Of Widening Fiscal Deficit, FPI Inflows, and Top Cues in Focus Today

Thu, 28 Feb Pre-Open

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Share markets in India witnessed selling pressure yesterday on escalating Indo-Pak tensions and ended their trading session marginally lower. Sectoral indices ended on a mixed note with stocks in the consumer durable sector and power sector witnessing most of the selling pressure.

At the closing bell yesterday, the BSE Sensex stood lower by 68 points (down 0.2%) and the NSE Nifty closed down by 29 points (down 0.3%). The BSE Mid Cap index ended the day up 0.4%, while the BSE Small Cap index ended the day up 0.2%.

Top Stocks in Focus Today

From the steel sector, Tata Steel share price will be in focus today as the board of the company has approved the decision to issue debt securities worth Rs 50 billion.

From the aviation space, Jet Airways share price will be in focus today as reports yesterday stated that the airline may be forced to ground 42 of its aircrafts, almost one-third of its fleet of 123 planes this month.

According to reports, 28 aircrafts have already been taken off service.

The grounding comes even as State Bank of India (SBI) is set to meet Jet Airways promoter Naresh Goyal and top executives of Etihad Airways in Mumbai today. Etihad owns 24% in the Indian airline.

Jet Airways had tried to lease or sell some of its owned aircraft to raise money that could help pare its over Rs 80 billion debt. But the plans, including a wet leasing deal with TruJet for its ATRs, got stuck.

Many of the aircraft have also been grounded due to non-payments of dues to the lessors. On February 23, Jet Airways announced that an additional two aircraft have been grounded due to non-payment, apart from the four that the company had already disclosed.

Market participants will also be tracking Allahabad Bank share price, Corporation Bank share price, and Dhanlaxmi Bank share price as the Reserve Bank of India (RBI) yesterday to took them out of prompt corrective action (PCA) framework following improvement in their financial ratios.

Fiscal Deficit Widens

In the news from the macroeconomic space, the Controller General of Accounts (CGA) in its latest data showed that the central government's fiscal deficit has widened and touched 121.5% of the full-year revised target of Rs 6.34 trillion at the end of January.

The fiscal deficit, or the gap between the government's expenditure and revenue, stood at Rs 7.7 trillion during April-January of the current financial year ending March. At the end of January 2018, the deficit was 113.7% of the Revised Estimate (RE).

As per the CGA data, the revenue receipts of the government totaled Rs 11.81 trillion or 68.3% of RE till January in 2018-19, compared with 72.8% during the same period last fiscal.

The government expects to mop up revenue of Rs 17.29 trillion during the current fiscal, from Rs 17.25 trillion budgeted originally.

Tax revenue was 68.7% of RE, compared with 76.5% in the comparable period of the previous year.

On the expenditure front, the data showed that the total expenditure of the government at January-end was Rs 20.01 trillion or 81.5% of RE. The total expenditure for the current fiscal has been raised to Rs 24.57 trillion in the RE, from the budgeted Rs 24.42 trillion.

The government had budgeted to cut the fiscal deficit to 3.3% of Gross Domestic Product (GDP) or Rs 6.24 trillion in 2018-19, from 3.53% in the previous financial year.

However, the fiscal deficit was revised upwards marginally to 3.4% of GDP or over Rs 6.34 trillion in the Interim Budget 2019-20, on account of additional outlay of Rs 200 billion for funding income scheme for small farmers.

How this pans out in coming months remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

FPI Inflows at their Highest in 12 Months

Overseas flows into domestic equities this month were the highest in 12 months. As per the date, so far this month, foreign portfolio investors (FPIs) bought stocks worth US$1.9 billion, the highest since March 2018 when they had pumped in over US$2 billion.

FPIs have been taken out money in seven out of 12 months.

The reversal in overseas flows this month will boost investor sentiment, which has been hit due to escalation in cross-border tensions between India and Pakistan.

The latest flow tally needs to be taken with a pinch of salt.

The market has seen single-day FPI investment of US$1.7 billion, the highest in 4 years. This was on account of share sale by Dutch bank ING Group in Kotak Mahindra Bank.

As per the reports, high inflow tallies this month isn't necessarily due to change in sentiment. FPIs continue to remain cautious ahead of elections.

Indian equities have had a tough time in the past one year. With elections around the corner, volatility in the markets has been on a constant rise.

Till date in FY18-19, foreign investors have pulled out around Rs 515 billion from the Indian equity market.

But there's also an interesting development seen this time...

In the past, such panic would have meant the domestic investor would have followed suit.

That hasn't happened this time.

Domestic investors have shown surprising resiliency to the market's volatility.

The month-wise SIP in FY18-19 has seen a constant rise.

Also, close to 1 million new SIP accounts have been added during FY18-19 according to AMFI.

The days of knee-jerk panic withdrawals by individual investors are slowly but surely reducing. If they ride out this volatility they will see the benefit of the cycle turning in their favor.

That will mark a significant change in the mindset of the retail investor for the long term.

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