Benchmarks end a lackluster session with modest cut; broader markets outclass

It turned out to be a lackadaisical day of trade by the benchmark indices on Thursday, as they failed to end in green territory, settling marginally below the neutral line. The frontline gauges took a breather, a session after showcasing a scintillating performance, as investors chose to remain on the sideliness ahead of the Christmas holiday. Sentiments remained down-beat with minister of State for Finance Jayant Sinha’s statement that 2016-17 would be a challenging term with headwinds from low farm sector growth, the global slowdown, and implementation of the Seventh Pay Commission report and the One Rank One Pension. Besides, lack of investors' participation, coupled with the ongoing political turmoil and delay in the passage of a key economic legislation, also weighed on equity markets. However, investors got some comfort with Niti Aayog Vice Chairman Arvind Panagariya’s statement that the Indian economy will grow over 8 percent this fiscal. He also added that in the first half of the current fiscal, the GDP growth stood at around 7.2 percent and is expected to cross the 8 percent-mark in 2015-16. Some support also came with the report that a Parliamentary panel has suggested several steps such as urgent requirement to reduce procedures and time period for registration of a company in order to improve India's ranking in ease of doing business.

On the global front, European markets were mixed in thin trade on the day prior to Christmas, with many of them, including the U.K., France and the Netherlands, open only for half the trading session. Meanwhile, the German market is closed all day, along with Switzerland and Italy. Asian equity markets ended mixed on Thursday, as regional gains were tempered by losses in mainland China and Japan before the holiday period. Overnight, Wall Street ended higher helped by surging energy shares, as an unexpected drop in crude oil inventories lifted beaten-down oil prices.
Back home, the benchmark got off to a positive start in the morning trade as investors were largely influenced by the supportive leads from global markets. However, the indices dropped into the red terrain sooner than later, lacking any significant upside cues. The indices moved only sideways thereafter and touched intraday lows in the late afternoon session. However, the frontline gauges managed to pare the losses and rose above the neutral line in the dying hours of trade, but still settled in the negative zone. Finally the NSE’s 50-share broadly followed index Nifty, registered single digit losses to settle below the crucial 7,900 support level, while Bombay Stock Exchange’s Sensitive Index, Sensex was down by fifteen points and closed above the psychological 25,800 mark. However, the broader markets showed some resilience and settled on a positive note, outperforming their larger peers by quite a margin.

On the BSE sectoral space, sharp selling was witnessed in banking stocks, after the RBI expressed concern about the debt servicing capability of large borrowers, saying that it was affecting the health of the banking sector. In its Financial Stability Report, the RBI stated that there has been a sharp increase in the large borrowers' share of gross NPAs in the total gross NPAs to 87.4% in September from 78.2% in March. On the other hand, the metal pocket remained the top gainer in the space after witnessing rebound in the commodity prices and Chinese communist party’s hint of more stimulus. Further, Oil explorers too witnessed buying interest on account of rebound in global crude oil prices after US crude inventories slipped by 5.88 million barrels to 484.78 million last week as against a forecast of rise by 1.4 million barrels. Defence sector companies such as Pipavav Defence and Offshore Engineering, Bharat Electronics, Walchandnagar Industries and Astra Microwave Products surged between 3-19% in  the session after the Ministry Of Defence (MoD) introduced significant policy measures that could help in promoting ease of doing business and in pushing the Make in India programme in the defence sector.

The market breadth remained in favor of decliners, as there were 2905 shares on the gaining side against 1556 shares on the losing side, while 1116 shares remained unchanged.

Finally, the BSE Sensex declined by 11.59 points or 0.04% to 25838.71, while the CNX Nifty lost 4.90  points or 0.06% to 7,861.05.

The BSE Sensex touched a high and a low 25922.47 and 25763.40, respectively. The broader indices ended in green, with the BSE Mid cap index ending up by 0.28%, while Small cap index ending higher by 0.49%.

The top gaining sectoral indices on the BSE were Metal up by 0.75%, Power up by 0.67%, Capital Goods up by 0.55%, FMCG up by 0.32%, Auto up by 0.27%, while Consumer Durables down by 0.91%, Bankex down by 0.42% and Realty down by 0.23% were the top losing indices on BSE.

The top gainers on the Sensex were Bharti Airtel up by 1.99%, GAIL India up by 1.12%, Tata Motors up by 1.00%, Bajaj Auto up by 0.66% and Hero MotoCorp up by 0.59%. On the flip side, ICICI Bank down by 1.53%, Maruti Suzuki down by 0.88%, ONGC down by 0.62%, SBI down by 0.54% and HDFC down by 0.46% were the top losers.

Meanwhile, Reserve Bank of India, in the twelfth issue of the Financial Stability Report (FSR), has expressed concerns on the debt servicing capability of large borrowers which, in turn, was affecting the health of the banking sector.  The FSR which was released along with the Report on 'Trend and Progress of Banking in India 2014-15' (RTP), said that the performance of the Indian banking sector remained subdued as it experienced a slowdown in balance sheet growth in 2014-15. While the PSBs registered deceleration in credit growth, the private sector banks (PVBs) and foreign banks (FBs) showed higher credit growth. Retail loan portfolio of the banks continued to grow at around 20 per cent during 2014-15.

The FSR has highlighted that the business of scheduled commercial banks (SCBs) slowed as reflected in further decline in both deposit and credit growth. Between March and September 2015, the gross non-performing advances ratio increased, whereas restructured standard advances ratio declined. Sectoral data as of June 2015 indicates that ‘industry’ continued to record the highest stressed advances ratio of about 20 per cent, followed by ‘services’ at 7 per cent. The capital to risk-weighted asset ratio (CRAR) of SCBs registered some deterioration during the first-half of 2015-16.

The report further said that among other financial institutions, the asset quality of both scheduled urban co-operative banks (SUCBs) as well as non-banking financial companies (NBFCs) deteriorated during the first-half of 2015-16 and the banking stability indicator showd that risks to the banking sector increased since the publication of the previous FSR, mainly on account of deteriorating asset quality, lower soundness and sluggish profitability.

The RBI analysed 2,711 listed non-government and non-financial listed companies from FY11 to first half of FY16. Of the companies studied, 19.4% have either negative net worth or a debt-to-equity ratio of more than or equal to two and 15.3% have a debt-to-equity ratio of greater than or equal to three. It also said capital expenditure (capex), which had risen sharply, was declining despite rising debt. This is because corporate profitability has declined and consequently companies’ debt-servicing capabilities. Capex by Indian companies in 2014-15 was at a five-year low of Rs 2.76 lakh crore.

The report also raised concerns over volatility in global financial and commodities markets. Uncertainty related to the US Federal Reserve’s interest rate hike has roiled India and other emerging markets even as markets cheered when the actual hike occurred. It also said that while the first Fed rate hike since 2006 appeared to have been factored in by the markets, the pace of further increase may have a significant bearing on market behaviour.

RBI governor Raghuram Rajan has said that corporate sector vulnerabilities and the impact of their weak balance sheets on the financial system need closer monitoring. Rajan had earlier too said that large wilful defaulters should be recognised as freeloaders and should not be lionised as industry captains.

The CNX Nifty touched a high and low 7,888.75 and 7,835.50 respectively.  

The top gainers on Nifty were Vedanta up by 3.19%, Cairn India up by 2.33%, Hindalco up by 1.91%, Bharti Airtel up by 1.62% and Gail up by 1.27%. On the flip side, Zee Entertainment down by 1.99%, ICICI Bank down by 1.28%, PNB down by 1.03%, HCL Tech down by 0.95% and Grasim Industries down by 0.81% were the top losers.

European Markets were trading mixed; UK’s FTSE was up by 0.13%, while France’s CAC was down by 0.46%.

Asian equity markets ended mixed on Thursday as regional gains were tempered by losses in mainland China and Japan before the holiday period. Energy and material stocks outperformed amid a rebound in oil prices and a rise on Wall Street overnight for the third day running. China's stock market posted its biggest one-day fall in two weeks, as investor interest in blue chips suddenly cooled after China Insurance Regulatory Commission tightened rules for insurers investing in listed firms. Japanese stocks ended lower after giving up earlier gains as the strong yen hurt overall sentiment while trading was subdued ahead of the Christmas holiday. The markets in Malaysia and Indonesia were closed in observance of the birth of Prophet Mohammad.