Markets trade flat with negative bias; Nifty below 11,000 mark

Indian equity benchmarks made cautious start and are trading flat with negative bias in early deals on Wednesday. Sensex and Nifty fell below their physiological levels of 37,300 and 11,000, respectively. Selling pressure in Metal, Realty and Oil & Gas stocks dragged the markets lower. Investors are looking for the release of the minutes of the Reserve Bank of India’s (RBI’s) Monetary Policy meeting later in the day. The central bank lowered the repo rate by 35 basis points to 5.40% during its August meeting. There is some cautiousness with a private report that with the issue of higher tax surcharge proving to be a thorn, a lobby of FPIs has urged the government to use information on beneficiaries to identify them and spare broad-based entities. The Budget proposal to impose a higher tax surcharge - from 15% to 25% for incomes between Rs 2 crore and Rs 5 crore and from 15% to 37% for higher incomes - on non-corporate FPIs had rattled the market. However, downside remained capped with report that for effective transmission of the RBI’s lower policy rates, the country’s largest lender SBI suggested the regulator should ask banks to link incremental bulk deposits to repo rate as it would help in reducing cost of funds without hurting small depositors and senior citizens.

Global cues also remained lackluster with Asain markets trading mixed at this point of trade, following the weak cues overnight from Wall Street on fears of a recession amid a pullback by bond yields. Investors also turned cautious as they look ahead to the release of minutes of the Federal Reserve's July meeting later today and Fed Chairman Jerome Powell's annual speech at the symposium in Jackson Hole, Wyoming, later this week.

Back home, in scrip specific development, Dr Reddy's Laboratories came under pressure as the US health regulator issued eight observations to the company after the inspection of its Duvvada facility in Andhra Pradesh. CG Power and Industrial Solutions touched lower circuit limit as Ministry of Corporate Affairs (MCA) ordered an inspection into the affairs of the company after auditors of the power equipment maker resigned a few months ago. The company announced it will restate earnings after discovering ‘suspect, unauthorised and undisclosed’ transactions.

The BSE Sensex is currently trading at 37272.13, down by 55.88 points or 0.15% after trading in a range of 37237.47 and 37346.05. There were 9 stocks advancing against 22 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index declined 0.48%, while Small cap index was down by 0.41%.

The few gaining sectoral indices on the BSE were IT up by 0.56%, TECK up by 0.41%, Auto up by 0.25% and Consumer Disc was up by 0.10%, while Metal down by 1.57%, Realty down by 0.95%, Oil & Gas down by 0.90%, Basic Materials down by 0.86% and Energy was down by 0.73% were the top losing indices on BSE.

The top gainers on the Sensex were Hero MotoCorp up by 1.13%, Infosys up by 1.07%, Mahindra & Mahindra up by 0.82%, Tech Mahindra up by 0.74% and Maruti Suzuki up by 0.57%. On the flip side, Tata Motors - DVR down by 4.09%, Yes Bank down by 3.86%, Tata Motors down by 3.47%, Vedanta down by 2.32% and Tata Steel down by 1.06% were the top losers.

Meanwhile, in order to effective transmission of the Reserve Bank of India’s (RBI’s) lower policy rates, the State Bank of India (SBI) in its latest research report 'Ecowrap' has suggested that the regulator should ask banks to link incremental bulk deposits to repo rate as it would help in reducing cost of funds without hurting small depositors and senior citizens. However, it said that for external benchmarking, it is not possible for banks to only link the asset side of the balance sheet to an external benchmark creating significant asset-liability management (ALM).

As per the report, about 35% of bank liabilities are savings bank (SB) deposit. It added that the banks are also not able to link external benchmark to the entire liabilities especially time deposits, as the floating term deposits are not accepted by the Indian depositors and have already been unsuccessfully experimented by some peer banks in the country. Therefore, it said that the key to effective transmission is adjusting either SB or time deposits. SB deposits typically serve the transaction needs of the depositor. The option is always available with the customer to transfer the surplus SB balance to time deposits.

The report said that the problem is it cannot be done in isolation by any one bank and has to be enforced by the regulator. The best option could be that regulator enforces all incremental bulk deposits henceforth to be repo linked/flexible. The share of bulk deposits in banks' total deposits could be around 30% after the definitional change. It said most of the bulk deposits are from institutions and added that it is thus logical that large institutions could afford to take interest rate risk as this would spare the retail depositors from taking the same. It noted that bank deposit rates remain the largest constraining factor in rate transmission.

The CNX Nifty is currently trading at 10997.30, down by 19.70 points or 0.18% after trading in a range of 10982.20 and 11018.20. There were 15 stocks advancing against 34 stocks declining, while 1 stock remain unchanged on the index.

The top gainers on Nifty were Eicher Motors up by 1.79%, Mahindra & Mahindra up by 1.16%, Infosys up by 1.13%, Hero MotoCorp up by 1.11% and Maruti Suzuki up by 1.11%. On the flip side, Yes Bank down by 3.16%, Tata Motors down by 3.03%, Vedanta down by 2.56%, Hindalco down by 2.51% and BPCL down by 2.31% were the top losers.

Asian markets were trading mixed; Hang Seng surged 28.98 points or 0.11% to 26,260.52, Taiwan Weighted strengthened 11.42 points or 0.11% to 10,533.92, Kospi advanced 0.39 points or 0.02% to 1,960.64, Shanghai Composite gained 0.52 points or 0.02% to 2,880.52. On the flip side, Nikkei 225 decreased by 77.89 points or 0.38% to 20,599.33, Straits Times declined 16.29 points or 0.52% to 3,119.66 and Jakarta Composite was down by 21.88 points or 0.35% to 6,273.86.