Benchmarks trade flat in early deals

Indian equity benchmarks made cautious start and are trading almost flat in early deals on Wednesday. Buying in consumer durables, IT and Healthcare stocks are supporting the markets, while selling in Realty, Telecom and Metal weighted down. Some cautiousness prevailed among market participants with report that corporate India's merger and acquisition activity in the July-September quarter witnessed a downtrend with total deal value falling by more than half over the last year, largely owing to a slump in economic activity and lack of big ticket deals. Investors were also concerned with report that India Ratings & Research (Ind-Ra) has attributed widening of fiscal deficit in states in 2018-19 to slippage on the non-capital expenditure by them. The rating agency believed that meeting the N K Singh panel’s recommended level of aggregate debt burden at 20 per cent of GDP by 2022-23 by states will be a challenge in an economic environment characterised by slow growth and weak demand. However, downside remained capped with report that the Department for Promotion of Industry and Internal Trade (DPIIT) is planning to set up a single window system to support foreign investors, who want to invest in India. The single-window system may have representatives from both the Centre and state governments. The system will help in getting all relevant approvals and clearances required by foreign investors.

Global cues also remained sluggish with most of the Asian markets trading in red amid renewed Brexit uncertainty after British lawmakers voted to reject a shortened time frame for approving the legislation related to Britain's withdrawal from the European Union. The vote suggests Britain's departure from the EU will not be finalized by the current deadline of October 31. Back home, banking stocks were in focus with global rating agency Fitch’s report that banks would face a capital shortfall of about $50 billion (about Rs 3.5 lakh crore) in the event of a systemic crisis in the non-banking financial company (NBFC) sector. In scrip specific developments, HCL technologies gained ahead of Q2FY20 earnings report to be out later in the day. However, RBL Bank came under pressure after reporting 73.4% fall in net profit to Rs 54.31 crore on a 42.9% increase in total income to Rs 2567.68 crore in Q2FY20 over Q2FY19.

The BSE Sensex is currently trading at 38905.02, down by 58.82 points or 0.15% after trading in a range of 38866.08 and 39063.84. There were 10 stocks advancing against 21 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index declined 0.24%, while Small cap index was up by 0.08%.

The top gaining sectoral indices on the BSE were Consumer Durables up by 0.39%, IT up by 0.30%, Healthcare up by 0.13%, FMCG up by 0.08% and TECK was up by 0.06%, while Realty down by 1.03%, Telecom down by 0.97%, Metal down by 0.78%, Oil & Gas down by 0.72% and Industrials was down by 0.64% were the top losing indices on BSE.

The top gainers on the Sensex were HCL Technologies up by 2.02%, Sun Pharma Industries up by 1.00%, Tech Mahindra up by 0.94%, TCS up by 0.91% and Bajaj Finance up by 0.72%. On the flip side, Tata Motors - DVR down by 3.24%, Yes Bank down by 3.09%, Tata Motors down by 2.88%, Indusind Bank down by 1.65% and Mahindra & Mahindra down by 1.45% were the top losers.

Meanwhile, global rating agency, Fitch Ratings in its latest study showed that amid systemic crisis in the non-banking financial company (NBFC) sector, banks may face a capital shortfall of about $50 billion (about Rs 3.5 trillion). As per a stress test conducted by Fitch, the credit profiles of the state-owned banks would come under significant pressure, and the weakest -- including those with Viability Ratings in the ‘b’ range -- would face heightened solvency risks without capital injections from the government.

It said ‘we assume that 30% of banks' NBFC exposure becomes non-performing. We view this as close to a worst-case scenario, but the figure also reflects the proportion of the sector that we believe is characterised by riskier business and financial profiles. We also assume 30% of banks' property exposure becomes non-performing, due to tight liquidity and weak sales.’ it also said the property development sector is particularly reliant on NBFC financing and added that these defaults would reverse recent progress that banks have made in reducing their non-performing asset (NPAs) ratios.

The study estimated that the banking system's gross NPA ratio would rise to 11.6% by 2020-21 from 9.3% at 2018-19. It said increased credit costs and a weaker economic environment would result in significant losses over the next two years. According to the study, the gap would rise to about $50 billion by FYE21 under the stress scenario. Banks would also be $10 billion short of the capital required to meet the regulatory minimum of 8% that is set to apply from end-March 2020. The stress test examines the potential impact on banks of liquidity pressures in the NBFC sector developing into widespread failures.

The CNX Nifty is currently trading at 11588.85, up by 0.50 points after trading in a range of 11554.40 and 11606.85. There were 18 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were Bajaj Finserv up by 1.89%, HCL Technologies up by 1.86%, Britannia Industries up by 1.20%, Sun Pharma Industries up by 1.12% and TCS up by 0.98%. On the flip side, Adani Ports & SEZ down by 4.69%, Tata Motors down by 3.19%, Yes Bank down by 2.99%, Zee Entertainment down by 2.14% and Indusind Bank down by 1.55% were the top losers.

All Asian markets were trading in red; Shanghai Composite declined 9.02 points or 0.31% to 2,945.36, Nikkei 225 slipped 9.66 points or 0.04% to 22,539.24, KOSPI fell 10.65 points or 0.51% to 2,078.21, Jakarta Composite lost 14.79 points or 0.24% to 6,210.71, Straits Times trembled 20.54 points or 0.65% to 3,140.13, Taiwan Weighted dropped 50.37 points or 0.45% to 11,220.88 and Hang Seng was down by 251.03 points or 0.94% to 26,535.17.