Bulls tighten grip on Dalal Street; Sensex end near 35,700 mark

Extending previous session’s northward journey, Indian equity benchmarks displayed spirited performance on Tuesday, with frontline gauges ending near their crucial 35,700 (Sensex) and 10,850 (Nifty) levels. The markets’ mood remained up-beat throughout the day and benchmarks, after a positive opening, fervently gained from strength to strength, as investors continued hunt for fundamentally strong stocks. Sentiments remained optimistic since beginning with report stating that the Reserve Bank came out with draft guidelines on loan system for delivery of bank credit to improve discipline among larger borrowers enjoying working capital facility from the banking system. Meanwhile, the recent amendments in the bankruptcy resolution framework will help reduce timelines, enhance transparency and improve realisations. Market participants took some encouragement with a private report stating that China and Russia have backed India’s move to revive talks at the World Trade Organization (WTO) to strengthen global norms to protect traditional knowledge from bio piracy and reckless patenting by corporates.

Markets extended gains in noon deals as US President Donald Trump and North Korea’s leader Kim Jong Un signed documents that acknowledge the progress of the talks and pledge to keep momentum going, after their summit in Singapore. Building up of positions by participants ahead of release of IIP and inflation data also influenced trading sentiments. Further, some support also came with finance ministry official’s statement that the government is likely to launch a Rs 500-crore credit enhancement fund next month to facilitate infrastructure investments by insurance and pension funds. Adding some optimism, the Union government has formed a new committee under the chairmanship of former Chief Statistician Prof. T.C.A Anant to bring more transparency in employment related data releases.

On the global front, European markets were trading in red despite President Donald Trump signing a historic agreement with North Korean leader Kim Jong Un. The accord between North Korea and the US aims to work toward complete denuclearization and a lasting peace regime on the Korean Peninsula. Kim said that their agreement will lead to a major change in the world. Asian markets exhibited mixed trend on Tuesday, as investors awaited cues from three major central bank meetings this week.

Back home, telecom stocks rang loud with Communications Minister Manoj Sinha’s statement that the new telecom policy is expected to be cleared by the Union Cabinet by the end of next month. The government has recently issued the National Digital Communications Policy (NDCP) which aims to provide access to every household with download speed of 50 Mbps, attract investment of around Rs 6.5 lakh crore in the sector and create 4 million new job opportunities with a few years. Banking stocks edged higher, supported by finance ministry official’s statement that more banks are unlikely to be brought under the RBI's Prompt Corrective Action (PCA) framework as the situation pertaining to bad loans is expected to improve in the next couple of quarters. Steel and power related stocks remained in focus with Union minister Piyush Goyal’s statement that the government was looking at opening auctions of coal mines to the steel and power sectors, and that a robust framework was being worked out for commercial mining.

Finally, the BSE Sensex gained 209.05 points or 0.59% to 35,692.52, while the CNX Nifty was up by 55.90 points or 0.52% to 10,842.85.

The BSE Sensex touched a high and a low of 35,743.08 and 35,479.07, respectively and there were 17 stocks on gaining side as against 14 stocks on losing side on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.90%, while Small cap index was up by 0.54%.

The top gaining sectoral indices on the BSE were Healthcare up by 1.94%, Capital Goods up by 1.19%, Industrials up by 0.81%, FMCG up by 0.73% and PSU was up by 0.71%, while Metal down by 0.56%, Telecom down by 0.31%, Basic Materials down by 0.29% and Utilities down by 0.15% were the few losing indices on BSE.

The top gainers on the Sensex were Dr. Reddy’s Lab up by 5.23%, SBI up by 3.36%, Indusind Bank up by 2.41%, Hindustan Unilever up by 2.41% and Hero MotoCorp up by 2.11%. On the flip side, Bharti Airtel down by 1.98%, Tata Steel down by 1.52%, Coal India down by 1.49%, ONGC down by 1.10% and Yes Bank down by 0.98% were the top losers.

Meanwhile, in order to facilitate infrastructure investments, which are presently facing major headwinds, Kumar Vinay Pratap, joint secretary (infrastructure, policy and finance), ministry of finance (MoF) has said that the government may launch Rs 500 crore credit enhancement fund in July. In the financial year 2016-17 Budget had first proposed setting up of the fund. The fund will operate as a non-banking financial company (NBFC) with 49% government stake. It has got support from investors such as India Infrastructure Finance Company (IIFCL) and Life Insurance Corporation (LIC) of India.

The joint secretary said more than 70% projects worldwide being implemented on SPV (special purpose vehicle) basis have a credit rating of BBB. The regulatory threshold for pension and insurance funds in India provides that people cannot invest below AA. So, in order to remove this mismatch, India is launching a dedicated fund may be next month.

Besides, Kumar Vinay Pratap stated, at present, the banking system does a bulk of infrastructure project financing and exposes itself to asset liability management (ALM) mismatches and hence, alternatives like raising of money through corporate bonds is necessary. He further added that the present state of the banking system, where all the lenders are saddled with NPAs, will also make it necessary to accommodate alternatives. He also said that in the past few year bank lending to the infra segment has slowed down and the annual growth rates plummeted to 3% between FY14 and FY17, against 43% from FY2000 to FY13. The NPAs from the segment have also ballooned to 9% in FY17, from 3 per cent in FY13.

The CNX Nifty traded in a range of 10,856.55 and 10,789.40. There were 29 stocks in green as against 21 stocks in red on the index.

The top gainers on Nifty were Lupin up by 6.38%, Dr. Reddy’s Lab up by 5.37%, SBI up by 3.65%, Indusind Bank up by 2.53% and Hindustan Unilever up by 2.44%. On the flip side, Bharti Airtel down by 2.15%, Hindalco down by 1.63%, Tata Steel down by 1.54%, Eicher Motors down by 1.50% and Coal India down by 1.37% were the top losers.

The European markets were trading in red; UK’s FTSE 100 decreased 24.83 points or 0.32% to 7,712.60, France’s CAC shed 12.2 points or 0.22% to 5,461.71 and Germany’s DAX was down by 1.09 points or 0.01% to 12,841.82.

Asian equity markets ended mixed on Tuesday amid US President Donald Trump and North Korean leader Kim Jong Un signing a ‘comprehensive’ document committing to work together to ‘build a lasting and stable peace regime on the Korean Peninsula’.  Aside from the summit, investors also awaited cues from three major central bank meetings this week. While the US Federal Reserve is almost certain to raise rates again when it meets on Wednesday, the European Central is likely to signal on Thursday that it will start to wind down its vast bond-buying program by the end of this year. The Bank of Japan also concludes its two-day policy meeting on Friday, with expecting no change to policy. Japanese shares hit a three-week high after US President Trump said he had ‘developed a very special bond’ with North Korean leader Kim Jong Un during their historic summit. The markets in Indonesia remained closed for Eid-Ul-Fitr holiday.