The 10-year benchmark government security (G-Sec) yield, which sets the tone of the...
Support for the Nifty exists between the current level and 7,500
As suggested on Monday the S&P BSE Sensex and CNX Nifty gave up gains on Tuesday but not in the manner we expected. The decline was big, the biggest this year. Ahead of the rail budget, the stock market opened in a lull and kept trading near to the yesterday’s close. Market remained in the same range upto noon after which it started moving down.
Market players did not cheer to the steps taken by the railway minister Sadananda Gowda. Markets started moving down after 2pm and ended in a waterfall decline.
The Sensex opened at 26,167 and moved lower from the level of 26,190 to 25,495 and closed at 25,582 (down 518 points or 1.98%) while the Nifty opened at 7,804 and hit a low of 7,596 after hitting a high of 7,809 and closed at 7,623 (down 164 points or 2.11%). The Sensex recorded the highest percentage loss since 27 January 2014 while Nifty made the highest percentage loss since 3 September 2013. The NSE recorded a higher volume of 122.43 crore shares. India VIX fell 1.17% to close at 19.18.
All the other indices on the NSE closed in the negative. The top five losers were Realty (7.35%), Nifty Midcap 50 (6.06%), Infra (5.22%), PSE (5.05%) and Smallcap (5.04%).
Of the 50 stocks on the Nifty, 2 ended in the green. The only two gainers were Sun Pharma (0.62%) and ITC (0.06%). The top five losers were DLF (8.53%), Bhel (8.21%), Jindal Steel (6.07%), NMDC (5.97%) and Power Grid (5.92%).
Of the 1,588 companies on the NSE, 213 companies closed in the positive, 1,344 closed in the negative while 31 companies closed flat.
Gowda said that he aims to make India the largest freight carrier of the world. He foresees the market borrowing of railways to be at Rs11,790 crore for FY 2015. The railway minister said that out of 676 projects sanctioned, only 356 remain completed and it may require Rs5 lakh crore to complete ongoing projects. One of the steps in the rail budget was that the rail ministry is seeking Cabinet nod to allow foreign direct investment (FDI) in the sector. Plans to bring periodic revision in passenger fare and freight rates which is linked to revisions in fuel prices. Gowda said bulk of future projects will be financed via public–private partnership route.
Finance Minister Arun Jaitley will present the final Union Budget for 2014-15 in Lok Sabha on Thursday.
In the Sensex 30 pack Sun Pharma (0.69%), HDFC (0.48%) and ITC (0.36%) were the only gainers. Bhel (8.16%) was the top loser among the Sensex stocks.
Market regulator SEBI has refused the request of MCX's to club its shareholding in MCX Stock Exchange (MCX-SX) with that of Financial Technologies. This means MCX will have to divest its entire shareholding in MCX-SX. However MCX (4.18%) was the top gainer in the ‘A’ group on the BSE.
Syndicate Bank, which filed its shareholding pattern with the BSE as on 30 June 2014, today showed that the FIIs holding in the bank has increased from 6.56% in March 2014 to 8.07% in June 2014. Syndicate Bank (8.94%) was among the top five losers in the ‘A’ group on the BSE.
US indices closed Monday in the negative. Asian indices showed a mixed performance. Jakarta Composite (0.72%) was the top gainer while Nikkei 225 (0.42%) was the top loser. European indices were trading in the red. US Futures were trading marginally lower.
Tempering the rising expectations from the forthcoming Budget, Credit Suisse says the options before Finance Minister are limited and 10th July will be a 'non-event' for markets
The much-awaited maiden Budget of the Narendra Modi government will be tabled on Thursday by finance minister Arun Jaitley. According to Credit Suisse, other than a vague hope, there aren't any uniform 'expectations' from the Budget given that no one knows what the government is working on. "It means large-scale disappointment is also unlikely. We expect the budget to be a non-event for the broader market, though specific changes such as revisions of excise duty for cigarettes, gold import duty, or other such duty tweaks could affect specific sectors," it said in a research note.
According to Credit Suisse, there is little concrete information about what the budget may contain, given the gag order on ministers and bureaucrats from talking to the media on government steps, which are still being firmed up. Given the excitement in print and broadcast media, market interest has built up, but Credit Suisse said it do not see any consistent 'expectation' from the budget, which makes the event less likely to affect the market.
Credit Suisse says its analysis can be dismissed as backward looking, particularly given the historic nature of the electoral verdict backing this government. But it said, "While the argument has merit, it is unwise to expect the change to appear within six weeks of government formation, particularly as most of the bureaucracy drafting the budget is still the same."
"But can the government provide a roadmap in the Budget that excites the market? Over and above the Presidential speech that inaugurated the new Parliament, and included the contents of the Bharatiya Janata Party (BJP) election manifesto, there is little else in terms of concrete development that the government can demonstrate at this early stage. Nevertheless, we believe the market would look out with interest for the government's updates on real estate investment trusts (REITs), PSU bank recapitalisation, goods & services tax (GST), fiscal responsibility and budget management (FPBM), rural infrastructure spending, urban infrastructure and direct taxes code (DTC),” it added.
The fiscal straitjacket limits room for manoeuvre
Credit Suisse says it does not believe in a noticeable change in fiscal deficit that would affect the market. It said, "...the central government has limited control on its finances. The highly volatile corporate tax is more than a third of its revenues, versus just 11% in the US for example. The dependency on an unstable revenue source, particularly as half the economy is informal and therefore near impossible to tax, limits predictability in government finances."
"This volatility in revenues is matched with a lack of discretion in expenditure, as the bulk of net central expenditure is on salaries, interest payments and revenue expenditure on defence (i.e., salaries and consumables for the armed forces). While subsidies can indeed be cut, it is hard to see a meaningful step away by the government on food subsidy in FY15, which is nearly half the budgeted subsidy bill. In particular, the critical state elections in Maharashtra and Haryana due in October/November this year are likely to push out any steps that could be unpopular," the Swiss brokerage added.
Stating that the spillover from the previous year’s performance limits the ability to trim fiscal deficit this financial year, Credit Suisse said the roadmap on that front which Jaitley lays down will be of greater interest though it is too early to expect details on it.
As for FY15’s fiscal deficit number, it said divestment can help improve the situation. The interim Budget had pegged the fiscal deficit target at 4.1% of GDP on a projected 19% improvement in tax collection.
“FY15 deficit could be raised (above the figure of 4.1% stated by Jaitley’s predecessor P Chidambaram), but commitment to deficit of 3% of GDP by FY17 will likely be reiterated,” it added.
It can be noted that in the first two months of the current fiscal itself, government’s borrowing had touched a whopping 45.6%, while tax mop-up grew at a tepid 3.1%, as the government has front-loaded the subsidy payments, including those that were to be paid last fiscal.
The brokerage said some commentary on state-run banks’ recapitalisation, laying out a clear roadmap on the way forward for this, would be of help.