Benchmarks fall for second consecutive day on Wednesday

Indian equity benchmarks fell for the second consecutive day and ended with losses of over a percent on Wednesday ahead of the release of the minutes of the Reserve Bank of India’s latest monetary policy meet and key macroeconomic data from the US, while fears of a recession linger. Markets made a positive start as traders took some support with the Reserve Bank of India (RBI) stating that waning input cost pressures, buoyant corporate sales, and a turn-up in investments in fixed assets suggest the beginning of an upturn in India’s capital expenditure cycle, which could help improve earnings in the coming quarters and speed up the ‘momentum of growth’ in the Indian economy. Traders also took note of report that the Fitch Ratings affirmed India’s sovereign rating at the lowest investment grade (BBB minus) with stable outlook holding that the country’s robust medium-term growth outlook is a key supporting factor.

However soon, benchmarks erased initial gains and slipped into red in morning deals, as traders turned cautious with a labour bureau’s statement that retail inflation for farm and rural workers rose to 6.87 per cent and 6.99 per cent, respectively, in November on annual basis. Selling further crept in after Reserve Bank Governor Shaktikanta Das said underlying economic activity in India continues to be strong, but external factors will cause some dent to the economy. Some concern also came with a private report stating that mergers and acquisitions (M&A) activity globally fell well short of the high-water mark set last year as debt financing markets collapsed and stock market volatility decimated valuations, and dealmakers are predicting a slow path to recovery in 2023.

On the global front, European markets were trading higher as underlying sentiment remained supported somewhat after a survey showed German consumer sentiment is set to extend its recovery heading into the new year as a result of government measures to curb rising energy costs. Asian markets ended mixed on Wednesday as recession worries persisted, and China continued to grapple with a surge in the number of new COVID-19 cases.

Back home, power stocks were under pressure as Fitch Ratings in a report said growth in the country’s power demand is likely to slow down in the second half of the financial year ending March 2023 (H2FY23), after a robust 11.3 per cent year-on-year (YoY) growth in the first half of the year (H1FY23). Textile industry stocks were in watch as the Cotton Association of India (CAI) reduced the cotton crop estimate by 4.25 lakh bales to 339.75 lakh bales for the 2022-23 season, beginning from October 2022, as the production in Haryana, Andhra Pradesh and Karnataka is expected to decline.

Finally, the BSE Sensex fell 635.05 points or 1.03% to 61,067.24 and the CNX Nifty was down by 186.20 points or 1.01% to 18,199.10.

The BSE Sensex touched high and low of 62,006.46 and 60,938.38, respectively. There were 7 stocks advancing against 23 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 1.40%, while Small cap index was down by 2.18%.

The few gaining sectoral indices on the BSE were Healthcare up by 2.25% and IT up by 0.23%, while Utilities down by 2.50%, Power down by 2.40%, Telecom down by 2.32%, PSU down by 2.15% and Industrials down by 2.13% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 1.67%, HCL Technologies up by 1.01%, Tech Mahindra up by 0.75%, TCS up by 0.75% and Nestle up by 0.49%. On the flip side, Indusind Bank down by 2.28%, Maruti Suzuki down by 2.04%, Ultratech Cement down by 1.96%, Bajaj Finserv down by 1.88% and ICICI Bank down by 1.88% were the top losers.

Meanwhile, the finance ministry in its report, on Half Yearly Review of the Trends in Receipts and Expenditure in relation to the Budget at the end of the first half of FY23, has said that government remains committed towards strong macroeconomic fundamentals and financial stability despite global headwinds.  The current global economy is navigating through incredibly rough waters attributed to global uncertainties, the unfolding of conflict in Ukraine, the reaction of financial and commodity markets to the changing scenarios and tight monetary policy, etc.

It mentioned ‘However, despite hurdles, the Indian economy has performed reasonably well as compared to other major economies and shown its resilience amidst the global slowdown and global uncertainties.’ It stated the budget 2022-23 was presented against the backdrop of recovery from the unprecedented Covid-19 crisis and clues of global uncertainties on account of the war in Ukraine.

Further, it stated the fiscal policy led by favourable macroeconomic fundamentals ensured a higher pace of capital expenditure compared to last year to push for rapid infrastructure development, considering the multiplier effect of capital expenditure on the overall economy. The government has increased the allocation to capital expenditure by 35 per cent to Rs 7.5 lakh crore in 2022-23 as compared to Rs 5.5 lakh crore in the previous year. This is 2.9 per cent of GDP, the highest ever.

The CNX Nifty traded in a range of 18,473.35 and 18,162.75. There were 12 stocks advancing against 38 stocks declining on the index.

The top gainers on Nifty were Divi's Lab up by 4.88%, Cipla up by 3.51%, Apollo Hospital up by 3.34%, Sun Pharma up by 2.13% and Dr. Reddy's Laboratories up by 0.99%. On the flip side, Adani Enterprises down by 6.15%, Adani Ports & SEZ down by 2.88%, Ultratech Cement down by 2.40%, Indusind Bank down by 2.24% and Bajaj Finserv down by 2.21% were the top losers.

European markets were trading higher; UK’s FTSE 100 increased 39.30 points or 0.53% to 7,409.92, France’s CAC increased 61.17 points or 0.95% to 6,511.60 and Germany’s DAX increased 94.25 points or 0.68% to 13,978.91.

Asian markets ended mixed on Wednesday after a modestly higher close on Wall Street overnight. Moreover, lingering worries over recession and surging new Covid-19 cases in China also added more pressure on market sentiments. Japanese shares extended losses following the Bank of Japan’s (BoJ) unexpected tweak to its bond yield control program.  BoJ decided to allow the 10-year bond yields move 50 basis points either side of its 0% target, wider than the previous 25 basis point band.