Post Session: Quick Review

In choppy session of trade, Indian equity benchmarks fluctuated between positive and negative territory for most part of the day and ended flat on Friday, with Nifty ending just shy of 10,800 mark. Key bourses started on a negative note, as traders remain concerned with the release of the minutes of Reserve Bank of India (RBI) last policy meet, in which governor Shaktikanta Das argued the need to look at growth concerns. However, some buying crept in as traders found some solace Niti Aayog’s note that the host of reforms undertaken by the government has transformed India into the fastest-growing major economy along with the macroeconomic stability not witnessed in the past.

Though, the buying proved short-lived as markets once again entered into red terrain in afternoon session, as sentiment got spooked with Moody’s statement that the fresh round recapitalisation of 12 state-run banks is positive as it will help them improve their core capital but a complete turnaround is still away due to the large quantum of legacy bad loans. It said these banks are far from a complete turnaround as large volumes of problem-loans will still continue to cap improvements in profitability and capitalisation, constraining their credit profiles. However, losses were limited with the CriSidEx survey stating that micro and small enterprises (MSEs) are becoming more optimistic about their business prospects. The CriSidEx index rose to 128 in Q3FY19, the highest score since its inception. In comparison, the index was at 107 in Q3FY18.

On the global front, Asian markets ended mixed on Friday, while European markets were trading in green, as market participants closely monitored signs of progress in trade talks between the world's two largest economies. Back home, auto sector stocks were in focus after India Ratings and Research (Ind-Ra) stated that India's overall automobile sales are likely to remain tepid in the first half of 2019-20, but the upcoming implementation of BS-VI emission norms will drive the demand in the second half of the year.

The BSE Sensex ended at 35874.09, down by 24.26 points or 0.07% after trading in a range of 35795.79 and 35941.69. There were 22 stocks advancing against 9 stocks declining on the index. (Provisional)

The broader indices ended in green; the BSE Mid cap index was up by 0.40%, while Small cap index up by 0.83%. (Provisional)

The top gaining sectoral indices on the BSE were Metal up by 1.67%, Realty up by 1.46%, Auto up by 1.46%, Power up by 1.40% and PSU up by 1.27%, while Bankex down by 0.43%, Consumer Durables down by 0.10% and Energy down by 0.09% were the few losing indices on BSE. (Provisional)

The top gainers on the Sensex were Yes Bank up by 3.19%, Tata Motors up by 3.03%, Vedanta up by 2.95%, NTPC up by 2.64% and Mahindra & Mahindra up by 2.13%. (Provisional)

On the flip side, Kotak Mahindra Bank down by 3.69%, HDFC Bank down by 1.05%, Reliance Industries down by 1.04%, Indusind Bank down by 0.65% and Bajaj Finance down by 0.56% were the top losers. (Provisional)

Meanwhile, after the government announced Rs 48,239 crore capital infusion into 12 public sector banks (PSBs) in this fiscal to help them maintain regulatory capital requirements and finance growth plans, global rating agency Moody's Investors Service in its latest report has said that this fresh round of recapitalization of 12 PSBs is positive as it will help them improve their core capital. But, it expressed caution saying that a complete turnaround is still two years away due to the large quantum of legacy bad loans.

Moody's said the capital support to PSBs has been increased from the original plan as banks' capital shortfalls have grown larger than the initial projections. However, these banks are far from a complete turnaround as large volumes of problem-loans will still continue to cap improvements in profitability and capitalisation, constraining their credit profiles. A key hindrance to a faster turnaround of these banks is the slow progress in the resolution of legacy bad loans and the need to build up provisions against those assets.

The agency said although the resolution process at bankruptcy courts (NCLTs) has been initiated for most large NPA accounts, progress has been slower than they anticipated, and a complete cleanup of legacy problem loans could take more than two years. It said farm loan waivers, which three states have granted since November 2018, are a risk because these measures can incentives borrowers to not repay their loans, contributing to more bad loans in the agri lending books. Besides, it said vulnerabilities linger among MSMEs as reflected in the spikes in bad loans.

As per the report, the fresh capital will enable banks to use operating profit to significantly boost provisions for bad loans. It expects state-run banks' capital shortages to shrink substantially in FY20 as their asset quality improves, which will lead to declines in credit costs and gains in profitability. Moody’s forecast that state-run banks will require a total of about Rs 20-25,000 crore in external capital in FY20 to maintain CET1 ratios of about 8.5%.

The CNX Nifty ended at 10795.80, up by 5.95 points or 0.06% after trading in a range of 10758.40 and 10801.55. There were 36 stocks advancing against 14 stocks declining on the index. (Provisional)

The top gainers on Nifty were Indian Oil Corp. up by 5.07%, HPCL up by 3.83%, JSW Steel up by 3.34%, Vedanta up by 3.16% and Yes Bank up by 3.04%. (Provisional)

On the flip side, Kotak Mahindra Bank down by 3.91%, GAIL India down by 1.57%, Reliance Industries down by 1.22%, HDFC Bank down by 1.13% and Cipla down by 0.64% were the top losers. (Provisional)

European markets were trading in green; UK’s FTSE 100 increased 14.72 points or 0.21% to 7,182.11, France’s CAC soared 13.87 points or 0.27% to 5,209.98 and Germany’s DAX was up by 22.77 points or 0.2% to 11,446.05.

Asian markets ended mixed on Friday as hopes for Chinese stimulus helped offset weak economic readings from the US and Europe. Investors continued to closely watch high-level talks between US and Chinese trade negotiators in Washington, as the two sides face a March 1 deadline to avoid a further escalation in tariffs. Japanese shares fell to snap a four-day winning streak as investors digested a set of weak US data. Japanese inflation picked up in January, but remained far below the Bank of Japan's target, a government report showed. Meanwhile, Chinese shares ended sharply higher after data showed growth in China's new home prices fell to a nine-month low in January, boosting stimulus hopes. Reports indicated that Chinese authorities could be getting ready to implement more extensive stimulus measures in a bid to encourage economic growth.