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Benchmarks end marginally in red as RBI keeps repo rate unchanged
Dec-05-2019

Indian equity benchmarks moved in a see-saw manner for some part of the day and ended Thursday’s session marginally in red, following the outcome of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) meeting where the central bank kept the repo rate unchanged. Markets started off with marginal gains, as traders took some support with the Union Cabinet approving 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.

However, key indices erased all gains and turned volatile in afternoon session, after RBI raised its inflation projection to 5.1-4.7 percent for the second half of the current fiscal on the back of a spike in prices of vegetables such as onion and tomatoes. RBI also sharply lowered GDP growth forecast for the current financial year to 5 percent from the earlier estimate of 6.1 percent on account weak domestic and external demand. Anxiety also spread among traders with Union Minister Nitin Gadkari expressing regret over hurdles like land acquisition and environment clearance faced by various road projects, saying the country must have a positive approach towards development. The market participants failed to take support with Reserve Bank Governor Shaktikanta Das’ statement that there is good coordination between the fiscal and monetary policies so far, in addressing growth concerns and that the central bank is not worried about government missing fiscal deficit target.

On the global front, Asian markets ended mostly higher on Thursday on the possibility that China and the United States may soon seal a 'phase one' deal to end their 17-month trade war, but conflicting messages from US President Donald Trump kept a lid on the advance. European markets were trading mostly in red. Back home, Fertiliser sector were in focus after Fertiliser Minister Sadananda Gowda said that the government is seriously considering options for decontrolling urea by either fixing a nutrient-based subsidy (NBS) rate or making direct payment of subsidy to farmers' account.

Finally, the BSE Sensex lost 70.70 points or 0.17% to 40,779.59, while the CNX Nifty was down by 24.80 points or 0.21% to 12,018.40.

The BSE Sensex touched high and low of 41,002.41 and 40,720.17, respectively and there were 06 stocks advancing against 25 stocks declining on the index.

The broader indices were ended mixed; the BSE Mid cap index was down by 0.32%, while Small cap index was up by 0.02%.

The top gaining sectoral indices on the BSE were IT up by 1.03%, Consumer Durables up by 0.69%, TECK up by 0.65%, Capital Goods up by 0.64% and FMCG up by 0.29%, while Telecom down by 2.61%, Metal down by 2.39%, PSU down by 1.22%, Basic Materials down by 1.17% and Oil & Gas down by 1.07% were the top losing indices on BSE.

The top gainers on the Sensex were TCS up by 2.04%, ITC up by 1.54%, Larsen & Toubro up by 1.28%, Infosys up by 0.91% and Tech Mahindra up by 0.69%. On the flip side, Bharti Airtel down by 2.96%, Tata Steel down by 2.31%, Indusind Bank down by 2.21%, Tata Motors down by 1.95% and Hero MotoCorp down by 1.76% 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 traded in a range of 12081.20 and 11998.75. There were 10 stocks advancing against 40 stocks declining on the index.

The top gainers on Nifty were Zee Entertainment up by 6.65%, TCS up by 2.06%, ITC up by 1.56%, Larsen & Toubro up by 1.33% and Britannia Industries up by 1.10%. On the flip side, JSW Steel down by 3.21%, Coal India down by 3.13%, Bharti Airtel down by 3.05%, Tata Steel down by 2.32% and Indusind Bank down by 2.24% were the top losers.

European markets were trading mostly in red; UK’s FTSE 100 decreased 14.23 points or 0.2% to 7,174.27 and Germany’s DAX decreased 2.79 points or 0.02% to 13,137.78, while France’s CAC increased 31.40 points or 0.54% to 5,831.08.

Asian markets ended mostly higher on Thursday after reports showed that US and Chinese negotiators are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase one trade deal. Chinese shares closed higher after US President Donald Trump said trade talks with China were going very well, sounding more positive than, when he said a trade deal might have to wait until after the 2020 US presidential election. Moreover, Japanese shares ended up after Prime Minister Shinzo Abe announced a $120 billion fiscal package to support stalling growth in the world's third-largest economy.

Asian Indices

Last Trade           

Change in Points

Change in %

Shanghai Composite

2,899.47
21.35
0.74

Hang Seng

26,217.04
154.48
0.59

Jakarta Composite

6,152.12
39.24
0.64

KLSE Composite

1,563.58

2.65

0.17

Nikkei 225

23,300.09
164.86
0.71

Straits Times

3,174.19
14.40
0.46

KOSPI Composite

2,060.74
-8.15
-0.39

Taiwan Weighted

11,594.65
84.18
0.73

 

 
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