Benchmarks trade slightly in red on F&O expiry day

Indian equity benchmarks have made a cautious start and are trading with marginal losses in early deals on Thursday, as traders remained wary ahead of January F&O expiry later today. However, losses remained capped as traders took some support with private report stating that waning effects from the GST impact will help push the Indian GDP growth to 7 per cent in FY19. It can be noted that the International Monetary Fund has come out with an estimate of 7.4 per cent growth two days ago. Some solace also came with report that the government is at the advanced stage of finalising anti-profiteering guidelines for judging parameters whereby benefits of reduced GST rates are passed on to the end consumer.

Weakness in Asian markets too dampened sentiments, with most of the regional counters trading in red at this point of time on concerns about the Trump administration’s protectionist stance cast a shadow on financial markets. The US markets ended mixed on Wednesday after report showing a bigger than expected pullback in existing home sales in the month of December.

Back home, banking stocks remained buzzing after government pledged to inject nearly $14 billion combined into all but one state-run lender by March in return for them implementing reforms, in a bid to boost lending and tackle a record bad debt problem. In scrip specific development, Quess Corp advanced on planning to acquire 90% stake in Greenpiece Landscapes, while Wipro gains with arm planning to invest $9.9 million in Harte Hanks.

The BSE Sensex is currently trading at 36125.02, down by 36.62 points or 0.10% after trading in a range of 36050.44 and 36247.02. There were 15 stocks advancing against 16 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.33%, while Small cap index was up by 0.33%.

The top gaining sectoral indices on the BSE were Metal up by 1.62%, Capital Goods up by 1.02%, Basic Materials up by 0.94%, Industrials up by 0.71% and Telecom was up by 0.65%, while IT down by 0.86%, TECK down by 0.60%, FMCG down by 0.25%, Realty down by 0.12% and PSU was down by 0.09% were the top losing indices on BSE.

The top gainers on the Sensex were ICICI Bank up by 1.64%, Larsen & Toubro up by 1.48%, Sun Pharma up by 1.23%, Tata Motors up by 0.90% and Axis Bank up by 0.84%. On the flip side, SBI down by 2.11%, Yes Bank down by 1.69%, Infosys down by 1.23%, Wipro down by 1.20% and Adani Ports &Special down by 0.88% were the top losers.

Meanwhile, the India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, has said that during shift to the new accounting system Indian Accounting Standards (Ind-AS), banking sector may require up to Rs 89,000 crore of capital towards incremental provisioning for advances. The provisioning required for migration to Ind-AS along with asset quality overhang and Basel III transition would surge capital consumption by banks especially public sector banks (PSBs). In October 2017, the government announced a direct recapitalisation of Rs 1.53 trillion in PSBs.

Ind-Ra noted that out of the total Rs 89,000 crore, PSBs would need Rs 63,100 crore, which is equivalent to an equity write-down of 1.10% of the banks’ risk weighted assets and 11.5% of net worth at end-March 2017, while private sector banks would also need a whopping Rs 25,800 crore but their higher capitalisation would enable a smooth transition. As per the report, the estimates are based on assumption of a lifetime probability of default of 15% and 100% for stage 2 (currently special mention accounts SMA 2) and stage 3 (SMA 3 which includes NPAs plus standard restructured accounts) assets, respectively. It expects a possible blended haircut of around 50% across stressed assets and it assumes a loss given default (LGD) of 50% for all assets across stage 2 and stage 3.

The rating agency has said that a significant increase in provisioning in the new regime may necessitate reduction in risk weights in select asset categories to make a judicious balance between the existing and Ind-AS framework. According to the report, assuming Ind-AS is implemented from April 1 close to 41% of announced recapitalisation funds would be consumed towards incremental provisioning requirements, putting pressure on PSBs’ ability to meet the regulatory core equity tier 1 capital under Basel III framework. This could increase the pace of portfolio churn and credit market shift towards private sector banks, and partly towards wholesale non-banking finance companies.

Ind-Ra further said that they believe PSBs’ capital consumption to remain high, given that profit and loss accounts (P&L) for most of banks (especially mid-sized PSBs) would remain under pressure due to the accelerated provisioning requirement on the accounts identified by the regulator for reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code in FY18. The quantum of the government’s proposed capital injection in PSBs, together with the banks’ proposed mobilisation of capital, should largely cover the provisioning shortfall for their stressed assets.

The CNX Nifty is currently trading at 11083.05, down by 2.95 points or 0.03% after trading in a range of 11059.90 and 11095.60. There were 28 stocks advancing against 21 stocks declining on the index.

The top gainers on Nifty were Vedanta up by 2.87%, Hindalco up by 2.18%, GAIL India up by 1.72%, ICICI Bank up by 1.64% and Cipla up by 1.54%. On the flip side, SBI down by 2.21%, Yes Bank down by 1.82%, HCL Tech down by 1.59%, Infosys down by 1.44% and Wipro down by 1.42% were the top losers.

Asian markets were trading mostly in red; Nikkei 225 decreased 211.66 points or 0.88% to 23,729.12, Hang Seng shed 102.69 points or 0.31% to 32,856.00, Jakarta Composite slipped 11.69 points or 0.18% to 6,603.80 and Shanghai Composite was down by 5.07 points or 0.14% to 3,554.40.

On the flip side, FTSE Bursa Malaysia KLCI gained 3.29 points or 0.18% to 1,840.33, KOSPI Index increased 21.3 points or 0.84% to 2,559.30 and Taiwan Weighted was up by 27.99 points or 0.25% to 11,180.15.