Local equities extend gains ahead of F&O expiry

Local equity benchmarks extended their gains in morning session, with the Sensex and the Nifty gaining around 475 and 130 points, respectively, ahead of the expiry of September series of futures and options contract. Among heavy-weights ICICI Bank, Kotak Mahindra Bank and SBI exhibited a smart performance. Sentiment was buoyed as the task force on direct tax code (DTC) recommended abolishing dividend distribution tax (DDT) with a view to promote investment. The dividend distribution tax is a surrogate tax and it hinders foreign direct investment inflows. Local investors also cheered with latest payroll data from Employees’ State Insurance Corporation (ESIC) showed that around 14.24 lakh jobs were created in July, higher than 12.49 lakh in the previous month, Gross enrolments of new subscribers with the ESIC were 1.49 crore during 2018-19. Traders also remained optimistic with Union minister Som Parkash’s statement that the Centre is determined to bring economic growth to 7-8% at the earliest, asserting that the government has taken many steps to boost the economy.

On the global front, Asian markets were trading mixed, following comments from US President Donald Trump that a trade deal with China could come sooner than expected and steps towards a new agreement with Japan. Back home, Prime Minister Narendra Modi stated that his government is looking at ways and technology in coal gasification to ensure the natural resource is used by the country in a clean and environment-friendly manner to meet its energy requirements.

The BSE Sensex is currently trading at 39069.19, up by 475.67 points or 1.23% after trading in a range of 38676.11 and 39158.07. There were 26 stocks advancing against 5 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.91%, while Small cap index was up by 0.51%.

The top gaining sectoral indices on the BSE were BANKEX up by 2.85%, PSU up by 2.07%, Oil & Gas up by 2.00%, Metal up by 1.74% and Energy was up by 1.47%, while IT down by 0.77% and TECK was down by 0.53% were the few losing indices on BSE.

The top gainers on the Sensex were ICICI Bank up by 4.01%, Kotak Mahindra Bank up by 3.65%, SBI up by 2.62%, Tata Steel up by 2.43% and Axis Bank was up by 2.32%. On the flip side, Yes Bank down by 1.68%, HCL Technologies down by 1.50%, Infosys down by 1.05%, TCS down by 0.66% and Power Grid was down by 0.18% were the top losers.

Meanwhile, rating agency ICRA has said that public sector banks’ (PSBs) profitability and return on assets (RoA) may remain low during the current financial year (FY20) on the back of continued provisioning on existing and fresh bad loans. Provisioning on existing and fresh non-performing assets (NPAs) will consume majority of operating profits. This will result in overall poor profitability and feeble return on equity (RoE) of less than 1%.

The agency said private sector banks will also face another challenging year due to high credit cost and a muted RoE at 9-10%, notwithstanding 15-30% growth in their net profits during the current fiscal. Though, it mentioned that PSBs on an aggregate basis returned to profit for the first time in the first quarter of FY20, after 10 consecutive quarters of losses from third quarter of 2016-17. This was a result of reduction in their net NPA levels by March 2019 upon the sizeable provisioning done in 2018-19. As per ICRA's estimates, the losses before taxes for PSBs stood at Rs 1.15 lakh crore during 2018-19 which were somewhat lower than capital infusion of Rs 1.27 lakh crore by the Government of India (GoI) and LIC in IDBI Bank.

On the other hand, strong net interest income growth and decline in credit provisions drove a strong 30% growth in profit after taxes for private banks during the first quarter of the current financial year. Regarding asset quality, The agency said fresh gross slippages for both PSBs (accounting for about 73% of the total slippage) and private banks rose on a sequential basis during the first quarter, driven by increased slippages in the micro, small and medium enterprises (MSME) segment and the seasonal spike witnessed in the agricultural segment.

The CNX Nifty is currently trading at 11577.40, up by 137.20 points or 1.20% after trading in a range of 11466.35 and 11610.85. There were 41 stocks advancing against 9 stocks declining on the index.

The top gainers on Nifty were Indian Oil Corporation up by 4.83%, ICICI Bank up by 4.10%, Kotak Mahindra Bank up by 3.57%, UPL up by 3.00% and SBI was up by 2.60%. On the flip side, Yes Bank down by 1.68%, HCL Technologies down by 1.57%, Infosys down by 1.14%, TCS down by 0.71% and Cipla was down by 0.39% were the top losers.

Asian markets were trading mixed; Nikkei 225 surged 51.90 points or 0.24% to 22,072.05, Jakarta Composite soared 43.51 points or 0.71% to 6,189.91, Hang Seng increased 30.40 points or 0.12% to 25,975.75 and Taiwan Weighted was up by 0.35 points or 0% to 10,874.04.

On the other hand, Straits Times trembled 0.34 points or 0.01% to 3,125.48, KOSPI fell 4.13 points or 0.2% to 2,069.26 and Shanghai Composite was down by 21.46 points or 0.73% to 2,933.97.