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Market Commentary 01 January 2019
Markets to start the year 2019 on a cautious note

 

Indian equity benchmarks failed to celebrate year-end party on Monday, as both the larger peers, Sensex and Nifty signed off 2018 on flat note. The start of the day was cheerful, aided by the Confederation of Indian Industry's (CII) statement that the country is expected to witness strong economic growth in 2019, after it has emerged as the fastest growing major world economy this year despite growing global vulnerabilities. It added that better demand conditions, settled GST implementation, capacity expansion from growing investments in infrastructure, continuing positive effects of reform policies and improved credit offtake especially in the services sector at 24% will sustain the robust GDP growth of 7.5% in 2019. Sentiments were also upbeat with a private report that states have logged 15% growth in their average expenditure annually since 2011. As per the report, the overall expenditure of all states had soared from Rs 12.47 trillion in 2011-12 to Rs 33.18 trillion in 2018-19. Some support also came in with the government's statement that the net direct tax collection till December 20 this fiscal amounted to Rs 7.36 lakh crore, a growth of 14% over the same period a year ago. This is 64% of the Budget estimate for direct tax collection in the current fiscal. However, the markets turned volatile during noon deals to end the last day of 2018 on sluggish note, as trade got hit with a private report stating that restrictions on foreign e-commerce companies would have a long-term negative impact on the foreign direct investment as well as consumers in India. The market participants got cautious with the government's report showing that names of more than 1 lakh companies have been struck off the official records in the current fiscal for not carrying business activities for a long time. Domestic sentiments turned pessimistic also with a report that inflation seems to have become a double-edged sword for policy makers with political opponents attacking the government over farmers getting hit due to low prices for agricultural produce, even as the rate of price rise in 2018 has mostly been contained within the targeted comfort zone. The street paid no heed towards Niti Aayog vice chairman Rajiv Kumar's statement that Niti Aayog plans to focus in the New Year on steps required to push economic growth, promote e-mobility and ensure expeditious implementation of the Modi government's reform measures. Investors even overlooked a private report stating that India has pipped its neighbour in 2018 for the first time in the last 20 years in terms of attracting foreign direct investment (FDI). With 253 inbound deals amounting to $39.515 billion, India's annual FDI was higher than that of China's so far this calendar year. Finally, the BSE Sensex lost 8.39 points or 0.02% to 36,068.33, while the CNX Nifty was up by 2.65 points or 0.02% to 10,862.55.

 

The US markets ended higher in the final trading day of 2018 on Monday, but major indexes bid adieu to 2018 with the worst annual performance since 2008. Sentiments got boost with President Donald Trump expressing optimism about a US-China trade deal. President Trump said that he and Chinese leader Xi Jinping had made big progress in a telephone discussion about trade, and that a deal was moving along very well. Besides, a lack of major US economic data also kept some traders on the sidelines along with the New Year's Day holiday on Tuesday. Meanwhile, 2018 marks the first time since 1978 that the Dow finished out the year in the red after rising in the first three quarters, and the first for the S&P 500 since 1948. For Nasdaq, it is only the second time in its history it failed to defend January-to-September gains through the end of the year, the last time being 1987. Dow Jones Industrial Average surged 265.06 points or 1.15 percent to 23327.46, Nasdaq gained 50.76 points or 0.77 percent to 6635.28 and S&P 500 was up by 21.11 points or 0.85 percent to 2506.85.

 

Crude oil futures ended marginally higher in the final trading day of 2018. Trading was choppy due to low volumes on New Year's Eve. Meanwhile, participants will be watching the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, closely as 2019 gets under way. OPEC - essentially led by Saudi Arabia - and its production partners outside the cartel agreed in early December to begin limiting crude output by a collective 1.2 million barrels a day at the start of January. Benchmark crude oil futures for February gained 8 cents or 0.2 percent to settle $45.41 a barrel on the New York Mercantile Exchange. March Brent crude rose 59 cents or 1.1 percent to settle at $53.80 a barrel on London's Intercontinental Exchange.

 

Extending its previous session's gains, Indian rupee concluded last trading session of Calendar Year (CY) 2018 on an upbeat note on Monday, as exporters and banks intensified selling of the US currency. Rupee throughout the day remained positive, taking support with the Confederation of Indian Industry's (CII) statement that the country is expected to witness strong economic growth in 2019, after it has emerged as the fastest growing major world economy this year despite growing global vulnerabilities. It added that better demand conditions, settled GST implementation, capacity expansion from growing investments in infrastructure, continuing positive effects of reform policies and improved credit offtake especially in the services sector at 24% will sustain the robust GDP growth of 7.5% in 2019. On the global front, dollar was broadly steady in thin year-end trading on Monday as tensions over a trade dispute between the United States and China faded on expectations of progress in trade talks. Finally, the rupee ended at 69.77, 18 paise stronger from its previous close of 69.95 on Friday.

 

The FIIs as per Monday's data were net sellers in equity and debt segments both. In equity segment, the gross buying was of Rs 2683.57 crore against gross selling of Rs 2913.48 crore, while in the debt segment, the gross purchase was of Rs 374.95 crore with gross sales of Rs 739.20 crore. Besides, in the hybrid segment, the gross buying was of Rs 2.03 crore against gross selling of Rs 6.36 crore.

 

The US markets ended higher on Monday taking support with comments from President Donald Trump expressing optimism about a US-China trade deal. Most of the Asian markets are closed on Tuesday on account of the New Year holiday. Giving up early gains, Indian markets ended flat on the last trading day of calendar 2018 amid surge in oil prices around 2% and mixed global markets in subdued New Year's Eve trading. Today, the start of the New Year 2019 is likely to be a bit cautious amid lack of supportive triggers as most of the Asian peers are closed. There will be some concern with the commerce ministry's data showing that eight core industries grew at its slowest pace in 16 months at 3.5% in November due to fall in output of crude oil and fertilizers. Core sector growth was 6.9 percent in November 2017. Also, there will be some cautiousness with policy advocacy body US-India Strategic Partnership Forum (USISPF) saying that India's recent changes in e-commerce foreign direct investment (FDI) rules show a lack of predictability in the regulatory environment and could add to the long list of trade issues that the country is trying to resolve with the United States. However, some support may come later in the day with the finance ministry's statement that the government is closely monitoring the macroeconomic conditions to ensure that the fiscal deficit remains within the target of 3.3% of the Gross Domestic Product (GDP) for 2018-19. Meanwhile, the country's external debt fell by $19.3 billion, or 3.6%, to $510.4 billion during the six-month period ended September, due to a decrease in commercial borrowings, non-resident Indian (NRI) deposits and valuation effect. The Reserve Bank of India (RBI) said the decrease in the magnitude of external debt was primarily due to valuation gains resulting from the appreciation of the US dollar against the Indian rupee and major currencies. Moreover, in a New Year gift to the common man, the government has notified reduction in Goods and Services Tax (GST) rates on 23 goods and services, including movie tickets, TV and monitor screen. The consumers will pay less for these items of common consumption as the incidence of GST on them will come down from January 01. There will be some buzz in the banking sector stocks with the Governor Shaktikanta Das' statement that the banking sector is on course to recovery as the afflicting non-performing assets recede, but state-run lenders need reforms in governance. He pointed out that the period till September has seen a decline in gross NPA ratios - the first such dip in three years - and also pointed out at improving provision coverage ratio, which is the ability of a bank to withstand stress, as a positive. There will be some reaction in steel sector stocks with ICRA's report that the domestic steel consumption growth is expected to grow by 7% during this fiscal and the trend is likely to continue in the next financial year as well, largely driven by the government's focus on the infrastructure sector.

 

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

 

Index

Previous close

Support

Resistance

NSE Nifty

10,862.55

10,835.98

10,906.33

BSE Sensex

36,068.33

35,973.03

36,224.54

 

Nifty Top volumes

 

Stock

Volume

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

(in Lacs)

Yes Bank

189.71

181.80

180.58

183.43

Vedanta

95.81

202.20

200.67

203.67

SBI

95.26

295.90

294.85

297.60

Tata Motors

85.11

172.70

171.67

173.82

Tata Steel

79.66

521.05

516.50

525.30

 

  • Reliance Industries' wholly-owned subsidiary -- RIIHL has entered into a binding agreement with KESL for acquisition of equity shares for a cash consideration not exceeding Rs 75 crore. 
  • L&T's construction arm -- L&T Construction's Power Transmission and Distribution Business has won orders worth Rs 2,084 crore. 
  • Hero MotoCorp has maintained its leadership position in the domestic two-wheeler segment in November, with four of its models making it to the top ten selling list. 
  • Power Grid has entered into a Loan Agreement for EUR 200 million with KfW, Germany on December 28, 2018.
News Analysis