Domestic stock benchmarks in line with their Asian peers continued to be in a free-fall mode on Monday after market experts warned of likely tightening of monetary policy by central banks across the continents in the wake of rising bond yields and elevated crude oil prices threatening spike in inflation in near to mid-term.
The revision of fiscal deficit target in the government’s 2018-19 Budget from 3.2 per cent to 3.5 per cent for the current financial year and policy decision to increase minimum support prices for agriculture produces may also add to consumer price index or CPI linked inflation.
Under such testing circumstances, Dalal Street participants now look forward to the Reserve Bank of India’s bi-monthly monetary policy review due on Wednesday as the monetary policy committee goes into huddle tomorrow to assess the impact of these worrying factors on economy.
Most brokerages see 30-share Sensitive Index of Bombay Stock Exchange and 50-scrip Nifty of National Stock Exchange correcting further in the week ahead. They also say the correction in a prolonged bull rally that has been in action for more than a year was not only imminent but desirable as well.
However, there is a difference of opinion whether or not these levels in indices are ideal to buy on dips. Sensex and Nifty did pare early losses by nearly halves as they closed for the day at 34,757.16 (-309.59) points and 10,666.55 (-94.05) points losing 0.88 per cent and 0.87 per cent respectively.
The day’s lows were 34,520.80 (-545.95) points and 10,586.80 (-173.80) points. Bank shares were again targeted by profit booking traders. Market participants believe the stock business may resume bull run once bond yields normalise. Nifty Bank ended the day at 26,098.75(-352.40) points losing 1.33 per cent.
Amid a series of adverse factors, the market derived some relief from the latest increase in the seasonally adjusted Nikkei Services Business Activity Index for January which was up to 51.7 from December’s 50.9 ~ fastest in three months.
Last Friday’s sharp fall in the United States stocks on the back of swelling government treasury yield triggered further sell-off on Asian markets including Japan, Hong Kong and other countries in the region. Nikkei was down 2.55 per cent to close at 22,682.08 (-592.45) points. Hang Seng of Hong Kong at 32,245.22 (-356.56) points lost 1.36 per cent. Singapore’s Straits Times fell 1.36 per cent to end at 3,481.96 (-47.86) points.
Analysts expect moderation in the impact of long-term capital gain or LTGC tax citing cover-up of losses by stock indices by 50 per cent. The finance minister Arun jaitley’s assertion that the government would not re-think on LTCG Tax and STT or securities transactions tax has apparently forced the market to comply with these two budgetary provisions. The FM expects to net Rs 40,000 crore from LTCG Tax this year.
In Sensex 14 stocks closed higher and 17 lower. For Nifty it was 24:26. Gainers in BSE benchmark included Bharti Airtel at Rs 441.45, up 4.66 per cent; Tata Motors Rs 398.20, up 3.68 per cent and ITC Rs 279.60, up 1.42 per cent. Among the losers were HDFC at Rs 1,829.75, down 3.86 per cent and Kotak Mahindra Bank Rs 1,058.55, down 2.66 per cent.