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Market Commentary - Mid Session
Market extends losses
(19 Jul 2019, 12:25)

Key equity barometers further extended losses and hit fresh intraday low in early afternoon trade. At 12:27 IST, the barometer index, the S&P BSE Sensex, was down 410.73 points or 1.06% at 38,486.73. The Nifty 50 index was down 128.45 points or 1.11% at 11,468.45.

The NSE Nifty 50 was trading below its 100-day moving average (DMA) of 11,567.62. The other key level to watch for the Nifty is 11,125.67, which is 200-DMA.

The S&P BSE Mid-Cap index was down 1.10%. The S&P BSE Small-Cap index fell 1.38%.

The market breadth was weak. On the BSE, 525 shares rose and 1683 shares fell. A total of 120 shares were unchanged.

The market came under selling pressure after the government did not offer any respite to foreign investors registered as trusts from the proposed super-rich tax. Finance minister Nirmala Sitharaman on Thursday declined to remove or relax the applicability of the new surcharge on the super rich on foreign portfolio investors (FPIs), but advised those staring at an increase in tax outflows to shift to the corporate structure where the Budget has not made any change in tax treatment.

Replying to a debate on the Finance Bill in the Parliament on 18 July, Finance Minister Nirmala Sitharaman dismissed the argument of the Opposition that the tax would lead to a flight of foreign portfolio investors (FPIs). It will have an impact on FPIs registered as trusts. There is an option for FPIs to register as companies. If they are registered as companies, they don't have a problem with this new tax, Sitharaman said. She said a trust was treated as an individual entity and came under the tax.

Sitharaman in her maiden Budget speech on 5 July 2019, proposed to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above so that effective tax rates for these two categories will increase by around 3% and 7% respectively. The effective tax rate on the highest tax bracket goes up to 42.7% after the hike.

There are concerns that the increased surcharge on super-rich could also affect foreign funds investing in India since a same tax structures apply for individuals, Hindu Undivided Family (HUF) and Associations of Persons (AOPs). FPIs, including pension and retirement funds, educational endowment fund, etc, come in through trusts or AOPs route because it has been the most tax-efficient structure.

The Lok Sabha passed the Finance Bill by voice vote, completing the budget process for 2019-20 in the Lower House. It will now go to the Rajya Sabha. A money bill does not need Upper House approval.

On the equity front, most cement stocks rose. Ambuja Cements (up 1.2%) and UltraTech Cement (up 0.25%) advanced. Grasim Industries was down 1.15%.

ACC was up1.86%. On a consolidated basis, ACC reported 38.62% rise in net profit to Rs 455.64 crore on 8.33% rise in total income to Rs 4206.18 crore in Q2 June 2019 over Q2 June 2018. The result was announced after market hours yesterday, 18 July 2019.

State-run Sail was down 0.33%. Government e Marketplace (GeM) under Department of Commerce, Ministry of Commerce and Industry, Government of India and Steel Authority of India (SAIL), signed an MoU yesterday, 18 July 2019, to set up GeM Organizational Transformation Team (GOTT) Project Management Unit (PMU) in New Delhi. With this MoU, SAIL has become the first PSU to establish GOTT PMU for transforming their procurement landscape and increasing their footprint on GeM.

Dr. Reddy's Laboratories was down 0.45%. The company during market hours today, 19 July 2019, that announced announced the launch of Fexofenadine HCI 60 mg and Pseudoephedrine HCI 120 mg extended-release tablets, USP, an over-thecounter (OTC) store-brand equivalent of Allegra-D 12 HR Allergy and Congestion extended-release tablets, in the United States market, as approved by the U.S. Food and Drug Administration (USFDA). The Allegra-D 12 HR Allergy and Congestion extended-release tablets brand and generic had U.S. sales of approximately $44 million MAT for the most recent twelve months ending in May 2019 according to IRi.

FMCG shares mostly fell. Bajaj Corp (down 3.7%), Tata Global Beverages (down 3.1%), Procter & Gamble Hygiene & Health Care (down 1.81%), Britannia Industries (down 1.68%), GlaxoSmithKline Consumer Healthcare (down 0.89%), Godrej Consumer Products (down 0.78%), Hindustan Unilever (down 0.77%) Dabur India (down 0.69%) and Nestle India (down 0.43%) declined.

Jyothy Laboratories (up 0.56%), Colgate Palmolive (India) (up 0.42%) and Marico (up 0.01%) advanced.

Market research firm Nielsen reportedly lowered its growth target for the fast moving consumer goods (FMCG) sector on Wednesday, 17 July 2019. The firm has estimated growth in 2019 to be in the 9-10% range for 2019 as against 11-12% estimated earlier, citing macroeconomic factors such as slowing growth and the impact of a deficient monsoon. The lowering of the sales forecast for India's packaged goods sector as consumption cooled for the third straight quarter, led by a sharp rural slowdown.

Telecom shares fell. Tata Teleservices (Maharashtra) (down 4.76%), MTNL (down 1.38%) and Bharti Airtel (down 1.04%) declined. Reliance Communications was up 4.68%

Vodafone Idea was down 0.97%. As per reports, Vodafone Idea has hired Bank of America and Morgan Stanley to help sell its fiber assets which could be valued at Rs 13,000 crore.

Shares of public sector oil marketing companies mostly fell. Indian Oil Corporation (down 0.54%) and HPCL (down 0.15%) declined. BPCL was up 0.60%.

Shares of oil explorers fell. Oil India (down 1.81%), ONGC (down 0.38%) and Reliance Industries (down 038%) declined.

In the commodities market, Brent crude for September 2019 settlement was up $1.01 at $62.94 a barrel. The contract fell $1.73 or 2.72% to settle at $61.93 a barrel in the previous trading session.

The International Energy Agency (IEA) does not expect oil prices to rise significantly because demand is slowing and there is a glut in global crude markets, IEA executive director was quoted by the media as saying. Electric vehicles are not expected to make a dent on crude demand in India and elsewhere, IEA's Fatih Birol said, adding that he expects India's oil demand to continue rising. The IEA is reducing its 2019 oil demand forecast due to a slowing global economy amid a US-China trade spat, and may cut it again if the global economy and especially China shows further weakness, Birol told the media on 18 July.

On derivatives front, the NSE's India VIX, a gauge of market's expectation of volatility over the near term, jumped 5.04% at 12.3425.

On the options front, Nifty option chain for 25 July 2019 expiry showed a maximum call open interest (OI) of 43.37 lakh contracts at the 11,600 strike price. Maximum put OI of 30.30 lakh contracts was seen at 11,300 strike price. Options data suggested a trading range for Nifty will be between 11,300 and 11,600.

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