Markets remain volatile in late morning session

Indian equity benchmarks remained volatile in late morning session, on the back of negative cues from other Asian markets. Domestic sentiments were negative, as the Asian Development Bank (ADB) downgraded its 2021 economic growth outlook for India -- the subregion's largest economy -- to 10 per cent from 11 per cent in 2021. However, it said the outlook for next year has improved to 7.5 per cent from 7 per cent. Besides, the Organisation for Economic Co-operation and Development (OECD) in its latest report has cut its projection of India's economic growth by 0.2 percentage points to 9.7 per cent for the current financial year (FY22).

On the global front, Asian markets were trading mostly in red, after China maintained its benchmark loan prime rates for the 17 consecutive month, as widely expected. The one-year loan prime rate was kept unchanged at 3.85 percent and the five-year LPR at 4.65 percent. The one-year and five-year loan prime rates were last lowered in April 2020. The one-year loan prime rate was cut by 20 basis points and five-year rate by 10 basis points in April 2020.

The BSE Sensex is currently trading at 58987.80, down by 17.47 points or 0.03% after trading in a range of 58879.83 and 59178.44. There were 20 stocks advancing against 10 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.89%, while Small cap index was up by 0.92%.

The top gaining sectoral indices on the BSE were Realty up by 3.94%, Metal up by 1.16%, Consumer discretionary up by 1.10%, TECK up by 1.04% and IT up by 0.93%, while Utilities down by 0.62%, Bankex down by 0.49%, FMCG down by 0.26% and Power down by 0.08% were the top losing indices on BSE.

The top gainers on the Sensex were Tech Mahindra up by 3.79%, HCL Tech up by 1.50%, Tata Steel up by 1.32%, Mahindra & Mahindra up by 1.21% and Bajaj Finance up by 0.72%. On the flip side, HDFC down by 1.83%, Hindustan Unilever down by 0.89%, HDFC Bank down by 0.85%, Nestle down by 0.76% and ICICI Bank down by 0.76% were the top losers.

Meanwhile, Fitch Solutions has said that India's ethanol consumption will increase over the next few years, driven primarily by the government's desire to support the sugar sector by boosting ethanol production but also because of the recovery in road travel following Covid-19 disruptions. At the same time, demand for industrial ethanol is also likely to rise in coming years in tandem with the expansion of its domestic chemical and healthcare sectors. The government is targeting a motor fuel blending rate of E10 (10:90 ethanol:gasoline) by 2022 and brought forward its ethanol E20 target to 2023 (from 2025) in June earlier this year.

This is the second time this year that the E20 target has been brought forward, which indicates how important the issue to the government. If the E20 target was to be met in 2025, this will require 9 billion litres of ethanol by 2025 (7.5 billion for motor fuel, 1.5 billion for industrial use), about 6.3 billion litres more than currently produced domestically. Using the approximate conversion of 1 million tonnes sugarcane to make 800 million litres of ethanol, the adoption of E20 can therefore hypothetically lead to an increase in the demand for sugarcane of 8 million tonnes, which will be enough to swing India's sugar balance from its current deficit into a surplus.

Fitch said these ethanol targets are indicative but the government has much more of an incentive to increase ethanol consumption over the next couple of years than it did during the 2010s for two key reasons. Firstly, the government wishes to boost farmer incomes while also supporting sugar mills. The government has usually done so in recent years by either increasing the minimum sale price of sugar/corn and/or export subsidies, which have incentivised production and kept imbalances in the domestic market going. However, the recent large domestic sugar surpluses have boosted stocks to a record-high and increased the costs of these schemes for both the government and consumers. As a result, the government is instead focusing its efforts on increasing crop demand.

Secondly, the government also has a much greater desire to reduce its crude oil imports than it did previously. India's crude oil imports have risen rapidly over the last decade and it currently imports around 80 per cent of its crude oil consumption, primarily from the Middle Eastern OPEC countries. However, said Fitch, its diplomatic relations with many of these countries have worsened over the past few years due in part to the Indian government's rising religious nationalism. Clearly, by increasing ethanol consumption, it can reduce the amount of crude oil and gasoline that it needs to import. Hence, Indian ethanol production capacity will rise over the next few years, spurred on by greater financial incentives and positive domestic demand outlook.

The CNX Nifty is currently trading at 17565.95, up by 3.95 points or 0.02% after trading in a range of 17524.00 and 17610.45. There were 31 stocks advancing against 19 stocks declining on the index.

The top gainers on Nifty were Tech Mahindra up by 3.67%, Tata Motors up by 2.19%, Coal India up by 2.11%, HCL Tech. up by 1.50% and BPCL up by 1.43%. On the flip side, HDFC down by 1.69%, HDFC Bank down by 1.01%, Nestle down by 0.94%, Hindustan Unilever down by 0.91% and Eicher Motors down by 0.88% were the top losers.

Asian markets were trading mostly in red; Taiwan Weighted dropped 342.95 points or 1.99% to 16,933.84, Nikkei 225 slipped 177.16 points or 0.59% to 29,662.55, Straits Times trembled 20.15 points or 0.66% to 3,043.05 and Shanghai Composite declined 10.56 points or 0.29% to 3,603.41. On the flip side, Jakarta Composite soared 45.55 points or 0.75% to 6,106.31.