Weak trade continues over Dalal Street

Weak trade continued over the Dalal Street in late morning deals, with both Sensex and Nifty trading in deep red. Domestic sentiments were negative, on the back of mixed cues from other Asian markets. Traders got cautious, after the UN has said that India's economy is projected to grow at 7.3 per cent in 2021, even as it is estimated to contract by 9.6 per cent in 2020 as lockdowns and other efforts to control the COVID-19 pandemic slashed domestic consumption. The World Economic Situation and Prospects 2021, produced by the United Nations Department of Economic and Social Affairs (UN DESA), said the world economy was hit by a once-in-a-century crisis - a Great Disruption unleashed by the COVID-19 pandemic in 2020.

On the global front, Asian markets were trading mixed, even after China's industrial profits increased notably at the end of 2020. The data released by the National Bureau of Statistics showed that industrial profits grew 20.1 percent year-on-year in December, bigger than the 15.5 percent increase registered in November. This was the eighth consecutive month of growth. In the whole year of 2020, profits of industrial firms increased 4.1 percent, in contrast to a 3.3 percent drop in 2019.

The BSE Sensex is currently trading at 47825.35, down by 522.24 points or 1.08% after trading in a range of 47800.91 and 48387.25. There were 10 stocks advancing against 20 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.54%, while Small cap index was down by 0.11%.

The only gaining sectoral indices on the BSE were FMCG up by 0.09% and IT up by 0.02%, while Energy down by 1.48%, Oil & Gas down by 1.40%, Bankex down by 1.28%, Telecom down by 1.19% and Realty down by 1.12% were the top losing indices on BSE.

The top gainers on the Sensex were Tech Mahindra up by 2.52%, Ultratech Cement up by 1.84%, ITC up by 1.73%, HCL Tech up by 1.28% and Mahindra & Mahindra up by 1.16%. On the flip side, Axis Bank down by 3.60%, Asian Paints down by 2.47%, HDFC down by 2.22%, Sun Pharma down by 2.17% and Titan Company down by 2.02% were the top losers.

Meanwhile, rating agency ICRA has projected a 5 per cent fiscal deficit for the next financial year (FY22). Calling for a growth-oriented Budget, it warned against sharp fiscal tightening by the Centre and the states as it would temper the economic recovery. For the current financial year 2020-21, it forecasts a 7.5 per cent fiscal gap for the Centre and 4.7 per cent for the states, totalling the combined fiscal deficits at 12.2 per cent. It said sharp fiscal tightening should be avoided in 2021-22 by the Centre and the states as it would temper the weak recovery, and normalising revenue will anyway lower the fiscal strain in the coming year.

The agency sees the general government’s fiscal deficit at 8.5 per cent in 2021-22 -- 5 per cent  for the Centre and 3.5 per cent for the states, which would involve a net and gross market borrowings at Rs 16 lakh crore and Rs 20.5 lakh crore, respectively. But, total liabilities of the Centre are projected to worsen from 49.3 per cent of gross domestic product (GDP) in March 2020 to 59 per cent of GDP in March 2021, before easing mildly to 57 per cent of GDP in March 2022. In absolute terms, due to the massive revenue shortage, the Centre''s fiscal deficit will widen to Rs 14.5 lakh crore in 2020-21.

In 2021-22, a revenue deficit of 3.5 per cent of GDP and a fiscal deficit of around 5 per cent may allow enough space for prioritising health expenditure, vaccine roll-out as well as capital spending, based on the revenue rebound that is widely expected. Given the continuing uncertainty, tax changes should be avoided at this juncture, and the focus should instead be on maximising disinvestment proceeds. In terms of absolute numbers, the rating agency expects a net tax revenue of Rs 15.5 lakh crore, non-tax revenue of Rs 2.5 lakh crore and the disinvestment proceeds of Rs 1.5 lakh crore in 2021-22.

A revenue deficit of 3.5 per cent or Rs 7.8 lakh crore and a fiscal deficit of Rs 11.1 lakh crore will imply a space for revenue expenditure and capital expenditure at Rs 25.8 lakh crore and Rs 4.8 lakh crore, respectively, in 2021-22. A fiscal deficit of 3.5 per cent of gross state domestic product for the states in 2021-22 may allow them to prioritise a portion of capex that was deferred during the pandemic. It added that the deficit will also provide some funds towards projects under the national infrastructure pipeline.

The CNX Nifty is currently trading at 14094.75, down by 144.15 points or 1.01% after trading in a range of 14084.90 and 14237.95. There were 16 stocks advancing against 34 stocks declining on the index.

The top gainers on Nifty were Wipro up by 3.33%, Tech Mahindra up by 2.91%, Ultratech Cement up by 1.75%, ITC up by 1.73% and HDFC Life Insurance up by 1.40%. On the flip side, Tata Motors down by 3.62%, Axis Bank down by 3.54%, GAIL India down by 2.52%, Asian Paints down by 2.41% and HDFC down by 2.35% were the top losers.

Asian markets were trading mixed, Nikkei 225 surged 64.78 points or 0.23% to 28,610.96, Hang Seng increased 62.76 points or 0.21% to 29,454.02, Taiwan Weighted strengthened 36.53 points or 0.23% to 15,695.38, Straits Times advanced 10.22 points or 0.35% to 2,955.74.On the other side, Shanghai Composite declined 1.03 points or 0.03% to 3,568.40, KOSPI fell 2.53 points or 0.08% to 3,137.78 and Jakarta Composite was down by 48.37 points or 0.79% to 6,091.80.