Domestic indices likely to make flat-to-positive start

Indian markets recovered from morning lows to end at record close for the third straight session on Tuesday mainly led by a rally in the PSU banks, auto and realty sectors. Today, the domestic markets are likely to make flat-to-positive start tracking gains in global peers coupled with easing inflation data. Traders will be getting encouragement with the government data showing that Consumer Price Index (CPI)-based inflation eased to 4.59 per cent in December 2020 compared to 6.93 per cent in November. Food inflation declined to 3.41 per cent in December, compared to 9.5 per cent in the previous month. Some supprot may also come with report that a mega immunisation drive against Covid-19 has kicked off with nine flights transporting over 5.6 million doses of the vaccine to 13 cities across the country on Tuesday. Kerala will get the first consignment of over 400,000 coronavirus vaccines today. In the last 24 hours, India registered 14,898 fresh Covid-19 cases, taking the tally to 10,494,811. traders may take note of that the government said India's new Foreign Trade Policy, under formulation, will come into effect from April 1, 2021 for five years and will strive to make the country a leader in international trade. However, market participants may be concerned with the Ministry of Statistics and Programme Implementation data showing that the Index of Industrial Production (IIP) contracted by 1.9 per cent in November as against 3.6 per cent growth in October. The manufacturing sector output shrank by 1.7 per cent in November, while power generation grew 3.5 per cent. Mining output saw a decline of 7.3 per cent. There may be some cautiousness with SBI Ecowrap report stating that India's fiscal deficit in the current financial year is likely to reach 7.4 per cent of the GDP on the back of enhanced government expenditure amid the pandemic. Meanwhile, the Union cabinet is most likely to consider the proposal of mining sector reform for enhancing private investment, in the meeting scheduled for January 13. There will be some reaction hospitality industry stocks with ICRA’s report that the domestic hospitality industry, which has been severely affected by the COVID -19 related disruptions, is likely to witness a decline of over 65 percent in 2020-21. However, there might be a recovery in demand in the later part of financial year 2021-22 as vaccine rollouts gains traction. There will be some important earnings announcements too to keep the markets buzzing.

The US markets ended higher on Tuesday as markets bet on more government stimulus and coronavirus vaccines in 2021. Asian markets are trading mostly in green on Wednesday tracking modest Wall Street gains as prospects of an eventual victory against coronavirus shored up recovery hopes, while tight supply expectations pushed oil prices to their highest in a year.

Back home, extending their record braking rally for third consecutive day, Indian equity benchmarks ended the Tuesday’s trade above their crucial 49,500 (Sensex) and 14,550 (Nifty) levels. Markets made a pessimistic start as traders remained concerned after the Reserve Bank of India (RBI) warned that the Indian banking system’s bad loans may rise to a two-decade high on the back of COVID-19 induced stress. In its latest Financial Stability Report (FSR), the RBI said Public Sector Banks (PSBs) may see gross NPAs rise from 9.7 percent in September 2020 to 16.2 percent by September 2021. Sentiments also remain dampened as the finance ministry has rejected the demand for further extension of the last date for income tax return (ITR) filing beyond February 15 for the ones where audit is required. In December 2020, the government extended the ITR filing deadline for individuals till January 10 and till February 15 for companies. However, markets gained traction in noon deals and turned positive as ICRA projected that India's GDP will record a double-digit expansion of 10.1 percent in the upcoming fiscal year. It also expects the monetary policy to be changed to neutral from accommodative in the August 2021 Policy review or later. Markets extended gains to end near all-time closing highs after the Ministry of Finance has released the 11th weekly instalment of Rs 6,000 crore to the States. Out of this, an amount of Rs 5,516.60 crore has been released to 23 States and an amount of Rs 483.40 crore has been released to the 3 Union Territories (UT) with Legislative Assembly (Delhi, Jammu & Kashmir & Puducherry) who are members of the GST Council. Finally, the BSE Sensex rose 247.79 points or 0.50% to 49,517.11, while the CNX Nifty was up by 78.70 points or 0.54% to 14,563.45.