Benchmarks continue weak trade in morning session

Indian equity benchmarks continued their weak trade in morning session on account of selling in front line blue chip counters. The rupee turned weaker against the US dollar showing caution ahead of the US Fed decision on interest rate hike, if any. Foreign Portfolio Investors (FPIs) sold shares worth a net Rs 105.56 crore yesterday. Domestic Institutional Investors (DIIs) too net offloaded shares of Rs 281.65 crore. Traders remained cautious with Chief economic adviser Arvind Subramanian urging watchfulness over the rising stock markets, which have been scaling records all through this month, saying the government would be forced to intervene in the event of a slump. Subramanian added that the situation was similar to the US in 2006 and he cannot prevent the run-up but can control the cleanup. So, if something happens, he can lower interest rates and inject money into the economy. Subramanian said the macro environment had turned adverse with oil prices having risen above $60 a barrel and staying there, the interest rate cycle changing globally and elevated asset prices in India and across the world.

Meanwhile, investors took note that the country’s largest bank, State Bank of India has raised interest rates offered on bulk deposits by 50 to 140 basis points, signaling a turn in the interest rates cycle. The bank has sharply raised rates for 46 days to 210 days by 140 basis points from 4.85% from 6.25%. The hike in deposit rates comes a couple of days before the finance minister is set to announce the union budget for 2018-19 and a week before the Reserve Bank of India is set to announce its monetary policy. Separately, rating agency ICRA enlightened that with banks credit outpacing deposits in the last few months, pushing up the credit-deposit ratio, lenders are likely raise deposit rates in the near-term.  Besides, ahead of the February 1 Budget, a debate has been brewing about the exemption of long-term capital gains tax on stocks.

The street shrugged off Moody’s statement that recently introduced Goods and Services Tax (GST) mechanism is still a work in progress that will ultimately result in formalization of economy. The report added that it was a necessary step to help banks and such reforms should continue. Separately, a private report enlightened that India has been ranked sixth in the list of wealthiest countries with total wealth of $8,230 billion, while the United States topped the chart. Select media stocks were buzzing on a report that the Information and Broadcasting Ministry is planning to set up more than 60 media units across the country before 2019 general elections to strengthen government’s outreach to smaller cities and rural areas.

Traders were seen piling up position in Realty, Telecom and Metal stocks, while selling was witnessed in Consumer Durables, IT and HealthCare sector stocks. In scrip specific development, Bharat Financial Inclusion and IndusInd Bank were trading in green on receiving clearance from Competition Commission of India (CCI) for their merger plans. However, approvals from Reserve Bank of India and other statutory bodies are still under process. Suven Life Sciences was trading in green on securing one product patent from Aripo and one product patent from South Korea corresponding to the New Chemical Entities (NCEs) for the treatment of disorders associated with Neurodegenerative diseases and these Patents are valid through 2033 and 2034 respectively.

On the global front, the Asian markets were trading in green. Besides, growth in China’s manufacturing sector slowed more than expected in January to an 8-month low in the face of a cooling property market and tighter pollution rules that have curtailed factory output. South Korea’s industrial production unexpectedly fell in December, failing to recover after barely expanding in November as car output contracted sharply. Back home, the BSE Sensex and NSE Nifty were trading below the psychological 36,000 and 11,050 levels respectively. The market breadth on BSE was positive in the ratio of 1248:1104, while 134 scrips remained unchanged.

The BSE Sensex is currently trading at 35980.37, down by 53.36 points or 0.15% after trading in a range of 35909.45 and 36047.67. There were 13 stocks advancing against 18 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index was down by 0.42%, while Small cap index was up by 0.23%.

The top gaining sectoral indices on the BSE were Realty up by 1.55%, Telecom up by 1.20%, Metal up by 0.56%, Basic Materials up by 0.44% and Energy up by 0.36%, while Consumer Durables down by 0.64%, IT down by 0.49%, Healthcare down by 0.40%, FMCG down by 0.33% and Capital Goods down by 0.27% were the top losing indices on BSE.

The top gainers on the Sensex were Kotak Mahindra Bank up by 1.27%, Bharti Airtel up by 1.11%, Hero MotoCorp up by 1.00%, Reliance Industries up by 0.81% and Tata Motors up by 0.54%.

On the flip side, Dr. Reddy’s Lab down by 2.08%, Coal India down by 2.03%, Hindustan Unilever down by 1.65%, ICICI Bank down by 1.35% and TCS down by 1.20% were the top losers.

Meanwhile, domestic credit rating agency, ICRA in its latest report has said that banks are likely to increase deposit rates in the near term as incremental credit has outpaced deposits in the last quarter, which has pushed up the credit/deposit ratio (the proportion of deposits used for lending) of the banking system. Besides, it noted that the government's Rs 88,139 crore capital infusion in struggling public sector banks (PSBs), will improve their ability to pursue credit growth in the coming months.

According to the report, while banks have an option of reducing their excess statutory liquidity ratio (SLR) holdings and deploying funds for incremental credit, they may prefer not to do so, as it may trigger an upward movement in bond yields and add to their treasury losses. Therefore, it anticipates an imminent increase in competition for deposit mobilisation and an upward movement in deposit rates. Further, it highlighted that between September 29, 2017 to January 5, 2018, the incremental credit of Rs 1.85 lakh crore, was significantly higher than the accretion of deposits of Rs 0.30 lakh crore. Besides credit, it pointed out that there has also been a slow increase in currency with public (CWP), which rose by Rs 1.36 lakh crore from September 29, 2017 to January 5, 2018, reaching almost 96 percent of pre-demonetisation levels.

The rating agency further said that while the bulk deposit rates have recently seen an upward trend, the retail deposit rates continued to witness some cuts, although at a lower pace, with the median one-year deposit rate declining by only three basis points during January 2018, despite the 20 bps cut in various small saving schemes of the government effective from January 1. It expects the incremental bank credit offtake to surge in Q4FY18. In order to support the same, it pointed out that the banks will need to mobilise additional deposits as the credit deposit ratio has increased to 74.6 percent as on January 5, 2018, from the lows of 68.5 per cent in December 2016 and 73 percent each at end of FY17 and the second quarter of FY18.

The CNX Nifty is currently trading at 11037.90, down by 11.75 points or 0.11% after trading in a range of 11010.70 and 11058.50. There were 24 stocks advancing against 26 stocks declining on the index.

The top gainers on Nifty were Hindalco up by 2.84%, Kotak Mahindra Bank up by 1.46%, Indian Oil Corporation up by 1.33%, Vedanta up by 1.23% and Bharti Airtel up by 1.00%.

On the flip side, Coal India down by 2.17%, Dr. Reddy’s Lab down by 1.91%, ICICI Bank down by 1.76%, Hindustan Unilever down by 1.69% and Lupin down by 1.60% were the top losers.

The Asian markets were trading in green; Shanghai Composite increased 4.17 points or 0.12% to 3,492.18, KOSPI Index increased 13.56 points or 0.53% to 2,581.30, Jakarta Composite increased 46.88 points or 0.71% to 6,622.37, Taiwan Weighted increased 65.69 points or 0.59% to 11,142.47, Nikkei 225 increased 43.24 points or 0.19% to 23,335.21 and Hang Seng increased 191.34 points or 0.59% to 32,798.63.

Malaysia Stock Exchange was closed on account of National holiday.