tolerance of 6 percent and lower tolerance of 2 percent.

The CNX Nifty traded in a range of 13,967.60 and 13,859.90 and there were 22 stocks advancing against 27 stocks declining, while 1 stock remains unchanged on the index.

The top gainers on Nifty were Indusind Bank up by 5.72%, Tech Mahindra up by 2.19%, Axis Bank up by 2.06%, ICICI Bank up by 1.92% and HCL Technologies up by 1.54%. On the flip side, Hindalco down by 2.08%, Nestle down by 1.76%, Coal India down by 1.67%, Tata Motors down by 1.53% and NTPC down by 1.44% were the top losers.

European markets were trading higher; UK’s FTSE 100 increased 149.07 points or 2.29% to 6,651.18, France’s CAC increased 23.46 points or 0.42% to 5,611.84 and Germany’s DAX increased 49.42 points or 0.36% to 13,839.71.

Asian markets ended mixed on Tuesday following Wall Street's record highs overnight as US President Donald Trump’s signing of long-awaited $2.3 trillion corona virus pandemic aid bill increased optimism for an economic recovery. While a post-Brexit trade deal between European Union and the United Kingdom also supported market sentiment. Japanese stocks ended higher, led by gains scored by major exporters due to weaker yen. Further, Hong Kong shares finished higher as gains in shares of Alibaba Group Holding led a rebound in tech stocks following a sharp sell-off in previous sessions.