Benchmarks end a week with mild cut; Sensex slips below 28100 mark

After ginning some strength in last session, Indian stock markets once again turned lower and finished the Friday’s session on a dull note, marginally below the neutral line as investors at large remained reluctant to build on long positions amid weak trade in regional markets. The session largely remained characterized by choppiness as the aimless indices moved only slowly towards the previous closing levels after the early decline. Sentiments were undermined by the SBI’s report indicating that manufacturing growth is likely to remain flat and factory output may even continue to remain in the negative territory in the coming months. The yearly SBI Composite Index for October remained stationary at 50.2, compared to September. The monthly index declined marginally to 52.1 in October from 52.6 in September. The report also noted that credit off-take on a year-on-year basis continues to be a laggard and stood at 10.4 per cent in September 30, 2016. Investors also remained cautious with the Moody's report that there has been a large-scale decline in private investment in PPP projects in recent years because of delays in project approvals and land purchases by the government, complicated dispute resolution mechanisms in the concession agreements and lower than expected revenues due to aggressive assumptions. There were mostly stock specific activities based on earnings. Biocon hit a fresh record high of Rs 1020, after the company posted robust 52% year on year (YoY) jump in consolidated net profit at Rs 147 crore for the quarter ended September 30, 2016, led by the company’s biologics, small molecules businesses and Syngene.  Also, HCL Technologies rallied after the company maintained constant currency guidance at 12-14% for FY17. On the flip side, ACC came under pressure after posting 29% fall in consolidated net profit at Rs 82 crore for the quarter ended September 30, 2016. The company’s Sales turnover during the quarter under review declined 9.7% to Rs 2473 crore against Rs 2,740 crore in the corresponding quarter of previous year.

On the global front, Asian markets ended mostly lower on Friday as oil extended overnight losses and the dollar stood tall on expectations of a US rate rise in the wake of disappointment from the ECB meeting. The ECB left its ultra-loose monetary policy unchanged but kept the door open to more stimulus in December, with ECB President Mario Draghi dousing recent market speculation that the central bank may begin tapering its 1.7 trillion euro asset-buying programme. Further, Japanese shares ended lower as the dollar held flat against the yen and investors waited for major corporate earnings next week. Meanwhile, the European markets though exhibited mixed trend with Germany’s DAX gaining around quarter a percent, being the top gainer.

Back home, the local benchmarks got off to a somber opening, as pessimistic sentiments prevailed across Asian markets. The selling pressure accentuated in the late morning trades as investors took to across the board risk aversion. However, late short covering in blue-chip stocks and supportive leads from European markets ensured that local bourses go home with relatively small losses. Finally, the NSE’s 50-share broadly followed index Nifty, registered single digit loss to settle below the crucial 8,700 support level, while Bombay Stock Exchange’s Sensitive Index, Sensex slipped by over fifty points and closed below the psychological 28,100 mark. However, the broader markets showed some resilience and settled on a positive note, outperforming their larger peers by small margin.

The market breadth remained optimistic as there were 1459 shares on the gaining side against 1317 shares on the losing side, while 245 shares remained unchanged.

Finally, the BSE Sensex declined by 52.66 points or 0.19% to 28077.18, while the CNX Nifty dropped 6.35 points or 0.07% to 8,693.05. 

The BSE Sensex touched a high and a low of 28163.41 and 27957.92, respectively and there were 18 stocks on gainers side against 12 stocks on the losers side on the index. The broader indices made a positive closing; the BSE Mid cap index ended higher by 0.31%, while Small cap index was up by 0.10%.

The top gaining sectoral indices on the BSE were Realty up by 0.86%, IT up by 0.69%, TECK up by 0.62%, FMCG up by 0.42% and Capital Goods up by 0.26%, while Consumer Durables down by 1.70% and Metal down by 0.62% were the few losing indices on BSE.

The top gainers on the Sensex were Hindustan Unilever up by 1.26%, TCS up by 1.20%, HDFC Bank up by 1.19%, Dr. Reddys Lab up by 1.08% and Wipro up by 0.75%. On the flip side, Axis Bank down by 2.26%, Reliance Industries down by 2.21%, Cipla down by 2.07%, HDFC down by 1.66% and Asian Paints down by 1.17% were the top losers.

Meanwhile, CRISIL in its latest report on power distribution companies (discoms) has said that those discoms who have joined the Ujwal Discom Assurance Yojna (UDAY) scheme will be able to more than halve their loss. As per its estimates the aggregate 'gap', of distribution companies of 15 states that have joined the Ujwal Discom Assurance Yojna (UDAY), would more than halve to 28 paise per unit by fiscal 2019 compared with 64 paise in fiscal 2016. Consequently, aggregate losses of these discoms are seen declining 46% to about Rs 20,000 crore from Rs around 37,000 crore.

The agency that calculates the gap as average revenue realized minus average cost of supply, has however said that  the gap will still be well above the 'nil' envisaged under UDAY because some states with very high aggregated technical and commercial (AT&C) losses have lesser preparedness to reduce it because of inadequate feeder separation, feeder and distribution transformer metering, and poor track record of other efficiencies. And the ability to increase tariffs is restricted in some states because elections are due within 12 months, cross-subsidization is high, and tariff orders are delayed.

As per the report, energy requirements of discoms are expected to increase at a compound annual growth rate (CAGR) of 7% by fiscal 2019 compared with around 4% till fiscal 2016. So far this will not be a major respite to generation capacities that do not have long-term power purchase agreements (PPAs), as fresh signing of PPAs seems unlikely. That's because 25,000 MW of capacities with already-signed PPAs are expected to be operational by fiscal 2019, and there will also be some pick-up in plant load factors of existing capacities because of better fuel availability. It said that any uptick in long-term PPA signings is possible only if discoms turn profitable by fiscal 2019, and strive to meet the government's 'Power for all' objective.

For under-construction thermal projects, it estimates around 24,000 MW capacities are facing viability issues. Of these, 13,000 MW capacities face commissioning risks because of weak sponsors, while the rest are reeling because of poor off take by discoms or inadequate fuel arrangements. A third of capacities with weak sponsors can be revived through debt restructuring or sale to a new sponsor. 

The rating agency said that Rajasthan, Haryana, Chhattisgarh, and Uttarakhand are expected to fare better in the implementation of UDAY, so are likely to be the biggest beneficiaries. However, UP, Bihar and Jammu & Kashmir are expected to be the laggards. These three states would account for almost two-thirds of the gap in fiscal 2019. So, concerted efforts by them will be critical to narrowing future gap. Over the past year, initiatives to increase coal production, and the 5:25 refinancing scheme of the Reserve Bank of India have reduced operational capacities at risk by 6,000 MW to 40,000 MW from 46,000 MW that CRISIL had flagged.

The CNX Nifty traded in a range of 8,709.10 and 8,652.05. There were 27 stocks in green against 24 stocks in red on the index.

The top gainers on Nifty were Idea Cellular up by 2.30%, Tech Mahindra up by 2.12%, Tata Power up by 1.89%, HCL Tech up by 1.83% and Dr. Reddy's Laboratories up by 1.40%. On the flip side, Axis Bank down by 2.69%, Hindalco down by 2.45%, Ambuja Cement down by 2.39%, ACC down by 2.20% and Cipla down by 2.10% were the top losers.

The European markets were trading in green; UK’s FTSE 100 increased 16.62 points or 0.24% to 7,043.52, Germany’s DAX increased 18.52 points or 0.17% to 10,719.91 and France’s CAC increased 3.09 points or 0.07% to 4,543.21.

Asian stocks ended mostly in red on Friday, as oil extended overnight losses and the dollar stood tall on expectations of a US rate rise in the wake of disappointment from the ECB meeting. The European Central Bank on Thursday left its ultra-loose monetary policy unchanged and left the door open for more stimulus, but didn't discuss an extension of its monthly €80 billion ($88 billion) bond-buying program. Japanese shares ended lower as the dollar held flat against the yen and investors waited for major corporate earnings next week. Meanwhile, Chinese shares eked out modest gains, led by gains in infrastructure-related stocks, after China's finance ministry issued rules for the management of government funds used in private-public partnership projects. The yuan hit a fresh six-year low after ECB President Mario Draghi signaled that quantitative easing won't come to an ‘abrupt’ end. Hong Kong stock markets were shut for the day due to a typhoon warning.