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Markets to make a somber start on weak GDP data
The Indian
markets after a volatile day of trade ended marginally in red in the last
session with traders turning cautious ahead of the GDP data. Today, the start
is likely to be somber and traders will be reacting negatively to some weak
economic data. India lost the tag of the world’s fastest growing major economy
to China with a gross domestic product growth of 6.1 per cent in the three
months through March from a year earlier, also slowing from a provisional 7
percent in the previous quarter. Growth for the year ending in March came in at
7.1 percent, in line with the official estimate. Meanwhile, India Inc. has said
that the government's note ban move clearly had a debilitating impact on
India's economy. Also, the growth of eight core sectors declined to 2.5 per
cent in April, dragged down by lower coal, crude oil and cement production.
Core sector growth was 8.7 per cent in April last year. However, there will be
some solace with the government achieving the fiscal deficit target of 3.5
percent of GDP in 2016-17. As per Controller General of Accounts (CGA) data
fiscal deficit was 3.51 percent of GDP or Rs 5.35 lakh crore in 2016-17. The
CGA further said that revenue deficit during the last fiscal was 2.02 percent
of GDP. There will be some buzz in the PSU oil marketing companies, as petrol
and diesel prices were hiked on Wednesday, while Petrol price was increased by
Rs. 1.23 the diesel price was hiked by Rs. 0.89. The auto companies will be in
focus as they will start announcing their monthly sales numbers.
Indian benchmarks end a dull session with modest cut;
broader markets outclass blue-chips
It turned
out to be a lackadaisical performance from Indian benchmark indices on
Wednesday, as they failed to snap the session in the green territory and
settled marginally below the neutral lines. The frontline gauges took a
breather, after closing at record highs for the previous sessions, as investors
waited for gross domestic product (GDP) data due later in the day and searched
for fresh corporate triggers with the results season coming to an end.
According to India’s former chief statistician PronabSen, the country’s GDP for
2016-17 will get 50 basis points (bps) push to 7.6 percent from the
government’s estimate of 7.1 percent, due to the recent revision of the base
year of the Wholesale Price Index (WPI) and the Index of Industrial Production
(IIP).
Further,
investors around the world also turned cautious after a powerful bomb exploded
in the morning rush hour in the centre of Kabul on Wednesday, killing at least
80 people, wounding hundreds and sending clouds of black smoke into the sky
above the presidential palace and foreign embassies. However, losses remained
capped with the Moody's Investors Service’s report stating that Indian economy
will grow by 7.5 per cent in the current fiscal year, 7.7 per cent in 2018-19
and will reach to around 8 per cent in 3-4 years on the back of government's
various reforms. Some support also came with report that Southwest monsoon
arriving in Kerala on the expected date this year and also advancing into some
parts of the Northeast India. Also, Prime Minister NarendraModi while speaking
at the Indo-German Business Summit in Berlin said that India has one of the
most liberal FDI policy regimes in the world and more than 90 percent of
foreign investment flows are under automatic route. Meanwhile, Aviation stocks
gained traction on expectations that a slide in oil prices would reduce
carriers' fuel cost, which typically constitute about 50% of airlines'
operating costs.
Asian markets end mixed on Wednesday
Asian equity
markets made a mixed closing on Wednesday as a stronger yen and a fall in oil
prices ahead of weekly US industry inventory estimates later in the day offset
better-than-expected manufacturing data from China. Japanese shares ended lower
as the dollar hit two-week lows against the yen after mixed US data released
overnight and new poll results showing that UK Conservatives could fall short
of overall majority in next month's national election. Meanwhile, Chinese
shares ended higher after data showed activity in China's manufacturing sector
grew faster than expected in May. China's manufacturing sector continued to
expand in May and at a steady pace, with a manufacturing PMI score of 51.2.
That's unchanged from the April reading and surpassed expectations for 51.0.
The non-manufacturing PMI came in with a score of 54.5 up from 54.0 in the
previous month.
US markets closed lower for second straight day
The US
markets closed lower on Wednesday, but off their worst levels of the session,
notching gains for the month as a slump in bank shares and a mixed reading of
economic reports weighed on investor sentiment. Coupled with the drop in oil
prices and reports that former FBI Director James Comey will publicly testify
that President Donald Trump pushed him to end the probe into former
national-security adviser Michael Flynn also weighed on the sentiments. On the
economy front, a reading for pending-home sales came in below expectations.
Pending-home sales from the National Association of Realtors fell 1.3% to a
level of 109.8 from a reduction in the March reading, whereas a gauge of
economic health, the Chicago business barometer, or Chicago PMI, rose to 59.4
in May, its highest level in two and half years. Earlier, reporting agency MNI
Indicators had mistakenly said the gauge fell to 55.2.
The Dow
Jones Industrial Average lost 20.82 points or 0.10 percent to 21,008.65, Nasdaq
was down 4.67 points or 0.08 percent to 6,198.52, while S&P 500 edged lower
by 1.11 points or 0.05 percent to 2,411.80.
Indian economy to grow 7.5% in current fiscal and 7.7%
in 2018-19:
Just ahead
of the release of the fourth quarter GDP numbers, the global credit rating
agency, Moody's Investors Service in its latest report ‘Global Macro Outlook’
has said that Indian economy will grow by 7.5 per cent in the current fiscal
year, 7.7 per cent
in 2018-19
and will reach to around 8 per cent in 3-4 years on the back of government's
various reforms.
The agency
said that the economy will strengthen as the impact of last year's
demonetization fades and with the government successfully pushing through
several key reforms such as liberalisation of FDI rules in a number of key
sectors, July rollout of the
Goods &
Service Tax (GST) and a national bankruptcy code, noting that these reforms
will help reduce inefficiencies and improve trend growth over the long run.
However, the
report has pointed that the private sector investment has remained weak despite
progress on reforms. On the problem of mounting bad loans, Moody's noted that
persistent banking sector weakness from a high proportion of delinquent loans
on bank
balance
sheets will weigh on growth, if not resolved, by constraining credit forinvestment
related activity. Besides, it said that the inflation rate will rise to around
5 per cent by the end of this year and expects the Reserve Bank of India to
hold the policy repo rate steady, holding a neutral stance in this growth
environment.
Banks' stressed assets may increase to 15% of total
loans by March 2018: S&P Ratings
Signaling
that bad loans will continue to hurt Indian banks, credit rating agency,
S&P Global ratings in its latest report has said that the credit profiles
of banks are unlikely to improve over the next 12 months seeing that their
total stressed assets are like
ly to
increase to 15 percent of total loans by the end of March 2018. The agency further
noted thatthe public sector banks will account for most of this weakness.
In its
latest report titled 'No Quick Cure for India's Banking Blues', the rating
agency has said that performance of public sector banks (PSUs) that it rated
was dismal in theMarch quarter of the last fiscal, adding that year-over-year
increase in non-performing loans (NPLs) led to higher provisions and lower
profits. Besides, it said that the available pool of capital to absorb
unexpected losses remained thin and loan growth was among the lowest in a
decade.
S&P
Ratings stated that PSU banks operate with a thin capital cushion and they will
have to continue to rely on external capital infusion to meet the Basel III
capital requirements, or sell off their non-core assets or investments.
Besides, large haircuts on loans may require resolving stressed loans. The
report further said that capital shortfall and asset quality problems could
pave the way for consolidation among the government-
owned banks
and this consolidation needs to be accompaniedby significant improvement in
risk management practices, efficiency gains, capitalisation and improvement in
overall governance.