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Market Commentary 02 June 2017
Markets to make a positive start amid sanguine global cues


Indian equity market commenced the new month on a sluggish note, as the benchmarks showcased an unenthusiastic performance on Thursday and settled with moderate cuts as investors remained cautious after India's economic growth unexpectedly slumped to its lowest in more than two years in the March quarter, stripping the country of its status as the world's fastest growing major economy. The country's GDP or gross domestic product growth slowed to 6.1% in the fiscal fourth quarter from 7% in the third, while Gross value added (GVA), the difference between gross domestic product (GDP) and net indirect taxes, grew by only 5.6 per cent in Q4 - the lowest in at least eight quarters. Besides, a sharp fall in the output of coal, natural gas and crude oil pulled down growth in the group of eight core sectors to a three-month low in April, also weighed on investors' morale. The core sector expanded 2.5 per cent in the first month of the new fiscal year, compared with 5.3% in March and 8.7% a year earlier. Further, market participants also remained jittery after the report that manufacturing sector growth in the country moderated to a three-month low in May amid softer rise in new orders and production. The Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) -- an indicator of manufacturing activity -- declined from 52.5 in April to a three-month low of 51.6 in May. However, losses remained capped with the report that Fiscal deficit in fiscal 2017 was 3.5% of GDP, in line with the budget projection, reflecting the government's commitment to the process of fiscal consolidation. In fiscal 2016, the deficit was 3.9% of GDP. Furthermore, the government's decision to unveil the budget early seems to have paid off with spending having picked pace in the first month of the financial year itself. The government spent 11.3% of the budgeted expenditure in April, with capital expenditure topping the overall spending. Meanwhile, sugar stocks gained traction after the report that India's 2017/18 sugar production will likely jump a quarter from the previous year to 25 million tonnes as decent monsoon rains are forecast. India's monsoon, which is forecast to deliver normal rainfall in 2017, lashed the country's southwest coast on Tuesday, two days ahead of usual. Finally, the BSE Sensex lost 8.21 points or 0.03% to 31137.59, while the CNX Nifty was down by 5.15 points or 0.05% to 9,616.10.

 

The US markets closed higher on Thursday, as a strong read on private-sector employment helped to bolster confidence in the economy ahead of Friday's closely watched jobs report. President Donald Trump's announcement that the US will withdraw from the Paris climate accord did not have a direct impact on stocks despite vocal opposition from high-profile corporate leaders. Federal Reserve Governor Jerome Powell said it would be appropriate for the US central bank to gradually raise interest rates if the economy performs as expected. On the economy front, private-sector hiring surged in May. Employers added a seasonally adjusted 253,000 during the month. That was a much stronger pace of hiring than the Econoday consensus, which had called for 170,000 jobs. Small businesses added 83,000 jobs in May, medium-sized businesses added 113,000, and large firms hired 57,000 workers. April's job gains, originally reported as 177,000, were revised down to 174,000. US manufacturing continued to churn higher in May. The Institute for Supply Management said its manufacturing index edged up a 10th of a point to 54.9%. The Dow Jones Industrial Average added 135.53 points or 0.65 percent to 21,144.18, Nasdaq was up 48.31 points or 0.78 percent to 6,246.83, while S&P 500 edged higher by 18.26 points or 0.76 percent to 2,430.06.

 

Crude oil futures on Nymex made some recovery on Thursday, after data showed that supplies of US crude fell more than expected and were down for the eighth consecutive week. However, inventories remain above normal limits and were at record highs as recently as March, keeping the prices under pressure. Also, the early momentum was offset by an announcement from President Donald Trump that the U.S. is withdrawing from the 2015 Paris climate agreement. Meanwhile, Energy Information Administration (EIA) inventories of US crude fell by roughly 6.4m barrels in the week ended May 19. Gasoline inventories dropped by 2.86m barrels, while distillate stockpiles unexpectedly rose by 394,000 barrels. Benchmark crude oil futures for July delivery ended up by $0.04 or 2.7 percent to $48.36 on the New York Mercantile Exchange. In London, Brent crude for July delivery ended lower by $0.21 to $50.55 on the ICE.

 

Continuing its rising streak for the second straight day, Indian rupee ended marginally higher against dollar on Thursday, due to sustained selling of the US currency by exporters and banks. Sentiments remained positive with the report that Fiscal deficit in fiscal 2017 was 3.5% of GDP, in line with the budget projection, reflecting the government's commitment to the process of fiscal consolidation. In fiscal 2016, the deficit was 3.9% of GDP. Besides, dollar's weakness against some currencies overseas too supported the rupee. However, gains were muted with India losing the tag of the world's fastest growing major economy to China with a gross domestic product growth of 6.1% in the three months through March from a year earlier, also slowing from a provisional 7% in the previous quarter. Growth for the year ending in March came in at 7.1%, in line with the official estimate. On the global front, sterling retreated against dollar on fears that Prime Minister Theresa May could lose control of parliament in Britain's June 8 election. Finally, the rupee ended at 64.47, 4 paise stronger from its previous close of 64.51 on Wednesday.

 

The FIIs as per Thursday's data were net buyers in equity and debt segments both. In equity segment, the gross buying was of Rs 16712.46 crore against gross selling of Rs 15580.62 crore, while in the debt segment, the gross purchase was of Rs 1208.88 crore with gross sales of Rs 448.28 crore.

 

The US markets rebounded in last session supported by some upbeat economic data that offset the weakness seen in the two previous sessions. Private payroll processor ADP showed a jump in private sector employment in the month of May. The Asian markets have made mostly a positive start led by the rally in the Japanese market which topped 20,000 for the first time since 2015, as the yen weakened after private American hiring data bolstered confidence in the global economy. The Indian markets showing a lackluster trade ended marginally in red again in last session, as slew of disappointing economic reports on GDP, core sector output and manufacturing stirred concerns about the state of the economy. Today, the start is likely to see some recovery on positive global cues. Traders will be getting some support with NITI Aayog Vice Chairman Arvind Panagariya's statement that India will regain the crown of the fastest growing major economy, overtaking China, as early as the first quarter of 2017-18. He said that India, on an annual basis, is ahead of China and will regain the growth momentum soon on the back of host of reforms initiated by the Modi government in the last three years. Meanwhile, Finance Minister Arun Jaitley while maintaining that the decline in fourth quarter GDP print cannot be attributed to demonetisation alone has said that India growing at 7-8 percent is 'fairly reasonable' in the current global context. Also, the Moody's Investors Service has said that India's key reforms, including the impending goods and services tax and resolution of sticky loans may improve the country's credit profile. Realty sector may see some action, as the government has set a target of constructing 51 lakh houses by March 2018 to reach halfway towards its goal of building 1crore houses by 2019.

Support and Resistance: NSE (Nifty) and BSE (Sensex)

 

Index

Previous close

Support

Resistance

NSE Nifty

9616.10

9592.45

9637.20

BSE Sensex

31137.59

31062.03

31213.13

 

Nifty Top volumes

 

Stock

Volume

(in Lacs)

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

ICICI Bank

180.76

320.10

316.02

324.92

Vedanta

152.95

231.25

227.60

238.00

Sun Pharma

141.70

507.45

498.38

520.23

Hindalco

122.62

197.25

194.52

200.72

SBI

121.87

287.45

284.23

291.03

  • IOC has raised Petrol prices by Rs 1.23 per litre and Diesel prices by 89 paise with effect from June 1, 2017.
  • BPCL's arm - Bharat PetroResources and its partners are in talks to buy 49% stake in Russia's Vankor cluster oilfields to consolidate their presence in the energy-rich Arctic region.
  • Maruti Suzuki India has reported a jump of 11.3% in total sales at 1,36,962 units in May 2017.
  • Mahindra & Mahindra has reported its auto sales performance for May 2017 which stood at 41,895 vehicles compared to 40,656 vehicles during May 2016, representing a growth of 3%.
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