Benchmarks erase initial gains to trade flat

Erasing most of their initial gains, Indian equity benchmarks are trading flat in morning deals on Wednesday. Markets started the session on an optimistic note amid falling crude oil prices. Traders got some encouragement as the Securities and Exchange Board of India (SEBI) tightened disclosure and review norms for credit rating agencies (CRAs). SEBI ordered CRAs to analyse deterioration in the liquidity conditions of an issuer, while monitoring its repayment schedules and taking into account any asset-liability mismatches. These measures will enable investors to understand underlying rating drivers better and make more informed investment decisions. However, market participants pared most of their gains ahead of macro data of wholesale price inflation for October scheduled to be released later in the day.

On the global front, Asian counters are trading mixed at this point of time after volatile session on Wall Street. The US markets ended mostly lower after a volatile session on Tuesday as traders continued to express uncertainty about the global economic outlook and the impact of an anticipated increase in interest rates.

Back home, banking sector stocks edged higher on report that the government is of the view that the RBI should resort to Basel III norms for capital adequacy in banks rather than the present stricter guidelines which restrict the lending capacity of lenders. Agriculture sector stocks remained in focus as Agri input companies posted decent growth in revenue and net profit for the quarter ended September 2018, due to an increase in sales volume on normal monsoon rainfall and price hikes.

The BSE Sensex is currently trading at 35154.49, up by 10.00 points or 0.03% after trading in a range of 35117.84 and 35351.88. There were 18 stocks advancing against 13 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.47%, while Small cap index was up by 0.19%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 2.79%, PSU up by 1.48%, Energy up by 1.21%, Telecom up by 0.65% and Consumer Discretionary Goods & Services was up by 0.64%, while IT down by 2.10%, TECK down by 1.86%, Healthcare down by 0.82%, Industrials down by 0.25% and Capital Goods was down by 0.11% were the top losing indices on BSE.

The top gainers on the Sensex were Asian Paints up by 3.37%, Tata Steel up by 2.28%, Hindustan Unilever up by 2.10%, ONGC up by 1.73% and Bharti Airtel up by 1.53%. On the flip side, Sun Pharma down by 3.69%, Infosys down by 2.58%, TCS down by 2.34%, Wipro down by 1.18% and Mahindra & Mahindra down by 0.78% were the top losers.

Meanwhile, instead of present stricter guidelines which restrict the lending capacity of lenders, the government is of the view that the Reserve Bank of India (RBI) should resort to Basel III norms for capital adequacy in banks. Currently, the RBI applies stricter norms and not those specified under Basel III for capital adequacy, leading banks to set aside higher capital for loans. Besides, the RBI has fixed March 2019 as the deadline to meet capital requirements under the Basel III norms for banks.

The government has been in favour of alignment of the capital adequacy norms with Basel III norms. This assumes significance amidst growing tensions between the RBI and the government, with the Finance Ministry initiating discussion under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor.

According to the Basel Committee on Banking Supervision (BCBS) report, core capital requirement for banks as prescribed by the RBI is 1% higher than what Basel III norms recommend. Indian banks as per RBI direction are required to maintain 5.5% Common Equity Tier 1 (CET 1) as against 4.5% required under the Basel III framework. The BCBS report said these higher capital norms translate into additional capital requirement, restricting lending potential and income generation.

As per the report, while the Basel framework requires the application of capital standards to all internationally active banks, these have been made applicable in India to all scheduled commercial banks, including banks which are not internationally active. Meanwhile, India has only four internationally active banks, which have more than 10 per cent of their assets in their overseas book.

The CNX Nifty is currently trading at 10584.10, up by 1.60 points or 0.02% after trading in a range of 10580.40 and 10651.60. There were 28 stocks advancing against 22 stocks declining on the index.

The top gainers on Nifty were HPCL up by 8.66%, BPCL up by 7.42%, Indian Oil up by 7.39%, Asian Paints up by 3.43% and Tata Steel up by 2.49%. On the flip side, Sun Pharma down by 4.33%, Zee Entertainment down by 2.88%, Infosys down by 2.46%, HCL Tech down by 2.45% and TCS down by 2.28% were the top losers.

Asian markets are trading mixed; Nikkei 225 gained 58.66 points or 0.27% to 21,869.18, Taiwan Weighted rose 9.78 points or 0.1% to 9,785.62 and Jakarta Composite was up by 58.69 points or 1% to 5,893.89.

On the flip side, KOSPI decreased 3.15 points or 0.15% to 2,068.08, Shanghai Composite slipped 1.64 points or 0.06% to 2,653.24, Straits Times declined 12.24 points or 0.4% to 3,041.36 and Hang Seng was down by 34.81 points or 0.14% to 25,758.06.