Weak trade continues over Dalal Street

Weak trade continued over the Dalal Street in late morning session, with both Sensex and Nifty trading lower. Negative cues from other Asian markets impacted domestic sentiments. Traders got cautious, as the year-long pandemic left households more indebted, which has sharply jumped to 37.1 percent of GDP in Q2 of FY21, while their savings rate plunged to a low 10.4 percent, according to the latest data from the Reserve Bank. The household savings plunged as the pandemic has led to tens of millions losing jobs and almost all forced to take deep pay-cuts, forcing them to borrow more or dip into their savings to meet expenses.

On the global front, Asian markets were trading mostly in red, after the Bank of Japan decided Friday to widen the range at which it permits the yields of government bonds to fluctuate and scrapped the average exchange traded fund buying target. The board, governed by Haruhiko Kuroda, voted 8-1 to maintain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank. Also, the central bank decided to continue to purchase necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The BSE Sensex is currently trading at 49556.99, down by 301.25 points or 0.60% after trading in a range of 49427.29 and 49878.77. There were 13 stocks advancing against 17 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.65%, while Small cap index was up by 0.55%.

The top gaining sectoral indices on the BSE were Realty up by 1.31%, Healthcare up by 0.94%, Industrials up by 0.86%, Power up by 0.77% and Basic Materials up by 0.52%, while Energy down by 1.03%, Bankex down by 0.77%, Consumer Durables down by 0.73%, Telecom down by 0.48% and PSU down by 0.31% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 2.06%, Tech Mahindra up by 1.44%, Dr. Reddy’s Lab up by 1.39%, NTPC up by 0.83% and Kotak Mahindra Bank up by 0.55%. On the flip side, Indusind Bank down by 2.90%, Power Grid down by 2.15%, Reliance Industries down by 1.91%, HDFC Bank down by 1.42% and ICICI Bank down by 1.15% were the top losers.

Meanwhile, rating agency ICRA said that Vehicle Scrappage policy will provide a fillip to automotive industry volumes and spur demand for new vehicle. The voluntary vehicle scrapping policy announced in the Union Budget for 2021-22 provides for fitness tests after 20 years for personal vehicles, while commercial ones would require it after the completion of 15 years. It said ‘The Government of India announced the much-awaited scrappage policy yesterday, which along with several other supporting measures announced over the past few months, is expected to progressively remove unfit vehicles from the road. This would simultaneously spur replacement demand in the ecosystem, thereby augmenting new vehicle demand as well’.

As announced by the Finance Minister during the Budget speech in February 2021, the policy would be voluntary in nature. The mandatory fitness test requirement would be applicable for heavy commercial vehicles from April 2023 and for other vehicles progressively from June 2024. Shamsher Dewan, Vice President and Group Head - Corporate Sector Ratings, ICRA said ‘The much-awaited scrappage policy is expected to provide a fillip to the auto industry volumes, and has potential to realise multiple other benefits such as reducing pollution and oil imports, reducing raw material costs through metal recycling, fleet modernisation etc’.

However, he added that setting up of necessary infrastructure for scrapping and further clarity on the valuation of the scrap value of the vehicle, trade ability to scrap certificate etc. remain key for successful implementation and realising the true potential of the policy. ICRA estimates that the population of vehicles older than 15 years would be 1.1 million units by the financial year 2024, offering significant potential for scrappage. However, given the nature of the usage of such vehicles, the actual scrappage potential could possibly be lower. Nevertheless, even if a proportion of these vehicles get scrapped, it can offer a fillip to volumes by spurring replacement demand and support the industry out of its trough. ICRA estimates that even with 15-20 per cent conversion, it can provide a 20-25 per cent upside to industry volumes in FY2024.

The CNX Nifty is currently trading at 14686.05, down by 57.95 points or 0.39% after trading in a range of 14641.55 and 14763.90. There were 27 stocks advancing against 23 stocks declining on the index.

The top gainers on Nifty were Adani Ports & SEZ up by 4.81%, Divis Lab up by 2.12%, Sun Pharma up by 2.06%, Cipla up by 1.99% and Britannia up by 1.71%. On the flip side, Indusind Bank down by 2.84%, Power Grid down by 2.11%, Reliance Industries down by 1.82%, HDFC Bank down by 1.47% and ICICI Bank down by 1.17% were the top losers.

Asian markets were trading mostly in red; Nikkei 225 slipped 585.42 points or 1.97% to 29,206.63, Hang Seng decreased 53.22 points or 0.18% to 28,937.72, Jakarta Composite lost 42.70 points or 0.67% to 6,313.46 and KOSPI fell 1.42 points or 0.05% to 3,038.11. On the other hand, Straits Times advanced 7.58 points or 0.24% to 3,142.12, Shanghai Composite gained 29.13 points or 0.86% to 3,433.79 and Taiwan Weighted strengthened 130.31 points or 0.81% to 16,200.55.