Benchmarks reverse gears; slip into negative territory in absence of positive triggers

Reversing gears, Indian equity markets have now slipped into negative territory in absence of positive triggers which could take the markets higher and strong selling in frontline line blue-chip stocks. The sentiments were distrustful on report that foreign portfolio investors (FPIs) sold shares worth a net Rs 749 crore on June 09, 2015. Besides, prevailing drought fears and a weak trend in global markets amid concerns of an early interest rate hike by the US Fed after Friday’s strong jobs report also dampened the sentiment. However, a strong rupee coupled with strength in banking stocks after RBI asks banks to take over management of loan defaulters in the view of restructuring the ailing banks has limited the losses. Some support also came with OECD’s report that Indian economy is witnessing “stable growth momentum” and mixed trends are seen in other parts of the world including China and the US.

On global front, Asian stock markets were trading lower, hit by a sagging Wall Street and deadlocked Greek bailout negotiations. Moreover, weak Chinese economic data further clouded the gloomy outlook.  Back home, Indian rupee appreciated 16 paise to 63.92 against the US dollar in early trade on fresh selling of the American currency by exporters and banks.

Back on street, stocks from Metal and Banking counters were supporting the markets’ uptrend, while those from Realty, Auto and Oil & Gas counters were adding to the underlying cautious undertone. In scrip specific development, Shares of IL&FS Transportation declined as its associate company has received directions from the Government of Maharashtra to exempt Light Motor Vehicles and MSRTC buses from paying toll passing through the road stretch. On the other hand, shares of Yes bank have gained on its plan to raise $1 billion (about Rs 6,400 crore) by fresh equity and Rs 10,000 crore through Non Convertible Debentures (NCDs) and bonds.

The market breadth on BSE was negative, out of 2041 stocks traded, 776 stocks advanced, while 1159 stocks declined on the BSE.

The BSE Sensex is currently trading at 26495.19, down by 27.90 points or 0.11% after trading in a range of 26446.50 and 26585.90. There were 12 stocks advancing against 18 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.63%, while Small cap index down by 0.35%.

The only gaining sectoral indices on the BSE were Metal up by 0.33% and Bankex up by 0.13% while, Realty down by 1.62%, Auto down by 0.73%, Oil & Gas down by 0.55%, TECK down by 0.44% and IT down by 0.38% were the top losing indices on BSE.

The top gainers on the Sensex were Hindalco up by 1.74%, Vedanta up by 1.27%, HDFC up by 1.13%, Axis Bank up by 0.78% and Hindustan Unilever up by 0.63%. On the flip side, Cipla down by 1.87%, Dr. Reddys Lab down by 1.76%, GAIL India down by 1.49%, Sun Pharma down by 1.41% and Tata Power down by 1.33% were the top losers.

Meanwhile, the Reserve Bank of India (RBI) giving new ammunition to the banks to cope with a mounting bad debt, has issued new norms for Strategic Debt Conversion (SDR) which will give lenders the right to convert their outstanding loans into a majority equity stake if the borrower fails to meet conditions stipulated under the restructuring package.

RBI said that in many cases of restructuring of accounts, borrower companies are not able to come out of stress due to operational/ managerial inefficiencies despite substantial sacrifices made by the lending banks. In such cases, change of ownership will be a preferred option. Henceforth, the Joint Lenders’ Forum (JLF) should actively consider such change in ownership under the SDR framework. Further in order to achieve the change in ownership, the lenders under the JLF should collectively become the majority shareholder by conversion of their dues from the borrower into equity. However the conversion by JLF lenders of their outstanding debt (principal as well as unpaid interest) into equity instruments shall be subject to the member banks’ respective total holdings in shares of the company conforming to the statutory limit in terms of Section 19(2) of Banking Regulation Act, 1949.

The scheme also says that the new management should not have any links to the old promoters.' New promoter should not be a person/entity/subsidiary/associate, etc (domestic as well as overseas), from the existing promoter/promoter group. Banks should clearly establish that the acquirer does not belong to the existing promoter group,' RBI said. The new promoter has to acquire the entire 51%. However, if foreign investment is limited to less than 51%, the new promoter should own at least 26%.

On divestment of banks' holding in favour of a new promoter, the asset classification of the account may be upgraded to 'standard'. The equity shares acquired and held by banks under the scheme shall be exempt from the requirement of periodic mark-to-market. RBI has also said the pricing formula, in case of banks taking over a company by converting debt to equity, would be exempt from Sebi’s Substantial Acquisition of Shares and Takeovers and Issue of Capital and Disclosure Requirements Regulations, 2009. Conversion of debt into equity will also be exempted from regulatory ceilings on capital market exposures, investment in para-banking activities and intra-group exposure.

The CNX Nifty is currently trading at 8026.90, down by 17.25 points or 0.21% after trading in a range of 8013.40 and 8057.15. There were 18 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were Hindalco up by 1.95%, HDFC up by 1.42%, Vedanta up by 1.16%, Hindustan Unilever up by 0.83% and Axis Bank up by 0.81%. On the flip side, Cairn India down by 4.26%, Bosch down by 2.66%, Tech Mahindra down by 2.19%, NMDC down by 1.93% and Cipla down by 1.90% were the top losers.

Asian markets were trading in red; Hang Seng decreased 0.77%, Nikkei 225 decreased 0.82%, Jakarta Composite decreased 3.12%, Taiwan Weighted decreased 1.44%, Shanghai Composite decreased 1.36%, Straits Times decreased 0.40%, FTSE Bursa Malaysia KLCI decreased 0.42% and KOSPI Index decreased 0.15%.