Benchmarks witness blood-bath on feeble global cues

Indian equity benchmarks extended the sorrow of closing in the negative terrain for the fourth straight session and got butchered by around two percentage points on Tuesday. The frontline indices’ southbound journey only halted with the close of the trading session and the key gauges even slipped below the psychological 26,800 (Sensex) and 8,100 (Nifty) levels on the back of feeble global cues. Selling was both brutal and wide-based as none of sectoral indices on BSE, barring software and technology, were spared. Counters, which featured in the list of worst performers, included metal, realty, fast moving consumer goods, public sector undertaking, healthcare and banking.

The sell-off was mainly triggered after crude oil prices plunged below $60 per barrel and the failure of an emergency interest rate rise to stabilise Russia’s rouble sent another shock through global financial markets. Sentiments also remained dampened after India’s trade deficit widened to the highest in 18 months in November to $16.86 billion, compared with $9.57 billion a year earlier and $13.35 billion in October, due to increased gold imports. Though Finance Minister Arun Jaitley said that India has the potential to grow at a higher rate even at a time when the world economy is going through a critical phase. Sentiments also remained down-beat as the rupee weakened to its lowest level in 13 months on Tuesday, as markets in the region tumbled after a sharp rate hike in Russia further raised concerns about the global economy at a time when India's trade deficit is already widening.

Global cues remained mixed with Asian markets ending mostly in the red after China’s factory growth contracted for the first time in December to 49.5 as new orders waned, while the sharp hike in key interest rate by Russia further raised concerns about global growth. However, European shares were trading higher in early deals on Tuesday, halting their week-long sell-off, with Orange and Deutsche Telekom rallying on news of talks with BT to sell EE.

Back home, profit booking by foreign institutional investors in the previous sessions also weighed on market sentiment. The foreign institutional investors were net sellers in Indian equities worth Rs 455.72 crore on December 15, 2014, as per provisional stock exchange data. Meanwhile, stocks related to metal space edged lower in trade after dismal Chinese data. Besides, Auto stocks too succumbed to selling pressure after reports suggested that government might not continue to extend excise duty concessions to the automobile sector beyond December 31, 2014. Additionally, banking stocks too cracked in trade after reports casted doubts on RBI’s ability to cut rates in upcoming monetary policy meet in February.

The NSE’s 50-share broadly followed index Nifty tumbled by over one hundred and fifty points to end below the psychological 8,100 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by around five hundred and forty points to finish below its psychological 26,800 mark. Broader markets too witnessed blood-bath and ended the session with a cut of around three percent. The market breadth remained in favor of decliners, as there were 541 shares on the gaining side against 2,327 shares on the losing side while 89 shares remain unchanged.

Finally, the BSE Sensex declined by 538.12 points or 1.97%, to 26781.44, while the CNX Nifty lost 152.00 points or 1.85% to 8,067.60.

The BSE Sensex touched a high and a low of 27199.37 and 26736.23, respectively. The BSE Mid cap index was down by 2.96%, while the Small cap index ended lower by 3.36%.

The top gainers on the Sensex were TCS up by 3.40%, Infosys up by 0.69% and Bharti Airtel up by 0.01%. On the flip side, Sesa Sterlite down by 7.77%, Dr. Reddys Lab down by 6.32%, Hindalco down by 5.67%, SBI down by 4.66% and Tata Power down by 4.59% were the top losers.

On the BSE Sectoral front, IT up by 1.66% and TECK up by 1.12% while, Metal down by 4.17%, Realty down by 3.80%, FMCG down by 3.08%, Bankex down by 2.91% and PSU down by 2.69% were the losing indices on BSE.

Meanwhile, in a major boost to the infrastructure sector as well as for banks financing long gestation projects, the Reserve Bank of India (RBI) eased norms for structuring of existing long-term project loans to infrastructure and core industries. The RBI widened the scope of 5:25 scheme by extending flexible refinancing and repayment option for long-term infrastructure projects to existing ones where the total exposure of lenders is more than Rs 500 crore.

As per the RBI’s circular, banks can now fix fresh loan amortization schedules for existing projects without being treated as restructuring. The amortization schedule should be within 85% of the initial concession period of the projects, and banks should be sure about the cash flow generation capabilities of the projects. The move came as a major boost to banking industry and since April any freshly restructured asset will be considered as bad debt and they will have to set aside a minimum of 15% provision against such loans. The circular also noted that flexible refinancing and repayment option will also be available for projects that have already been classified as bad debt or stressed, however it will be treated as restructuring and the project will continue to be termed non-performing till the project gets upgraded after satisfactory performance on servicing the loans. Further RBI has also allowed banks to raise long-term assets to avoid asset-liability mismatches.

Five sectors including infrastructure, iron and steel, textiles, aviation and mining contribute 24% to total advances of commercial banks, and account for around 53% of their total stressed advances. Till now, banks were typically not lending beyond 10-12 years, resulting into cash shortage for infrastructure and core industries firms as they tried to meet shorter repayment schedules. With this change in rule, cash flows will match the repayment schedule and long-term infrastructure projects will become viable.

The CNX Nifty touched a high and low of 8,189.35 and 8,052.60 respectively.

The top gainers on Nifty were HCL Tech up by 5.03%, TCS up by 3.83%, BPCL up by 1.75%, Tech Mahindra up by 1.60% and Infosys up by 0.62%. On the flip side, Sesa Sterlite down by 7.34%, Dr. Reddys Lab down by 6.13%, Hindalco down by 5.19%, Bank of Baroda down by 5.09% and SBI down by 5.04% were the top losers.

European markets were trading in green, France’s CAC 40 was up by 0.25%, Germany’s DAX was up by 0.62% and United Kingdom’s FTSE 100 was up by 0.76%.

The Asian equity benchmarks ended mostly in red on Tuesday, as shrinking Chinese manufacturing stoked concern the global economy may falter. Activity in China’s factory sector contracted in December for the first time in seven months, the latest in a string of weak economic indicators that will intensify calls for more stimulus measures to head off a hard landing. The flash HSBC/Markit manufacturing purchasing managers’ index (PMI) fell to 49.5 in December from November’s final reading of 50.0. The new orders sub-index fell to 49.6, the first contraction since April. A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis. China will adjust its import and export taxes from January 1 as part of a larger effort to re-order trade to foster economic growth. Foreign investment into China accelerated in November, despite a worsening slowdown in the world’s second-largest economy and concerns over business risks. Foreign direct investment (FDI) -- which excludes financial sectors -- rose 22.2% year-on-year, totaling $10.36 billion.

Prime Minister Shinzo Abe’s election win strengthened his hand to move beyond the fiscal and monetary stimulus that brought an end to deflation in his first two years. The tougher task for Abenomics 2.0 will be to boost Japan’s growth potential. First up for the next Abe administration will be completing left-over fiscal measures -- a supplementary budget of as much as 3 trillion yen ($25 billion), and replacement legislation for the sales tax, to delay the next increase to April 2017. The new cabinet will be inaugurated on December 24.