SEBI’s scanner on shell companies drag benchmarks lower; Nifty breaches 10k mark

Tuesday turned out to be a disappointing day of trade for Indian equity benchmarks, with Nifty and Sensex breaching their crucial 10,000 and 32,100 levels, respectively, after Securities and Exchange Board of India (SEBI) directed bourses to initiate action against 331 suspected shell companies that are listed and these scrips will not be available for trading this month. The regulators directive came after the Corporate Affairs ministry shared a list of 331 listed companies that are suspected to be shell entities and could even face compulsory delisting. Markets started the session with optimism but it soon fizzled out and both the domestic indices entered into red terrain, as traders turned cautious with the private report stating that it ‘suspects’ that there has been a change in the stance by the authorities to let the rupee appreciate more, but warned that it can hurt manufacturing and exports. Some concerns also came with Engineering exporters’ body EEPC stating that shipping companies are facing difficulties post GST as their drawback refunds will not be released till September-end or October. Meanwhile, the securitisation market has hit a record high of $1.02 trillion in fiscal 2017, helped by a surge in volume of pass-through certificates (PTCs).

Traders failed to get any sense of relief  with Central Board of Direct Taxes’ (CBDT) report of a 25 percent increase in the number of Income Tax Returns (ITRs) filed in the current fiscal, on the backdrop of economic reform, including demonetisation and the Income Tax Department’s (ITD) Operation Clean Money. Traders also failed to get any solace with SEBI allowing brokers to offer a margin funding facility that does not mandate clients to bring cash upfront to initiate a leveraged trade. Investors can now buy shares by pledging their stock portfolio with stock brokers.

Weak opening in European counters too dampened sentiments with major indices trading flat in early deals, as investors remained focused on a new round of earnings reports. Lower-than-expected exports and imports figures in China too weighed sentiments. Asian markets closed mixed, with early yuan figures from China on trade failing to lift sentiments.

Back home, selling in Realty counter dampened sentiments with stocks remained under immense pressure after banks in consultation with the RBI, have decided not to extend loans to those projects which have not been registered under RERA. Banks have also sought additional collateral, including on personal properties of promoters, as guarantees while disbursing loans to a few real estate developers. Stocks related to auto space too edged lower after GST council yesterday approved the proposal to hike cess on SUVs, mid-sized, large and luxury cars to 25%, from 15%. Also, hybrid vehicles with engine capacity of more than 1500 cc and mid segment hybrid cars of less than 1500 cc fall in the category.

The tyre stocks edged lower despite report that the government may impose anti-dumping duty of up to $452.33 per tonne on a certain variety of Chinese pneumatic radial tyres to guard domestic players from cheap imports. However, select stocks from coal and mining sector remained in focus, as the government annulled the fifth round of coal mines auction due to poor response from bidders.

The NSE’s 50-share broadly followed index Nifty declined around eighty points to end below its psychological 10,000 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex was down by around two hundred and sixty points to end below its crucial 32,100 mark. The broader markets too witnessed selling pressure and ended the session with a cut of over a percent. The market breadth was in the favour of decliners, as there were 600 shares on the gaining side against 1,984 shares on the losing side, while 123 shares remain unchanged.

Finally, the BSE Sensex declined 259.48 points or 0.80% to 32,014.19, while the CNX Nifty was down by 78.85 points or 0.78% to 9,978.55.

The BSE Sensex touched a high and a low of 32,354.77 and 31,915.20, respectively and there were 6 stocks on gaining side as against 25 stocks on losing side on the index.

The broader indices ended in red; the BSE Mid cap index declined 1.20%, while Small cap index was down by 1.27%.

The only gaining sectoral indices on the BSE were Metal up by 1.63% and Basic Materials was up by 0.27%, while Realty down by 4.53%, Oil & Gas down by 2.16%, PSU down by 2.08%, Power down by 1.88% and Energy was down by 1.80% were the top losing indices on BSE.

The top gainers on the Sensex were Tata Steel up by 2.63%, Cipla up by 2.32%, Bajaj Auto up by 0.82%, Bharti Airtel up by 0.31% and Hindustan Unilever up by 0.17%. On the flip side, Dr. Reddy’s Lab down by 4.91%, Coal India down by 2.67%, SBI down by 2.33%, ITC down by 2.07% and ICICI Bank down by 1.70% were the top losers.

Meanwhile, the trade body Engineering Export Promotion Council (EEPC) of India has said that exporters are experiencing severe difficulties post Goods and Services Tax (GST) regime as their drawback refunds will not be released till September-end or October. According to the exporters’ body, as supplies of goods to the export-oriented units (EOUs) from the domestic tariff area (DTA) are not considered as deemed exports under the new tax regime, shippers are not allowed to import the inputs without payment of duty under ‘Advance Authorisation’ scheme of the government.

Moreover, it noted that exporters will have to pay the basic customs duty, cesses and IGST for imported inputs to be used for supplies to EoU. It also said that they are entitled to input tax credit of only IGST. It also noted that basic customs duty and cesses are thereon a cost to exporters.

EEPC India Chairman T S Bhasin further said that several schemes introduced by the commerce ministry for giving a boost to exporters have been turned upside down and their functioning has become extremely difficult or not viable. He also stated that exports of engineering goods constitute the biggest share in India's overall export basket and are therefore, vital for job creation, mainly in the Small and Medium Enterprises (SME) segment.

The CNX Nifty traded in a range of 10,083.80 and 9,947.00. There were 14 stocks in green as against 37 stocks in red on the index.

The top gainers on Nifty were Vedanta up by 3.48%, Hindalco up by 3.18%, Tata Steel up by 2.73%, Cipla up by 2.14% and GAIL India up by 1.35%. On the flip side, Dr. Reddy’s Lab down by 5.04%, BPCL down by 4.29%, Indian Oil Corporation down by 4.16%, Bharti Infratel down by 3.58% and Coal India down by 2.56% were the top losers.

European markets were trading flat; France’s CAC rose 1.46 points or 0.03% to 5,209.35 and Germany’s DAX was up by 12 points or 0.1% to 12,269.17, while UK’s FTSE 100 was down by 5.27 points or 0.07% to 7,526.67.

Asian equity markets made a mixed closing on Tuesday as a stronger yen hit exporters in Japan, oil prices slipped on concerns about major oil producers' wavering commitment to output caps and China reported disappointing trade data. Japanese shares fell as the US dollar changed hands in the upper 110 yen range. Meanwhile, Chinese shares ended little changed as the export and import figures fell short of expectations. Chinese exports climbed 7.2 percent year-over-year in July in dollar terms, well below the 11.0 percent spike economists had expected. Imports rose 11.0 percent from a year ago, much slower than the expected growth of 18.0 percent. Separately, central bank data showed that China's foreign exchange reserves increased by $24 billion to a 9-month high of $3.08 trillion in July, as tight regulation contained the outflow.