Markets extend losing streak for seventh straight day ahead of RBI’s policy outcome

Extending their losing streak for seventh straight session, Indian barometer gauges ended the F&O expiry session in red terrain ahead of Reserve Bank of India’s (RBI) policy outcome amid expectations of yet another rate hike of 50 basis points to check high inflation, in line with similar actions taken by other major central banks, including the US Fed. Markets started the day on an optimistic note as traders took encouragement with report that rating agency ICRA retained its India’s previous growth forecast of 7.2 per cent for the current fiscal, citing revival in contact-intensive services and a pick-up in government and private expenditure. It said growth is expected to pick up to pre-Covid levels on the back of pent-up demand. Some support also came with report that Goods and services tax (GST) collections in September are likely to be about Rs 1.45 trillion, and the monthly average mop-up in FY23 could be around Rs 1.55 trillion.

However, initial rally get fizzled out and markets started losing gains as traders turning cautious on report that India’s current account deficit (CAD) is expected to more than double sequentially to over $30 billion in the first quarter of financial year 2022-23 (Q1FY23) to rise above 3 per cent of gross domestic product (GDP) from $13.4 billion, or 1.5 per cent of GDP, in the previous quarter. Selling in second half of the trade mainly played spoil sports for local bourses and dragged them to end below neutral lines as market participants were largely remained on sidelines amid a private report stating that India’s central bank is expected to increase its policy rate by half a point for the third time in a row as the currency’s plunge to a record low this month complicates the battle against inflation.

Weak opening in European too dampened sentiments as all the major indices were trading in red lowers as host of companies, including Swedish group H&M, warned about the effect of rising inflation and costs on their business, dampening the mood ahead of the release of expected red-hot German inflation data. Asian markets ended mostly in red even after Malaysia's producer price inflation eased for the third straight month in August to reach its lowest level in nearly one-and-a-half years. The figures from the Department of Statistics showed that producer prices climbed 6.8 percent year-over-year in August, slower than the 7.6 increase in July. Prices have been increasing since February 2021.

Back home, India has proposed additional customs duties of 15 per cent on the import of 22 products, including whiskey, cheese and diesel engine parts, from the UK in retaliation to Britain's decision to impose restrictions on steel products. On the sectoral front, pharmaceutical industry stocks remained in focus, as aided by double-digit sales growth across therapies, except anti-infectives, Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the Indian pharmaceutical market (IPM) continued to deliver healthy sales growth for the third consecutive month at 12.1% mom (month on month) in August 2022. This is despite the higher base impact (August 2021 growth at 18.1% yoy). Meanwhile, stocks related to tea industry remained in focused, as Tea exports during the period January to July in the calendar year 2022 have touched 116.36 million kg as compared to 103.38 million kg in the same period of 2021.

Finally, the BSE Sensex fell 188.32 points or 0.33% to 56,409.96 and the CNX Nifty was down by 40.50 points or 0.24% to 16,818.10.

The BSE Sensex touched high and low of 57,166.14 and 56,314.05, respectively. There were 14 stocks advancing against 16 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.31%, while Small cap index was up by 0.63%.

The top gaining sectoral indices on the BSE were Metal up by 1.52%, Healthcare up by 1.37%, FMCG up by 0.96%, PSU up by 0.63% and Realty up by 0.40%, while Utilities down by 1.38%, Power down by 1.30%, IT down by 0.60%, Bankex down by 0.42% and TECK down by 0.34% were the top losing indices on the BSE.

The top gainers on the Sensex were ITC up by 2.51%, Dr. Reddy's Lab up by 2.16%, Tata Steel up by 1.68%, Sun Pharma up by 1.38% and Nestle up by 1.17%. On the flip side, Asian Paints down by 5.22%, Tech Mahindra down by 1.86%, Titan Company down by 1.69%, Kotak Mahindra Bank down by 1.49% and Bajaj Finance down by 1.36% were the top losers.

Meanwhile, rating agency Icra has retained its previous growth forecast of 7.2 per cent for India for the current fiscal (FY23), aided by a revival in contact-intensive services owing to pent-up demand, and a back-ended pick-up in government and private capex. It said growth is likely to pick up to pre-Covid levels on the back of pent-up demand, even though on an annualised basis, the absolute numbers will be falling from Q1 (13.5 per cent) to a much lower level in Q2 and further down in the two remainder quarters due to the high base.

The agency expects the growth momentum to lose steam and slows down to 6.5-7 per cent in Q2 and further 5-5.5 per cent each in Q3 and Q4 of FY2023 due to base effect, which is still higher the RBI forecast for these two quarters as she foresees a broad-based pick-up in private sector capex beginning from end of 2022, notwithstanding the higher-than-expected capacity utilisation of 74.5 per cent in Q4 FY22. It said the record generation of average daily GST e-way bills in August, owing to pre-festive stocking, indicates a revival in confidence and this, coupled with softening commodity prices, bodes well for the upcoming festive season. However, the decline in the output of key kharif crops such as paddy and flagging external demand pose risks to growth and remain the key monitorables.

The agency sees GVA (gross value add) growth 7 per cent and average retail inflation 6.5 per cent and wholesale inflation 10.1 per cent and the current account deficit nearly trebling to $120 billion or 3.5 per cent of GDP by March from $38.7 billion or 1.2 per cent in FY22. The latter, along with buoyant imports, following relatively stronger domestic demand, is expected to lead to a sharp widening of the CAD to 3.5 per cent in FY23, she said, adding although some relief is likely. Besides, gross fiscal deficit will print in at Rs 15.87 lakh crore or 6.7 per cent of GDP, which will be below the revised estimate of Rs 15.91 lakh crore or 6.9 per cent. It noted that the worst will be the rupee, which may plunge to 83 to a dollar by December and the 10-year G-sec yields to range 7.3-7.8 per cent in the rest of the year.

The CNX Nifty traded in a range of 16,788.60 and 17,026.05. There were 24 stocks advancing against 26 stocks declining on the index.

The top gainers on Nifty were ONGC up by 3.35%, Hindalco up by 2.90%, Apollo Hospital up by 2.88%, HDFC Life Insurance up by 2.63% and ITC up by 2.49%. On the flip side, Asian Paints down by 5.20%, Adani Enterprises down by 2.20%, Tech Mahindra down by 2.19%, Hero MotoCorp down by 2.12% and Bajaj Auto down by 1.95% were the top losers.

European markets were trading lower; UK’s FTSE 100 decreased 42.14 points or 0.60% to 6,963.25, France’s CAC declined 54.24 points or 0.94% to 5,710.76 and Germany’s DAX was down by 110.40 points or 0.91% to 12,072.88.

Asian markets settled mostly down on Thursday, even as Wall Street rebounded overnight after the Bank of England stepped in to buy UK debt in order to calm the UK market chaos. Meanwhile concerns over hiking interest rates and a looming recession kept investors cautious. Chinese shares declined marginally ahead of China’s Golden Week holiday from 1st to 7th October. Although, the Chinese central bank PBoC warned against speculative trading and heavy one-way bets on the currency. Japanese shares gained, led by gains in technology and pharmaceutical shares.