Benchmarks trade slightly in red on weak global cues

Indian equity indices have made a cautious start and are trading slightly in red on Friday on weak global cues. However, losses remained capped with International Monetary Fund’s (IMF) statement that India’s strong reform push in 2016 is welcome and should continue the pace. Adoption of the goods and services tax is poised to boost India's medium-term growth. It added that as shown by India, progress on reforms could ignite business investment (including already strong FDI inflows), further boosting domestic demand. Traders also took some sigh of relief after the Commerce Minister Nirmala Sitharaman lauded the increase in foreign direct investment (FDI) in India but said it will be meaningful only when it translates into increased job creation.

On the global front, all the Asian counters were trading in red at this point of time after a sudden plunge in the pound spooked investors ahead of American jobs data. The US markets made a flat closing in last session as traders looked ahead to the release of the Labor Department's closely watched monthly jobs report on Friday.
Back home, none of sectoral indices on BSE were spared on BSE and counters, which featured in the list of worst performers, include telecom, metal and capital goods. Telecom stocks were feeling pressure, as the India's biggest auction of telecom spectrum ended on a whimper note with just Rs 65,789 crore of bids, coming in over five days against an expectation of Rs 5.6 lakh crore, leaving nearly 60 percent of airwaves, including premium 4G bands, unsold.

The BSE Sensex is currently trading at 28056.07, down by 50.14 points or 0.18% after trading in a range of 28043.29 and 28155.68. There were 10 stocks advancing against 20 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index slipped 0.07%, while Small cap index was down by 0.15%.

The lone gaining sectoral index on the BSE was FMCG up by 0.27%, while Telecom down by 1.02%, Metal down by 0.62%, Capital Goods down by 0.54%, Consumer Durables down by 0.50% and Realty down by 0.40% were the losing indices on BSE.

The top gainers on the Sensex were ONGC up by 0.93%, Lupin up by 0.93%, Mahindra & Mahindra up by 0.85%, Axis Bank up by 0.72% and ITC up by 0.69%. On the flip side, HDFC down by 1.20%, Bajaj Auto down by 1.17%, Cipla down by 1.11%, Dr. Reddys Lab down by 1.00% and Bharti Airtel down by 0.87% were the top losers.

Meanwhile, calling for additional and timelier action to deal with the problem of bad loans, International Monetary Fund (IMF) in its latest Global Financial Stability report has said that Indian banks are vulnerable to further decline in profits as they face slow credit growth and elevated non-performing assets.

The report pointed that gross non-performing assets (NPAs) of public sector banks have surged from 5.43 per cent (Rs 2.67 lakh crore) of advances in 2014-15 to 9.32 per cent (Rs 4.76 lakh crore) in 2015-16. Bank loan-loss reserves have fallen short of the expected loss on non-performing loans under the current debt-at-risk in India. The potential losses arising from adverse deleveraging would require additional provisions for many banking systems and the pressure is more acute in India where loan-loss reserves are low relative to potential losses.

As per the report, the Indian banking sector, particularly public sector banks, have seen a sharp rise in their NPAs in the last couple of years. The Reserve Bank has already nudged lenders to set aside more funds for stressed loans and clean up their balance sheet by March 2017. To deal with the bad loan problem, IMF has suggested that corporate insolvency frameworks should be upgraded, including by facilitating out-of-court settlement and debt-for-equity swaps, with well-defined and transparent rules. Also, contingency plans to manage corporate distress should be put in place.

IMF said that this should include a timely, market-based restructuring framework that minimizes moral hazard, while providing for limited state support if necessary. Where available, banks should draw on their capital reserves to cushion losses. But where these reserves are insufficient, policymakers will have to balance necessary prudential tightening against the risk of being excessively procyclical. On managing the impact of corporate distress, it said that slower growth and corporate strains will erode banks' asset quality.

The CNX Nifty is currently trading at 8686.00, down by 23.55 points or 0.27% after trading in a range of 8684.80 and 8723.70. There were 14 stocks advancing against 36 stocks declining on the index, while one stock remained unchanged.

The top gainers on Nifty were Zee Entertainment up by 0.91%, ITC up by 0.88%, Tata Motors - DVR up by 0.84%, Mahindra & Mahindra up by 0.81% and Lupin up by 0.80%. On the flip side, Bharti Infratel down by 2.49%, BPCL down by 1.74%, HDFC down by 1.34%, Cipla down by 1.26% and Bajaj Auto down by 1.24% were the top losers.

All the Asian markets were trading in red; Hang Seng decreased 115.94 points or 0.48% to 23,836.56, Nikkei 225 dipped 58.12 points or 0.34% to 16,840.98, Taiwan Weighted slipped 23.67 points or 0.25% to 9,260.64, Jakarta Composite fell 22.23 points or 0.41% to 5,387.11, KOSPI Index shed 10.56 points or 0.51% to 2,054.74 and FTSE Bursa Malaysia KLCI was down by 1.46 points or 0.09% to 1,665.27.