Markets trade flat in early deals ahead of RBI MPC outcome

Indian equity benchmarks made cautious start on Wednesday amid weak global cues. Markets are struggling for direction and trading flat in early deals ahead of the Reserve Bank of India's monetary policy announcement later in the day. There are expectations that the RBI MPC is set to announce further repo rate hikes amid elevated inflation, geopolitical tensions, and fears of a global recession. Though, downside remained capped as the World Bank in its India Development Update said the central government is on track to meet its fiscal deficit target of 6.4 per cent of the GDP for 2022-23 on the back of strong growth in revenue collections. It said high nominal GDP growth in the first quarter supported strong growth in revenue collection, especially Goods and Services Tax (GST), despite tax cuts on fuel. Adding some optimism, Fitch Ratings retained India's economic growth forecast at 7 per cent for the current fiscal, saying India could be one of the fastest-growing emerging markets this year. Some support also came in with a private report that amid restrictions in view of the Covid-19 pandemic in China, India seems to be emerging as a key investment destination for multinational corporations.

On the global front, most of the Asian markets are trading lower following the broadly negative cues from global markets overnight, as traders remain concerned about the outlook for interest rates and about how much further the central bank will raise rates ahead of next week's US Fed meeting following recent upbeat economic data. Back home, power stocks were in focus as India's thermal power generation registered a growth of 16.28 per cent at 87,687 MU (million units) in November this year as compared to 75,412 MU generated in the corresponding month of previous fiscal. In stock specific development, Siemens jumped after the firm emerged as the lowest bidder for the 9000 HP electric locomotives project in Dahod, Gujarat.

The BSE Sensex is currently trading at 62648.78, up by 22.42 points or 0.04% after trading in a range of 62524.02 and 62671.63. There were 11 stocks advancing against 19 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index rose 0.23%, while Small cap index was up by 0.12%.

The top gaining sectoral indices on the BSE were Capital Goods up by 0.96%, Oil & Gas up by 0.70%, Industrials up by 0.63%, FMCG up by 0.48%, Energy up by 0.39%, while Metal down by 0.43%, Utilities down by 0.33%, IT down by 0.31%, Auto down by 0.30%, Consumer Durables down by 0.20% were the top losing indices on BSE.

The top gainers on the Sensex were Asian Paints up by 1.28%, Larsen & Toubro up by 1.01%, ICICI Bank up by 0.96%, Hindustan Unilever up by 0.73% and Ultratech Cement up by 0.43%. On the flip side, NTPC down by 0.94%, Kotak Mahindra Bank down by 0.88%, HCL Technologies down by 0.74%, Wipro down by 0.72% and Dr. Reddy's Lab down by 0.58% were the top losers.

Meanwhile, the World Bank in its India Development Update said the central government is on track to meet its fiscal deficit target of 6.4 per cent of the GDP for 2022-23 on the back of strong growth in revenue collections. High nominal GDP growth in the first quarter supported strong growth in revenue collection, especially Goods and Services Tax (GST), despite tax cuts on fuel. It said public debt is also projected to decline to 84.3 per cent of GDP in FY23, from a peak of 87.6 per cent in FY21. The central government's revenues increased by 9.5 per cent and spending by 12.2 per cent. As a result, it said, the fiscal deficit touched 37.3 per cent of the annual target in H1 FY22/23, above the 35 per cent of the same half last year. It also said ‘this masked strong growth in gross tax revenues, which increased by 17.6 per cent y-o-y and resulted in larger transfers to the state governments. Budget execution has also improved with capital spending increasing by 35 per cent’. With regard to the current account deficit, the report said it turned into a deficit of 1.1 per cent of GDP in 2021-22 from a surplus in the previous year, and the deficit widened further in FY'23 due to surging imports.

Thus far, it said, India's current account balance remains adequately financed by robust net capital inflows. Foreign Direct Investment (FDI) inflows the main source of financing for the current account deficit were stable at around 1.6 per cent of GDP in Q1 FY22/23, up from an average of 1.2 per cent in the previous fiscal year. It said this has partially offset the initial net outflows of foreign portfolio investment, which was 1.7 per cent of GDP. It added ‘The slowdown in advanced economies (AEs) could also position India as a more attractive alternative investment destination. The government is also expected to introduce new production-linked investment incentives and fiscal measures to encourage foreign investment in various sectors of the economy’.

With the RBI raising policy rates, it said the widening interest-rate differential with the US Federal Reserve could also help prevent capital outflows. On the external front, it said, the income elasticity of India's exports is high and thus exports are susceptible to the global growth slowdown. India is also a net importer of crude oil and elevated global commodity prices will continue to weigh on domestic inflation, constraining domestic activity. However, the recent decline in commodity prices may dampen inflationary pressures. Observing that the economy is relatively more insulated from global spillovers than other emerging markets, the report said India is less exposed to international trade flows and relies on its large domestic market.

The CNX Nifty is currently trading at 18640.85, down by 1.90 points or 0.01% after trading in a range of 18608.45 and 18655.30. There were 18 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were BPCL up by 2.19%, Asian Paints up by 1.26%, Larsen & Toubro up by 1.11%, ICICI Bank up by 0.83% and Cipla up by 0.76%. On the flip side, Tata Motors down by 1.16%, Kotak Mahindra Bank down by 0.90%, NTPC down by 0.86%, JSW Steel down by 0.84% and Wipro down by 0.79% were the top losers.

Asian markets are trading mostly in red; Nikkei 225 slipped 154.17 points or 0.55% to 27,731.70, Straits Times fell 2.62 points or 0.08% to 3,249.75, Taiwan Weighted lost 22.86 points or 0.16% to 14,706.02, KOSPI declined 2.16 points or 0.09% to 2,391.00, Jakarta Composite plunged 74.08 points or 1.07% to 6,818.49 and Shanghai Composite was down by 12.84 points or 0.40% to 3,199.69 On the other hand, Hang Seng was up by 28.01 points or 0.14% to 19,469.19.