Markets turn red after paring all the initial gains

Indian markets after a positive start have pared all the gains and have entered into red terrain in early deals on Wednesday, as traders opted to sell risky bets at higher levels, even though the Asian peers were trading mostly in green led by mining companies, amid bets the Federal Reserve is almost certain to boost interest rates next month with minutes of the Fed's November meeting to be released on Wednesday. Domestic traders failed to take any sense of relief with Finance Minister Arun Jaitley's statement that banks are integrating their information technology system with RBI and GST Network as they prepare to handle tax deposits under the new indirect tax regime. Traders also remained cautious with no work in parliament and Lok Sabha getting adjourned again after opposition uproar over demonetization.

On the sectoral front, banking stocks were reeling under pressure, as the Fitch re-affirmed its “negative” outlook for India’s banking sector, saying the financial standing remained “fragile” without bigger capital injections and that the government’s action on banknotes could end up having a mixed impact. The broader indices, however, were trading with traction, while the market breadth on the BSE was positive; there were 1,138 shares on the gaining side against 695 shares on the losing side while 86 shares remain unchanged.

The BSE Sensex is currently trading at 25944.19, down by 16.59 points or 0.06% after trading in a range of 25892.21 and 26130.49. There were 15 stocks advancing against 15 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.20%, while Small cap index was up by 0.21%.

The top gaining sectoral indices on the BSE were Capital Goods up by 2.09%, Metal up by 1.30%, Basic Materials up by 0.86%, Industrials up by 0.80% and Healthcare was up by 0.60%, while Oil & Gas down by 0.62%, Finance down by 0.49%, Power down by 0.37%, PSU down by 0.34% and FMCG down by 0.25% were the top losing indices on BSE.

The top gainers on the Sensex were Larsen & Toubro up by 3.98%, Asian Paints up by 2.61%, Tata Steel up by 1.64%, Cipla up by 0.68% and Lupin up by 0.68%. On the flip side, HDFC down by 2.68%, Mahindra & Mahindra down by 0.89%, Wipro down by 0.87%, Maruti Suzuki down by 0.81% and Power Grid down by 0.79% were the top losers.

Meanwhile, global ratings agency, Fitch Ratings in its latest report titled ‘2017 Outlook: Indian Banks’ has re-affirmed its ‘negative’ outlook for India’s banking sector, saying the financial standing remained fragile without bigger capital injections and that the government’s action on banknotes could end up having a mixed impact. It added that the government’s move to remove higher-value banknotes from circulation would lead to a surge in deposits, allowing lenders to eventually lower lending rates and lower costs to service the sector’s debt.

The report said that the negative outlook on the banking sector suggests there may be more downside risks for bank Viability Ratings (VRs) if the risks of deteriorating asset quality and weak earnings are not counterbalanced by larger capital injections. Though, it added that the overall impact on the banking sector remained cautions, as borrowers in sectors that depend on cash could struggle to service their loans, while deposits could eventually be withdrawn again, among other factors. The ratings agency expects additions to bad loans to slow, although high loan-loss provisions for both new and old non-performing loans would keep profits under pressure.

The ratings agency said its outlook on asset quality will remain challenging for the next 12-18 months, with the stressed-asset ratio for the banking system reaching around 12 percent in financial year 2016-17 as against 11.4 percent in financial year 2015-16. Fitch expecting a small improvement in the sector’s return on assets (ROA) in the financial year 2016-17 as earnings will remain under pressure due to muted loan growth and high credit costs. It said that the risks for creditors will remain high until the banks raise additional capital. The agency, which had previously estimated Indian banks would need about $90 billion in total capital by March 2019 to meet global Basel III banking rules, said 80 percent of those capital requirements would arise in the next two financial years.

The CNX Nifty is currently trading at 7991.80, down by 10.50 points or 0.13% after trading in a range of 7978.45 and 8055.20. There were 23 stocks advancing against 27 stocks declining on the index, while one stock remained unchanged.

The top gainers on Nifty were Larsen & Toubro up by 3.86%, Asian Paints up by 2.54%, Hindalco up by 2.22%, Tata Steel up by 1.61% and Tech Mahindra up by 0.97%. On the flip side, HDFC down by 3.16%, BPCL down by 2.27%, Zee Entertainment down by 1.59%, Mahindra & Mahindra down by 1.14% and Wipro down by 1.10% were the top losers.

Asian markets were trading mostly in green; KOSPI Index increased 7.46 points or 0.38% to 1,990.93, Shanghai Composite gained 7.48 points or 0.23% to 3,255.84, Taiwan Weighted rose 43.83 points or 0.48% to 9,177.22 and Hang Seng was up by 85.45 points or 0.38% to 22,763.52. On the flip side, Jakarta Composite decreased 11.26 points or 0.22% to 5,193.42 and FTSE Bursa Malaysia KLCI was down by 6.13 points or 0.38% to 1,623.19.