Local equities pare some losses to trade flat

Local equity benchmarks pared some of their early losses and started trading flat. Weak rupee and firm crude prices returned to haunt Dalal Street. Metal, Basic Materials, Fast Moving Consumer Goods and Telecom counters witnessed notable losses, while TECK and Information Technology sectors edged higher. Traders took note of Fitch Ratings’ report that the currency volatility will have only a ‘limited impact’ on India’s sovereign credit profile. It added that the country’s sovereign credit profile benefits from relatively strong external finances, especially a low level of external and foreign-currency debt. However, some cautiousness remained on the streets with Reserve Bank of India’s report that export credit provided by banks fell sharply by about 47% to Rs 21,900 crore as of July 20 from a year earlier. This is despite the fact that total lending to the priority sector rose 7.5%. The persistent decline in export credit, especially, to small players in the current year. Traders also took note of NITI Aayog Vice Chairman Rajiv Kumar’s statement that the revised mechanism introduced by former RBI governor Raghuram Rajan to identify NPAs stopped banks from issuing fresh credit, resulting in slowdown of the economy in post demonetisation period. Meanwhile, a private report also state that a sustained weakness in the rupee may push the Reserve Bank of India to further tighten monetary policy, perhaps as early as next month.

On the global front, Asian markets were trading mixed, amid continuing worries about rising trade tensions and the sell-off in emerging market currencies, particularly in Argentina and Turkey. US President Donald Trump said that Canada ‘will be out’ of the North American Free Trade Agreement or NAFTA unless a revised version is ‘fair’ to America. Back home, in scrip specific development, Persistent Systems gained with arm acquiring Herald Technologies. Besides, Steel Strips Wheels surged on reporting 14% growth in total wheel rim sales in August.

The BSE Sensex is currently trading at 38317.16, up by 4.64 points or 0.01% after trading in a range of 38189.80 and 38518.56. There were 12 stocks advancing against 19 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.83%, while Small cap index was down by 0.47%.

The few gaining sectoral indices on the BSE were IT up by 2.56% and TECK up by 2.01%, while Metal down by 1.42%, Basic Materials down by 1.23%, FMCG down by 1.17%, Telecom down by 1.05%, Bankex down by 0.89% were the top losing indices on BSE.

The top gainers on the Sensex were Infosys up by 3.95%, TCS up by 1.56%, Tata Motors - DVR up by 1.18%, Sun Pharma up by 0.93% and Wipro was up by 0.53%. On the flip side, Vedanta down by 2.10%, Hindustan Unilever down by 1.93%, Indusind Bank down by 1.29%, ITC down by 1.22% and Yes Bank was down by 1.18% were the top losers.

Meanwhile, indicating further traction for asset resolution, India Ratings has said it is expecting that over Rs 4 trillion of bad loans will be resolved by the end of 2018. It stated that around 45% of total bad loans worth Rs 10.2 trillion standing in the books of the top 500 debt-heavy corporates are likely to be resolved by the end of 2018 under the Insolvency and Bankruptcy Code (IBC) Act, while the balance is to be resolved largely during 2019. Moreover, it highlighted that the success of the IBC 2016 lies in the substantial reduction of the overall resolution time, which is in turn critical for the development of debt capital markets in India.

The bad loans include total borrowings of entities within the top 500 borrower universe as on March 2017, with either a credit rating of ‘C’ or ‘D’. Both are non-investment category ratings. Besides, the total stressed debt resolved (including pre-National Company Law Tribunal restructuring or highest bidder identified under NCLT) is Rs 0.82 trillion. Lenders having exposure to such loans will take an average haircut of 43%, lower than the overall estimate of 59% on the entire bad debt portfolio.

The haircut is likely to be low as some of the resolved bad debt were large-sized assets in iron and steel, and a cement asset. The infrastructure (including power), and metals and mining sectors have the most concentrated stressed debt pending resolution, followed by real estate, telecom, and petrochemicals. The real estate sector may have a high requirement of debt refinancing to avoid falling into the stressed category.

The CNX Nifty is currently trading at 11570.00, down by 12.35 points or 0.11% after trading in a range of 11532.05 and 11602.55. There were 13 stocks advancing against 37 stocks declining on the index.

The top gainers on Nifty were Infosys up by 3.85%, Tech Mahindra up by 2.33%, HCL Tech. up by 1.88%, TCS up by 1.65% and Wipro was up by 0.88%. On the flip side, Indiabulls Housing Finance down by 2.56%, Vedanta down by 2.34%, Hindustan Unilever down by 2.19%, Grasim Industries down by 2.07% and Hindalco was down by 2.01% were the top losers.

Asian markets were trading mixed; Straits Times slipped 2.58 points or 0.08% to 3,204.62, Shanghai Composite declined 1.54 points or 0.06% to 2,719.19, Jakarta Composite fell 42.96 points or 0.73% to 5,924.62 and Nikkei 225 was down by 49.91 points or 0.22% to 22,657.47.

On the other side, Taiwan Weighted gained 43.94 points or 0.4% to 11,008.16, Hang Seng rose 4.21 points or 0.02% to 27,716.75 and KOSPI was down by 5.30 points or 0.23% to 2,312.33.