Post Session: Quick Review

Indian markets coming out of their early weakness and profit taking in final moments posted modest gains on Friday, extending their last session rally and snapping the very volatile week on a positive note. It was mainly the Auto, consumer durable and real estate stocks that powered the markets after the Seventh Pay Commission's recommendations of 23.5 per cent overall hike, which will boost consumption and is seen as a stimulus for the economy. Though, the pay hike will cost the government over Rs 1 lakh crore in the first year but the Finance Ministry has said that it can handle financial implications of the recommendations of the Seventh Pay Commission and will work out modalities for implementation of the suggestions. Earlier, there was some cautiousness in the markets on unsupportive global cues and with Reserve Bank of India (RBI) governor Raghuram Rajan stating that drop in public and private investments were the main concerns he had about the country's economic growth. He also said that weak capital investment has been a key factor behind India's struggle to realise its growth potential and with factories running 30 per cent below capacity, private companies are in little rush to make fresh investments. Though, the markets slipped off considerably from their days high but they managed to post modest gains with Sensex missing its 26000 mark, while Nifty too ending below 7900 mark.

The global cues though remained sluggish, the US markets made a modestly lower closing overnight, while the Asian markets snapped the week mixed with some of the indices ending in red, paring their biggest weekly gain in six weeks as investors paused for breath, while some other moved higher on optimism that the Federal Reserve will take a gradual approach to raising interest rates. The European markets though made a modestly positive start, eyeing ECB’s Draghi speech at Euro Finance Week at Frankfurt.

Back home, the markets that traded jubilantly for most part of the day suffered profit taking in final hours led by some banking bluechips, as the he Reserve Bank of India RBI has thrown open the doors for mergers and acquisitions in the banking industry by signaling that it is open to persons owning more than 10 percent stake in a bank. The central bank has said that it could permit promoters, or investors to own more than 10 per cent if the applicant meets certain conditions including if `it is in public interest' and in the ‘desirability of diversified ownership. Markets suffered sharp selling pressure that not only dragged them from the highs of the day but momentarily put them in red. It was the surge in oil & gas sector that restricted any sharp fall in the markets,  led by domestic gas companies Petronet LNG and GAIL (India), which soared over 6 and 10 percent respectively, as Ras Gas Company (RasGas) agreed to modify sales and purchase agreement (SPA) with Petronet, which has a 25-year deal with Qatar’s RasGas to buy 7.5 million tonnes of LNG annually. Contract renegotiation may provide significant earnings impetus to GAIL and remove the key overhang for Petronet. The aviation sector despite a good bounce back could manage a mixed close only, with report that domestic air traffic rose nearly 19 percent to 70.39 lakh passengers in October. The broader markets distinctly outperformed their larger peers and both the BSE Midcap and Smallcap indices ended higher by over half a percent.

The BSE Sensex ended at 25850.04, up by 8.12 points or 0.03% after trading in a range of 25769.81 and 26058.76. There were 19 stocks in green against 11 stocks in red on the index. (Provisional)

The broader indices outperformed the benchmarks and ended in green; the BSE Mid cap index was up by 0.89%, while Small cap index gained 0.61%. (Provisional)

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.99%, Capital Goods up by 0.80%, Consumer Durables up by 0.62%, Auto up by 0.57%, IT up by 0.53%, while FMCG down by 0.80%, Realty down by 0.30%, Bankex down by 0.17%, Metal down by 0.01% were the losing indices on BSE. (Provisional)

The top gainers on the Sensex were GAIL India up by 10.03%, Wipro up by 2.05%, Mahindra & Mahindra up by 1.89%, Dr. Reddys Lab up by 1.86% and Maruti Suzuki up by 1.78%. On the flip side, Sun Pharma Inds. down by 2.27%, ITC down by 2.00%, Hindalco down by 1.40%, Hero MotoCorp down by 1.09% and HDFC down by 0.87% were the top losers. (Provisional)

Meanwhile, opening the doors for mergers and acquisitions in the banking industry for the first time in decades, the Reserve Bank of India (RBI) has signaled that it is open to persons owning more than 10 percent stake in a banks. RBI said the revision was necessitated after the Banking Law (Amendment) Act, 2012, adding that there could be structured transactions which could hide the actual ownership. These directions will also apply to compulsorily convertible bonds, voting rights or convert optionally convertible bonds.

As per the latest policy revision , the Central Bank could permit promoters, or investors to own more than 10 per cent if the applicant meets certain conditions including if ‘it is in public interest’ and in the ‘desirability of diversified ownership’.

The central bank had been rigid about the 5 per cent cap on ownership and a 10 per cent voting rights to ensure that no single holder gets a dominant position in running a bank. Till now many investors who owed up to 4.99 per cent in banks were keen on raising it but did not do so. But now will have an opportunity to raise their holdings. If they get the central bank permission to buy 5 per cent, then they automatically have a right to go up to 10 per cent. Shareholders owning more than 5 per cent will have to give an annual declaration to the concerned bank of which they own shares.

RBI has however said that “If in the bank's assessment any major shareholder is not 'fit and proper', it will have to immediately furnish the requisite information to the Reserve Bank”.  While, giving the details of the ‘fit and proper criterion’ which would be used to grant permission for bigger stakes, the Central Bank notified that ‘The applicant’s integrity, reputation and track record in financial matters and compliance with tax laws,'' will be a barometer to judge the ‘fit and proper criteria’.

RBI further said that sourcing of funds would be critical for raising stake beyond 10 per cent, and the major shareholder will have to furnish the details of the source of funds for such incremental acquisition and obtain 'no objection' from the concerned bank before such incremental acquisition.

The CNX Nifty ended at 7851.80, up by 9.05 points or 0.12% after trading in a range of 7817.80 and 7906.95. There were 32 stocks on gainers side against 18 stocks on losers side on the index. (Provisional)

The top gainers on Nifty were GAIL India up by 9.75%, Wipro up by 2.33%, Bank Of Baroda up by 2.29%, Ambuja Cement up by 2.20% and Dr. Reddys Lab up by 2.10%. On the flip side, ITC down by 2.26%, Sun Pharma Inds. down by 2.21%, Hindalco down by 1.34%, HCL Tech. down by 1.34% and Bosch down by 0.99% were the top losers. (Provisional)

European markets were trading mixed, UK’s FTSE 100 was up modestly by 1.68 points or 0.03% to 6,331.61, while France’s CAC declined by 23 points or 0.47% to 4,892.10 and Germany’s DAX was lower by 7 points or 0.06% to 11,078.44.

The Asian markets closed mostly higher on Friday, as investors continue to mull a likely interest rate hike by the US Federal Reserve in December. The survey showed an increasing number of Japanese retail investors are predicting flat growth or recession for the economy over the next 12 months. The survey provided the latest evidence that Prime Minister Shinzo Abe’s unprecedented stimulus to revive the economy is failing to win investors confidence. The Bank of Japan will release a new set of price indicators this month that reconfigures the way price trends are measured as the central bank seeks to show the country’s below-target inflation rate is due to volatile items such as energy. Importantly, a new consumer price index (CPI) will exclude energy costs, which have been falling, but include the costs of items such as processed and imported foods, which have been rising. Chinese consumer confidence dipped just 1 point to 106 in the third quarter as residents in first-tier cities were generally optimistic over employment and personal finance. Consumer expectations for employment were stable at 66 percent, while their sentiment for personal finance shed 1 percentage point to 64 percent, according to the quarterly survey of 3,500 respondents in China.

South Korea’s average disposable household income grew a slim 0.2 percent in real terms in the third quarter over a year earlier, the slowest in nearly two years. It follows a 2.5 percent gain in the second quarter on-year and was the slowest since the fourth quarter of 2013, adding to some doubts that Asia’s fourth largest economy can sustain a fast recovery despite weak exports. The incremental income growth was due in large part to a real 0.6% drop in labour income, which accounts for 67% of the total income, in July-September from a year earlier.