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Indian equity benchmarks ended over a percent lower on Friday, dragged by heavy selling pressure in Realty and Metal stocks on profit-taking and weak global market trends.  After making slightly positive start, key gauges traded on flat note as traders got anxious with an analysis of industrial output and merchandise exports by India Ratings and Research suggested that the Indian manufacturing sector, which received a fillip in FY22 due to export growth, is likely to be hit by a slump in foreign trade activity in FY23. Markets fell sharply in late morning session as an RBI article has warned that big bang privatisation of public sector banks can do more harm than good, and asked the government to take a nuanced approach on the issue.

Sentiments remained down-beat in late afternoon deals, as Reserve Bank of India turned net seller of the US currency in June after it sold $3.719 billion on a net basis. In the reporting month, the central bank purchased $18.96 billion from the spot market and sold $22.679 billion. Some concerns also came with the finance ministry stating that exemptions specified in Free Trade Agreement (FTA) with regard to country of origin will prevail in case of conflict between revenue department and importer. Traders overlooked the PHD Chamber of Commerce and Industry’s (PHDCCI) report stated that increasing domestic production in sectors such as chemicals, automotive components, drug formulations and consumer electronics will help in reducing imports worth about $35 billion from China in the coming times.

On the global front, Asian markets settled mostly lower on Friday as Federal Reserve officials continued to talk up the need for further interest rate hikes ahead of the Fed's annual Jackson Hole conference in Wyoming next week. St Louis Fed president James Bullard said he expects a third straight 75-basis-point interest rate hike in September, while San Francisco Fed colleague Mary Daly said that raising rates by 50 or 75 basis points next month would be 'reasonable'. European markets were trading lower after U.S. central bankers offered divergent signals over the size of the next interest-rate hike. Inflation and recession worries were back in focus after data showed Germany's producer price inflation accelerated unexpectedly to a new record high in July, primarily driven by higher energy costs.

Back home, shares of OMCs and aviation were in focus as the government again revised the newly-introduced windfall tax. The tax on domestically produced crude oil has been reduced to Rs 13,000 per tonne from Rs 17,750 per tonne, while export taxes on jet fuel has been hiked to Rs 2 per litre from zero. The excise duty on the export of diesel has been hiked to Rs 7 per litre from Rs 5 per litre earlier. The excise duty on the export of petrol continues to be nil. The new rates will be applicable from August 19. Power stocks were in watch as private report stated that solar capacity installations in the country rose by 59 percent to a record 7.2 gigawatts (GW) during the first half of 2022.

Finally, the BSE Sensex fell 651.85 points or 1.08% to 59,646.15 and the CNX Nifty was down by 198.05 points or 1.10% to 17,758.45.

The BSE Sensex touched high and low of 60,411.20 and 59,474.57, respectively. There were 3 stocks advancing against 27 stocks declining on the index. 

The broader indices ended in red; the BSE Mid cap index fell 1.27%, while Small cap index was down by 0.93%.

The top gaining sectoral indices on the BSE were Power up by 0.53%, Utilities up by 0.45%, Capital Goods up by 0.32%, TECK up by 0.14% while, Realty down by 2.14%, Metal down by 1.84%, PSU down by 1.67%, Energy down by 1.64%, Oil & Gas down by 1.62% were the losing indices on BSE.

The top gainers on the Sensex were Larsen & Toubro up by 2.20%, Infosys up by 0.93% and TCS up by 0.12%. On the flip side, Indusind Bank down by 3.82%, Bajaj Finserv down by 3.08%, Bajaj Finance down by 2.53%, Tata Steel down by 2.27% and SBI down by 2.25% were the top losers.

Meanwhile, India Ratings and Research in a report on analysis of industrial output and merchandise exports has stated that the Indian manufacturing sector, which received a fillip in FY22 due to export growth, is likely to be hit by a slump in foreign trade activity in FY23. The report suggested that the ‘exuberance’ witnessed in merchandise exports in FY22 helped the manufacturing segments. It added that ‘surge in merchandise exports helped the manufacturing sector in FY22, but was not broad-based and may not sustain in FY23’.

It further said the exports trend of FY22 may not sustain in FY23 due to the adverse impact of the Russian invasion of Ukraine, leading to recessionary concerns in the advanced economies, stringent COVID-19 control measures in China impacting production in various sub-sectors in India, and continued disruptions in global supply chain/trading sanctions imposed on Russia.

The report said India’s average annual merchandise exports during FY16-FY20 were $297.02 billion, having peaked at $330.08 billion in FY19. The same jumped to the highest-ever $421.89 billion in FY22. It said ‘since the pickup in merchandise exports has primarily been driven by the higher exports of manufactured goods, its spillover effect was expected to be visible in the higher capacity utilisation and an improvement in the industrial growth numbers in FY22’.

As per the agency, basic metals, textiles, pharmaceuticals and food products witnessed a robust rebound in export volumes in FY22 when compared to FY20 volume levels, suggesting that the production in these segments benefited from the buoyant export demand. On the other hand, the sectors which not only witnessed low growth in production levels but also low-to-moderate export volume growth in FY22 were railways locomotives, ships and aircraft, wearing apparel and leather products, among others.

The CNX Nifty traded in a range of 17710.75 and 17992.20. There were 6 stocks advancing against 44 stocks declining on the index.  

The top gainers on Nifty were Adani Ports &SEZ up by 4.65%, Larsen & Toubro up by 2.19%, Infosys up by 0.89%, Eicher Motors up by 0.37% and Bajaj Auto up by 0.34%. On the flip side, Indusind Bank down by 3.78%, Bajaj Finserv down by 3.08%, Apollo Hospital down by 3.08%, Tata Motors down by 2.85% and Tata Consumer Product down by 2.59% were the top losers.

European markets were trading lower; UK’s FTSE 100 decreased 6.28 points or 0.08% to 7,535.57, France’s CAC decreased 50.28 points or 0.77% to 6,507.12 and Germany’s DAX decreased 130.39 points or 0.95% to 13,567.02.

Asian markets settled mostly lower on Friday, despite marginal gains in Wall Street overnight. Market sentiments dropped amid uncertainties over the US Federal Reserve's future rate hikes. The Fed minutes on Wednesday didn’t clearly hint at the pace of interest rate hikes and showed policymakers committed to raising interest rates to bring down inflation. St Louis Fed president James Bullard said he expects a third straight 75 bps interest rate hike in September, while San Francisco Fed colleague Mary Daly said that hiking rates by 50 or 75 bps next month would be reasonable. Chinese shares declined on heightening concerns about sluggish economic recovery. Japanese shares ended almost flat due to profit booking after a recent rally in stocks.

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