Post Session: Quick Review

Indian markets continued trading under pressure with Nifty making its longest losing streak since October 2014 after going through a very volatile day of trade on Tuesday. Benchmarks kept moving in and out of the negative territory throughout the day and never looked confident, even at the high points of the day, being easily dragged down by profit takers. After  initial jitters the markets moved in a tight range with some value buying providing occasional spurt and taking the markets in green but towards the end lacking any supportive cue amid weak global trends, the domestic markets lost their way and finally dropped about another a quarter percent.

The feeble global cues too weighed on the domestic market sentiment, as after a weak closing at US markets overnight, the Asian markets followed the trend and ended in red with some of the indices suffering cut in range of 1-4%. The European markets too made a soft start, extending their longest losing streak, as Greece struggles to strike a debt deal after months of talks. Investors are also growing more concerned about the prospects of higher borrowing costs in the US, on impending rate hike.

Back home, markets posted loss for yet another day, all the intraday recovery attempts were sold out by worried traders on global and domestic growth concerns. Traders were additionally concerned with the report of likely inclusion of China A shares in MSCI Emerging Market Index, a key benchmark that is used by global fund managers to invest. If China A shares are included in MSCI index, the weight of China is likely to increase by 13% to 38% in MSCI Emerging Market Index. Back on street, the broader markets lost more than the benchmarks, on sectoral front, realty, healthcare, auto, IT and tech were the major drag, while some support came from consumer durables, metals and power stocks. There was some buzz in the oil & gas sector after Finance Ministry returned an Oil Ministry proposal to allow market price for part of the natural gas produced by firms like ONGC and Reliance Industries from difficult fields, while ONGC lost 1.5%, RIL too ended marginally in red. Banking pack trading with gain remained buzzing since morning after Reserve Bank of India 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. On the other hand the realty gauge remained under pressure from the very beginning led by Unitech which plunged over 14% in early deals after the National Consumer Disputes Redressal Commission (NCDRC)  asked the real estate major to pay buyers compensation at the rate of 12% per annum for delay in delivery of flats.

The BSE Sensex ended at 26457.06, down by 66.03 points or 0.25% after trading in a range of 26438.32 and 26604.65. There were 13 stocks on gainers side against 17 stocks on the losers side on the index. (Provisional)

The broader indices too ended in red; the BSE Mid cap index was down by 0.39%, while Small cap index lost 0.40%. (Provisional)

The top gaining sectoral indices on the BSE were Consumer Durables up by 1.16%, Metal up by 0.56%, Power up by 0.39%, INFRA up by 0.23%, Bankex up by 0.18%, while Realty down by 1.58%, Auto down by 0.83%, IT down by 0.76%, TECK down by 0.71%, Capital Goods down by 0.47% were the losing indices on BSE. (Provisional)

The top gainers on the Sensex were Vedanta up by 2.54%, GAIL India up by 1.42%, ICICI Bank up by 1.39%, Hindalco up by 1.31% and Tata Motors up by 1.06%. On the flip side, Cipla down by 3.53%, Dr Reddys Lab down by 2.34%, Sun Pharma Inds down by 2.19%, Wipro down by 1.93% and Bajaj Auto down by 1.81% were the top losers. (Provisional)

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 ended at 8015.85, down by 28.30 points or 0.35% after trading in a range of 8005.15 and 8057.15. 20 stocks advanced against 30 declines on the index. (Provisional)

The top gainers on Nifty were Vedanta up by 2.32%, Hindalco up by 1.40%, ICICI Bank up by 1.32%, Power Grid Corpn up by 1.27% and GAIL India up by 1.26%. On the flip side, Cairn India down by 4.34%, Cipla down by 3.95%, Bosch down by 3.37%, Wipro down by 2.59% and Dr. Reddys Lab down by 2.35% were the top losers. (Provisional)

European markets were trading deeply in red, Germany’s DAX plunged by 171.64 points or 1.55% to 10,893.28, France’s CAC was lower by 52.93 points or 1.09% to 4,804.73 and UK’s FTSE 100 lost 44.34 points or 0.65% to 6,745.70.

Asian markets closed in red on Tuesday, following another batch of data highlighting ongoing weakness in China’s economy. China’s consumer inflation eased while producer prices stayed stubbornly in deflation in May, bolstering the case for fiscal stimulus as the world's second-largest economy shrugs off monetary easing. Chinese PPI remained unchanged at an annual rate of -4.6% while Chinese CPI fell to an annual rate of 1.2%, from 1.5% in the preceding month. A bigger-than-expected slide in China’s imports in May also strengthened expectations that more policy stimulus may be needed to avert a sharp slowdown in the world's second-largest economy. A cooling buying sentiment exacerbated the area of new homes sold in Shanghai last week to an eight-week low but demand for medium to high-end projects stayed strong. New houses totaling 266,200 square meters were sold across the city last week, a plunge of 37.4 percent from the previous seven-day period. Japanese Household Confidence rose to a seasonally adjusted annual rate of 41.4, from 41.5 in the preceding month. Japan’s M2 Money Stock rose to a seasonally adjusted 4.0%, from 3.6% in the preceding month.