Post Session: Quick Review

Indian equity benchmarks witnessed hefty losses on Tuesday and settled near day’s low levels amid weak global cues ahead of US Fed interest rate decision. Since morning, markets went through from losses as negative imports and exports data also dented investors sentiments. As for broader indices, the BSE Mid cap index and Small cap index ended in red. Sector specific, metal sector stocks concluded with cut of over one and half a percent.

Markets made negative start and extended their losses tracking weakness in Asian counterparts following the mixed cues from Wall Street overnight, as traders remain concerned about the ongoing economic uncertainties in China amid lack of adequate financial policy measures. Besides, sentiments were downbeat as data released by the commerce department showed that India’s trade deficit reached a record high of $37.8 billion in November, amid a surge in merchandise imports, mainly driven by a 4.3-time jump in inbound shipments of gold. Imports increased by 27% to a record of almost $70 billion during the month. On the other hand, exports contracted 4.8% to a 25-month low of $32.1 billion in November. The contraction came in a month after witnessing robust 17% Y-o-Y growth in October, which was due to inventory-building by the West ahead of the Christmas season. Traders overlooked CRISIL’s report stated that India’s gross domestic product (GDP) growth is likely to align with the long-term trend of 6.5-7 per cent as technical factors that caused fluctuations begin to normalise. In afternoon session, indices continued to trade under pressure even after Minister of State for Finance, Pankaj Chaudhary, said that India has garnered Foreign Direct Investment (FDI) inflows amounting to $709.8 billion between April 2014 and September 2024. India’s FDI policy framework is built on the principle of openness, allowing 100 per cent FDI under the automatic route in most of the sectors. In late afternoon session, indices reached towards day’s low levels, as traders sold out their riskier assets.

On the global front, European markets were trading mostly in green as investors looked ahead to a slew of major central bank decisions later in the week and watched closely the latest political developments in Germany and France. All Asian markets ended lower as investors eyed this week's interest rate decisions from the Federal Reserve, the Bank of Japan and Bank of England for hints on where interest rates are headed in 2025. Back home, a private report stated that advance direct tax receipts from companies, limited liability partnerships (LLPs) and individuals rose by 16.8% on year for the third quarter of the current financial year. 

The BSE Sensex ended at 80,684.45, down by 1064.12 points or 1.30% after trading in a range of 80,612.20 and 81,613.64. There were 0 stocks advancing against 30 stocks declining on the index. (Provisional)

The broader indices ended in red; the BSE Mid cap index declined 0.65%, while Small cap index was down by 0.52%. (Provisional)

The losing sectoral indices on the BSE were Telecom down by 2.18%, Metal down by 1.77%, Auto down by 1.70%, Energy down by 1.64%, Oil & Gas down by 1.59%, while there were no gaining sectoral indices on the BSE. (Provisional)

The top losers on the Sensex were JSW Steel down by 3.06%, Bharti Airtel down by 2.83%, Indusind Bank down by 2.46%, TCS down by 2.07% and Asian Paints was down by 1.94%, while there were no gainers on the Sensex. (Provisional)

Meanwhile, CRISIL in its latest report has said that India’s gross domestic product (GDP) growth is likely to align with the long-term trend of 6.5-7 per cent as technical factors that caused fluctuations begin to normalise. While the post-pandemic period saw a sharp rebound and significant variations in GDP growth, these irregularities are now settling down, signalling a return to stability. Post-pandemic, different economic segments recovered at varied speeds. The government’s focus on infrastructure spending played a pivotal role in driving economic recovery by creating multiplier effects. Additionally, strong corporate and bank balance sheets and healthy external markets contributed to India’s economic resilience.

However, certain technical factors disrupted GDP growth patterns in recent years. For instance, net product taxes were impacted by a surge in government subsidies during the pandemic, and swings in commodity prices led to volatility in the GDP deflator. These disruptions caused GDP growth to surge to 8.2 per cent last fiscal while creating a divergence with gross value added (GVA) growth. The current fiscal year has seen these technical factors normalize, leading to slower GDP growth. Net tax growth, a major contributor to GDP growth last fiscal, has slowed significantly due to a high base.

In the first half of this fiscal, net product taxes grew by just 3.3 per cent, compared to 10.5 per cent in the same period last year. This reduced the contribution of net taxes to GDP growth from 77 basis points (bps) last year to 25 bps this year. The GDP deflator, which measures inflation-adjusted GDP, is also stabilizing. It rose to 2.7 per cent on-year in the first half of this fiscal, compared to a low of 0.8 per cent last year. A key factor driving this increase is the rise in wholesale price index (WPI) inflation, which averaged 2.7 per cent in the first half, up from -1.7 per cent in the same period last year. This normalization is moderating real GDP growth but also reducing distortions between nominal and real GDP figures.

While normalisation of technical factors has slowed GDP growth, high interest rates and fiscal consolidation have also contributed to the moderation. Yet, the main macroeconomic drivers remain strong. Private consumption, which accounts for 56.3 per cent of GDP, grew by 6.7 per cent in the first half of this fiscal compared to 4.1 per cent last year. Fixed investment growth, although slower at 6.5 per cent compared to 10.1 per cent last year, continues to maintain a larger share of GDP than in the pre-pandemic decade. CRISIL projects GDP growth for the current fiscal to range between 6.5-7 per cent, aligning with India’s pre-pandemic trend. Improving consumption demand, bolstered by a healthy monsoon and rural recovery, is expected to drive growth momentum. While growth this fiscal may be lower than last year’s 8.2 per cent, it is anticipated to be more balanced across sectors, indicating a healthier trajectory for the economy.

The CNX Nifty ended at 24,336.00, down by 332.25 points or 1.35% after trading in a range of 24,303.45 and 24,624.10. There were 1 stocks advancing against 49 stocks declining on the index. (Provisional)

The top gainers on Nifty were Cipla up by 0.17% Shriram Finance down by 5.12%, Grasim Industries down by 3.18%, Bharti Airtel down by 2.84%, Hero MotoCorp down by 2.73% and Indusind Bank down by 2.37% were the top losers. (Provisional)

European markets were trading mostly in green; France’s CAC rose 11.75 points or 0.16% to 7,368.83 and Germany’s DAX was up by 27.06 points or 0.13% to 20,340.87. On the flip side, UK’s FTSE 100 was down by 56.64 points or 0.69% to 8,205.41.

Asian markets ended down on Tuesday tracking Wall Streets’ fall overnight ahead of this week's interest rate decisions from the US Federal Reserve, the Bank of Japan and Bank of England, that could provide hints on where interest rates are headed in 2025. Japanese shares finished lower after the yen steadied after six days of losses, while investors were betting on the Bank of Japan to keep interest rates steady this week. Chinese shares declined, despite Chinese Premier Li Qiang urging government officials to swiftly carry out key economic tasks for the coming year. Moreover, Seoul shares fell as the country's Constitutional Court began the process of reviewing the impeachment of South Korean president Yoon Suk Yeol.