Benchmarks trade in fine fettle in early deals

Indian equity benchmarks have made an optimistic start and are trading in fine fettle in early deals on F&O series expiry session, as traders took some support with 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. However, gains remain capped with private report stating that India's economy appeared to be losing momentum in the approach to a general election that must be held by May. The report forecast that growth slipped to 6.9% annually in the October-December quarter. Also, there was some cautiousness 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.

On the global front, most of the Asian markets are trading in red at this point of time amid a spate of geopolitical concerns ranging from escalating tensions between India and Pakistan to US-China trade uncertainty. The US markets ended mostly lower on Wednesday as investors focused on separate congressional testimonies from US Trade Representative Robert Lighthizer on US-China trade negotiations and a second day of Congressional hearings featuring Federal Reserve Chair Jay Powell.

Back home, steel sector stocks remained 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 remained 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 is currently trading at 35997.99, up by 92.56 points or 0.26% after trading in a range of 35916.26 and 36085.85. There were 19 stocks advancing against 10 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index rose 0.22%, while Small cap index was up by 0.41%.

The top gaining sectoral indices on the BSE were Energy up by 0.84%, Healthcare up by 0.55%, FMCG up by 0.44%, Metal up by 0.41% and PSU was up by 0.38%, while Consumer Durables was down by 0.12% was the lone losing index on BSE.

The top gainers on the Sensex were Coal India up by 1.67%, Sun Pharma up by 1.26%, Reliance Industries up by 1.02%, Hindustan Unilever up by 0.76% and Asian Paints up by 0.73%. On the flip side, ONGC down by 1.76%, Hero MotoCorp down by 0.90%, Bajaj Auto down by 0.61%, Axis Bank down by 0.40% and Tata Steel down by 0.37% were the top losers.

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 is currently trading at 10826.75, up by 20.10 points or 0.19% after trading in a range of 10800.20 and 10865.70. There were 27 stocks advancing against 22 stocks declining on the index.

The top gainers on Nifty were Indian Oil Corporation up by 1.77%, Coal India up by 1.67%, Sun Pharma up by 1.37%, Reliance Industries up by 1.05% and Vedanta up by 0.88%. On the flip side, ONGC down by 1.69%, Indiabulls Housing down by 1.30%, Bajaj Auto down by 0.90%, Hero MotoCorp down by 0.88% and JSW Steel down by 0.70% were the top losers.

Most of the Asian markets are trading in red; Nikkei 225 shed 84.50 points or 0.39% to 21,472.01, Straits Times declined 18.44 points or 0.57% to 3,231.58, KOSPI dropped 10.39 points or 0.46% to 2,224.40, Jakarta Composite tumbled 69.82 points or 1.07% to 6,455.86 and Shanghai Composite was down by 10.40 points or 0.35% to 2,943.42.