Benchmarks trade in fine fettle in early deals

Indian equity benchmarks have made a gap up start and are trading in fine fettle in early deals on Tuesday, with frontline gauges recapturing their crucial 26,800 (Sensex) and 8,250 (Nifty) levels. Sentiments remained up-beat with Finance Minister Arun Jaitley’s statement dismissing the slowdown concerns, saying that higher tax mop up indicates uptick in economic activity. He said that demonetised notes had no role to play in the tax collections for December as people were allowed to pay taxes in the spiked currency only in November and the indirect and direct tax collections between April and December this year increased by 25 percent and 12.01 percent respectively compared to the same period last year.

On the global front, Asian markets trading mostly in green at this point of time. However, gains remained capped with investors uncertain whether output cuts by major exporters, led by Saudi Arabia and Russia, will be enough to support the oil market as other producers have increased supplies. The US markets made a mixed closing in last session with energy stocks declining amid lack of any major economic news.

Back home, there was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too participated strongly in the rally. The market breadth remained in favor of advances, as there were 1,328 shares on the gaining side against 578 shares on the losing side while 72 shares remain unchanged.

The BSE Sensex is currently trading at 26856.61, up by 130.06 points or 0.49% after trading in a range of 26804.17 and 26902.05. There were 26 stocks advancing against 3 stocks declining on the index, while one stock remained unchanged.

The broader indices were trading in green; the BSE Mid cap index gained 0.51%, while Small cap index was up by 0.56%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.64%, Metal up by 1.05%, PSU up by 0.98%, Auto up by 0.81% and Realty was up by 0.61%, while there were no losers on the BSE sectoral front.

The top gainers on the Sensex were Tata Motors up by 1.90%, ONGC up by 1.79%, Adani Ports &Special up by 1.56%, Tata Steel up by 1.46% and GAIL India was up by 1.08%. On the flip side, Sun Pharma down by 0.46%, Axis Bank down by 0.21% and Bajaj Auto was down by 0.04% were the few losers.

Meanwhile, the global credit rating agency, Moody’s Investors Service and its Indian arm ICRA in its joint report has said that the asset quality of Indian banks is likely to remain under pressure and will impact their credit profile over the medium term despite continued deterioration of the asset quality having been arrested by most of the lenders. The report said that asset quality will remain a negative driver of the credit profiles of most rated banks in the country and the stock of impaired loans. Non-performing loans and standard restructured loans will still rise during the horizon of their outlook that lasts till the next financial year.

According to Moody's, such pressure on asset quality largely reflects the system's legacy problems, as the banking sector had witnessed strong credit growth in 2009-2012 when the investment plans of Indian corporates rose significantly. While corporate balance sheets would remain weak, the rating agency believes that a further deterioration in key credit metrics such as debt/equity and interest coverage ratios has been arrested. The report said that the pace of asset quality deterioration over the next 12-18 months should be lower than what was seen over the last five years, and especially compared to the financial year 2015-16. It considers the Reserve Bank of India’s (RBI’s) asset quality review in December 2015 as an important catalyst in pushing banks to recognise some large accounts as being impaired. Now it estimates the true level of impaired loans for Indian banks to be around 1-1.5 percentage points higher than the latest reported numbers.

Further, the latest Financial Stability Report by the RBI had said the gross non-performing advances ratio increased to 9.1 per cent from 7.8 per cent between March and September 2016, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent. Moody's said given the magnitude of stressed assets in the system, it expects the banks to increase their focus on resolving some of the large problem accounts. ICRA said that weak demand for credit, increasing competition and greater dis-intermediation will continue to exert downward pressure on lending rates. It said the overall capitalisation levels of most of the public sector banks remain moderate to weak, given that they need to attain the regulatory minimum tier-I requirement of 9.5 per cent by March 2019. The current plan of infusing Rs 45,000 crore during 2016-17 and 2018-19, of which Rs 16,414 crore have already been infused in the current year, is below its estimate of capital requirements of Rs 1,50,000-1,80,000 crore.

The CNX Nifty is currently trading at 8274.60, up by 38.55 points or 0.47% after trading in a range of 8261.00 and 8288.10. There were 41 stocks advancing against 10 stocks declining on the index.

The top gainers on Nifty were BPCL up by 3.00%, Hindalco up by 2.22%, Tata Motors up by 1.95%, ONGC up by 1.84% and Adani Ports & Special was up by 1.60%. On the flip side, Bank of Baroda down by 0.46%, Tech Mahindra down by 0.45%, Ambuja Cement down by 0.43%, Indusind Bank down by 0.38% and Axis Bank down by 0.34% were the top losers.

Asian markets were trading mostly in green; FTSE Bursa Malaysia KLCI gained 1.26 points or 0.08% to 1,669.16, Taiwan Weighted rose 16.82 points or 0.18% to 9,392.68, Hang Seng increased 116.5 points or 0.52% to 22,675.19 and Nikkei 225 was up by 230.9 points or 1.23% to 18,996.37.

On the flip side, Jakarta Composite decreased 8.04 points or 0.15% to 5,308.33, KOSPI Index slipped 6.08 points or 0.3% to 2,042.70 and Shanghai Composite was down by 2.07 points or 0.07% to 3,169.17.