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Indian equity benchmarks snapped their 3-day winning streak to end lower in a highly volatile session on Tuesday, as investors are eyeing GDP numbers for the fourth quarter of the previous fiscal year (2021-22) to be out later in the day. As per the expectations, India's economy likely slowed in the fourth quarter and is expected to grow between 3.5-5.5 percent. Markets made gap-down opening, as traders were anxious with domestic ratings agency India Ratings stating that the GST has not helped states achieve the key objective of boosting their tax revenue. The rating agency said that the data does not point to any benefits to the states in the last five years since the implementation of GST (Goods and Services Tax). However, key indices managed to trim most of their losses in afternoon deals, taking support from secretary at the department of economic affairs, Ajay Seth’s statement that India's inflation should ease in the coming months following steps taken by the Union government and as global prices coming off in May will have a salutary impact.

Though, markets failed to hold on to recovery mode and fell sharply in late afternoon deals, as some pessimism remained among traders with private report stated that soaring prices and the subsequent hit to consumer spending and investments are likely to further dampen India's economy, as the central bank faces a finely balanced struggle to tame inflation via rate hikes without hurting economic growth. Some concern also came amid a private report stating that India’s economy probably grew slower than previously estimated last year, with virus curbs in the final quarter seen as a drag on activity while the war in Europe has added a new inflation hurdle to recovery. Meanwhile, Department of Financial Services (DFS) secretary Sanjay Malhotra has said that advance action is underway for privatisation of two public sector banks (PSBs) in pursuance of the announcement made by finance minister Nirmala Sitharaman.

On the global front, Asian markets settled mostly higher on Tuesday as signs of easing COVID-19 curbs in Beijing and Shanghai as well as the announcement of more stimulus measures in China raised optimism about growth in the world's second largest economy and helped underpin sentiment. European markets were trading mostly in red amid fears surrounding high inflation and interest-rate hikes. Flash data from Eurostat showed Eurozone inflation accelerated further in May on surging energy and food prices. Inflation rose to a fresh record 8.1 percent in May from 7.4 percent in April. The rate was forecast to climb to 7.7 percent. The data heightened concerns about the pace and scale of looming interest rate hikes, with traders now factoring in an outsized 50 basis point ECB rate hike in July.

Finally, the BSE Sensex fell 359.33 points or 0.64% to 55,566.41 and the CNX Nifty was down by 76.85 points or 0.46% to 16,584.55.  

The BSE Sensex touched high and low of 55,925.62 and 55,369.14, respectively. There were 14 stocks advancing against 16 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index rose 0.49%, while Small cap index was up by 0.68%.

The top gaining sectoral indices on the BSE were Realty up by 2.11%, Metal up by 1.78%, Consumer Discretionary up by 0.88%, Auto up by 0.87% and Telecom up by 0.84% while, Power down by 2.17%, Utilities down by 1.95%, Bankex down by 1.06%, Oil & Gas down by 0.80%, Finance down by 0.80% were the top losing indices on BSE.

The top gainers on the Sensex were Mahindra & Mahindra up by 3.61%, NTPC up by 3.48%, Power Grid Corporation up by 2.06%, Tech Mahindra up by 1.46% and Tata Steel up by 0.78%. On the flip side, Sun Pharma down by 3.11%, Kotak Mahindra Bank down by 2.55%, HDFC down by 2.50%, Titan Company down by 1.67% and Infosys down by 1.54% were the top losers.

Meanwhile, expressing cautiousness, domestic ratings agency India Ratings has said the Goods and Services Tax (GST) has not helped states to achieve the key objective of boosting their tax revenue. It said that the data does not point to any benefits to the states in the last five years since the implementation of GST (Goods and Services Tax). From June this year, the Centre will stop giving states any compensation for tax collection shortfall. GST compensation for a five-year period was part of the agreement between states and the central government at the time of the roll-out of the new indirect tax regime in 2017.

Several states have asked for an extension of the GST compensation. However, finance minister Nirmala Sitharaman, while presenting the Budget for FY23, has already said that the compensation period will not be extended beyond June 2022. The rating agency said ‘...the data available so far does not instill confidence with respect (of) GST achieving or is on course to achieve its two key objectives, namely it boosts the tax revenue and is beneficial for the consuming states’. It said the share of state GST (SGST) in States' Own Tax Revenue (SOTR) at 55.4 per cent during FY18-FY21 compared 55.2 per cent during FY14-FY17 indicates that the growth in both SGST and non-SGST components of SOTR has been broadly similar.

It added ‘this means the GST implementation did not result in any incremental benefit to the SOTR. Moreover, SGST growth at an average 6.7 per cent during FY18-FY21 has been lower than the 9.8 per cent growth recorded by the taxes subsumed under GST during FY14-FY17’. It also said until the GST implementation, producing/exporting states used to collect VAT (sales tax) on the sales within the states and also Central Sales Tax (CST) of up to 2 per cent on the inter-state sales. States where CST was contributing more than 4.5 per cent to their SOTR during FY12-FY17 were Assam, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Meghalaya, Odisha, Sikkim and Tamil Nadu - a mix of both producing and consuming states.

It said after the GST implementation, the proportion of CST in SOTR declined to 0.95 per cent in FY21 (RE) from 4.16 per cent in FY17. The agency said another way of assessing the GST performance of states is to examine the SGST growth during FY19-FY22, and pointed out that Odisha is the only state having average SGST collection exceeding 14 per cent with a 20.06 per cent growth in SGST between FY19-22, and is followed by Bihar (13.89 per cent), Assam, Andhra Pradesh and Chhatisgarh. A total of 17 major states recorded average SGST growth of below 10 per cent, while Uttarakhand recorded negative average SGST growth of 4.02 per cent during FY19-FY22.

The CNX Nifty traded in a range of 16,690.75 and 16,521.90. There were 27 stocks advancing against 21 stocks declining on the index.

The top gainers on Nifty were ONGC up by 5.21%, NTPC up by 4.44%, Mahindra & Mahindra up by 3.37%, Coal India up by 3.29% and Tata Consumer Products up by 3.18%. On the flip side, Kotak Mahindra Bank down by 3.48%, Sun Pharma down by 2.61%, HDFC down by 1.81%, Reliance Industries down by 1.55% and Shree Cement down by 1.48% were the top losers.

European markets were trading mostly in red; France’s CAC decreased 49.87 points or 0.76% to 6,512.52 and Germany’s DAX decreased 86.15 points or 0.59% to 14,489.83, while UK’s FTSE 100 increased 24.39 points or 0.32% to 7,624.45.

Asian markets settled mostly higher on Tuesday after reports showed China's factory activity fell at a slower pace in May as coronavirus curbs in major manufacturing hubs eased. Chinese and Hong Kong shares climbed as China's cabinet unveiled a series of new policy measures to bolster the economy and stabilize jobs. However, Japanese shares fell on lack of cues from Wall Street overnight due to Memorial Day holiday. Global investors are remaining cautious about whether the US central bank can control inflation that is running at a four-decade high without tipping the biggest global economy into recession.

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