Sensex breaks below..

Kshitij Anand

Indian markets witnessed a selloff in the morning trade on September 3, weighed down by both local and global cues.

The Sensex ended 769.88 points lower at 36,562.91, while Nifty was down 225.40 points or 2.04% at 10,797.90.

Markets were shut on account of Ganesh Chaturthi on September 2 but global markets mostly moved lower on account of the escalating trade war between the US and China.

The Indian market recorded its third consecutive monthly fall but on a weekly basis, both the Sensex and the Nifty closed with gains of around 2 percent. The Nifty gained 1.79 percent and the Sensex rose 1.72 percent in August.

On a monthly basis, the Sensex fell 0.4 percent, while the Nifty was down by 0.85 percent. The Nifty dropped 5.6 percent in July and 1.12 percent in June.

A list of Top 5 factors that could weigh on markets on September 3:

GDP growth at 6-year low

India’s gross domestic product (GDP) grew 5 percent in April-June 2019, official data released on August 30 showed, confirming fears of a slowdown as the government announced a second set of measures to boost the economy. The GDP growth was at 8 percent in the same quarter of 2018-19.

Gross value added (GVA), which is GDP minus taxes, and, therefore, a more realistic proxy to measure economic activity, grew 4.9 percent in April-June, compared to 7.7 percent in the same period in 2018 and 5.7 percent in January-March this year.

India’s economic growth dropping to an over six-year low indicates a “significant deceleration” in both investment and consumer demand, industry body Ficci said on August 31.

“The move is definitely positive for PSU banks and could improve markets. However, the release of GDP growth data at 5 percent is well below market expectations and could be taken negatively by the markets,” Ajit Mishra, Vice President, Religare Broking, told Moneycontrol.

“Hence, although we believe the recent measures announced by the government are positive for the markets. However, the upside would be capped until there are meaningful signs of revival in the economy,” he said.

US-China tariff war adds to gloom

US President Donald Trump slapped 15 percent tariffs on a variety of Chinese goods, including footwear, smart watches and flat-panel televisions, on September 1, while China imposed new duties on US crude, the latest escalation in a bruising trade war, Reuters reported.

China’s State Council has said it will increase adjustments of economic policy. A private survey on September 2 showed factory activity unexpectedly expanded in August, though gains were modest and contrasted with official data that pointed to further contraction, added the report.

In retaliation, China started to impose additional tariffs on some of the US goods on a $75 billion target list. Beijing did not specify the value of the goods that face higher tariffs from September 1.

FPIs net sellers for second straight month

Foreign investors pulled out Rs 5,920 crore from the Indian capital markets in August even though the government rolled back enhanced surcharge on foreign portfolio investors (FPIs).

According to the latest depositories data, FPIs withdrew Rs 17,592.28 crore from equities and pumped in a net sum of Rs 11,672.26 crore in the debt segment, translating into a total net outflow of Rs 5,920.02 crore during August 1 – 30, said a PTI report.

“The FPI clause which levied a higher surcharge was one big factor which, along with the LTCG tax last year, contributed to this regular outflow. While one part has already been relaxed, we can expect some relaxation on LTCG tax. This can probably be done by placing it on par with the calculation of immovable assets by increasing the non-taxable tenure to 3 years (true long term), as is already being rumoured on the Street,” Vinay Pandit, Head, Institutional Equities, IndiaNivesh, told Media.

Muted auto sales data

Automakers which released their sales data for August have shown a double-digit decline. Most global brokerage firms suggest that a cut in goods and services tax (GST) rates could help boost demand.

Morgan Stanley is of the view that any cut in GST rate will have a direct impact on end-consumer prices. “If GST were cut to 24 percent, this would likely help demand,” it said.

Mahindra and Mahindra (M&M) sold 36,085 units (domestic + export) in the month of August 2019, a drop of 25 percent from August 2018 sale of 48,324 units.

Maruti Suzuki India sold 1,06,413 units in August 2019, a drop of 32.7 percent from August 2018 sale of 1,58,189 units.

Homegrown auto major Tata Motors on September 1 reported a 58% decline in its domestic passenger vehicle sales at 7,316 units in August. In the commercial vehicles segment, its sales were down 45% at 21,824 units as against 39,859 units in August 2018.

GST collections below Rs 1 lakh cr

India’s gross GST collections slipped below Rs 1 lakh crore to Rs 98,202 crore in August, according to official data released on September 1. Gross revenue collections from GST in July stood at Rs 1.02 lakh crore.

A fall in GST collection will weigh on the fiscal roadmap of the government. Fiscal deficit touched Rs 5.47 lakh crore in the June quarter, which is 77.8 percent of the budget estimate for 2019-20.

PSB Merger: Too much of too little

Last week, government announced its plans to further consolidate the PSU banking space, as well as a set of measures to improve governance practices and additional details on fund infusion in PSBs.

The move was long expected, given that it is based on recommendations of the PJ Nayak Committee back in 2014, and the precedent set by the 3-way of merger of BOB, Vijaya Bank and Dena Bank in Sept-18. With the merger of: Punjab National Bank, Oriental Bank of Commerce and United Bank of India, Canara Bank and Syndicate Bank, Union Bank, Andhra Bank and Corporation Bank, Indian Bank and Allahabad Bank.

“The merger marathon will benefit in theory, only in the long run. Further, we believe that this move will do little to directly strengthen PSBs and revive their credit growth in order to provide the intended stimulus. This is because it does not directly address core issues that have plagued most PSBs, which will take a long time to address,” Aakash Dattani, Analyst, HDFC Securities

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