Sensex, Nifty remain under pressure in morning deals

Indian equity benchmarks remained under pressure in morning session on the back of sustained selling activities by market-participants. The mood on the street remained cautious with India Ratings’ report stated that the banks are unlikely to take a big hit on profitability this quarter due to rising bond yields, which may eat up 5.3 per cent (Rs 11,790 crore) of their net income in the worst-case scenario. It also said that in the worst-case scenario, banks may see a profit erosion of 2.6 per cent of their pre-provisioning operating profit and 5.3 per cent of their post-tax profit from treasury losses in Q1. Traders also took a note of Reserve Bank of India (RBI) Governor Shaktikanta Das’ statement that central bank will ensure that the economy has a soft landing wherein inflation is closer to 4 percent, with minimal impact on growth. He said retail inflation appears to have peaked and the Monetary Policy Committee (MPC) in its upcoming meeting in August will review the inflation projection of 6.7 percent for fiscal 2022-23.

On the global front, Asian markets are trading mostly in red following the broadly negative cues from Wall Street, as worries about slowing growth and policy tightening weighed on the markets. Back home, telecom sector stocks remained in watch as the Department of Telecom has floated a consultation paper on the revamp of telecom rules mainly to keep pace with the change in technology like 5G, simplify laws and promote investments.

The BSE Sensex is currently trading at 55687.04, down by 385.19 points or 0.69% after trading in a range of 55611.19 and 56018.09. There were 11 stocks advancing against 19 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index fell 0.02%, while Small cap index was down by 0.22%.

The top gaining sectoral indices on the BSE were Capital Goods up by 0.50%, Industrials up by 0.29%, Metal up by 0.27% and Basic Materials up by 0.05%, while Energy down by 1.95%, Oil & Gas down by 1.38%, Healthcare down by 0.66%, Realty down by 0.51% and PSU down by 0.49% were the top losing indices on BSE.

The top gainers on the Sensex were Tata Steel up by 1.71%, Bharti Airtel up by 0.79%, Wipro up by 0.68%, Larsen & Toubro up by 0.55% and ITC up by 0.45%. On the flip side, Reliance Industries down by 3.70%, Sun Pharma down by 1.73%, Mahindra & Mahindra down by 1.28%, Ultratech Cement down by 1.23% and Kotak Mahindra Bank down by 1.19% were the top losers.

Meanwhile, India Ratings in its latest report has said banks are unlikely to take a big hit on profitability this quarter due to rising bond yields, which may eat up 5.3 per cent (Rs 11,790 crore) of their net income in the worst-case scenario. It stated in the worst-case scenario, banks may see a profit erosion of 2.6 per cent of their pre-provisioning operating profit and 5.3 per cent of their post-tax profit from treasury losses in Q1.

It mentioned during the first quarter, the bond yields rose 61 bps, peaking at 7.5 per cent. This is because a 100 bps year-on-year upward shift in the yield curve can impact the system-wide pre-provisioning operating profit by 4.5 per cent and return on assets by just 9 bps. It said banks will continue to face headwinds in the current upward interest rate cycle. But it argued that the impact is likely to be lower than the past cycles because banks can utilise their investment fluctuation reserve, reclassify their trading portfolio between the held-to-maturity (HTM) and available for sale (AFS) and also further calibrate the modified duration of AFS portfolios.

Further, it argued that banks will gain from lower pension costs, higher interest income from bond purchases with higher yields, and resetting of interest rates on floating rate bonds (although in limited quantum), offsetting the treasury losses. With an expected overall improvement in the profitability of banks in FY23 and select banks already providing for higher movement in yields (up to 7.5 per cent), according to it, the impact on return on assets can be as low as 9 bps if none of the aforementioned offsets is in place.

The CNX Nifty is currently trading at 16609.75, down by 109.70 points or 0.66% after trading in a range of 16586.50 and 16706.05. There were 17 stocks advancing against 33 stocks declining on the index.

The top gainers on Nifty were Apollo Hospital up by 1.90%, Tata Steel up by 1.70%, UPL up by 1.00%, Britannia up by 0.89% and Bharti Airtel up by 0.87%. On the flip side, Reliance Industries down by 3.76%, ONGC down by 2.30%, Sun Pharma down by 1.66%, Grasim Industries down by 1.64% and Mahindra & Mahindra down by 1.36% were the top losers.

Asian markets are trading mostly in red; Nikkei 225 slipped 214.23 points or 0.77% to 27,700.43, Hang Seng decreased 154.45 points or 0.75% to 20,454.69, Shanghai Composite declined 23.27 points or 0.71% to 3,246.70, Jakarta Composite lost 14.56 points or 0.21% to 6,872.40 and Taiwan Weighted dropped 0.03 points or 0% to 14,949.33.

On the flip side, Straits Times advanced 10.30 points or 0.32% to 3,191.64 and KOSPI rose 17.76 points or 0.74% to 2,410.90.