Benchmarks make gap-up opening on sanguine global cues

Indian equity benchmarks have made a gap-up opening and are trading in fine fettle in early deals on Tuesday on sanguine global cues. Traders also took some encouragement with the Reserve Bank of India stating that the near-term growth outlook for India seems brighter than last fiscal and the economy is likely to expand at 7.6 percent in 2016-17. It has said that a better than anticipated agricultural performance and the possibility of allowances under the 7th Pay Commission's award being paid out in the fourth quarter of 2016-17 provide upsides to this projection.

Global cues too provided strong support to domestic markets with US markets bouncing back and ended higher in the last session, following the release of a report from the Commerce Department showing that income and spending rose in line with estimates in the month of July. Asian markets were trading in green at this point of time, catching an updraft from rising U.S. stocks, commodities price rebounds, but with yen volatility throwing in an X factor to proceedings.

Back home, stocks related to banking and financial counters continue to trade jubilantly for second day in a row with Union Minister Nirmala Sitharaman defending her demand for 2 per cent cut in interest rates by RBI, saying it is essential to boost SMEs and create jobs. Telecom stocks too rang loud in early deals, as heeding to the telecom industry's demand for starting spectrum auction from an auspicious date; the government has deferred the mega sale of mobile frequencies by two days to October 1 from the earlier scheduled date of 29th September.

The BSE Sensex is currently trading at 28085.82, up by 183.16 points or 0.66% after trading in a range of 28010.66 and 28108.60. There were 28 stocks advancing against 2 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.75%, while Small cap index was up by 0.84%.

The top gaining sectoral indices on the BSE were Bankex up by 1.09%, Realty up by 1.05%, Auto up by 0.98%, Finance up by 0.95% and Capital Goods up by 0.79%, while there were no losers on the BSE sectoral front.

The top gainers on the Sensex were Maruti Suzuki up by 2.19%, Hero MotoCorp up by 1.36%, Bajaj Auto up by 1.35%, ICICI Bank up by 1.32% and Axis Bank up by 1.22%. On the flip side, NTPC down by 0.25% and Bharti Airtel down by 0.16% were the top losers.

Meanwhile, Reserve Bank of India (RBI) in its annual report for 2015-16 has raised concerns over weak monetary policy transmission, as the banks are loading a higher credit risk premia on their new customers to save their profitability. In response to the reduction in policy repo rate by 150 basis points during January 15, 2015, through April 5, 2016, it said the median base rate of banks declined by 60 basis points as against a higher decline of 92 bps in median term deposit rates reflecting banks’ preference to protect profitability in the wake of deteriorating asset quality and higher provisioning.

The report stated that so far in financial year 2016-17, there has hardly been any transmission of a reduction in the policy rate to the actual lending rates charged to customers. While the cost of funding by banks has declined somewhat, leading to a decline in shorter maturity marginal cost of funds based lending rate (MCLR), there has been an increase in the term premia in respect of term loans of one year and above, thereby attenuating the transmission to actual lending rates charged to customers. Moreover, banks may have been loading a higher credit risk premia on their new customers in order to attain their desired return on net worth in a rising Non-Performing Assets (NPA) environment.

RBI said that banks are charging a higher strategic risk premia on their riskier loans as part of their business strategy to reorient their lending operations towards less risky activities. The consequent rise in the spread is reflected in a near unchanged weighted average lending rate (WALR) in respect of both outstanding and fresh rupee loans during 2016-17 up to June. It further said that under MCLR the transmission to WALR is expected to improve on the assumption that the marginal cost of funds is more sensitive to changes in the policy rate than the average cost of funds.

The CNX Nifty is currently trading at 8665.60, up by 58.15 points or 0.68% after trading in a range of 8642.25 and 8668.80. There were 46 stocks advancing against 5 stocks declining on the index.

The top gainers on Nifty were Maruti Suzuki up by 2.18%, HCL Tech up by 2.11%, Yes Bank up by 1.97%, BPCL up by 1.95% and Grasim Industries up by 1.40%. On the flip side, Zee Entertainment down by 0.79%, Bharti Airtel down by 0.47%, Tata Motors - DVR down by 0.28%, NTPC down by 0.28% and Dr. Reddys Lab down by 0.14% were the top losers.

Asian markets were trading mostly in green; Shanghai Composite rose 1.34 points or 0.04% to 3,071.36, FTSE Bursa Malaysia KLCI gained 2.25 points or 0.13% to 1,683.85, KOSPI Index increased 7.68 points or 0.38% to 2,040.03 and Hang Seng was up by 186.28 points or 0.82% to 23,007.62. On the flip side, Jakarta Composite decreased 30.84 points or 0.57% to 5,339.92, Nikkei 225 slipped 15.87 points or 0.09% to 16,721.62 and Taiwan Weighted was down by 3.65 points or 0.04% to 9,106.52.