Benchmarks make weak start; Sensex slips below 28,000 mark

Indian equity benchmark have made a weak start and are trading with a cut of around half a percent in early deals on Friday, with frontline gauges breaching their crucial 28,000 (Sensex) and 8,700 (Nifty) levels. Sentiments remained downbeat as US Trade Representative Michael Froman underlining the need to improve the business environment in India in order to ensure greater investment inflow, has said that certain areas in the Indian economy like retail and financial services needed further opening up. Traders failed to get any sense of relief with better than expected earnings, especially of Reliance Industries, India’s second largest company by market value, which despite a profit decline in second quarter reported strong refining business performance and record petrochemicals segment earnings.

Global cues too remained sluggish, with most of the Asian counters trading in red at this point of time, as corporate earnings in the region gave cause for caution and the euro sank to its weakest level since March. The US markets made a modestly lower closing in the last session after showing a lackluster trade through the day, traders digested the European Central Bank's monetary policy decision to leave interest rates unchanged and confirmation that its monthly asset purchases of 80 billion euros are intended to run until the end of March 2017.

The BSE Sensex is currently trading at 27998.06, down by 131.78 points or 0.47% after trading in a range of 27990.69 and 28163.41. There were 8 stocks advancing against 22 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index slipped 0.19%, while Small cap index was down by 0.09%.

The top gaining sectoral indices on the BSE were Realty up by 0.43%, IT up by 0.40%, TECK up by 0.23% and FMCG up by 0.13%, while Metal down by 0.99%, Energy down by 0.91%, Finance down by 0.68%, Telecom down by 0.68% and Bankex down by 0.62% were the losing indices on BSE.

The top gainers on the Sensex were GAIL India up by 1.76%, Dr. Reddys Lab up by 0.78%, TCS up by 0.66%, ITC up by 0.29% and NTPC up by 0.13%. On the flip side, Axis Bank down by 1.83%, Reliance Industries down by 1.66%, HDFC down by 1.47%, Tata Steel down by 1.27% and ONGC down by 1.21% 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 is currently trading at 8662.85, down by 36.55 points or 0.42% after trading in a range of 8661.65 and 8709.10. There were 13 stocks advancing against 38 stocks declining on the index.

The top gainers on Nifty were HCL Tech up by 2.39%, GAIL India up by 1.40%, Zee Entertainment up by 1.38%, Dr. Reddys Lab up by 0.72% and TCS up by 0.58%. On the flip side, Axis Bank down by 2.06%, Reliance Industries down by 1.74%, HDFC down by 1.65%, Hindalco down by 1.58% and Tata Steel down by 1.20% were the top losers.

Asian markets were trading mostly in red; Shanghai Composite decreased 11.02 points or 0.36% to 3,073.44, KOSPI Index shed 7.38 points or 0.36% to 2,033.22, Jakarta Composite slipped 6.72 points or 0.12% to 5,396.97, Nikkei 225 dipped 4.22 points or 0.02% to 17,231.28 and Taiwan Weighted was down by 1.11 points or 0.01% to 9,316.13. On the flip side, FTSE Bursa Malaysia KLCI was up 2.87 points or 0.17% to 1,670.05.