Local equities cut some initial losses; Nifty shy of 11,000 mark

Local equity benchmarks, after a gap-down opening, trimmed some of their initial losses in morning session, but continue to trade below the neutral lines. Traders were seen piling positions in Utilities, Auto and Telecom sector, while selling was witnessed in Metal, IT and Healthcare sector stocks. Traders took some solace with Commerce Secretary Anup Wadhawan’s report that exports growth of the country in the current fiscal is likely to be in double digits despite the challenging situation both on the external and internal fronts. He added in the last financial year, growth in exports was between nine and 10% and the volume touched $331 billion. Some comfort also came in with government’s data which showed that after a decline for the first time in nine months in June, India’s exports saw a growth in July, even as imports slipped, narrowing the trade deficit last month. The exports grew by 2.25% to $26.33 billion in July. Imports, however, slipped by 10.43% to $39.76 billion, reducing trade deficit to $13.43 billion in July. However, traders were concerned with SBI’s report which showed that the current economic slowdown can be attributed to a combination of structural and cyclical factors, in addition to global uncertainties. The country’s economy is showing signs of slowdown, with hi-frequency indicators like industrial output posting subdued growth and automobile sales touching historical lows.

On the global front, Asian markets were trading mixed amid latest escalation in US-China trade tensions and increasing concerns over the health of the global economy. Back home, Prime Minister Narendra Modi comprehensively reviewed the state of the economy with Finance Minister Nirmala Sitharaman as his government scrambled for solutions to tackle a fast-spreading slowdown in various sectors.

The BSE Sensex is currently trading at 37174.26, down by 137.27 points or 0.37% after trading in a range of 36974.41 and 37384.31. There were 14 stocks advancing against 17 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index declined 0.71%, while Small cap index was down by 0.39%.

The top gaining sectoral indices on the BSE were Utilities up by 0.30%, Auto up by 0.26%, Telecom up by 0.17%, Capital Goods up by 0.09% and Realty was up by 0.04%, while Metal down by 1.60%, IT down by 1.03%, TECK down by 0.87%, Healthcare down by 0.86% and Consumer Durables was down by 0.85% were the top losing indices on BSE.

The top gainers on the Sensex were Yes Bank up by 1.89%, Bajaj Finance up by 1.24%, Hero MotoCorp up by 1.07%, Axis Bank up by 0.71% and ITC was up by 0.68%. On the flip side, Vedanta down by 2.70%, Tata Motors - DVR down by 2.62%, Tata Motors down by 1.86%, Tech Mahindra down by 1.84% and Tata Steel was down by 1.36% were the top losers.

Meanwhile, global rating agency Fitch in its latest report has warned that the recent steps by the Reserve Bank of India (RBI) to encourage banks to increase lending to non-banking finance companies (NBFCs) and retail borrowers may rise risks for the sector. The RBI, earlier this month, announced three major steps to encourage banks to lend more to liquidity starved NBFCs--an increase in the single-exposure limit to 20 percent of tier 1 capital (from 15 percent); priority lending status for credit to NBFIs for on-lending to finance agriculture, small businesses and home-buyers; and a reduction in the risk weight for consumer loans (except credit cards) to 100 percent from 125 percent.

The agency said averting a significant slowdown would help borrowers and therefore the stability of the financial system, but the measures could push up banks' risk if these steps lead banks to accept higher credit risk than they previously had the appetite for. It further stated that these initiatives are designed to help keep credit flowing to the real economy amid growing signs of a slowdown. The constant nudging of banks to lend more to NBFCs is in contrast to the global trend of authorities trying to break the linkages between banks and NBFCs, it noted that it increases the potential of risks in NBFCs spilling over to banks, exacerbated by the limited capacity of the capital markets to provide extra funding to NBFCs.

The NBFC sector has been under significant funding pressure as investors shy away following the default of IL&FS last September and the resultant troubles at Dewan Housing early this year. NBFC disbursements have declined steeply as a result, with knock-on effects to other sectors, particularly consumption. Reduced availability of financing has contributed to the slowdown in the auto sector, with vehicle sales in July falling 31 percent, the worst in two decade.

The CNX Nifty is currently trading at 10984.50, down by 44.90 points or 0.41% after trading in a range of 10924.30 and 11043.95. There were 19 stocks advancing against 30 stocks declining, while 1 stock remain unchanged on the index.

The top gainers on Nifty were UPL up by 3.18%, GAIL India up by 1.78%, Yes Bank up by 1.76%, Bajaj Finance up by 1.17% and Hero MotoCorp was up by 1.07%. On the flip side, Indiabulls Housing Finance down by 8.45%, Vedanta down by 2.73%, Hindalco down by 2.60%, Tata Motors down by 2.27% and JSW Steel was down by 2.04% were the top losers.

Asian markets were trading mixed; Hang Seng increased 184.09 points or 0.72% to 25,679.55, Taiwan Weighted strengthened 124.32 points or 1.2% to 10,451.45, Jakarta Composite soared 21.22 points or 0.34% to 6,278.81 and Shanghai Composite was up by 19.05 points or 0.68% to 2,834.85.

On the slip side, KOSPI fell 15.60 points or 0.8% to 1,922.77, Nikkei 225 slipped 17.31 points or 0.08% to 20,388.34 and Straits Times was down by 23.34 points or 0.75% to 3,102.75.