Global sell-off drag benchmarks lower in early deals

Indian equity benchmarks, resuming their southward journey, made a gap-down opening and are trading with a cut of over one percent, as global equity markets continued to tumble on worries about rising inflation and higher interest rates. Traders failed to get any sense of relief with private report highlighting that fears of the Reserve Bank of India going for a rate hike are overdone and there is still room for a 25 bps rate cut in the August monetary policy review, provided rains are normal. Traders also shrugged off Nasscom’s report that outlook for the Indian information technology (IT) sector is cautiously positive in 2018 as challenges remain amidst prospects of greater IT spending with global and US economies improving.

On the global front, all the Asian markets are trading in red at this point of time, following another day of steep falls on Wall Street. The Japanese stock market is sharply lower on Friday after yen strengthened again. U.S. stocks witnessed bloodbath yet again and settled with a cut of around four percentage points on Thursday, as traders grew concerned about inflation and higher interest rates.

Back home, stocks related to public sector banks (PSBs) edged lower after India Ratings and Research stated that PSBs may need capital of Rs 2.06 trillion for a credit growth of the 8-9 per cent in the financial year 2019. However, stocks related to sugar space edged higher after the central government has put a ceiling on the amount of sugar mills can sell by imposing significant minimum stocks for the next two months to check falling prices.

The BSE Sensex is currently trading at 33951.23, down by 461.93 points or 1.34% after trading in a range of 33849.65 and 34017.73. There were 1 stocks advancing against 30 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index dropped 0.74%, while Small cap index was down by 0.69%.

The sole gaining sectoral index on the BSE was Metal up by 0.56%, while Bankex down by 1.68%, IT down by 1.51%, TECK down by 1.41%, Capital Goods down by 1.11% and Oil & Gas down by 1.10% were the top losing indices on BSE.

The sole gainer on the Sensex was Tata Steel up by 1.53%. On the flip side, ICICI Bank down by 2.94%, Infosys down by 2.16%, Yes Bank down by 1.76%, Axis Bank down by 1.76% and ITC down by 1.74% were the top losers.

Meanwhile, the India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, in its latest report has stated that public sector banks (PSBs) may need more capital for higher growth. It has estimated that state-run banks may need capital of Rs 2.06 trillion for a credit growth of 8-9% in the financial year 2018-19. It added that the recapitalisation amount from the government will go towards sustaining the banks. As per the report, this amount factors in around Rs 1.4 trillion of capital needed for Basel III transition (Rs 0.67 trillion of common equity tier (CET) 1 requirement and Rs 0.76 trillion of additional tier (AT) 1 requirement). It also includes Rs 0.63 trillion of one-time provisioning for migrating to the expected loss regime on transiting to Ind-AS 109 on April 01, 2018.

The report stated that on account of accelerated provisioning requirement on the cases identified by the regulator to be referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code in FY18, the profit and loss account for most state-run banks would also be under pressure. Maintaining a stable outlook on private sector banks and large public sector banks (PSBs) for FY19, Ind-Ra expects banks to navigate a year of modest growth recovery and high credit costs, although declining, through better access to growth capital and early signs of macro-revival. It also expects banks impaired assets to peak at 12.7% by FY19-FY20, and credit costs to witness a slow and gradual recovery due to the aging of a large stock of non-performing assets (NPAs) added over the last four quarters.

The rating agency highlighted that a meaningful proportion of mid-sized stressed corporates (1.6% of bank credit as of September 2017) continues to be standard on bank books with absolutely no form of recognition and could slip to the non-performing category in the next 12-18 months. Besides, additional stressed assets of around 1% (as of September 2017) could slip into the NPA category, primarily from the standard restructuring and failed strategic restructuring schemes, most of which would be completing 18 months’ time in the next three to four quarters. It also said that after a year of prodigal profit booking on a high yielding treasury book, Indian banks are likely to post subdued treasury gains in FY18 and added that the hardening of yields due to drying up of excess liquidity could render banks with subdued gains in FY18, which could spill over into FY19.

The CNX Nifty is currently trading at 10430.70, down by 146.15 points or 1.38% after trading in a range of 10398.20 and 10453.90. There were 2 stocks advancing against 48 stocks declining on the index.

The only gainers on Nifty were Tata Steel up by 1.39% and Lupin up by 0.62%. On the flip side, ICICI Bank down by 2.67%, Indiabulls Housing down by 2.51%, Tech Mahindra down by 2.27%, Axis Bank down by 2.21% and ONGC down by 1.96% were the top losers.

Asian markets are trading in red; Hang Seng declined 1014.54 points or 3.33% to 29,436.73, Nikkei 225 tumbled 661.55 points or 3.02% to 21,229.31, Taiwan Weighted decreased 172.33 points or 1.64% to 10,356.19, Shanghai Composite crumbled 134.13 points or 4.11% to 3,127.92, Jakarta Composite shed 65.04 points or 0.99% to 6,479.59, KOSPI Index fell 38.39 points or 1.59% to 2,369.23 and FTSE Bursa Malaysia KLCI was down by 16.18 points or 0.88% to 1,823.26.