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Market Commentary 08 June 2017
Markets to make a cautious start on mixed global cues


Indian equity indices concluded the season on a positive note on Wednesday, as investor turned optimistic after Reserve Bank of India (RBI) used a less hawkish tone and reduced the Statutory Liquidity Ratio (SLR) in its second bi-monthly monetary policy for financial year 2017-18. The slashed in SLR or the percentage of deposits that banks have to park in government securities by 0.5% to 20% will allow banks to increased lending. RBI left repo and reverse repo rates unchanged at 6.25% and 6%, respectively and lowered its inflation estimates for the current financial year. The central bank, however, raised concerns over the possibility of fiscal slippages due to the farm loan waivers. RBI also cut the economic growth projection to 7.3% for the current fiscal from 7.4% earlier. With the UK elections, the European Central Bank's (ECB) policy meeting, and former FBI director James Comey's Senate testimony all set for Thursday, investors were noticeably risk averse across the globe.  Sentiments got some support after the Met Department has upgraded the South-West monsoon forecast to 98% of the long-term average rainfall from 96% earlier. Rainfall during the June-September monsoon season is expected to be normal, with a high possibility of all four broad geographical regions receiving evenly distributed rains. Some support also came with NITI Aayog CEO Amitabh Kant's statement that the Goods and Services Tax, to be rolled out next month as the biggest tax reform since independence, will help India achieve 9% growth rate. He said GST will simplify India's taxation system and help deal with tax evasion. Meanwhile, many banking stocks gained traction on hopes of early resolution to stressed assets issue and recapitalisation of PSUs. The Reserve Bank of India said it would continue to work in partnership with the government to address the stress in banks' balance sheets. Finally, the BSE Sensex gained 80.72 points or 0.26 % to 31271.28, while the CNX Nifty was up by 26.75 points or 0.28% to 9,663.90.

 

The US markets closed higher on Wednesday, halting two days losses ahead of potentially market moving events on Thursday, including the UK election and former FBI director James Comey Senate testimony. Meanwhile, the OECD forecast showed that the global economy is on course this year for its fastest growth in six years as a rebound in trade helps offset a weaker outlook in the United States. On the economy front, consumer borrowing decelerated in April to the smallest increase in almost six years, suggesting an expected rebound in spending in the second quarter may not be as robust as hoped. Total consumer credit rose $8.2 billion in April to a seasonally adjusted $3.82 trillion, posting an annual growth rate of 2.6%. This is down from a revised $19.5 billion gain in March. The April increase was also well below economist estimates for a $17 billion gain in consumer credit, and is the slowest monthly growth rate since August 2011. Revolving credit, which is mostly made up of credit card loans, increased at an annual rate of 1.8% in April, compared with a rise of 6.5% in March. The Dow Jones Industrial Average added 37.46 points or 0.18 percent to 21,173.69, Nasdaq was up 22.32 points or 0.36 percent to 6,297.38, while S&P 500 edged higher by 3.81 points or 0.16 percent to 2,433.14.

 

Crude oil futures slumped on Wednesday, after data showed that supplies of U.S. crude rose for the first time in nine weeks, adding to concerns that rising US oil output would undermine Opec and its allies' efforts to curb supply. With refinery activity on wane and exports fading, the Energy Information Administration (EIA) said crude inventories rose by 3.3 million barrels in the week ended June 2. Gasoline inventories, rose by 3.324m barrels, while distillate stockpiles unexpectedly rose by 4.4m barrels. Also, overseas, tensions between Iran and Saudi Arabia threaten to kill OPEC's supply quota plan that has thus far kept oil above $45 in 2017. Benchmark crude oil futures for July delivery ended lower by $2.30 or 4.8 percent to $45.88 on the New York Mercantile Exchange. In London, Brent crude for July delivery ended down by 3.75 percent to $48.24 on the ICE.

 

Indian rupee strengthened against US dollar on Wednesday, as Reserve Bank of India (RBI) used a less hawkish tone and reduced the Statutory Liquidity Ratio (SLR) in its second bi-monthly monetary policy for financial year 2017-18. The central bank left repo and reverse repo rates unchanged at 6.25% and 6%, respectively and lowered its inflation estimates for the current financial year. Sentiments also got some support after the Met Department upgraded the South-West monsoon forecast to 98% of the long-term average rainfall from 96% earlier. Rainfall during the June-September monsoon season is expected to be normal, with a high possibility of all four broad geographical regions receiving evenly distributed rains. Moreover, positive momentum in the domestic equities and continuous foreign capital inflows too supported the rupee. On the global front, dollar jumped against the euro following reports that the European Central Bank is preparing to cut its inflation forecast. Finally, the rupee ended at 64.33, 9 paise stronger from its previous close of 64.42 on Tuesday.

 

The FIIs as per Wednesday's data were net sellers in equity segment, while they were net buyers in debt segment. In equity segment, the gross buying was of Rs 4094.77 crore against gross selling of Rs 7228.40 crore, while in the debt segment, the gross purchase was of Rs 1649.11 crore with gross sales of Rs 861.37 crore.

 

The US markets ended modestly higher in the last session on the heels of the pullback seen over the two previous sessions. Though, traders seemed reluctant to make more significant moves ahead of several potentially market-moving events. The Asian markets have made a mixed start with some indices trading marginally in red, with some concern emanating from Korea after North Korea launched a series of short-range missiles. Traders seemed reluctant to add any big positions before Chinese trade data too. The Indian markets recovering from their intraday low managed a decent closing in the last session, with traders rejoicing the RBI's decision to cut statutory liquidity ratio by 50 basis points to 20 percent, a move that will help infuse more liquidity into the banking system. Today, the start is likely to be flat-to-green and traders will be getting some support with RBI expectation of retail inflation falling to 2-3.5 percent in the first half of current fiscal and moving up to 4.5 percent in the second half saying that rush for farm loan waivers may have inflationary spillovers. Though, after the Monetary Policy Committee decided to hold rates, chief economic adviser Arvind Subramanian has expressed his unhappiness over the Reserve Bank's inflexibility on interest rates. He warned that real policy rates are becoming tighter and rising at a time of low inflation and slowing growth. There will be some buzz in the PSU banking stocks, as the RBI has raised its concern on state governments waiving off farm loans and has said that such actions increase the risk of slippages and contribute to inflation sooner or later. The PSU oil marketing companies though will be in jubilant mood as the international crude prices slumped by close to 5 percent.

 

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

 

Index

Previous close

Support

Resistance

NSE Nifty

9663.90

9636.78

9684.78

BSE Sensex

31271.28

31180.51

31354.52

 

Nifty Top volumes

 

Stock

Volume

(in Lacs)

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

ICICI Bank

137.05

324.70

321.65

326.85

Vedanta

117.55

233.20

231.47

235.47

ITC

115.34

312.25

310.15

314.55

SBI

108.64

290.55

288.00

292.30

NTPC

89.15

157.85

157.03

158.58

  • Axis Bank has unveiled a bio-degradable plastic card, in the prepaid segment which last only as long as the card's validity.
  • HDFC is planning to raise Rs 2,000 crore by issuing bonds to shore up long-term capital.
  • Yes Bank has received its shareholders' nod for raising around Rs 20,000 crore through issuance of non-convertible debentures on private placement basis.
  • Maruti Suzuki India has reported 16.80% rise in its production to 151,262 units in May 2017 as compared to 129,509 units in May 2016.   
News Analysis