Post Session: Quick Review

Extending their losing streak for second straight session, Indian equity benchmarks ended Wednesday’s trade on a pessimistic note, on the back of sustained selling activities by market-participants. Key indices made cautious start and traded flat with negative bias, as investors awaited the release of the minutes of the Reserve Bank of India’s (RBI’s) Monetary Policy meeting later in the day. Selling further crept in 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.

Key indices extended their downside in the last leg of trade, as the Street remained disappointed with a private report stating that India's economic growth is set to slow further in the April-June quarter of this year to 5.7 per cent amid contraction in consumption, weak investments and an under-performing service sector. Sentiments also weighed down with a private report that in a bid to achieve the fiscal deficit target, the government has cut down on its capital expenditure by 80% in February and March. The government is contributing to the slowdown rather than uplifting the corporate sector.

On the global front, Asian markets ended mixed on Wednesday, as investors looked ahead to a speech by the Federal Reserve chairman for signs of possible plans for more U.S. interest rate cuts. European markets were trading in green, after Estonia's producer prices fell in July. The data from Statistics Estonia showed that the producer price index declined 0.2 percent year-on-year in July, after a 0.5 percent rise in June. Back home, banking stocks ended lower with a private report that overall loan growth for banks in the first quarter ending June dropped 1.2% quarter-on-quarter led by modest net interest income (NII) and a sharp drop in pre-provision operating profits.

The BSE Sensex ended at 37054.03, down by 273.98 points or 0.73% after trading in a range of 37022.52 and 37406.55. There were 8 stocks advancing against 23 stocks declining on the index. (Provisional)

The broader indices ended in red; the BSE Mid cap index fell 1.41%, while Small cap index was down by 1.49%. (Provisional)

The lone gaining sectoral index on the BSE was IT up by 0.12%, while Metal down by 2.98%, Basic Materials down by 2.35%, PSU down by 2.30%, Industrials down by 2.22% and Capital Goods down by 2.19% were the top losing indices on BSE. (Provisional)

The top gainers on the Sensex were Hero MotoCorp up by 1.98%, Bajaj Auto up by 0.84%, Tech Mahindra up by 0.82%, Infosys up by 0.77% and Maruti Suzuki up by 0.70%. (Provisional)

On the flip side, Tata Motors down by 9.33%, Yes Bank down by 9.26%, Tata Motors - DVR down by 8.88%, Tata Steel down by 4.31% and ONGC down by 3.08% were the top losers. (Provisional)

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 ended at 10919.15, down by 97.85 points or 0.89% after trading in a range of 10906.65 and 11034.20. There were 10 stocks advancing against 40 stocks declining on the index. (Provisional)

The top gainers on Nifty were Hero MotoCorp up by 1.94%, Maruti Suzuki up by 0.93%, Bajaj Auto up by 0.83%, Infosys up by 0.80% and Tech Mahindra up by 0.79%. (Provisional)

On the flip side, Indiabulls Housing Finance down by 9.39%, Tata Motors down by 9.29%, Yes Bank down by 8.99%, Grasim Industries down by 4.53% and Tata Steel down by 4.30% were the top losers. (Provisional)

European markets were trading in green; UK’s FTSE 100 increased 80.76 points or 1.13% to 7,205.76, France’s CAC rose 80.59 points or 1.51% to 5,425.23 and Germany’s DAX was up by 144.58 points or 1.24% to 11,795.76.

Asian markets ended mixed on Wednesday as investors awaited cues from Fed Chair Jerome Powell's speech at the Jackson Hole symposium on Friday, where he may give a hint on the future direction of US monetary policy. Traders are also keenly waiting on the G7 summit to be held in southwestern France on August 24-26 for clues on what additional steps policymakers will take to bolster growth. Japanese shares ended lower as trade tensions resurfaced between US and China and political uncertainty in Italy and Britain added to concerns over the state of the global economy. Meanwhile, renewed worries about a global recession too weighed on risk assets. Chinese stocks ended flat as Trump toughened his trade rhetoric on Tuesday, saying he had to confront China over trade even if it caused short-term harm to the US economy because Beijing had been cheating Washington for decades.