Sensex Ends 186 Points Higher; Realty & Telecom Stocks Witness Buying

Tue, 1 Jan Closing

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Indian share markets witnessed buying interest during closing hours and ended on a positive note. Gains were seen in the realty sector, telecom sector and banking sector, while metal stocks and auto stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 186 points (up 0.5%) and the NSE Nifty closed higher by 48 points (up 0.4%). The BSE Mid Cap index ended the day down 0.1% and the BSE Small Cap index ended the day up by 0.4%.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up by 1.3% and the Shanghai Composite was up by 0.4%. The Nikkei 225 was down 0.3%.

The rupee was trading at 69.66 against the US$.

A look back at 2018 throws up some interesting trends about how the global markets performed during the year gone by.

The BSE Sensex closed at 34,057 at the end of 2017. It gained 14% to hit a life-time high of 38,897 on 28 August 2018. Thereafter, the Sensex has been in correction mode through September and October. However, after hitting a year-to-date low of 33,349 in the last week of October, the Sensex has reclaimed the 35k level.

While the Sensex has shed most of its gains in 2018, it still doesn't appear so bad in Indian rupee terms. But for foreign investors, the fall in the Sensex has been worse, because they're also exposed the currency risk.

The below chart shows the difference between the performance of the Sensex and the Dollex 30 index (Sensex in US dollar terms).

Dollex-30 Is Down 10% in 2018

You can see how the trend between the Sensex and Dollex-30 diverged since February 2018.

No wonder that foreign investors have been dumping Indian stocks. Since April 2018, foreign investors have sold equities worth Rs 565.5 billion. What is worth noting is that Rs 276.2 billion worth of equities were sold in the month of October alone.

Now as we enter the year 2019, in the latest edition of our stock market podcast, we talk about the investment strategy for 2019 and Richa Agarwal's 4 small cap stocks that we need to watch out for. Listen in to find out. Just visit SoundCloud, iTunes or Stitcher.

In the news from the banking space, Axis Bank share price was in focus today. Shares of the lender witnessed buying interest on the joining of the new managing director & CEO of the company.

Shikha Sharma, the former managing director & CEO of Axis Bank retired from the services of the bank with effect from Monday.

Amitabh Chaudhry, who replaced her will remain in office till December 31, 2021.

In the news from the macroeconomic space, Finance Minister Arun Jaitley today said that the government does not need the Reserve Bank of India's (RBI) reserves to meet its fiscal deficit target.

The finance minister said the government had lowered the fiscal deficit and kept inflation and the current account deficit (CAD) under check, while retaining the fastest-growing economy tag for five years.

He added that it was only during the current government's tenure that India had become the fastest growing major economy in the world, ahead of China and that demonetization and the goods and services tax (GST) had helped widen the tax base and allocate more funds for poverty alleviation and social sector programmes.

He also said that the government will take all necessary measures to resolve the difficulties faced by farmers.

Further, replying to accusations that the government was eyeing RBI's reserves to meet fiscal deficit, Jaitley said the government had managed its math better than its predecessor.

Note that the fiscal deficit of India stood at Rs 7.2 trillion (US$101.9 billion) by the end of November 2018.

India's financials seem to be steeping deeper in trouble as the fiscal deficit went on to race past the designated target despite government assurances.

Now, this amounts to 114.8% of the budgeted target for the current fiscal year. The fiscal deficit for the corresponding period last financial year stood at 112%. Government had already breached the fiscal deficit target of 3.3% of the GDP back in October.

Net tax receipts in the first eight months of the fiscal year that ends in March 2019 were Rs 7.3 trillion.

Further, revenue receipts ended at Rs 8.7 trillion by end of November this year. This is a touch ahead of half of the Budget Estimates for this financial year.

Revenue expenditure climbed to Rs 14.2 trillion or over two-thirds of the Budget Estimates. During the April-November period, the loans disbursed crossed Rs 144 billion, which is 66.2% of budgetary estimates.

Significant rise was recorded in subsidies given for petroleum products and urea, with each reaching 93% and 74% respectively of their Budget Estimates. The same for the corresponding period last fiscal was at 86% and 64% respectively.

The overall expenses on major subsidies came up to Rs 2.2 trillion by April-November period, which is 83% of the budgetary estimates.

The government is widely expected to miss its fiscal deficit target in the current fiscal year or announce spending cuts in the last quarter.

Note that, it has already cut its fiscal deficit target to 3.3% of the GDP from 3.5% last year.

In the past, the government has relied on reducing expenditure to keep the fiscal deficit in check.

Now, the government is banking on earning much more than it has in the past. It expects a major portion of the revenue to be collected through GST tax collections. Also, the recent rise in crude oil prices has cast a doubt over how much the government will be to curb its spending.

The dual pressure of increasing expenditure and lower inflows makes this FY19 deficit target an uphill challenge.

Moving on, shares of public sector undertaking (PSU) banks were witnessing buying interest today as the government has started its capital infusion in public sector lenders.

On Monday, the government infused Rs 108.8 billion in four PSU banks including UCO bank and Syndicate bank.

The government recently pumped in Rs 113.4 billion into five PSBs, including PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank to improve their financial health.

However, as per us, using recapitalization bonds can only act as a short-term measure to the crisis afflicting Indian public-sector banks today.

Such a measure will not address the structural issue in the banking system, i.e. the poor standard of lending and poor governance system.

Our big picture editor, Vivek Kaul, talks about moral hazard risk arising out of recapitalization. He writes...

• If the government bails them around this time around, the banks know that they can count on the government bailing them out the next time around as well. And this means that they can follow fairly loose standards of lending, in order to lend money quickly.

It would be interesting to see how the above measures help the PSBs. Meanwhile, we will keep you updated on all the developments form this space.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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