Snapping two days losing streak, Indian equity benchmarks staged an enthusiastic performance on Wednesday, by rallying over half a percent and breaking the important psychological levels in their northward journey as a much stronger-than-expected quarterly economic growth lifted sentiments. India’s Gross domestic product (GDP) for the third quarter (Q3) of financial year 2016-17 (FY17) grew at 7%, allaying fears of any major effect of demonetisation though it was the lowest expansion in four quarters. The Q3 numbers not only made India the fastest-growing large economy in the world but also helped the Central Statistics Office (CSO) retain its earlier projection (in first advance estimates) for full-year GDP growth at 7.1% in the second advance estimates released on Tuesday. The market sentiments were also underpinned by a private survey indicating that Indian manufacturing sector expanded marginally in February as a rebound in export demand contributed to a stronger expansion of total new orders. The Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) -- an indicator of manufacturing activity -- increased to 50.7 in February, up from 50.4 in January, as output and order books rose at accelerated rates. However, in the early deals there was some cautiousness as CSO has actually forecast a greater slide in gross value added (GVA), suggesting that deceleration is sharper than what the headline GDP growth numbers suggest. The CSO data shows that growth in GVA, which is GDP minus net taxes, will slow down to 6.7% in 2016-17 or 1.1% lower than 7.8% GVA growth in 2015-16. GVA serves as a more realistic proxy to measure changes in the aggregate value of goods and services produced in the economy. The demonetisation effect and the resultant slowdown in household spending and corporate investment may well be hiding in the steeper fall in GVA growth estimates compared to GDP. Furthermore, the growth of eight core sectors has decelerated to 3.4% in January compared to 5.7% in the same month last year, thanks to plummeting output in three key segments - cement, fertilisers and refinery products. Meanwhile, information technology (IT) stocks surged after the US President Donald Trump’s first speech to US congress was seen more restrained than the harsh rhetoric seen during his pre-election speeches. The speech did not have any comment on visa issues that may hit domestic IT firms. Instead, the US President said the US immigration should be based on a merit-based system, rather than relying on lower-skilled immigrants.
On the global front, Asian markets ended mostly in green on Wednesday, with Japanese shares leading gains, as exporters received a boost from a relatively weaker yen and the Nikkei survey showed the health of Japan's manufacturing sector improved at a pace not seen in nearly three years during February. Chinese shares edged higher after reports showed activity in China's manufacturing sector expanded faster than expected in February. While the official PMI rose to a three-month high of 51.6 in the month, the non-manufacturing PMI, which is a better indicator of domestic demand, eased slightly to 54.2 from 54.6 in the previous month. Meanwhile, European shares gained in early trade, with results driving specific stock moves, while basic resources were the top sector performers after U.S. President Donald Trump pledged $1 trillion of infrastructure spending in his first speech to Congress.
Back home, after getting a strong start, the local benchmarks maintain their early gains throughout the session and ended the day on optimistic note. The NSE’s 50-share broadly followed index Nifty, got buttressed by over half a percent to settle above the crucial 8,900 support level, while Bombay Stock Exchange’s Sensitive Index-Sensex accumulated around two hundred and fifty points and closed above the psychological 28,900 mark. Moreover, the broader markets underperformed their larger peers by a big margin as the BSE’s midcap index went home with gains of 0.13%, while the smallcap index climbed 0.45%. The market breadth remained optimistic, as there were 1551 shares on the gaining side against 1269 shares on the losing side, while 187 shares remained unchanged.
Finally, the BSE Sensex surged 241.17 points or 0.84% to 28984.49, while the CNX Nifty was up by 66.20 points or 0.75% to 8,945.80.
The BSE Sensex touched a high and a low of 29029.17 and 28824.17, respectively and there were 21 stocks on gainers side as against 9 stocks on the losers side on the index.
The broader indices ended in green; the BSE Mid cap index surged 0.13%, while Small cap index was up by 0.45%.
The top gaining sectoral indices on the BSE were Realty up by 3.46%, Metal up by 1.91%, FMCG up by 1.30%, Bankex up by 0.96% and Healthcare up by 0.87%, while Oil & Gas down by 0.91%, Utilities down by 0.54%, Energy down by 0.44%, Power down by 0.38% and Telecom down by 0.30% were the top losing indices on BSE.
The top gainers on the Sensex were Tata Steel up by 3.66%, Dr. Reddy’s Lab up by 2.56%, Mahindra & Mahindra up by 2.50%, ITC up by 2.46% and Sun Pharma up by 2.26%. On the flip side, GAIL India down by 1.93%, NTPC down by 1.87%, Tata Motors down by 1.55%, Bharti Airtel down by 0.70% and Reliance Industries down by 0.33% were the top losers.
Meanwhile, credit rating agency, S&P ratings in its latest report has said that India’s banking sector growth and profitability are expected to improve gradually in financial year 2017-18, from the low base of the financial year 2016-17. The agency has noted sluggish recovery in industry because of low capacity utilisation in the corporate segment and the wait-and-watch approach of borrowers in some retail segments post demonetisation.
The rating agency, in its report 'Progress will be Slow for India's Banks in 2017', has said that the pace of new non-performing loan creation is likely to abate somewhat over next 12 months and due to low provision coverage and inadequate resolution of stressed assets, the banks with sizable corporate exposures will remain vulnerable.
Further S&P noted that weak profitability and rising capital demands from basel III implementation will continue to put pressure on the capitalisation of some public sector banks (PSU) in the country. It said that barring large capital infusion from the government, credit profiles of some of the PSU banks would remain vulnerable.
On loan growth, the rating agency has said that the note ban resulted in the lowest loan growth in several years and high stress on profitability and asset quality. However, it expect recovery in loan growth in the financial year 2017-18. The agency added that a likely increase in nominal GDP growth and higher commodity prices will lead to greater working capital requirements for firms.
The CNX Nifty traded in a range of 8,960.80 and 8,898.60. There were 29 stocks in green as against 22 stocks in red on the index.
The top gainers on Nifty were Tata Steel up by 3.59%, Hindalco up by 3.15%, Kotak Mahindra Bank up by 2.72%, Mahindra & Mahindra up by 2.59% and Sun Pharma up by 2.40%. On the flip side, Idea Cellular down by 2.72%, Eicher Motors down by 1.87%, NTPC down by 1.75%, BPCL down by 1.59% and Tata Motors down by 1.59% were the top losers.
The European markets were trading in green; UK’s FTSE 100 increased 52 points or 0.72% to 7,315.44, Germany’s DAX increased 156.33 points or 1.32% to 11,990.74 and France’s CAC increased 67.58 points or 1.39% to 4,926.16.
Asian equity markets ended mostly higher on Wednesday, with Japanese shares leading gains, as exporters received a boost from a relatively weaker yen and the Nikkei survey showed the health of Japan's manufacturing sector improved at a pace not seen in nearly three years during February. Chinese shares ended higher after reports showed activity in China's manufacturing sector expanded faster than expected in February. While the official PMI rose to a three-month high of 51.6 in the month, the non-manufacturing PMI, which is a better indicator of domestic demand, eased slightly to 54.2 from 54.6 in the previous month. The Caixin / Markit manufacturing PMI rose to 51.7 from 51.0, beating forecasts as new export orders accelerated at the strongest pace in over two years. Further, US President Donald Trump struck an optimistic tone in his first major address to a joint session of Congress and promised a ‘renewal of the American spirit’ with his economic goals and priorities. He offered few policy details on his economic plan but said he was open to a broad immigration reform bill that could be passed if both Republicans and Democrats in Congress were willing to compromise. Meanwhile, the South Korean markets were closed for the Independence Day holiday.
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