Benchmarks trade lower ahead of UK election outcome

Indian equity benchmarks have made a weak start on Friday, as traders remained on the sidelines waiting for UK election results after European Central Bank maintained status quo as expected and testimony of James Comey was without fire. The exit poll suggested that British Prime Minister Theresa May’s Conservative party not getting majority. On the domestic front, losses remained capped, as traders got some sense of relief with UN trade report that despite stagnant foreign direct investment (FDI) inflow of $ 44 billion in 2016, India will most likely remain most favoured destination due to its attractiveness among MNCs for cross-border mergers and acquisitions.

On the global front, Asian markets exhibiting mixed trend at this point of time with some indices trading in red as a note of caution spread across financial markets after an exit poll showed the UK faces a hung parliament. The Japanese market though was trading up by around a percent, as yen weakened against the dollar. The US markets managed a modestly positive close in last session despite choppy trade.

Back home, select stocks from power and coal sector edged lower on report that India’s coal imports in May declined 6 per cent due to lackluster demand from the power sector and sufficient supply of domestic fuel. The market breadth indicating the overall health of the market was weak, with 871 shares gaining and 946 shares declining, while a total of 95 shares were unchanged.

The BSE Sensex is currently trading at 31139.11, down by 74.25 points or 0.24% after trading in a range of 31087.28 and 31200.59. There were 11 stocks advancing against 19 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index declined 0.18%, while Small cap index was up by 0.20%.

The top gaining sectoral indices on the BSE were Energy up by 0.47%, Telecom up by 0.28%, Power up by 0.16%, Metal up by 0.11% and Consumer Disc up by 0.03%, while IT down by 1.13%, TECK down by 0.87%, Consumer Durables down by 0.33%, Industrials down by 0.27% and Capital Goods down by 0.16% were the losing indices on BSE.

The top gainers on the Sensex were Reliance Industries up by 1.08%, Maruti Suzuki up by 0.85%, Mahindra & Mahindra up by 0.66%, Bharti Airtel up by 0.58% and Hindustan Unilever up by 0.44%. On the flip side, Infosys down by 2.58%, GAIL India down by 1.47%, Adani Ports & Special Economic Zone down by 1.38%, Wipro down by 1.13% and Lupin down by 0.92% were the top losers.

Meanwhile, the global ratings agency, Moody’s Investors Service in its latest report has said that stressed assets of Indian public sector banks (PSBs) will increase through 2019 and capitalisation will remain a key credit weakness for state-owned lenders which will need up to Rs 95,000 crore additional capital over the next two years. It also said that PSBs have limited ability to raise external capital and hence infusion by the government remains the only viable source for shoring up capital base, because of the PSBs' low capital market valuations, which would likely continue to deny them the option of raising fresh equity from the capital markets.

The report titled ‘Indian banks’ capitalisation profiles worsen; asset quality outlook remains weak’ has estimated that the 11 banks - including State Bank of India, Bank of Baroda and Punjab National Bank - will need external equity capital of Rs 70,000 crore to Rs 95,000 crore, over a two-year period ending March 2019, to fully meet Basel III capital rules. The other state owned banks Moody's rates are Indian Overseas Bank , Bank of India, Union Bank of India , Canara Bank, Syndicate Bank, IDBI Bank, Oriental Bank of Commerce and Central Bank of India.

The rating agency further said that credit growth was expected to pick up in the near future but credit costs would mostly remain in line with the levels during the fiscal year ended March 2017. It added that the average credit cost for the FY18-19 was expected to be around 2.1%. The need to raise the provision of cover against bad loans would lead to a rise in credit costs.

Referring to the asset quality of banks, Moody’s Indian affiliate, ICRA has said that the asset quality outlook for the banking sector will remain weak, because the pace of NPA resolutions is sluggish, even as the pace of fresh NPA generation slows. Gross Non Performing Assets (NPAs) or bad loans will increase to Rs 8.2 -Rs 8.5 lakh crore (9.9-10.3% of total advances) by the end of 2017-18 as against Rs 7.65 lakh crore (9.5%) at the end of March 2017. Though, it also said that the recent Ordinance issued by the Government of India for amendment in the Banking Regulation Act of 1949 is a positive for the banks, because it highlights the urgency and the willingness of the government to resolve the stressed asset challenges of the banking system.

The CNX Nifty is currently trading at 9622.55, down by 24.70 points or 0.26% after trading in a range of 9608.15 and 9644.10. There were 17 stocks advancing against 33 stocks declining on the index, while one stock remained unchanged.

The top gainers on Nifty were Reliance Industries up by 0.96%, Yes Bank up by 0.92%, Indiabulls Housing up by 0.89%, Bharti Airtel up by 0.76% and Mahindra & Mahindra up by 0.68%. On the flip side, Tech Mahindra down by 2.57%, Infosys down by 2.51%, GAIL India down by 1.60%, Adani Ports & Special Economic Zone down by 1.43% and Wipro down by 1.20% were the top losers.

Asian markets were trading mixed; Hang Seng decreased 63.86 points or 0.25% to 25,999.20, Jakarta Composite shed 13.39 points or 0.23% to 5,689.54 and Taiwan Weighted was down by 4.35 points or 0.04% to 10,221.43.

On the flip side, Shanghai Composite gained 2.12 points or 0.07% to 3,152.45, FTSE Bursa Malaysia KLCI increased 3.48 points or 0.19% to 1,789.05, KOSPI Index added 17.29 points or 0.73% to 2,380.86 and Nikkei 225 was up by 125.15 points or 0.63% to 20,034.41.