Markets end flat with negative bias

Indian equity benchmarks ended flat with a negative bias on Monday as investors started booking profit at higher levels to avoid any knee jerk reaction in the market ahead of the results of the Lok Sabha polls announcement. Markets opened on positive note and extended the gains as the day progress, as traders took some support with the latest data published by the Reserve Bank of India showing that India’s forex reserves surged by $4.54 billion to $648.7 billion as of May 17, marking an all-time high. Some support also came with the Finance Ministry’s report stating that the economic momentum in the April-June quarter of 2024-25 will continue with a likely boost in the merchandise exports as a result of supply chain resilience, while India’s macroeconomic buffers will help navigate through the risk of volatility in oil prices.

Sentiments remained positive in afternoon deals amid positive global cues. Traders took a note of the Ministry of Commerce & Industry’s statement that the World Intellectual Property Organization (WIPO) treaty on intellectual property, Genetic resources and associated traditional knowledge, is a significant win for countries of the global South and for India, which is a mega biodiversity hotspot with abundance of traditional knowledge, and wisdom. However, the indices gave up the day's gains and turned flat towards the end of the session amid foreign fund outflows. Foreign institutional investors (FII) sold shares worth Rs 944.83 crore on May 24, 2024, according to the provisional data available on the NSE. Some concern also came as the data showed that India has recorded a trade deficit, the difference between imports and exports, with nine of its top 10 trading partners, including China, Russia, Singapore, and Korea, in 2023-24. The data also showed that the deficit with China, Russia, Korea, and Hong Kong increased in the last fiscal compared to 2022-23, while the trade gap with the UAE, Saudi Arabia, Russia, Indonesia, and Iraq narrowed.

On the global front, European markets were trading in green ahead of key inflation data from the United States and Europe, due later this week. Euro zone consumer prices data for May could provide additional clues on whether the European Central Bank will cut interest rates next week.  Asian markets settled mostly higher on Monday as investors awaited U.S., European, Japanese and Australian inflation readings this week for clarity on the global interest rate outlook.

Finally, the BSE Sensex fell 19.89 points or 0.03% to 75,390.50, and the CNX Nifty was down by 24.65 points or 0.11% points to 22,932.45. 

The BSE Sensex touched high and low of 76,009.68 and 75,175.27 respectively. There were 12 stocks advancing against 18 stocks declining on the index.

The broader indices ended mixed; the BSE Mid cap index rose 0.63%, while Small cap index was down by 0.09%.

The top gaining sectoral indices on the BSE were Realty up by 0.76%, Bankex up by 0.63%, IT up by 0.48%, TECK up by 0.18% and PSU up by 0.17%, while Oil & Gas down by 0.71%, Energy down by 0.66%, Basic Materials down by 0.61%, Power down by 0.49% and Metal down by 0.39% were the top losing indices on BSE.

The top gainers on the Sensex were Indusind Bank up by 1.65%, Axis Bank up by 1.00%, Bajaj Finance up by 0.87%, HDFC Bank up by 0.75% and Larsen & Toubro up by 0.69%. On the flip side, Wipro down by 2.36%, NTPC down by 1.40%, Sun Pharma down by 1.34%, Mahindra & Mahindra down by 1.34% and ITC down by 1.05% 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 traded in a range of 23,110.80 and 22,871.20. There were 21 stocks advancing against 29 stocks declining on the index.

The top gainers on Nifty were Divi's Lab up by 2.99%, Indusind Bank up by 1.39%, Adani Ports & SEZ up by 1.17%, Axis Bank up by 1.13% and LTIMindtree up by 1.04%. On the flip side, Adani Enterprises down by 2.66%, Wipro down by 2.17%, Grasim Industries down by 2.09%, SBI Life Insurance down by 2.04% and ONGC down by 1.75% were the top losers.

European markets were trading in green; France’s CAC rose 11.15 points or 0.14% to 8,106.12 and Germany’s DAX gained 17.74 points or 0.09% to 18,711.11.

Asian markets settled mostly higher on Monday ahead of the United States, European, Japanese and Australian inflation readings this week for clarity on the global interest rate outlook. Meanwhile, China's official PMI figures as well as India's fiscal fourth-quarter GDP numbers will be out on Friday. Chinese shares gained after official data showed profits at China's industrial companies rose 4.3% in the first four months from the same period last year. Moreover, Japanese shares rose by tracking Wall Street’s gains last Friday. Bank of Japan Governor Kazuo Ueda said that they have made progress in moving away from zero and lifting inflation expectations but added that they now must re-anchor them at the 2% target.