Benchmarks trade in red in early deals after positive start

Indian equity benchmarks made positive start on Monday, but failed to hold their gains and soon slipped below neutral lines. Markets are trading lower in early deals with marginal cut on account of selling in almost all the sector indices except Materials and Bankex. Some cautiousness prevailed in the markets with the RBI data showing that the country's foreign exchange reserves declined by $1.839 billion to $584.242 billion in the week ended January 15. Meanwhile, India recorded 12,921 fresh cases of the coronavirus disease (Covid-19). However, downside remained capped as traders took encouragement with former deputy chairman of Planning Commission Montek Singh Ahluwalia’s statement that the country’s economy, which contracted in the first two quarters of the current fiscal, has started recovering at a gradual pace. Also, foreign portfolio investors (FPI) remained net buyers to the tune of Rs 18,456 crore so far in January as global liquidity led to continued investment in emerging markets.

On the global front, Asian markets were trading mixed amid the mixed cues from Wall Street Friday. Optimism about the prospects for additional stimulus in the US as well as upbeat corporate earnings results helped offset worries about the rising number of coronavirus cases around the world. Back home, NBFCs stocks were in focus as the RBI proposed a structure to categorise NBFCs, or shadow banks, depending on their size and interconnectedness with the system. In scrip specific development, UltraTech Cement surged after its quarterly results beat on all fronts. SAIL gained on reports it plans to set up India's first gas-to-ethanol plant in Chandrapur.

The BSE Sensex is currently trading at 48791.64, down by 86.90 points or 0.18% after trading in a range of 48512.02 and 49263.15. There were 9 stocks advancing against 21 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index lost 0.81%, while Small cap index was down by 1.07%.

The only gaining sectoral indices on the BSE were Basic Materials up by 0.35%, Bankex up by 0.23%, while Energy down by 2.96%, Oil & Gas down by 1.31%, Consumer Durables down by 1.15%, Consumer Disc down by 1.05%, Power down by 0.92% were the top losing indices on BSE.

The top gainers on the Sensex were Ultratech Cement up by 2.08%, Bajaj Finance up by 1.59%, HDFC up by 1.43%, HDFC Bank up by 1.41% and Bajaj Finserv up by 1.27%. On the flip side, Reliance Industries down by 3.64%, Asian Paints down by 2.59%, Indusind Bank down by 1.70%, Power Grid down by 1.65% and Nestle down by 1.44% were the top losers.

Meanwhile, the Reserve Bank of India (RBI) in its discussion paper on ‘Revised Regulatory Framework for NBFCs - A Scale-Based Approach’ has proposed a four-layered regulatory structure for non-banking financial companies (NBFCs) with progressive increase in intensity of regulation. As per the paper from RBI, the NBFCs will be split into four layers -- base, middle, upper and top. The classification of the NBFCs will be based on host of parameters including size, leverage, interconnectedness, substitutability, complexity and nature of activity, among others.

Over the years, the NBFC sector has undergone considerable evolution. Higher risk appetite of NBFCs has contributed to their size, complexity and interconnectedness, making some of the entities systemically significant, posing potential threat to financial stability. While NBFCs are under RBI's regulation since 1964, the central bank introduced a comprehensive regulatory framework for the systemically important NBFCs in 2006, which was further refined in 2014. Since then, the RBI has been carrying out calibrated modifications to mould the regulations to the changing environment. Accordingly, within the universe of systemically important NBFCs, an additional identifier has been placed at Rs 5,000 crore, wherein, additional regulations have been made applicable to such large NBFCs. 

The RBI said ‘Unbridled growth aided by less rigorous regulatory framework within an interconnected financial system can sow the seeds of systemic risk. Failure of any large and deeply interconnected NBFC is capable of transmitting shocks in to the entire financial sector and cause disruption even to the operations of the small and mid-sized NBFCs’. The current threshold for systemic importance is Rs 500 crore. This threshold needs recalibration, taking into account increase in general price levels as well as increase in real GDP since 2014, the paper said. It proposes to raise this threshold to Rs 1,000 crore. The middle layer will consist of all non-deposit taking NBFCs classified currently as NBFC-ND-SI (systematically important non-deposit taking company) and all deposit taking NBFCs.  The upper layer would comprise only those NBFCs which are specifically identified as systemically significant, based on a set of parameters.

The CNX Nifty is currently trading at 14347.75, down by 24.15 points or 0.17% after trading in a range of 14260.25 and 14491.10. There were 19 stocks advancing against 31 stocks declining on the index.

The top gainers on Nifty were Grasim Industries up by 4.31%, Ultratech Cement up by 2.53%, UPL up by 2.35%, Bajaj Finance up by 1.83% and JSW Steel up by 1.76%. On the flip side, Reliance Industries down by 3.85%, Asian Paints down by 2.30%, Power Grid down by 1.70%, Eicher Motors down by 1.67% and Tata Motors down by 1.61% were the top losers.

Asian markets were trading mixed; Nikkei surged 93.61 points or 0.33% to 28,725.06, Hang Seng jumped 609.16 points or 2.07% to 30,057.01, KOSPI soared 59.18 points or 1.88% to 3,199.81 and Shanghai Composite was up by 20.26 points or 0.56% to 3,627.01. On the other hand, Straits Times slipped 6.94 points or 0.23% to 2,984.59, Taiwan Weighted declined 109.71 points or 0.68% to 15,909.32 and Jakarta Composite plummeted 97.96 points or 1.55% to 6,209.17.