Benchmarks cheer US Fed stance; Nifty ends above 7,950

Friday’s session turned out to be a fabulous day of trade for the Indian equity markets, with frontline gauges recapturing their crucial 26,200 (Sensex) and 7,950 (Nifty) levels. Though the markets gave up a major portion of their gains in second half but they still managed to register gains of around a percent. Overall sentiments remained up-beat after the US Fed Reserve kept the interest rates unchanged. Some support also came with Minister of State for Finance Jayant Sinha’s statement that the government is aiming for an 8-10 percent annual economic growth through supply-side measures to increase the capacity of Asia’s third-largest economy rather than risk higher inflation by stimulating demand.

Additionally markets were aided with government favouring an increase in pension fund EPFO's equity market investment to 15%, from 5% currently, saying it will help contain volatility in the domestic capital markets. Some support also came with Finance Minister Arun Jaitley’s statement that the government has several legislations in the pipeline that will be pursued in coming days. Markets also drew some encouragement with Reserve Bank of India Governor Raghuram Rajan’s statement that India appears an island of calm amid turmoil in other countries. He stressed upon the need for implementation of reforms for sustainable growth in Indian economy and said that in this difficult global environment, growth has to be obtained in right way.

On the global front, European counters traded subdued in early deals, as the US Federal Reserve’s downbeat comments on the state of the global economy overshadowed its decision to keep interest rates on hold. However, most of the Asian markets ended in green terrain on Friday. Chinese market edged higher by about half a percent, as new-home price gains in August spread to more cities of the 70 monitored by the government. However, the Japanese markets plunged as the Fed’s decision made the dollar weak against a basket of major currencies.

Back home, appreciation in Indian rupee too supported the sentiments. The partially convertible rupee was trading at 65.85 per dollar at the time of equity market closing against the Wednesday’s close of 66.45 on the Interbank Foreign Exchange. Stocks related to banking space remained in action following the RBI according “in-principal” approval for 10 small finance banks that will focus on small geographies for operations. Also, the private sector banks spurted on reports that the government is considering increasing the foreign direct investment (FDI) limit in private banks to 100 percent.

The NSE’s 50-share broadly followed index Nifty rose by over eighty points and ended above the psychological 7,950 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex surged by over two hundred and fifty points to finish above the psychological 26,200 mark. Broader markets too traded with traction throughout the trade and ended the session with a gain of around a percentage point. The market breadth remained in favour of advances, as there were 1712 shares on the gaining side against 917 shares on the losing side while 104 shares remain unchanged.

Finally, the BSE Sensex surged by 254.94 points or 0.98 % to 26,218.91, while the CNX Nifty gained 82.75  points or 1.05 % to 7981.90.

The BSE Sensex touched a high and a low 26471.82 and 26130.36, respectively. The BSE Mid cap index was up by 0.89%, while Small cap index was up by 1.11%.

The top gaining sectoral indices on the BSE were Bankex up by 2.60%, Realty up by 2.59%, PSU up by 1.49%, Healthcare up by 1.12% and Oil & Gas up by 1.02%, while FMCG down by 0.61%, Consumer Durables down by 0.51% and Capital Goods down by 0.35% were the losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 4.70%, ONGC up by 3.49%, M&M up by 3.09%, Lupin up by 2.75% and Reliance Industries up by 2.64%. On the flip side, Tata Motors down by 2.81%, Bajaj Auto down by 2.20%, GAIL down by 1.73%, Hindalco down by 1.49%, and Cipla down by 1.04% were the top losers.

 Meanwhile, the Reserve Bank of India (RBI) has accorded 'in-principal' approval for 10 small finance banks that will focus on small geographies for operations but with a strong capital base. The selection of these small banks was on the basis of the recommendations from three different committees, backed by a detailed case study for each applicant, including that by an External Advisory Committee chaired by former deputy governor Usha Thorat.

Those selected includes Au Financiers, Capital Local Area Bank, Disha Microfin, Equitas Holdings, ESAF Microfinance, Janalakshmi Financial Services, RGVN (North East) Microfinance, Suryoday Micro Finance, Ujjivan Financial Services and Utkarsh Micro Finance. According to a statement by the central bank, the in-principle approval granted will be valid for 18 months to enable the applicants to comply with the requirements under the Guidelines and fulfil other conditions as may be stipulated by the RBI.

As per the RBI guidelines these new type of banks should generate at least 75% of their business from the priority sector (largely agriculture) and mainly from areas where large banks are not present. Besides, 50% of their loans should be of ticket sizes under Rs 25 lakh. The minimum paid-up equity for small finance banks is also fixed at Rs 100 crore. For small banks, promoters' initial contribution should be at least 40%, which could be brought down to 26% over the next 12 years.

The RBI has said that it has selected these applicants after three different committees contributing to the final decision. A preliminary scrutiny of all the applications involving prima facie eligibility including the ability to raise the minimum initial capital and the status of ownership and control by residents as per the Guidelines was carried out by the RBI team. The detailed scrutiny involved assessment of financial soundness, proposed business plan, fit and proper status based on due diligence reports received from the regulators, investigative agencies, banks, etc. Finally, an Internal Screening Committee (ISC), consisting of the Governor and the four Deputy Governors of the RBI thereafter examined the applications. The central bank said that an important factor was proposed reach into unbanked areas and underserved sections of the population.

In 2009, a Committee on Financial Sector Reforms under Raghuram Rajan, now the RBI governor, had examined the relevance of small banks in the Indian context. The panel felt there was sufficient change in the environment to experiment with small banks. It recommended the entry of private well-governed deposit-taking small finance banks to offset their higher risk from being geographically focussed, by requiring a higher capital and strict norms.

 The CNX Nifty touched a high and low 8055.00 and 7955.85 respectively.

The top gainers on Nifty were Axis Bank up by 5.13%, ONGC up by 4.16%, NMDC up by 4.04%, Kotak bank up by 3.98% and Bank of Baroda up by 3.94%. On the flip side, Bajaj Auto down by 3.26%, Hindalco down by 2.27%, Cipla down by 1.75%, Tata Motors down by 1.69% and ITC down by 1.60%  were the top losers.

European Markets were trading in the red; France’s CAC was down by 2.00%, Germany’s DAX was down by 2.15% and UK's FTSE was down by 0.70%. 

The Asian markets closed mostly in green on Friday, following a decision by the US Federal Reserve to keep rates unchanged. The International Monetary Fund warned China to improve its economic data, especially on its growth rate, the subject of continued skepticism about its reliability. The debate over the true strength of the Chinese economy has heated up in recent months on mounting signs of slowdown and heavy turmoil in the Chinese stock markets. The Chinese government regularly reports growth in the world’s second-largest economy at 7% and above, a pace that some experts view as inflated. Some Bank of Japan board members suggested that higher government spending is a key variable in lifting price expectations, according to the minutes of the August meeting released. The minutes noted the certain job categories are commanding higher wages, but that the slowdown in China has weighed on exports and a drag on economic prospects. The central bank stated that weak oil prices continue to have a strong effect on the inflation goal. The BoJ kept policy steady and its asset buying program at 80 trillion yen annually. Japan’s trade balance rose to a seasonally adjusted -0.36T, from -0.38T in the preceding month whose figure was revised down from -0.37T.