Benchmarks continue to hold on to their gains

Indian equity benchmarks continued their steady trade in late morning session on account of buying in front line blue chip counters. The extent of impact of demonetization on third quarter corporate earnings would now chart the direction of the market in the coming days. IndusInd Bank and ISGEC Heavy Engineering will announce their financial results for the quarter ended December 31, 2016 today. The Indian rupee strengthened against the US dollar tracking gains in the Asian currencies markets. Most of the Asian currencies were trading higher as dollar index dropped amid narrowing US yield curves. Traders were getting support with Finance Minister Arun Jaitley’s statement dismissing the slowdown concerns, 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.

Some support also came with Moody’s report which maintained positive outlook on India and said beyond the short-term negative impact on growth, demonetisation has the potential to raise government revenues and provide some fiscal space to support growth if required. The report enlightened that measures including relaxation of foreign investment restrictions, passage of the Goods and Services Tax, and advancement of a workable bankruptcy code have potential to stimulate private sector investment, which could lead to stable, balanced growth and gradually lower the government debt burden. Traders were seen piling position in Oil & Gas, Metal and PSU sector stocks. In scrip specific development, Max Ventures and Industries, part of Analjit Singh-led Max Group was trading firm on announcing a Rs 147.9 crore fund raising plan, which includes sale of 22.51 percent stake to a subsidiary of New York Life Insurance Company for Rs 121 crore.

On the global front, Asian shares were trading mostly in red, as investor sentiment soured after the Dow retreated further from the 20,000 mark and oil prices plunged as much as 4 percent overnight. Investors are awaiting remarks from key US policymakers this week, including Fed Chair Janet Yellen and President-elect Donald Trump. Back home, the NSE Nifty and BSE Sensex were trading above the psychological 8,250 and 26,800 levels respectively. The market breadth on BSE was positive in the ratio of 1493:753, while 106 scrips remained unchanged.

The BSE Sensex is currently trading at 26854.11, up by 127.56 points or 0.48% after trading in a range of 26804.17 and 26902.05. There were 22 stocks advancing against 8 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.48%, while Small cap index was up by 0.62%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.56%, Metal up by 1.19%, PSU up by 0.90%, Auto up by 0.80% and Consumer Durables up by 0.55%, while there were no losers.

The top gainers on the Sensex were Tata Motors up by 2.55%, GAIL India up by 1.77%, Tata Steel up by 1.60%, ONGC up by 1.26% and Reliance Industries up by 1.06%.

On the flip side, Axis Bank down by 0.67%, Sun Pharma down by 0.35%, Larsen & Toubro down by 0.21%, Hero MotoCorp down by 0.19% and Dr. Reddy’s Lab down by 0.19% were the top 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 8271.95, up by 35.90 points or 0.44% after trading in a range of 8261.00 and 8288.10. There were 34 stocks advancing against 17 stocks declining on the index.

The top gainers on Nifty were Hindalco up by 4.05%, BPCL up by 3.01%, Tata Motors up by 2.47%, Tata Motors - DVR up by 1.98% and GAIL India up by 1.77%.

On the flip side, Axis Bank down by 0.86%, Ambuja Cement down by 0.76%, ACC down by 0.70%, IndusInd Bank down by 0.63% and Tech Mahindra down by 0.63% were the top losers.

The Asian markets were trading mostly in red; Nikkei 225 decreased 132.97 points or 0.68% to 19,321.36, Jakarta Composite decreased 13.59 points or 0.26% to 5,302.78, KOSPI Index decreased 6.08 points or 0.3% to 2,042.70, Shanghai Composite decreased 0.64 points or 0.02% to 3,170.60 and Taiwan Weighted decreased 0.41 points or 0% to 9,342.01.

On the other hand, FTSE Bursa Malaysia KLCI increased 2.44 points or 0.15% to 1,670.34 and Hang Seng increased 138.33 points or 0.61% to 22,697.02.