Market drifts higher in early trade on positive Asian stocks

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Key benchmark indices saw a gap-up opening on positive Asian stocks. At 9:28 IST, the barometer index, the S&P BSE Sensex was up 142.38 points or 0.51% at 28,220.73. The Nifty 50 index was currently up 36.45 points or 0.42% at 8,719.60.

In overseas stock markets, Asia markets were trading higher with sentiment underpinned by a stronger-than-expected US jobs report released on Friday, 5 August 2016. US is the world’s largest economy. US stocks closed sharply higher on Friday, 5 August 2016 with the S&P 500 index and the Nasdaq Composite index settling at all-time closing highs, after a stronger-than-expected jobs report. The US economy added 255,000 jobs in July 2016, which follows a stellar gain in June, demonstrating that the economy is still healthy, despite relatively muted gross domestic product. The unemployment rate was unchanged at 4.9% even as the labor-force participation rate edged up to 62.8%, suggesting the labor market is tightening. In other economic news, the US trade deficit jumped 8.7% in June to a 10-month high of $44.5 billion, reflecting the higher cost of oil and more imports of consumer goods such as cellphones and drugs.

Closer home, the market breadth indicating the overall health of the market was strong. On BSE, 1,140 shares rose and 437 shares fell. A total of 41 shares were unchanged. The BSE Mid-Cap index was currently up 0.37%, underperforming the Sensex. The BSE Small-Cap index was currently up 0.72%, outperforming the Sensex.

Hero MotoCorp gained 1.38% ahead of its Q1 June 2016 results today, 8 August 2016.

Telecom stocks fell. Bharti Airtel (down 0.33%) and Reliance Communications (down 0.1%) fell. MTNL (up 1.72%) and Tata Teleservices (Maharashtra) (up 0.92%) rose.

Idea Cellular lost 1.89% ahead of its Q1 June 2016 results today, 8 August 2016.

Asian Paints rose 0.28% after the company announced that it is proposing to increase its water based paint manufacturing capacity at its plant situated at Sriperumbudur, Tamil Nadu from 1.4 lakh kilolitres (KL) per annum to 2 lakh KL per annum, subject to necessary approvals. Further, the company is also proposing to alter its product mix to augment the manufacturing capacity of synthetic resins and emulsions at its manufacturing facilities at Ankaleshwar, Gujarat, by around 35,000 metric tonnes, subject to necessary approvals. The details of the capital expenditure for the aforementioned expansion would be intimated on receipt of necessary approvals from the regulatory authorities. None of the promoters, directors, key managerial personnel or their relatives are directly/indirectly interested in the aforesaid proposal. The announcement was made after market hours on Friday, 5 August 2016.

Meanwhile, the passing of the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 relating to Goods & Services Tax (GST) by huge consensus in the Rajya Sabha was the hallmark of the third week of Monsoon Session of Parliament. The amendments made by Rajya Sabha in the Constitution (One Hundred and Twenty Second Amendment) Bill, 2016 as passed by Lok Sabha and as reported by the Select Committee of Rajya Sabha, have been now laid on the Table of the Lok Sabha and will be taken up by the House this week.

The bill requires ratification by 50% states after its passage by the Parliament, followed by the Presidential assent of Constitution Amendment and notification in the official Gazette. Cabinet will approve formation of GST Council which will make recommendation of model GST laws. Cabinet will approve the CGST and IGST laws by Centre and SGST laws by all states which have to be passed by the Centre and by all states respectively, which should happen by winter session this year. GST rules will be notified later. The main objective of the GST is to eliminate excessive taxation. GST is a uniform indirect tax levied on goods and services across a country. The measure would harmonize 11 state and central levies into a national sales tax, reducing business transaction costs.

On the macro front, the government in consultation with the Reserve Bank of India (RBI) has notified consumer price inflation target of 4% with upper tolerance level of 6% and lower tolerance level of 2% to be achieved by the Reserve Bank of India (RBI). The government notified the inflation target range of 2% to 6% in the Official Gazette on Friday, 5 August 2016 and it will be valid until 31 March 2021. The inflation target is to be fixed by the central government in consultation with the RBI once in every five years. According a statement from to the finance ministry, the key advantage of a range around a target is that it allows the Monetary Policy Committee (MPC) to recognise the short run trade-offs between inflation and growth but enables it to pursue the inflation target in long run over the course of business cycle. The range also accommodates data limitations, projection errors, short-run supply gaps and instability in the agriculture production, an important factor for CPI inflation, as food articles have a major weight in the CPI indices. It also allows to accommodate unanticipated short-term shocks even while nudging public inflation expectations on the centre of the range, to which the monetary policy will return the economy over the medium term, leading to transparency and predictability.

If the average inflation is more than the upper tolerance level of 4% + 2%, that is, 6%, or less than the lower tolerance level of 4% – 2%, that is 2%, for any three consecutive quarters, it would mean a failure to achieve the inflation target. Where RBI fails to meet the inflation target, in terms of the provisions of RBI Act, it shall set out a report to the Central Government stating the reasons for failure to achieve the inflation target, remedial actions proposed to be taken by RBI and an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.

The government has initiated the process of shifting to a framework of Monetary Policy Committee (MPC) for deciding interest rates. RBI currently sets the rates. The RBI is set to announce monetary policy decision at 11:00 IST tomorrow, 9 August 2016, after a policy review.