Post Session: Quick Review

Swinging between green and red, Indian equity benchmarks ended choppy day of trade marginally in red on Thursday, as investors remained on sidelines ahead of the third quarter GDP growth data scheduled for release later in the day. Key indices hovered in positive zone in morning trade, taking support from private report indicating that private equity (PE) investments in India witnessed a 36 per cent growth to $1,325 million despite fall in volume on account of increased follow-on investments last month as compared to a year ago. Traders remained optimistic with a report that with inflation likely to remain under 4 percent till October, the Reserve Bank may cut rates to the tune of 75-100 basis points in the next financial year. The report also includes the 25 basis points reduction in the February policy. Headline CPI inflation is likely to remain below 4 per cent until October and averages at 3.8 percent in FY20.

Indian indices lost their early gains and slipped into the negative terrain in afternoon session as traders turned cautious with Fitch Ratings’ statement that government's $7 billion (around Rs 48,000 crore) fund infusion into public sector banks (PSBs) would not be sufficient to support significantly stronger lending growth. Fitch estimated that banks would need an additional $23 billion (around Rs 1.6 trillion) in 2019, after these latest injections, to sufficiently meet minimum capital standards.

Though, the selling proved short-lived as markets once again entered into green terrain in late hour of trade, as some optimism remained among the investors with reports that the Ministry of Micro, Small and Medium Enterprises is organizing a programme on Technology Support and Outreach (TECH-SOP) in New Delhi.  The objective of the programme is to educate MSMEs and enhance their awareness about latest technological innovation available and sensitize them on the role of technology in creating competitiveness and opportunities. But, markets failed to keep their heads above water and ended in red, as traders took a note of India Ratings’ report that the government has depended on the National Small Savings Fund (NSSF) in FY19, but such borrowing runs the risk of understating the fiscal deficit number.

On the global front, Asian markets ended lower on Thursday, as sluggish Chinese factory data and cautious comments from US trade representative dented some of the recent optimism over US-China trade relations, weighed on sentiments. European markets were trading mostly in red. Back home, steel sector stocks were buzzing with rating agency Crisil’s statement that domestic iron ore prices are likely to rise by 3-4% in 2019 on account of global supply glitch. Further, domestic steel prices are likely to soften following global cues. Cement sector stocks were in focus with India Ratings’ report stating that domestic cement demand is expected to register a modest growth of 6-8% in fiscal 2020 mainly driven by the diminishing base effect, increased thrust on infrastructure by the Central government and the affordable housing segment.

The BSE Sensex ended at 35876.67, down by 28.76 points or 0.08% after trading in a range of 35829.15 and 36085.85. There were 15 stocks advancing against 15 stocks declining on the index. (Provisional)

The broader indices ended in green; the BSE Mid cap index rose 0.60%, while Small cap index was up by 0.87%. (Provisional)

The top gaining sectoral indices on the BSE were Consumer Durables up by 1.75%, Realty up by 1.31%, Oil & Gas up by 1.31%, Capital Goods up by 1.16% and PSU up by 1.15%, while IT down by 1.07%, TECK down by 0.92%, Auto down by 0.76% and Telecom down by 0.02% were the top losing indices on BSE. (Provisional)

The top gainers on the Sensex were Vedanta up by 3.70%, Coal India up by 3.09%, NTPC up by 1.80%, Yes Bank up by 1.58% and ICICI Bank up by 1.33%. (Provisional)

On the flip side, TCS down by 3.50%, Maruti Suzuki down by 1.73%, Mahindra & Mahindra down by 1.49%, Hero MotoCorp down by 1.37% and Tata Motors - DVR down by 1.19% were the top losers. (Provisional)

Meanwhile, amid the government’s latest move of capital infusion into public sector banks (PSBs) to help them meet regulatory capital requirements, Fitch Ratings in its latest report has stated that the government's $7 billion (around Rs 48,000 crore) fund infusion into PSBs would not be sufficient to support significantly stronger lending growth. It estimated that banks will need an additional $23 billion (around Rs 1.6 trillion) in 2019, after these latest injections, to sufficiently meet minimum capital standards. Stating that the Indian authorities' approach to the banking sector has clearly shifted towards spurring lending in recent months, Fitch said these steps, along with capital injections, have eased but not removed capital constraints on state banks' growth.

The report titled ‘Indian government's bank recap may not unlock faster growth' stated that a large proportion of the government's latest round of recapitalisation is still likely to go towards addressing regulatory shortfalls rather than to support asset growth. The finance ministry recently announced infusion of Rs 48,239 crore in 12 PSBs in this fiscal to help them maintain regulatory capital requirements and finance growth plans.

However, Fitch said more will be needed as a cushion against future losses at some state banks, as borrower defaults and slow bad loan resolution continue to put pressure on non-performing loan (NPL) provisions. It said the capital injections have allowed Allahabad Bank and Corporation Bank to leave the RBI's prompt corrective action (PCA) framework. It said leaving the PCA framework will not remove the constraints on growth imposed by weak capitalisation, unless the state injects more capital into these banks or there is strong turnaround in profitability that support internal capital generation, which looks unlikely.

Fitch further estimated that overall banks will need an additional $23 billion in 2019, after these latest injections, to sufficiently meet minimum Basel III capital standards, achieve 65% NPL cover, and leave surplus capital for growth. Capital needs have fallen from their estimate of $65 billion (over Rs 4 trillion) in September 2017, but progress has not been significant enough to spur loan growth. Besides, Fitch has a negative sector outlook on Indian banks to reflect the near-term pressures from the sector's NPL stock and elevated credit costs on bank earnings and capitalisation.

The CNX Nifty ended at 10793.95, down by 12.70 points or 0.12% after trading in a range of 10784.85 and 10865.70. There were 25 stocks advancing against 25 stocks declining on the index. (Provisional)

The top gainers on Nifty were Vedanta up by 3.64%, Coal India up by 3.00%, BPCL up by 2.43%, GAIL India up by 1.91% and Indian Oil Corp. up by 1.85%. (Provisional)

On the flip side, TCS down by 3.65%, Eicher Motors down by 2.90%, Maruti Suzuki down by 2.12%, Mahindra & Mahindra down by 1.87% and Hero MotoCorp down by 1.81% were the top losers. (Provisional)

European markets were trading mostly in red; UK’s FTSE 100 decreased 49.41 points or 0.7% to 7,057.79 and Germany’s DAX declined 5.28 points or 0.05% to 11,482.05, while France’s CAC was up by 0.13 points or 0% to 5,225.48.

Asian markets ended lower on Thursday as comments by US Trade Representative Robert Lighthizer dampened recent optimism about the US-China trade talks. Investor sentiment was also dented by weak data from China and news that US President Donald Trump and North Korean leader Kim Jong Un have abruptly ended summit talks earlier than scheduled. Chinese shares fell as weak data reinforced fears that the world's second-largest economy is losing momentum. Activity in China's vast manufacturing sector continued to contract in February, and at a faster rate, the latest survey from the National Bureau of Statistics revealed with a manufacturing PMI score of 49.2. That missed expectations for a score of 49.5, which would have been unchanged from the previous month. The non-manufacturing PMI came in with a score of 54.3 in February - shy of expectations for 54.5 and down from 54.7 in the previous month. Further, Japanese shares ended lower as data showed the biggest decline in Japanese factory output in a year. Meanwhile, Taiwan's stock markets were closed for the Peace Memorial Day holidays.