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Markets stage recovery on value buying; Sensex ends with 0.21% gains
Dec-18-2018

The equity benchmarks staged smart recovery on Tuesday to end the session in green terrain, on account of late hour value buying. After a weak start, the markets remained in red territory for the most part of the session, impacted by former Reserve Bank of India (RBI) Governor Raghuram Rajan’s statement that at a time when the world economy was growing, demonetisation slowed down India’s economic growth and impacted the GDP significantly. Domestic sentiments also remained dampened with S&P Global Ratings’ statement that the increasing involvement of the government in the affairs of the Reserve Bank of India (RBI) could undermine the hard-fought improvements in the banking system over the past few years. It termed the exit of Urjit Patel as credit negative. Sentiments got hit with reports that the Central Goods and Services Tax (CGST) department has detected a fraud of GST and Input Tax Credit (ITC) in the metal scrap business across Madhya Pradesh, Maharashtra and Gujarat. The fraud amount is likely to around Rs 200 crore. Some concerns was also due to a private report stating that despite the electoral reverses in key states faced by the ruling BJP, the Union government is unlikely to announce any large farm loan waiver or fiscal sops ahead of general elections. Traders also took a note of Engineering exporters’ body EEPC India stating that exporters are facing the threat of losing refunds and a possible action by the Enforcement Directorate as banks are not issuing remittance receipts despite submission of required documents.

However, the key indices erased all of their losses to settle higher, continuing gaining rally for the sixth straight session, despite weak trend in global markets. The street got relief with Prime Minister Narendra Modi’s statement that his government wants to ensure that 99 percent things attract sub-18 per cent GST slab, indicating further simplification of the GST is on the anvil. The markets participants took support with the Ministry of Commerce’s latest report showing that India’s Foreign Direct Investment (FDI) increased constantly to $60.97 billion in the financial year 2018 (FY18) from $45.15 billion in Financial year 2015 (FY15). Further, adding some comfort among the traders, the Export Import Bank of India (Exim Bank) said the country's export growth will surge to 7 percent for the October-December quarter. The Exim Bank estimate said merchandise exports will go up to $82.39 billion for the third quarter of the fiscal year, as against $77 billion. Investors took note of Commerce and Industry Minister Suresh Prabhu’s statement that huge investment opportunities exist in India in various sectors including construction for Turkish companies. Meanwhile, Niti Aayog Vice Chairman Rajiv Kumar said that there is a need to identify and remove impediments that are stopping India from achieving a competitive advantage in global markets. It is time to bring the global trends to domestic market and make Indian manufacturing an exporting sector as it is an essential growth enabler.

On the global front, European markets were trading in red, as UK households' assessment of their future financial wellbeing fell to its lowest level in six months in December, amid a stronger increase in living costs and a weaker rise in employee earnings. The survey data from the IHS Markit and Ipsos MORI showed that the IHS Markit Household Finance Index, or HFI, fell to 43.9 from 44.4 in November, marking the lowest reading since June. The street overlooked reports that Eurozone consumer price inflation in November eased more than initially estimated. The latest data from Eurostat showed that the consumer price index rose 1.9 percent year-on-year, which was slower than the 2 percent flash estimate on November 30. The figure is the lowest since May, when it was at the same level. Asian markets ended in red, as global growth worries persisted. Adding some worries, Japan's government revised down its forecasts for economic growth and consumer prices for the current and next fiscal years as natural disasters and weakening export demand weighed on the economy.

Back home, telecom stocks ended higher, as the department of telecommunications (DoT) set for itself an ambitious target of completing the procedure for auctioning 5G spectrum by August next year, while stocks related to agri industry remained in limelight, amid reports that the food processors' association AIFPA demanded tax on agri-produce processed at a primary level be exempted or lowered to encourage the sector and boost farmers' income, ahead of the GST council meeting. Besides, the e-commerce sector related stocks remained in focus with report that the National Association of Software and Services Companies (NASSCOM) Strategic Review 2018, in the Information Technology and Business Process Management (IT-BPM) sector in India, said that the Indian e-commerce market grew 17% to $38.5 billion in the financial year 2018-19, while rubber stocks remained in focused with a private report that the government has taken various measures to help rubber growers. These include regulating the import of natural rubber and increasing the import duty on dry rubber. The development comes against the backdrop of falling prices, which are impacting the rubber farmers.

Finally, the BSE Sensex surged 77.01 points or 0.21% to 36,347.08, while the CNX Nifty was up by 20.35 points or 0.19% to 10,908.70.

The BSE Sensex touched a high and a low of 36,375.38 and 36,046.52, respectively and there were 22 stocks advancing against 9 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index rose 0.21%, while Small cap index was up by 0.45%.

The top gaining sectoral indices on the BSE were Power up by 1.09%, Capital Goods up by 1.08%, PSU up by 1.07%, Telecom up by 0.97% and Utilities up by 0.95%, while TECK down by 1.13%, IT down by 1.08%, FMCG down by 0.29%, Consumer Durables down by 0.02% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 2.98%, Power Grid up by 1.74%, Mahindra & Mahindra up by 1.62%, Vedanta up by 1.58% and Asian Paints up by 1.47%. On the flip side, Infosys down by 2.48%, Wipro down by 1.29%, Yes Bank down by 1.21%, ITC down by 0.75% and Hindustan Unilever down by 0.56% were the top losers.

Meanwhile, Former RBI Governor Raghuram Rajan has warned that transfer of excess reserve by the Reserve Bnak of India (RBI) to the government may pull down credit rating of the central bank. He also said that rating downgrade of the RBI from ‘AAA’ would make borrowing costlier for the central bank and will have implication for the entire economy. He said “We are ‘Baa’ country. We are barely investment grade. Sometime, we need to undertake international transactions which require really high credit rating.”

Emphasizing that profit of the central bank largely comes due to depreciation of Indian currency, Rajan said keeping a portion for the contingency reserves, RBI usually pays entire profit. He also noted that RBI can pay profit and not whatever it holds for contingency reserves for movement up and down. He also informed that last month, the RBI board decided to set up a high-level committee soon to examine the Economic Capital Framework (ECF) of the central bank, in a move that could prompt a rethink of what constitutes adequate capital reserves for the central bank.

Former RBI Governor further said there is always a pressure on the central bank to pay the government more. He said “the three years that I was Governor, we paid the highest dividend in RBI’s history to the government. The issue at stake is not that anymore. The issue is more than that. It’s not just the profit, they want the excess. And the Malegam Committee had opined that you cannot pay more than the profit.”

The CNX Nifty traded in a range of 10,915.40 and 10,819.10. There were 33 stocks advancing against 17 stocks declining on the index.

The top gainers on Nifty were Sun Pharma up by 2.80%, Bajaj Finance up by 2.37%, JSW Steel up by 2.28%, Vedanta up by 2.09% and M&M up by 2.07%. On the flip side, Zee Entertainment down by 8.40%, UPL down by 3.07%, Infosys down by 2.51%, Tech Mahindra down by 1.55% and Wipro down by 1.35% were the top losers.

European markets were trading in red; UK’s FTSE 100 fell 41.99 points or 0.62% to 6,731.25 and France’s CAC lost 21.55 points or 0.45% to 4,778.32, while Germany’s DAX was down by 24.17 points or 0.22% to 10,796.37.

Asian markets ended broadly in the red on Tuesday as global growth worries persisted and investors awaited the Federal Open Market Committee (FOMC) rate decision. The US Federal Reserve begins its two-day policy meeting later today and is expected to raise rates for a fourth time this year. However, the accompanying statement is likely to be dovish amid mounting risks to global growth. Chinese shares ended lower after Chinese President Xi Jinping offered no new specific measures for the implementation of reforms in a highly anticipated speech that marked the 40th anniversary of China's reform. Meanwhile, Japanese shares hit a nine-month low as caution set in ahead of the US Federal Reserve and the Bank of Japan's (BOJ) monetary policy decisions due on Wednesday and Thursday, respectively.

sian Indices

Last Trade           

Change in Points

Change in %

Shanghai Composite

2,576.65
-21.32
-0.82

Hang Seng

25,814.25
-273.73
-1.05

Jakarta Composite

6,081.87
-7.44
-0.12

KLSE Composite

1,635.31

-6.31

-0.38

Nikkei 225

21,115.45

-391.43

-1.82

Straits Times

3,045.54
-68.71
-2.21

KOSPI Composite

2,062.11
-8.98
-0.43

Taiwan Weighted

9,718.82
-68.71
-0.70
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