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Benchmarks trade tad higher ahead of RBI’s monetary policy outcome
Dec-05-2019

Indian equity benchmarks made slightly positive start and are trading tad higher in early deals on Thursday ahead of the Reserve Bank of India’s (RBI) policy meeting outcome later in the day. There is expectation of a 25 bps rate cut by the central bank to support growth and revive investment cycle. Gains in Consumer Durables, Consumer discretionary and Capital Goods pushed the markets higher however, losses in Telecom, Metal and Healthcare stocks limited the upside. Some support come as the Union Cabinet approved the launch of an exchange-traded fund (ETF) for bonds to create an additional source of funding for Central Public Sector Enterprises (CPSEs) and state-owned financial institutions. Finance Minister Nirmala Sitharaman has said that with the creation and launch of umbrella ETF the government hopes to diversify investor base. She emphasised that this is expected to eventually increase the size of bond ETFs in India, leading to achieving key objectives at a larger scale. Traders took note of report that the GST Council meeting scheduled to be held on December 18 is likely to deliberate on raising cess on some more products to meet the growing need of compensation among other issues. Upside remained capped with World Bank’s statement that India faces twin threats to its income from global trade which makes up 48 per cent of India’s GDP - rise of protectionism and trade wars and technological change.

Global cues remained supportive with most of the Asian markets were trading in green amid renewed optimism about a US-China trade deal. As per a private report, the US negotiators expect a phase one deal to be completed before US tariffs against China are set to rise on December 15. Back home, in scrip specific development, Reliance Industries jumped after its subsidiary Reliance Jio Infocomm (Jio) launched the NEW ALL-IN-ONE PLANS. These plans will provide up to 300% more benefits to the Jio consumers, upholding the Jio promise of providing the best-quality service at the lowest price globally. SBI edged up slightly after its board approved selling up to 8.25 percent stake in UTI AMC by way of offer for sale. However, Housing and Urban Development Corporation (HUDCO) fell as its two borrowing agencies have defaulted in repayment of their dues.

The BSE Sensex is currently trading at 40883.06, up by 32.77 points or 0.08% after trading in a range of 40865.38 and 41002.41. There were 12 stocks advancing against 19 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.05%, while Small cap index was up by 0.07%.

The top gaining sectoral indices on the BSE were Consumer Durables up by 1.22%, Consumer discretionary up by 0.35%, Capital Goods up by 0.29%, Energy up by 0.28% and Auto was up by 0.22%, while Telecom down by 2.36%, Metal down by 0.69%, Healthcare down by 0.58%, Utilities down by 0.32% and Power was down by 0.21% were the top losing indices on BSE.

The top gainers on the Sensex were Hero MotoCorp up by 0.92%, ITC up by 0.86%, Reliance Industries up by 0.55%, ICICI Bank up by 0.52% and TCS up by 0.48%. On the flip side, Bharti Airtel down by 2.66%, Sun Pharma Industries down by 1.35%, Yes Bank down by 1.03%, ONGC down by 0.73% and Tata Motors down by 0.65% were the top losers.

Meanwhile, in order to create an additional source of funding for Central Public Sector Enterprises (CPSEs) and state-owned financial institutions, the Union Cabinet has given green signal to launch of exchange traded fund (ETF) for bonds, after exchange traded fund for equities. The New Fund Offer (NFO) of this ETF is expected to be launched during December itself. Bharat Bond ETF would be the first corporate bond ETF in the country.

Finance Minister Nirmala Sitharaman has said that with the creation and launch of umbrella ETF the government hopes to diversify investor base. She also said that it will help deepen bond market as was announced in the Budget. She said ETF will be a basket of bonds issued by state firms or any government organisation, and will be tradable on exchange, and added that the unit size will be of Rs 1,000, allowing small investors to invest. Each ETF will have fixed maturity date and will track underlying index on risk replication basis, she said, adding that for now it will have two maturity series -- 3 and 10 years -- with a low cost of 0.0005 per cent.

Sitharaman said bond ETF will provide safety (underlying bonds are issued by CPSEs and other government owned entities), liquidity (tradability on exchange) and predictable tax efficient returns (target maturity structure). It will also provide access to retail investors to invest in bonds with smaller amount, as low as Rs 1,000, thereby providing easy and low-cost access to bond markets. This will increase participation of retail investors who are currently not participating in bond markets due to liquidity and accessibility constraints. Bond ETFs are taxed with the benefit of indexation which significantly reduces the tax on capital gains for investor.

With the increase in demand for their bonds, she said the issuers may be able to borrow at reduced cost, thereby reducing their cost of borrowing over a period of time. She added that bond ETF trading on the exchange will help in better price discovery of the underlying bonds. Since a broad debt calendar to assess the borrowing needs of the CPSEs would be prepared and approved each year, it would inculcate borrowing discipline in CPSEs at least to the extent of this investment. She emphasised that this is expected to eventually increase the size of bond ETFs in India, leading to achieving key objectives at a larger scale -- deepening bond markets, enhancing retail participation and reducing borrowing costs.

The CNX Nifty is currently trading at 12063.10, up by 19.90 points or 0.17% after trading in a range of 12045.15 and 12079.50. There were 25 stocks advancing against 25 stocks declining on the index.

The top gainers on Nifty were Zee Entertainment up by 3.71%, Titan Company up by 1.90%, Ultratech Cement up by 1.43%, Hero MotoCorp up by 0.90% and ITC up by 0.68%. On the flip side, Bharti Airtel down by 2.79%, Sun Pharma Industries down by 1.48%, GAIL India down by 1.01%, JSW Steel down by 1.00% and Dr. Reddy’s Lab down by 0.92% were the top losers.

Asian markets were trading mostly in green; Nikkei 225 surged 171.59 points or 0.74% to 23,306.82, Hang Seng increased 86.32 points or 0.33% to 26,148.88, Taiwan Weighted strengthened 71.13 points or 0.62% to 11,581.60, Jakarta Composite soared 25.03 points or 0.41% to 6,137.91, Straits Times advanced 15.41 points or 0.49% to 3,175.20 and Shanghai Composite gained 9.27 points or 0.32% to 2,887.39. On the flip side, KOSPI was down by 8.99 points or 0.43% to 2,059.90.

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