Markets trim gains in late afternoon session

Indian equity markets came off from day’s high levels in late afternoon session but continued to trade in green. The broader indices, the BSE Mid cap index and Small cap index also trading in green. Traders took note of Fitch Ratings’ latest report stating that the larger-than-expected Reserve Bank of India (RBI) dividend to the government should help to ensure the 5.1% of Gross domestic product (GDP) deficit target for the fiscal year ending March 2025 (FY25) and could be used to lower the deficit beyond the current target. The new government’s budget following the release of election results in June is likely to be presented in July and it will determine how the dividend will be used.

On the global front, Asian markets were trading mostly in green as investors awaited U.S., European, inflation readings this week for clarity on the global interest rate outlook. European markets were trading in green as investors awaited the release of key U.S. and European inflation readings this week for additional clues on the rate outlook. Meanwhile, German business sentiment remained unchanged in May.

The BSE Sensex is currently trading at 75800.02, up by 389.63 points or 0.52% after trading in a range of 75404.82 and 76009.68. There were 23 stocks advancing against 7 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 1.06%, while Small cap index was up by 0.24%.

The top gaining sectoral indices on the BSE were Bankex up by 1.27%, Realty up by 1.11%, IT up by 0.83%, PSU up by 0.71% and TECK was up by 0.66%, while Oil & Gas down by 0.26%, Energy down by 0.20%, Basic Materials down by 0.11%, Power down by 0.11% and FMCG was down by 0.06% were the top losing indices on BSE.

The top gainers on the Sensex were Indusind Bank up by 2.28%, Axis Bank up by 1.75%, Bajaj Finance up by 1.46%, HDFC Bank up by 1.39% and Tata Steel up by 1.23%. On the flip side, Wipro down by 1.94%, NTPC down by 1.03%, Sun Pharma down by 1.01%, ITC down by 0.57% and Mahindra & Mahindra down by 0.56% were the top losers.

Meanwhile, Fitch Ratings in its latest report has said that the larger-than-expected Reserve Bank of India (RBI) dividend to the government should help to ensure the 5.1% of Gross domestic product (GDP) deficit target for the fiscal year ending March 2025 (FY25) and could be used to lower the deficit beyond the current target. The new government’s budget following the release of election results in June is likely to be presented in July and it will determine how the dividend will be used.

The report said the government has signalled it aims to narrow the deficit gradually to 4.5% of GDP by FY26. Sustained deficit reduction, particularly if underpinned by durable revenue-raising reforms, would be positive for India’s sovereign rating fundamentals over the medium term. The RBI recently announced a record-high dividend transfer to the government equivalent to 0.6% of GDP (Rs 2.1 trillion) from its operations in FY24. This is above the 0.3% of GDP expected in the FY25 budget from February, so will aid the authorities in meeting near-term deficit reduction goals. An important driver of higher RBI profits appears to be higher interest revenue on foreign assets, though the central bank has not yet provided a detailed breakdown.

According to the report, in its post-election budget, the new government has two alternatives. First, the government could opt to keep the current deficit target for FY25, and the windfall could allow the authorities to further boost spending on infrastructure, or to offset upside spending surprises or lower-than-budgeted revenue, for example from divestment. Alternatively, all or part of the windfall could be saved, pushing the deficit to below 5.1% of GDP. The government’s choice could give greater clarity around its medium-term fiscal priorities. Transfers from RBI to the government can be significant at the margin for fiscal performance, but depend on various factors, including the size and performance of assets held on the central bank’s balance sheet and India’s exchange rate. Transfers may also be influenced by the RBI’s views on what level of buffer is appropriate to maintain on its own balance sheet. The potential volatility of transfers means there is significant uncertainty about their medium-term path, and we do not anticipate that dividends as a share of GDP will be sustained at such a high level.

The CNX Nifty is currently trading at 23057.30, up by 100.20 points or 0.44% after trading in a range of 22932.00 and 23110.80. There were 31 stocks advancing against 19 stocks declining on the index.

The top gainers on Nifty were Divi's Lab up by 3.97%, Indusind Bank up by 2.29%, Axis Bank up by 1.75%, Adani Ports up by 1.72% and Bajaj Finance up by 1.52%. On the flip side, Wipro down by 1.98%, Adani Enterprises down by 1.96%, Grasim Industries down by 1.86%, Eicher Motors down by 1.70% and ONGC down by 1.66% were the top losers.

Asian markets were trading mostly in green; Nikkei 225 surged 253.91 points or 0.65% to 38,900.02, Taiwan Weighted added 238.43 points or 1.09% to 21,803.77, Hang Seng advanced 218.41 points or 1.16% to 18,827.35, KOSPI increased 35.39 points or 1.3% to 2,722.99, Shanghai Composite strengthened 35.17 points or 1.13% to 3,124.04 and Straits Times was up by 3.21 points or 0.1% to 3,319.77. On the flip side, Jakarta Composite was down by 44.1 points or 0.61% to 7,178.28.

European markets were trading in green; France’s CAC rose 10.93 points or 0.14% to 8,105.90 and Germany’s DAX was up by 20.08 points or 0.11% to 18,713.45.