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Market Commentary 26 June 2020
Markets to get optimistic start amid firm global cues


Indian equity benchmarks swung between positive and negative territory throughout the day and settled with minor losses on Thursday, amid expiry of monthly derivative contracts. Both the topline indices made gap-down opening, as the International Monetary Fund (IMF) projected a sharp contraction of 4.5% for the Indian economy in 2020, a historic low, citing the unprecedented coronavirus pandemic that has nearly stalled all economic activities. However, markets witnessed some buying activity in late morning session, as traders took some solace with Union Minister Nitin Gadkari launching the Credit Guarantee Scheme for Sub-ordinate Debt to provide Rs 20,000 crore of guarantee cover to two lakh micro, small and medium enterprises (MSMEs). But, the recovery proved short lived and the indices tumbled once again near the day's low in early afternoon trade, as investors were also cautious amid media reports that China has significantly ramped up its military presence in Pangong Tso, Galwan Valley and several points in eastern Ladakh. Though, the markets firmed up once again in final hour of session but failed to end the session in green, on the back of weak global markets, which fell after surging US coronavirus cases and the International Monetary Fund's downgrade to global economic projections shook confidence in a recovery. Traders also took a note of report that the government has said that all urban cooperative banks and multi-state cooperative banks will come under the supervision of the Reserve Bank of India (RBI), which is applicable to commercial banks. Finally, the BSE Sensex lost 26.88 points or 0.08% to 34,842.10, while the CNX Nifty was down by 16.40 points or 0.16% to 10,288.90.


The US markets ended higher on Thursday, winning back some of the prior session's losses, with banking shares jumping amid news US regulators plan to ease banking regulations, including allowing banks to more easily make investments in riskier funds such as venture capital funds. Significant strength was also visible among oil service stocks, as reflected by the 3.4 percent jump by the Philadelphia Oil Service Index. The index rebounded after hitting its lowest intraday level in a month. Oil service stocks turned higher along with the price of crude oil, with crude for August delivery climbing $0.71 to $38.72 a barrel after hitting a low of $37.08 a barrel. Airline, steel, and biotechnology stocks also showed strong moves to the upside on the day, moving higher along with most of the other major sectors. On the economic data front, a report from the Labor Department showed a much smaller than expected drop in initial jobless claims in the week ended June 20th, but the report also showed a notable decrease in continuing claims. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, tumbled by 767,000 to 19.522 million in the week ended June 13, hitting their lowest level since mid-April. A separate report from the Commerce Department also showed a substantial rebound in durable goods orders in the month of May. The Commerce Department said durable goods orders spiked by 15.8 percent in May after plunging by a revised 18.1 percent in April. Street had expected durable goods orders to surge up by 10.9 percent compared to the 17.7 percent nosedive that had been reported for the previous month.


Crude oil futures ended higher on Thursday, after posting two consecutive sessions of declines, as traders reacted positively to assurance by White House Economic Advisor Larry Kudlow who said the economy is unlikely to be shut again. Oil prices rose despite continued concerns about energy demand outlook in the wake of reports showing a surge in new coronavirus cases. Meanwhile, uncertainty about the pace of recovery after the IMF report said the global economy will see a more severe contraction this year than earlier forecast weighed on crude oil prices earlier this week. Crude oil futures for August rose 71 cents or 1.9 percent to settle at $38.72 a barrel on the New York Mercantile Exchange. August Brent crude added 74 cents or 1.8 percent to settle at $41.05 a barrel on London's Intercontinental Exchange.


Indian rupee strengthened against dollar on Thursday, tracking weak US dollar and gains in the domestic equity market. Sentiments remained upbeat despite International Monetary Fund (IMF) in its World Economic Outlook (WEO) Update has projected a sharp contraction of 4.5 per cent for the Indian economy in 2020, a historic low, citing the unprecedented coronavirus pandemic that has nearly stalled all economic activities. On the global front, US dollar edged higher on Thursday as factors ranging from rising trade tensions to fears of a second wave of coronavirus fuelled demand for safe-haven currencies. Finally, the rupee ended at 75.65, 7 paise stronger from its previous close of 75.72 on Wednesday.


The FIIs as per Thursday's data were net buyers in both equity and debt segments. In equity segment, the gross buying was of Rs 6881.44 crore against gross selling of Rs 5791.03 crore, while in the debt segment, the gross purchase was of Rs 2660.62 crore with gross sales of Rs 2548.30 crore. Besides, in the hybrid segment, the gross buying was of Rs 1907.64 crore against gross selling of Rs 7.72 crore.


The US markets ended notably higher on Thursday amid reports that US regulators plan to ease banking regulations, including allowing banks to more easily make investments in riskier funds such as venture capital funds. Asian markets are trading in green on Friday as the coronavirus situation stateside continues to be monitored by investors amid concerns with cases continuing to surge. Indian markets ended choppy session slightly lower on Thursday amid the expiry of June-series futures and options (F&O) contracts. Today, the start of session is likely to be optimistic following firm global cues. Some support will come with Union Commerce Minister Piyush Goyal's statement that India is keen to focus on certain sectors where it has competitive advantage, emphasising that the country cannot afford to remain dependent on low cost, low quality products. Besides, India and the US will restart high level negotiations on a trade pact in the coming days. Traders may take note of Union Finance Minister Nirmala Sitharaman's statement that the government was in talks with the Reserve Bank of India (RBI) for a one-time restructuring of loans to help companies which are under stressed due to the Covid-19 pandemic. However, rising coronavirus cases may impact the sentiments. India witnessed the biggest single-day spike of nearly 18,000 in total cases. The country's total count of cases has soared to 491,170, while its Covid-19 death toll has reached 15,300. Traders may be concerned with a report by the National Council of Applied Economic Research (NCAER) stating that India is expected to grow at 1.3% in the current fiscal in the absence of supply constraints dampening stimulus measures. There may be some cautiousness with FIEO's statement that some exporters have raised concerns over consignments being held back by Hong Kong and Chinese customs in response to a similar action being taken by Indian authorities at Chennai port. The matter assumes significance in the wake of border tensions between India and China at Galwan Valley in eastern Ladakh. Meanwhile, markets regulator Sebi has decided to temporarily relax pricing framework for preferential allotment of shares as part of efforts to liberalise norms for raising funds amid the coronavirus pandemic. There will be some buzz in sugar stocks with industry body ISMA's statement that sugar output in India, the world's second largest producer after Brazil, is expected to increase by 17.69% to 32.01 million tonnes during the season beginning October 2020 on likely higher availability of sugarcane for crushing.


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