Fitch's Fiscal Deficit Forecast, Q2FY20 Results, and Top Cues in Focus Today

Fri, 8 Nov Pre-Open

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Indian share markets witnessed huge buying interest during closing hours yesterday and ended their day on a positive note.

At the closing bell yesterday, the BSE Sensex stood higher by 183 points (up 0.5%) and the NSE Nifty closed higher by 49 points (up 0.4%).

The BSE Mid Cap index ended up by 0.7%, while the BSE Small Cap index ended the day up by 0.5%.

On the sectoral front, gains were seen in the energy sector and metal sector. Oil & gas sector and capital goods sector, on the other hand, witnessed selling.

Fitch Raises India's Fiscal Deficit Forecast

In the news from the macroeconomic space, Fitch Solutions raised India's fiscal deficit forecast to 3.6% of the gross domestic product (GDP) for this fiscal year, from 3.4% previously. The forecast was raised due to weak revenue collections resulting from sluggish economic growth and government's sweeping corporate tax rate cut.

Fitch said it was revising the fiscal deficit forecast as revenue collection is likely to fall far short of the projections in the FY20 Union Budget due to weak goods and services tax (GST) and corporate income tax collections.

The government on September 20, had announced that it would be slashing corporate income taxes for domestic companies to 22% from 30% previously.

This would bring effective corporate tax rate, including all additional levies, to about 25.2% for companies which are not receiving any incentives or exemptions.

The move is estimated to result in Rs 1.45 trillion in revenue loss for the government during FY20.

However, corporate tax accounts for 28% of total receipts. Therefore, the sharp reduction in tax rates will drag heavily on revenue collection.

Separately, Fitch expects weak private consumption growth to weigh on GST collection and this is already being reflected in the growing shortfall in GST collections thus far in FY20.

The agency added that private consumption growth more than halved to 3.1% year-on-year (YoY) in Q1FY20 from 7.2% YoY in Q4 FY19 largely due to the collapse of the Infrastructure Leasing & Financial Services Ltd (IL&FS), in September 2018.

From the Results Corner...

Sun Pharma reported a net profit of Rs 10.6 billion for the quarter ended September 30.

The drug major had posted a net loss of Rs 2.6 billion for the corresponding period a year ago.

The company in a regulatory filing said its revenue from operations came in at Rs 81.2 billion in the second quarter of current financial year, as against Rs 69.3 billion in the year-ago period.

From the energy sector, Hindustan Petroleum Corporation (HPCL) reported 29.8% quarter-on-quarter (QoQ) growth in September quarter.

The profit increased to Rs 10.5 billion in the quarter ended in September against Rs 8.1 billion in the June quarter.

The revenue from operations fell 14.3% sequentially to Rs 608.6 billion during the July-September period.

The calculated gross refining margin for the quarter stood at US$ 2.60 a barrel.

From the steel sector, Tata Steel reported a 6% year-on-year (YoY) rise in consolidated profit at Rs 33 billion for the quarter ended September 30, on one-time deferred tax gain of Rs 43.7 billion.

The company had posted a net profit of Rs 31.2 billion in the corresponding quarter last year.

The company's total revenues declined by 15.4% to Rs 345.8 billion during Q2FY20.

Consolidated EBITDA of the company plunged 56.6% to Rs 38.2 billion in the September quarter. The figure stood at Rs 88 billion in the same period last year. Margins declined sharply to 11% from 21.5% on a yearly basis.

Moody's Warns Yes Bank of Rating Downgrade

Yes Bank share price will be in focus today as global ratings agency Moody's placed the private sector lender's ratings under review for downgrade.

The agency said that the Ba3 rating of the bank can be downgraded because of the weak September quarter earnings and the bank managing to get only a commitment for US$ 1.2 billion in funding recently.

The agency warned that any inability to raise the fund will negatively impact the credit profile and ratings of the bank.

Moody's also sees the bank's total dud asset to top 12% this year basing on bank's own assessment of over 40% of its Rs 300 billion of exposure to lower rated entities turning sour before March.

The agency also ruled out an upgrade in the next 12-18 months saying the outlook can be changed to stable if the asset quality is stable and the capital raise happens.

Note that Yes Bank has been passing through a rough period ever since the Reserve Bank of India (RBI) asked the promoter-chief executive Rana Kapoor to leave the bank by January 31, 2019 in August last year over concerns on governance and loan practices. The bank has also been in news as Rana Kapoor's successor Ravneet Gill disclosed large underreported stressed assets.

How all these pans out remain to be seen. Meanwhile, we will keep you updated on all the developments from 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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