Bulls hold grip over Dalal Street

Bulls were holding a tight grip over the Dalal Street in late morning session, with both Sensex and Nifty trading on a strong note, tracking positive cues from other Asian markets. Sentiments were positive, as the government slashed the newly-introduced windfall tax on petrol, diesel, aviation fuel, and crude oil following global oil price ease from a sharp spike. A windfall tax is a one-off tax levied on companies deemed to have made unreasonably high profits, normally due to unusually favourable market factors. Traders took a note of reports that the Reserve Bank of India has hiked the minimum capital adequacy ratio (CAR) for Urban Cooperative Banks (UCBs) with deposits above Rs 100 crore to 12 per cent from the earlier floor of 9.0 per cent. It has provided a glide path till March 2026 to meet revised CAR norm in phases for UCBs that don't meet it currently.

On the global front, all Asian markets were trading in green, after Hong Kong's unemployment and underemployment declined in the April to June period. The labour force statistics from the Census and Statistics Department showed that the unemployment rate fell to a seasonally adjusted 4.7 percent in April-June, down from 5.1 percent in March-May. The underemployment rate also decreased to 3.0 percent in the three months ended June from 3.5 percent during the March-May period.

Back home, telecom sector stocks were in focus, as the central government has extended the last date for submission of applications for design-led manufacturing under the production linked incentive (PLI) scheme for telecom and networking products up to August 05, 2022. The registration process started on June 21, 2022. The last date for submission of the application was fixed as July 20, 2022.

The BSE Sensex is currently trading at 55485.28, up by 717.66 points or 1.31% after trading in a range of 55313.85 and 55554.29. There were 26 stocks advancing against 4 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.82%, while Small cap index was up by 0.99%.

The top gaining sectoral indices on the BSE were IT up by 2.26%, TECK up by 1.80%, Metal up by 1.74%, Energy up by 1.43% and Consumer Durables up by 1.23%, while there were no losing sectoral indices on the BSE.

The top gainers on the Sensex were Tech Mahindra up by 2.60%, Reliance Industries up by 2.55%, TCS up by 2.44%, Titan Co up by 2.41% and HCL Tech. up by 2.37%. On the flip side, Mahindra & Mahindra down by 0.73%, Sun Pharma down by 0.26%, Bharti Airtel down by 0.22% and Kotak Mahindra Bank down by 0.01% were the top losers.

Meanwhile, India Ratings and Research (Ind-Ra) in its latest report has said that unabated macroeconomic shocks may lead to a 28 per cent increase in demand for working capital loan by companies, taking it to Rs 11.2 lakh crore this fiscal (FY23). But, it said this will impact corporates' profitability and cash flows, which may become stagnant or grow at low rate in real terms. It noted that the working capital requirement can rise by 28 per cent to Rs 11.2 lakh crore in FY23, compared to Rs 8.7 lakh crore in FY22, amid the war conditions, considering the significant price run-up in commodities, falling rupee and borrowing costs. The agency had earlier forecast the same to increase up to Rs 9.7 lakh crore in a pre-war condition.

According to the report, a pick-up in credit growth from the industry and services segments on account of the increase in working capital requirements can remain a tailwind for the banking industry in FY23. The Rs 1.5 lakh crore rise in working capital loans on account of macro events will increase the total bank credit book by 1.25 per cent on-year. Though financing conditions are still benign, the rising interest rates will increase borrowing costs. The prevailing uncertain business environment can affect companies with a weak credit profiles and they may face challenges in accessing finance. Entities with weak credit metrics having an interest coverage ratio of below 1.5 times can see a sharp jump in working capital demand to Rs 1.26 lakh crore in a post-war case from Rs 41,000 crore in the pre-war case.

Stating that commodity-intensive sectors will face higher working capital requirements given the massive spike in commodity prices, the agency said the sectors that will have the maximum impact are aviation, capital goods, cement and chemicals.  It said the credit to small businesses have already been on the rise since Covid pandemic on account of higher commodity prices, increase in receivables and a similar increase in creditors. Although most entities work on fixed-margin basis where cost is mostly passed on to large entities, financing for inventory is required.

The CNX Nifty is currently trading at 16546.75, up by 206.20 points or 1.26% after trading in a range of 16501.55 and 16568.90. There were 44 stocks advancing against 6 stocks declining on the index.

The top gainers on Nifty were ONGC up by 4.46%, Apollo Hospital Ent. up by 2.77%, Reliance Industries up by 2.75%, Tech Mahindra up by 2.70% and HCL Tech. up by 2.42%. On the flip side, HDFC Life Insurance down by 1.91%, Mahindra & Mahindra down by 0.76%, Eicher Motors down by 0.72%, Sun Pharma down by 0.37% and Bharti Airtel down by 0.16% were the top losers.

All Asian markets were trading in green; Hang Seng increased 359.55 points or 1.74% to 21,020.61, Taiwan Weighted strengthened 92.17 points or 0.63% to 14,786.25, KOSPI rose 18.39 points or 0.78% to 2,389.36, Shanghai Composite gained 21.82 points or 0.67% to 3,301.25, Straits Times advanced 41.49 points or 1.33% to 3,159.28, Jakarta Composite soared 120.94 points or 1.8% to 6,857.03 and Nikkei 225 surged 676.32 points or 2.51% to 27,638.00.