Markets trade lower in early deals; Nifty below 10,800 mark

Indian equity markets made a pessimistic start and are trading lower with losses of over 0.20% each in early deals on Friday, as investors turned cautious after 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. Some cautiousness came 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. Besides, subdued cues from other Asian markets too weighed on sentiment. Asian markets are trading mostly lower at this point of time, tracking overnight losses on Wall Street as optimism over the China-US trade talks was trumped by a weak round of US data that revived concerns about economic growth.

Back home, Niti Aayog in its note said 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. It added the country's growth has decisively increased over the last five years and is much higher than the average growth among the emerging and developing economies. In scrip specific development, Kotak Mahindra Bank fell over 3% with report that ING Group is looking to sell around 1.20 percent stake in Bank worth over Rs 2,800 crore via block deal on February 22.

The BSE Sensex is currently trading at 35820.19, down by 78.16 points or 0.22% after trading in a range of 35795.79 and 35907.33. There were 17 stocks advancing against 14 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.32%, while Small cap index was up by 0.38%.

The top gaining sectoral indices on the BSE were Telecom up by 1.02%, Realty up by 0.89%, Oil & Gas up by 0.78%, PSU up by 0.41% and Auto up by 0.38%, while Consumer Durables down by 0.55%, Capital Goods down by 0.46%, BANKEX down by 0.34%, Metal down by 0.27% and Energy was down by 0.17% were the top losing indices on BSE.

The top gainers on the Sensex were Yes Bank up by 2.00%, Maruti Suzuki up by 0.77%, Bharti Airtel up by 0.61%, IndusInd Bank up by 0.61% and Sun Pharma was up by 0.56%. On the flip side, Kotak Mahindra Bank down by 3.31%, Larsen & Toubro down by 1.08%, Tata Motors - DVR down by 0.97%, NTPC down by 0.92% and Reliance Industries was down by 0.82% were the top losers.

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 is currently trading at 10767.95, down by 21.90 points or 0.20% after trading in a range of 10758.40 and 10788.55. There were 27 stocks advancing against 23 stocks declining on the index.

The top gainers on Nifty were Indiabulls Housing Finance up by 3.47%, IOC up by 3.01%, HPCL up by 2.42%, Bharti Infratel up by 2.42% and BPCL was up by 2.00%. On the flip side, Kotak Mahindra Bank down by 3.50%, Larsen & Toubro down by 1.41%, JSW Steel down by 1.41%, GAIL India down by 1.03% and Cipla was down by 0.93% were the top losers.

Asian markets were trading mostly in red, Hang Seng decreased 84.69 points or 0.3% to 28,545.23, Nikkei 225 slipped 59.09 points or 0.28% to 21,405.14, Taiwan Weighted dropped 24.36 points or 0.24% to 10,295.17, KOSPI fell 6.15 points or 0.28% to 2,222.51, Straits Times trembled 14.10 points or 0.43% to 3,263.81 and Jakarta Composite was down by 50.04 points or 0.77% to 6,487.73. On the other hand, Shanghai Composite was up by 0.93 points or 0.03% to 2,752.73.