Post Session: Quick Review

Indian equity benchmarks traded on lackluster note and ended the session with cut of around quarter percent. The downfall was led by collapse in Tata group companies stocks that caught markets by surprise. The benchmarks made a cautious start and traded in red in early deals amid a shock decision made by Chairman Cyrus Mistry to step down from his post. Tata’s announced that Mistry was stepping down as Chairman and Ratan Tata had returned to take over the role in the interim. Some selling crept in after Indian rupee weakened marginally against the US dollar, tracking losses in its Asian peers and in the wake of increased demand for the American unit amid foreign capital outflows. Foreign Portfolio Investors (FPIs) sold shares worth a net Rs 325.13 crore on October 24, 2016. Separately, a private report showed that China is unlikely to deter its firms from investing in India, but it is not going to be an easy sailing for Chinese investors who will have to deal with labour unions which they are not used to at home. The article added that as Chinese component enterprises become more deeply entrenched in the Indian economy, they will soon encounter a number of differences between the two countries in terms of commercial ecology. The Chinese investments also will be hampered by lack of skilled workers besides lack of cohesion between the states. Markets participants failed to draw solace from NITI Aayog Vice-Chairman Arvind Panagariya’s statement where he has defended the Centre’s proposal for four-tier rate structure and a cess under the Goods and Services Tax and said that these would ensure less inflationary implications and lower tax rates for consumers as well as revenue predictability for the exchequer. The market may remain volatile this week as traders may roll over positions in the Futures & Options (F&O) segment from the near month i.e. October 2016 series to next month i.e. November 2016 series. The near month October 2016 derivatives contracts will expire on Thursday i.e. October 27, 2016.

On the global front, Asian markets ended mostly in red, investors remained cautious as oil prices dipped over disagreement within producer cartel OPEC on who should cut how much production in a planned coordinated reduction to prop up prices. However, Japanese shares hit a six-month top in the session as the dollar advanced on the yen, while risk sentiment got a lift after factory surveys in the United States and Europe boasted the best readings of the year so far. European stocks traded higher as market participants digested a deluge of earnings and celebrated positive news from Greece and the German economy.

Back home, Tata group companies stocks like Tata Steel, Tata Power, TCS, Tata Motors, Tata Chemicals, Tata Coffee, Tata Elxsi, Tata Communications, Rallis India, Tata Global Beverages, Indian Hotels etc. reacted and ended in red, a day after the Board of Tata Sons announced the sudden removal of chairman Cyrus Mistry. The board gave no reason for the abrupt removal of the 48-year-old Irish citizen and named his predecessor Ratan Tata, 78, as interim chairman. The kneejerk reaction on the stocks and overhang will continue rightfully until the new Chairman comes in.

The BSE Sensex ended at 28106.37, down by 72.71 points or 0.26% after trading in a range of 28013.69 and 28211.41. There were 12 stocks advancing against 18 stocks declining on the index. (Provisional)

The broader indices ended mixed; the BSE Mid cap index was down by 0.34%, while Small cap index was up by 0.09%. (Provisional)

The top gaining sectoral indices on the BSE were Consumer Durables up by 0.47%, Bankex up by 0.27% and Power up by 0.04%, while IT down by 0.77%, FMCG down by 0.76%, Metal down by 0.61%, TECK down by 0.55% and Capital Goods down by 0.49% were the losing indices on BSE. (Provisional)

The top gainers on the Sensex were Adani Ports & Special Economic Zone up by 8.52%, Dr. Reddy’s Lab up by 3.52%, ICICI Bank up by 1.81%, Asian Paints up by 1.72% and Maruti Suzuki up by 1.45%. (Provisional)

On the flip side, Mahindra & Mahindra down by 2.71%, Tata Steel down by 2.63%, GAIL India down by 1.99%, Hindustan Unilever down by 1.67% and ONGC down by 1.43% were the top losers. (Provisional)

Meanwhile, in order to reduce the quantum of bad loans in steel, power and shipping sector, the Finance Ministry has asked Public Sector Undertakings (PSUs) such as NTPC, Steel Authority of India and Cochin Shipyard to examine taking over some stressed projects in their respective sector, in coordination with the lender banks. This is expected to speed up resolution of bad loans, as state-run banks had not been acquiring assets from struggling companies and running or selling them to asset run companies for fear of scrutiny by vigilance agencies. This move will help stake-run banks to clean up their books.

Finance Minister Arun Jaitley said that this will necessarily involve the banks invoking their powers under the contract, converting a part of their debt into equity, taking control of those units and appointing management team of established people of either current or retired/former representatives who have a great experience of those sectors. 

FM further said that bankers have been facing problems in managing the companies for which debts were converted into equity. Now a new plan is being worked out wherein PSU with expertise in these three sectors help banks in operating these defaulting companies or some of their units. Cash-rich PSUs taking over stressed projects, however, would involve complex negotiations on how much haircut banks are willing to take and how to deal with the accumulated liabilities of such firms.

As per government data, the stressed assets (gross NPA and restructured loans) of PSU banks rose to Rs 7.83 lakh crore (15.74 per cent of gross advances) as on June 2016 from Rs 7.46 lakh crore (14.62 per cent of gross advances) as on March 2016. Bulk of the stressed loans is in the infrastructure sectors such as power, steel and shipping. Steel sector companies are the most leveraged, owing around Rs 3 lakh crore to the banking sector.

The CNX Nifty ended at 8692.90, down by 16.05 points or 0.18% after trading in a range of 8663.45 and 8722.65. There were 20 stocks advancing against 31 stocks declining on the index. (Provisional)

The top gainers on Nifty were Adani Ports & Special Economic Zone up by 8.73%, Dr. Reddy’s Lab up by 3.52%, Bharti Infratel up by 2.45%, Asian Paints up by 2.27% and ICICI Bank up by 2.02%. (Provisional)

On the flip side, Tata Steel down by 2.65%, Mahindra & Mahindra down by 2.63%, Idea Cellular down by 2.08%, GAIL India down by 2.04% and Hindustan Unilever down by 1.99% were the top losers. (Provisional)

The European markets were trading in green; UK’s FTSE 100 increased 26 points or 0.37% to 7,012.40, Germany’s DAX increased 32.92 points or 0.31% to 10,794.09 and France’s CAC increased 2.51 points or 0.06% to 4,555.09.

Asian stocks ended mostly in red on Tuesday as South Korean economic data disappointed. Reports showed that South Korea’s gross domestic product grew 2.7% year-over-year in the third quarter, down from a 3.3% gain in the prior three-month period. Further, falling oil prices overnight too weighed on market sentiment. Hong Kong shares ended slightly lower after mainland markets put up a lackluster performance and as investors were cautious about the increasing possibility of a US interest rate increase in December. While, Japanese stocks ended higher as a weaker yen lifted hopes that exporters' earnings will recover.