Domestic equities trade flat with negative bias

Domestic equities were trading flat with negative bias in morning session, amid subdued cues from Asian counterparts, as trade jitters continued to simmer ahead of the July 6 deadline when US tariffs are due to take effect. Sentiments remained pessimistic as crude prices ended slightly higher on June 03, after a volatile session in which the US benchmark passed $75 a barrel for the first time in more than three years before turning negative and later recouping its losses. However, the rupee made a strong comeback on June 04 against the US currency after taking a hammering, recouping by a steep 23 paise to end at 68.57 on fresh dollar selling by exporters and corporates. Traders failed to get any sense of relief from a report that SEBI has enhanced the overseas investment limit of alternative investment funds (AIF) and venture capital funds (VCF) to $750 million from the current $500 million. The investors also overlooked Union minister Arun Jaitley's statement that the government was committed to the path of fiscal discipline laid in the latest Budget and won’t resort to any ‘panic reaction’ to address externalities like ‘artificial scarcity of crude oil’ or the protectionist offensive unleashed by the developed economies.

On the global front, Asian markets were trading mostly in red, with China markets failing to sustain late gains notched in the last session as trade jitters continued to simmer ahead of a deadline when tariffs are due to take effect. Investor were concerned over trade have intensified this week as they await US tariffs on $34 billion in Chinese products. The Chinese government has announced duties of its own that will target the same value of US goods. Back home, in the scrip specific development, GE Power gained on bagging twin boiler equipment orders worth Rs 467.90 crore. Besides, Suven Life Sciences surged on securing product patents in various countries.

The BSE Sensex is currently trading at 35351.11, down by 27.49 points or 0.08% after trading in a range of 35309.67 and 35437.93. There were 9 stocks advancing against 22 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index slipped 0.61%, while Small cap index was down by 0.06%.

The few gaining sectoral indices on the BSE were Healthcare up by 1.08%, Auto up by 0.02%, Energy up by 0.02%, while Telecom down by 1.23%, Metal down by 0.83%, TECK down by 0.66%, Oil & Gas down by 0.64% and PSU was down by 0.59% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 2.17%, HDFC up by 1.06%, Bajaj Auto up by 0.85%, Maruti Suzuki up by 0.64% and Reliance Industries was up by 0.56%. On the flip side, Bharti Airtel down by 1.78%, Vedanta down by 1.65%, ONGC down by 1.49%, Adani Ports & SEZ down by 1.38% and Wipro was down by 1.01% were the top losers.

Meanwhile, ICRA, rating agency, in its latest report has said that the proposed changes to disbursement norms for working capital credit will hit the liquidity profile of vulnerable companies. The agency highlighted that Reserve Bank of India’s (RBI) plan to change disbursement norms of working capital will exert pressure on the liquidity profile of borrowers, specifically those having a high dependence on cash credit or overdraft facilities while lacking alternative sources of liquidity.

According to RBI’s recently issued draft guidelines, borrowers having aggregate fund-based working capital limits of Rs 150 crore and above from the banking system, a minimum level of ‘loan component’ of 40% should be made effective from October 1, 2018, which will increase to 60% with effect from April 1, 2019.  This means that a borrower who is currently able to fully utilise the sanctioned revolving bank facilities such as cash credit and overdraft, without having to bear the burden of principal repayment - given the absence of a pre-defined repayment schedule for such facilities - would now have to adjust to the new paradigm whereby at least 40%/60% of the working capital borrowings would have a defined repayment schedule.

ICRA further underlined that Banks will have the discretion to stipulate repayment of the ‘loan component’ in installments or by way of a bullet repayment, subject to the tenor not being less than seven days and likely within one year. adding that repayments, as opposed to a rollover, would exert pressure on the liquidity profile of borrowers, specifically those that have a high dependence on cash credit or overdraft facilities while lacking alternative sources of liquidity.

Besides, it stated that the adverse impact might be more pronounced on entities in sectors including cut and polished diamonds, gems and jewellery (retail), media broadcasting, metals, thermal power, sugar, and textiles (cotton spinning). These are the sectors where not only the average sanctioned working capital debt per entity in its rated portfolio is estimated to be upwards of Rs 150 crore, but also the gross cash conversion cycle is high-ranging between 120 days to 220 days.

The CNX Nifty is currently trading at 10698.35, down by 1.55 points or 0.01% after trading in a range of 10677.75 and 10717.30. There were 18 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were Lupin up by 2.86%, Dr. Reddy’s Lab up by 2.44%, Sun Pharma up by 2.17%, Indiabulls Housing Finance up by 1.67% and HDFC was up by 1.27%. On the flip side, BPCL down by 1.85%, Grasim Industries down by 1.79%, HPCL down by 1.76%, Vedanta down by 1.64% and Bharti Airtel was down by 1.54% were the top losers.

Asian markets were trading mostly in red; Nikkei 225 slipped 43.34 points or 0.2% to 21,742.20, Taiwan Weighted fell 26.41 points or 0.25% to 10,689.31, Straits Times lost 4.13 points or 0.13% to 3,231.77, Hang Seng declined 278.88 points or 0.99% to 28,266.69, KOSPI dropped 5.05 points or 0.22% to 2,267.71 and Shanghai Composite was down by 18.98 points or 0.69% to 2,767.91. On the other side; Jakarta Composite was up by 10.00 points or 0.18% to 5,643.94.