Buying in late trade help markets to keep their head above water

Buying activity which took place during last leg of trade mainly drove the markets higher and key domestic benchmarks managed to keep their head above water on Tuesday. Earlier, markets after a positive start entered into red tertian as Reserve Bank of India (RBI) in its first bi-monthly monetary policy statement for 2015-16 kept the repo rate unchanged at 7.5 per cent. Also, the cash reserve ratio (CRR) was unchanged at 4 per cent. Sentiments also remained dampened with domestic ratings agency Crisil saying that credit quality improvement will continue to be gradual in FY 2016 as well, but underlined that large companies are a cause of worry. Meanwhile, Finance minister Arun Jaitley clarifying the tax notice sent to foreign investors said that India didn’t aspire to be a tax haven and every tax demand could not be equated with an act of ‘tax terrorism’ by the government.

However, dramatic recovery witnessed in late trade as traders opted to buy beaten down but fundamental strong stocks. Some support came with reports that Reserve Bank has estimated FY16 GDP at 7.8 percent, 30 basis points more than the CSO expectation. Meanwhile, RBI Governor, Raghuram Rajan said there is more room to cut interest rates but will watch out for data, adding that banks over time will be forced to match markets and bring down rates. The governor also said that US Fed’s policy changes will not constrain RBI's move on rates.

Positive opening in European counter too supported the sentiments as traders’ mood remained up-beat on positive macro economic data. UK Services PMI jumped to 58.9 in March against 56.7 in February. Asian markets rallied on Tuesday with Shanghai Composite ending at its highest levels since March 2008, while the Japanese market ended higher by over a percent as the yen weakened.

Back home, some support came with report that foreign institutional investors were net buyers in equities worth Rs 937 crore on Monday, as per provisional stock exchange data. Meanwhile, buying in Auto and metal counters in late trade aided the sentiments. On the flip side, financial shares ended mixed on concerns of slowdown in incremental credit growth amid high interest rates. Additionally, shares of housing finance and realty shares remained under pressure on worries that home loan growth could take a hit as new home buyers would refrain from housing finance to fund new home purchases.

The NSE’s 50-share broadly followed index Nifty rose marginally to hold the psychological 8,650 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex gained by over ten points to finish above the psychological 28,500 mark. Broader markets, however, outperformed benchmarks and ended the session with a gain of around a percent. The market breadth remained in favor of advances, as there were 1,653 shares on the gaining side against 1,096 shares on the losing side while 106 shares remain unchanged.

Finally, the BSE Sensex gained 12.13 points or 0.04% to 28516.59, while the CNX Nifty added 0.40 points to 8,660.30.

The BSE Sensex touched a high and a low of 28641.08 and 28274.36, respectively. The BSE Mid cap index was up by 0.74%, while Small cap index was up by 1.17%.

The top gainers on the Sensex were Tata Steel up by 4.89%, Sesa Sterlite up by 3.14%, Bajaj Auto up by 3.03%, NTPC up by 2.73% and Bharti Airtel up by 2.03%. On the flip side, Axis Bank down by 1.69%, Sun Pharma down by 1.42%, Tata Motors down by 1.32%, ICICI Bank down by 1.20% and Hero MotoCorp down by 1.19% were the top losers.

The gaining sectoral indices on the BSE were Metal up by 2.20%, Power up by 0.93%, Consumer Durables up by 0.66%, FMCG up by 0.64%, Capital Goods up by 0.45% while, Realty down by 1.62%, Bankex down by 0.71% and Healthcare down by 0.19% were the losing indices on BSE.

Meanwhile domestic rating agency Crisil, though has said that the credit quality of Indian firms improved in the second half of the year ended 31 March as mid-sized companies improved their business profiles and maintained profitability and also that the credit quality improvement will continue to be gradual in FY 2016 as well, but underlined that large companies are a cause of worry.

The agency in its report said that there is significant improvement in the credit quality of mid-sized firms with operating revenues of between Rs 100-500 crore but the recovery in credit quality as a whole remained slow and a 'pervasive' improvement is still 'elusive' because the ability of firms to repay debt is not rising rapidly. The large companies need to deleverage balance-sheets stretched by loans for an improvement in the overall NPA situation of banks, which is around 12 per cent of the system now.

There were 816 upgrades in the final six months of the past fiscal compared to 466 downgrades. The credit ratio of all firms improved marginally to 1.75 in the second half from 1.64 in the first half. A ratio above 1 indicates that there were more upgrades that downgrades.

In its report Crisil said that mid-sized firms look better placed with many of them having improved business profiles and maintaining profitability. They managed working capital better than smaller firms because of greater bargaining power. However, the heavy burden of debt will continue to constrain the ability of large firms to improve their credit profiles.

The CNX Nifty touched a high and low of 8,693.60 and 8,586.85 respectively.

The top gainers on Nifty were Tata Steel up by 5.12%, Sesa Sterlite up by 3.55%, NTPC up by 3.02%, Mahindra & Mahindra up by 2.70% and Bajaj Auto up by 2.69%. On the flip side, IDFC down by 2.11%, Axis Bank down by 1.76%, Sun Pharmaceuticals Industries down by 1.65%, Tata Motors down by 1.26% and Hero MotoCorp down by 1.20% were the top losers.

European Markets were trading in the green; Germany's DAX surged 0.96%, France's CAC gained 1.28% and UK's FTSE 100 was up by 1.40%.

The Asian markets closed in green on Tuesday, with Shanghai Composite touching a new 3-year high. The Hong Kong market was closed today on account of ‘The day following Easter Monday’ holiday. The People’s Bank of China cut the seven-day reverse-repo rate by 10 basis points at open-market operations in a bid to guide market rates lower. The central bank injected CNY20 billion via seven-day reverse repos and lowered the rate to 3.45% from 3.55%. This move by central bank is the fourth cut since Chinese New Year. But, traders still expect another cut of the required-reserve ratio to offset the liquidity squeeze this month that is a result of corporate-tax payments and initial public offerings. Disappointingly weak consumer spending will keep Bank of Japan policymakers on their toes as they meet on Wednesday, two years into a massive stimulus programme which has yet to convincingly pull the economy out of decades of stagnation. The central bank will likely continue the asset-buying spree it launched in 2013 at a two-day rate review, while laying the groundwork for a more critical meeting on April 30 that will produce new long-term forecasts.