Late hour sell-off leads to a negative close at D-street

Wednesday’s trading session turned out to be a disappointing for the Indian equity markets as bourses failed to sustain the gains in late afternoon trade and end up in negative territory. The domestic benchmarks traded with traction for most part of the trades but a sharp wave of selling, which emerged in last leg of trade, dragged the key gauges below their neutral lines. Earlier, markets made a gap-up opening as sentiments remained up-beat with Finance Minister Arun Jaitley’s statement that the government, in the next few days, will list out the exemptions to be phased out as part of its plans to gradually bring down corporate tax rate to 25%, the first tranche of which will be announced in the Budget in February.

Traders also drew some encouragement with report that the Nikkei Business Activity index climbing to 53.2 in October, from 51.3 in September, driven by a significant rise in new business order. The seasonally adjusted Nikkei India Composite PMI Output index, which maps both manufacturing and services sectors, rose to 52.6 in October from 51.5 in September helped by new businesses. However, sentiments took U-turn in late trade as investors booked all of their gains amid caution over the outcome of Bihar election and some disappointment over Q2 corporate earnings.

On the global front, European counters have made positive start after the European Central Bank President Mario Draghi reiterated that officials will reassess policy in December. Asian markets rallied on Wednesday, led by over one percent surge in Japanese Nikkei, while investors' bigger risk appetite pushed up US debt yields and lifted the dollar.

Back home, sentiments also remained dampened on report that foreign investors sold about Rs 450 crore ($68.73 million) worth of shares on Tuesday and have been net sellers, selling Indian shares in four out of the past seven sessions. However, losses remained capped supported by appreciation in Indian rupee on selling of the American currency by exporters and banks. The rupee was trading at 65.52 per dollar mark at the time of equity markets closing as compared to previous close of 65.64 per dollar mark.

Buying in Auto space too supported sentiments led by over six percent gains in Tata Motors shares on the back of better-than-expected JLR sales in the US. Metal stocks too remained on buyers’ radar on rebound in the commodity prices amid surge in the China markets. On the flip side, power stocks ended in red despite report that power distribution companies (discoms) could soon be getting a lifeline as the Cabinet will take up a proposal to restructure their debt this Thursday, adding that the headroom under the Fiscal Responsibility and Budget Management (FRBM) scheme will be put to use and old loans will be converted into bonds.

The NSE’s 50-share broadly followed index Nifty dipped by twenty points to end below its psychological 8,050 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by around forty points to finish above the psychological 26,600 mark. Broader markets, however, ended in the red with a cut of around half a percent. The market breadth remained in favour of decliners, as there were 1267 shares on the gaining side against 1464 shares on the losing side while 129 shares remain unchanged.

Finally, the BSE Sensex declined by 37.67 points or 0.14% to 26552.92, while the CNX Nifty lost 20.50 points or 0.25% to 8040.20. 

The BSE Sensex touched a high and a low 26800.06 and 26510.31, respectively. The BSE Mid cap index was up by 0.19%, while Small cap index was down by 0.33%.  

The top gaining sectoral indices on the BSE were Auto up by 1.69%, PSU up by 0.51%, Metal up by 0.41% and FMCG up by 0.29%, while IT down by 0.57%, Bankex down by 0.48%, TECK down by 0.45%, Power down by 0.35% and Capital Goods down by 0.33% were the losing indices on BSE.

The top gainers on the Sensex were Tata Motors up by 6.02%, Mahindra & Mahindra up by 1.71%, Bajaj Auto up by 1.41%, Coal India up by 1.40% and Hero MotoCorp up by 1.19%. On the flip side, ICICI Bank down by 2.06%, GAIL India down by 1.92%, Sun Pharma down by 1.84%, Reliance Industries down by 1.48% and Lupin down by 0.76% were the top losers.

Meanwhile, the finance Ministry has stepped in to resolve differences between Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (Irda) over whether the insurance companies should invest in the additional tier-1 (AT-1) capital instruments issued by banks. The Ministry further stated that 'It is being examined. We are looking to bring both regulators on board given the burgeoning capital needs of PSBs to be compliant with Basel III norms'.

Public sector banks (PSBs) will need to raise Rs 1.10 lakh crore from the markets to meet more than half of their Rs 1.8 lakh crore capital requirement over for the next four years. RBI stated that, under the proposal of infusion of capital in PSBs, investors will have greater appetite for those banks' AT1 bonds and favoured the proposal, arguing that it could be an important source for raising the Basel-III compliant tier-1 capital. However, IRDA has strongly opposed a proposal to provide capital to state run banks backed by the banking regulator, Reserve Bank of India.

IRDA stated that there are various issues with these instruments and that is why it has not permitted insurers to invest in them as these instruments do not favour the investor. The tenor reduction from 10 years to five years and call option in favour of issuer is also a big impediment. On the other side, RBI has argued that although there is a minimum period of five years before the issuer can exercise a call option, there is no upper limit and issuers can tailor the date of call option according to the investor's preference through mutual agreement.

AT-1 capital is essentially funds raised through bonds. Under the Basel-III norms, such capital has some loss absorbency features, which means that in case of stress, banks can write off such capital or convert it into common equity, something perceived risky for insurance companies. Banks feel if insurance companies participate, the market will become deeper and they will get capital at competitive rates.

Earlier this year, the finance ministry had issued a directive to state-run banks to raise money through AT-1 bonds at lower cost and only when the market conditions are favourable.

The CNX Nifty touched a high and low 8116.10 and 8027.30 respectively.

The top gainers on Nifty were Tata Motors up by 6.43%, Mahindra & Mahindra up by 1.46%, Hero MotoCorp up by 1.37%, SBI up by 1.23% and Coal India up by 1.23%. On the flip side, Tech Mahindra down by 2.49%, ICICI Bank down by 2.16%, Sun Pharma down by 2.07%, Reliance down by 2.04% and GAIL India down by 1.87% were the top losers.

European Markets were trading mostly in the green; France’s CAC was up by 0.75% and UK’s FTSE was up by 0.73%, while Germany’s DAX was down by 0.28%.

The Asian equity markets ended in green on Wednesday, boosted by speculation that Chinese authorities will open a trading link between Shenzen and Hong Kong by year-end. China’s President Xi Jinping stated that growth of only 6.5 percent a year in 2016-2020 will be enough for China to meet its wealth goals. The report came as the ruling Communist party issued guidelines for the next five-year plan for the world’s second-largest economy, whose slowing growth has alarmed investors worldwide. The comments are the clearest indication yet that Beijing will reduce its target growth rate from the current around seven percent, after expansion slowed last quarter to its lowest in six years. Hong Kong retail sales fell for a seventh straight month in September as a drop in Chinese tourists and weak consumer sentiment amid a volatile stock market hurt retailers. Retail sales dropped 6.4 percent from a year earlier, the biggest percentage decline since January this year, to HK$35.2 billion ($4.54 billion). That followed a revised 5.3 percent fall in August. In volume terms, September sales slipped 3.1 percent. South Korean CPI rose to a seasonally adjusted annual rate of 0.9% in October, from 0.6% in the preceding month.