Benchmarks extend losing streak for third straight day

Extending their losing streak for third straight session, Indian equity benchmarks ended the Monday’s trade with a cut of around a percentage point. Markets started the day on positive note 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. Some support also came after the UN has said that foreign Direct Investment into India rose by 13 per cent in 2020, boosted by interest in the digital sector, and while fund flows '’declined most strongly'’ in major economies such as the UK, the US and Russia due to the COVID-19 pandemic, India and China ‘bucked the trend’. An ‘investment trends monitor’ issued by the United Nations Conference on Trade and Development (UNCTAD) on Sunday said that global foreign direct investment (FDI) collapsed in 2020 by 42 per cent to an estimated USD 859 billion from USD 1.5 trillion in 2019.

But soon, markets turned volatile as traders got worried 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. Market participants couldn’t managed to hold their nerves and started selling risky assets amid reports that Indian and Chinese troops came face-to-face at Naku La in North Sikkim last week amid the tense border standoff between the two sides in eastern Ladakh. They said the Chinese troops attempted to transgress into the Indian side of the Line of Actual Control (LAC) but were stopped by the Indian military personnel. It is learnt that a brawl broke out when the Indian troops stopped the Chinese soldiers. Traders failed to get any sense of relief with WEF report that investment in upskilling has potential to boost the global GDP by $6.5 trillion by 2030, including by $570 billion (over Rs 40 lakh crore) in India alone - the third highest after China and the US.

Weak opening in European counters too dampened sentiments with all the European were markets trading lower amid chatter that there could be tighter border restrictions and extended lockdowns to keep the new COVID-19 variant at bay. Asian markets ended mixed, after the share of Hong Kong businesses expecting their business situation to be worse in the first quarter of the year compared to the final three months of last year was higher than that expecting it to be better. The survey data from the Census and Statistics Department showed that the net balance of business expectations weakened to -17 from -8 in the fourth quarter.

Back home, reflecting strong momentum, India witnessed 19 initial public offers worth $1.84 billion in the fourth quarter of 2020. In the latest December quarter, there were 19 IPOs valued at $1.836 billion and the largest was that of Gland Pharma with an issue size of $869 million. There were just 11 IPOs in the year-ago period. On the sectoral front, NBFCs stocks remained in focus as the RBI proposed a structure to categories NBFCs, or shadow banks, depending on their size and interconnectedness with the system. Stocks related to Tea industry remained in limelight after rating agency ICRA in its latest report has said that the tea industry may continue to face challenges in the next financial year (FY 2021-22) with hike in wages and its impact on prices, as production returns to normal. It also expects the challenges for the tea industry to remain in 2021-22, after considerable improvement in performance during 2020-21.

Finally, the BSE Sensex fell 530.95 points or 1.09% to 48,347.59, while the CNX Nifty was down by 133.00 points or 0.93% to 14,238.90.

The BSE Sensex touched high and low of 49,263.15 and 48,274.92, respectively and there were 9 stocks advancing against 21 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index declined 1.14%, while Small cap index was down by 1.15%.

The few gaining sectoral indices on the BSE were Healthcare up by 0.93%, Metal up by 0.19% and Basic Materials was up by 0.04%, while Energy down by 4.44%, Oil & Gas down by 2.16%, Power down by 1.41%, PSU down by 1.33% and Industrials down by 1.32% were the top losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 2.19%, Sun Pharma up by 2.00%, Bajaj Auto up by 1.76%, Bajaj Finserv up by 1.47% and HDFC Bank up by 1.30%. On the flip side, Reliance Industries down by 5.36%, Indusind Bank down by 4.72%, HCL Tech down by 3.80%, Asian Paints down by 3.17% and Ultratech Cement down by 3.04% 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 traded in a range of 14,218.60 and 14,491.10 and there were 18 stocks advancing against 32 stocks declining on the index.

The top gainers on Nifty were Grasim Industries up by 5.87%, UPL up by 4.00%, Cipla up by 3.80%, Hero MotoCorp up by 2.57% and Axis Bank up by 2.09%. On the flip side, Reliance Industries down by 5.58%, Indusind Bank down by 5.52%, HCL Tech down by 3.83%, Tata Motors down by 3.68% and Eicher Motors down by 3.00% were the top losers.

European markets were trading lower; UK’s FTSE 100 declined 22.37 points or 0.33% to 6,672.70, France’s CAC dropped 21.35 points or 0.38% to 5,538.22 and Germany’s DAX was down by 24.74 points or 0.18% to 13,849.23.

Asian markets ended mixed on Monday, as the covid pandemics remaining untamed despite vaccine rollout raised concerns over global economy and weighed down the market sentiments. Investors also side-lined as Federal Reserve's Policy meet is due this week, which is widely expected to alter bond buying program until 2022. However, optimism over better quarterly results amid prospects over larger US stimulus measures buoyed some of the Asian Stock exchanges in today's session. Chinese shares rose ahead to President Xi Jinping's keynote address at World Economic Forum's first global virtual meeting, and on increased FDIs in the country. While Japanese shares settled near 30 year high level amid investor eyeing over corporate earnings results and on news that covid cases in the country is dropping.