Markets extend southward journey on global sell-off

Extending southward journey for second straight session, Indian equity benchmarks tumbled sharply on Monday, mirroring global market fears of a potential recession in the US economy.  After a gap-down start, key gauges inched gradually lower throughout the day, amid selling across the sectors. Traders remained cautious as exchange data showed foreign Institutional Investors (FIIs) offloaded equities worth Rs 3,310 crore on Friday. The mood on the street remained cautious as data from the central bank showed India's foreign exchange reserves halted a three-week gaining streak and stood at $667.39 billion as of July 26, coming off record highs. Traders also reacted negatively to survey report that India’s services sector growth eased during the month of July as higher wage and material costs continued to push up business expenses, with the overall rate of inflation quickening from June. According to the survey report, the seasonally adjusted HSBC India Services PMI Business Activity Index eased to 60.3 in July from 60.5 in June. Further, the HSBC India Composite PMI Output Index -- which measures both manufacturing and services -- also fell to 60.7 in July as against 60.9 in June.

However, towards the end, markets recovered some of the losses, as traders took some support with a report that India’s unemployment rate (UR) dropped by 1.3 percentage points in July from an eight-month high of over nine per cent in the previous month. The UR fell to 7.9 per cent in July from 9.2 per cent in June. Some support also came with Revenue Secretary Sanjay Malhotra’s statement that the government remains committed to fairness, simplicity and equity in the tax system. He said the government’s ongoing efforts are to simplify tax laws, improve tax compliance, and support economic growth through prudent fiscal policies and the Union budget was in that direction. But, markets failed to hold recovery and ended with deep cuts. Meanwhile, Minister of State for Commerce and Industry Jitin Prasada has said that the free trade agreement (FTA) signed between India and the four European nation bloc EFTA in March is under the ratification process in those countries. He said there is no fixed time frame for the ratification, as the process is different in each of the EFTA (European Free Trade Association) countries.  

On the global front, European markets were trading lower amid fears the U.S. economy may be heading for a recession. Besides, a survey revealed the eurozone economy stalled in July as demand for goods and services deteriorated. The HCOB composite PMI output index fell to a five-month low 50.2 from 50.9 in June. Asian markets settled down on Monday, tracking weak global markets as fears of a possible U.S. recession and concerns over an escalating Middle East conflict sapped investors' appetite for risk. 

Back home, on the sectoral front, auto stocks remained in watch as data from auto body FADA showed India's automobile retails grew 13.8 per cent on an annual basis in July. Almost all segments except tractors exhibited a double-digit growth even as passenger vehicles' inventory levels rose to a historic high of 67-72 days. Tyre industry stocks also were in focus with report that Tyre manufacturers are grappling with unprecedented raw material costs as natural rubber prices touched a 10-year high in June 2024. This surge has prompted leading companies like CEAT and JK Tyres to increase prices in an effort to offset the rising costs. 

Finally, the BSE Sensex fell 2222.55 points or 2.74% to 78,759.40, and the CNX Nifty was down by 662.10 points or 2.68% points to 24,055.60.

The BSE Sensex touched high and low of 79,780.61 and 78,295.86 respectively. There were 2 stocks advancing against 28 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 3.60%, while Small cap index was down by 4.21%.

The top losing sectoral indices on the BSE were Metal down by 4.73%, Utilities down by 4.30%, Realty down by 4.25%, PSU down by 4.20% and Capital Goods down by 4.13%, while there were no gaining sectoral indices on the BSE. 

The few gainers on the Sensex were Hindustan Unilever up by 0.83% and Nestle up by 0.61%. On the flip side, Tata Motors down by 7.32%, Adani Ports & SEZ down by 5.93%, Tata Steel down by 5.31%, SBI down by 4.34% and Power Grid Corporation down by 4.19% were the top losers.

Meanwhile, Cleaning air over taxation system, Revenue Secretary Sanjay Malhotra has said the government remains committed to fairness, simplicity and equity in the tax system. He said the government’s ongoing efforts are to simplify tax laws, improve tax compliance, and support economic growth through prudent fiscal policies and the Union budget was in that direction. Union Finance Minister Nirmala Sitharaman had said a comprehensive review would be done on direct taxes over the next six months aiming at making direct taxes simpler to reduce disputes.

Malhotra said ‘Tax growth had reached 14 per cent, outpacing GDP growth due to better compliance and collection efficiency’. He commended both tax administrators and taxpayers for their efforts and asked for continued cooperation to further enhance tax compliance and administration. He assured taxpayers that the government aims to simplify and make it easier to understand and make the process as hassle-free as possible. He emphasized that the administration seeks to build trust with taxpayers and aims to minimise harassment and inconvenience for honest taxpayers. He further said ‘For those found dishonest, the law would be applied rigorously’. 

Clarifying about the removal of indexation for long-term capital gains, he stated that it should not hurt the masses as the capital gains tax was increased marginally for the “high-income group” only. He also touched on the broader economic goals reflected in the budget, focusing on growth, employment, and development across various sectors. He underscored the importance of fiscally responsible spending to avoid burdening future generations. He also addressed specific sectors, such as the leather, textile, diamond, and marine sectors, which have seen reductions in customs duties to enhance competitiveness. He highlighted the government’s support for industries through measures like the removal of angel tax and reduction of corporate tax rates of foreign companies to attract both domestic and international investment.

The CNX Nifty traded in a range of 24,350.05 and 23,893.70. There were 5 stocks advancing against 45 stocks declining on the index.

The top gainers on Nifty were Hindustan Unilever up by 1.02%, Tata Consumer Products up by 0.70%. Nestle up by 0.68%, Britannia Industries up by 0.51% and HDFC Life Insurance up by 0.21%. On the flip side, Tata Motors down by 7.40%, ONGC down by 6.39%, Adani Ports & SEZ down by 5.92%, Tata Steel down by 5.61% and Hindalco down by 5.25% were the top losers.

European markets were trading lower; UK’s FTSE 100 decreased 188.69 points or 2.31% to 7,986.02, France’s CAC fell 162.57 points or 2.24% to 7,089.23 and Germany’s DAX lost 465.2 points or 2.63% to 17,196.02.

Asian markets settled down on Monday as fears about a US economic slowdown and a possible US recession sent shock waves through global markets, while Japan’s Nikkei logged the worst day for the index since the Black Monday of 1987. US data on Friday showed a smaller-than-expected gain of 114,000 US nonfarm payrolls last month, as the unemployment rate ticked up to 4.3%, the highest since October 2021. Market sentiments weakened further by rising geopolitical tensions in the Middle East, with reports stated that Benjamin Netanyahu-led government could sanction a pre-emptive strike on Iran to prevent an attack on Israeli soil. Chinese shares declined, despite data showing growth in the country's services activity accelerated in July. The Caixin/S&P Global services purchasing managers' index grew to 52.1 in July from 51.2 in June, pointing to expansion for the 19th straight month and beating expectations of 51.4.