Bears tighten grip; benchmarks slid to day’s low

Aggressive bears further tightened their grip on Indian equity markers, dragging the benchmark equity indices to day’s lowest point. Accentuated selling pressure witnessed on account of Rupee’s weakness and weak global cues have taken benchmark indices, Sensex and Nifty, further away from the psychological 19,200 and 5,800 levels respectively, and are now bleeding with a cut of one and half a percent. Meanwhile, broader indices too were witnessing brutal selling pressure with a cut of a percent.

On the global front, rising political tensions in the Middle East, weak Chinese growth and the resurfacing of debt worries in Europe suppressed European equities early on Wednesday. While, Asian pacific shares continue to trade dejected after data from China's services sector, pointing towards a continuing slowdown in the world’s second-largest economy.

Closer home, largely ignoring government’s spate of decisions as part of reforms aimed at lifting the economy out of its worst slump in a decade, investors remained more worried about weak Service PMI data, which hinted that Asia’s third-largest economy is still struggling to come out of a quagmire of low growth and high inflation. In a bid to revive investments and attract long-term investment as the government strives to contain its widening current account deficit, a panel headed Finance Secretary Arvind Mayaram proposed to allow more foreign investment in sectors like defence, telecom, retail and commodity exchanges. Meanwhile, on the macro-front, the HSBC services Purchasing Managers’ Index (PMI), based on a survey of around 400 companies, fell from May’s three-month high 53.6 to 51.7 in June. 

Back on D-Street, stocks from Realty, Metal and Consumer Durables counters were nursing huge losses, while only those from Fast Moving Consumer Goods space showed resilience. Meanwhile, select IT stocks rose, as the rupee weakened against the dollar on heavy dollar demand tracking strengthening of the US currency overseas. The overall market breadth on BSE is in the favour of declines which outnumbered advances in the ratio of 1370:638; while 113 shares remained unchanged.

The BSE Sensex is currently trading at 19184.73, down by 279.03 points or 1.43% after trading in a range of 19347.11 and 19155.31. There were 4 stocks advancing against 26 declines on the index.

The broader indices were also trading in red; the BSE Mid cap and Small cap indices were trading lower by 1.59% and 1.19% respectively.

The only gaining sectoral index on the BSE was, FMCG up by 0.36%, while Realty down by 4.03%, Metal down by 3.33%, Consumer Durables down by 2.98%, PSU down by 2.47% and Capital Goods down by 2.43% were the top losers on the BSE.

Of the 30 stocks, 27 stocks were declining, while those gaining were Hindustan Unilever up by 0.35%, ITC up by 0.32% and Hero MotoCorp up by 0.10%. On the flip side, top losers on Sensex included, Sterlite Industries down by 4.11%, Tata Power down by 4.03%, Hindalco Industries and Tata Steel were down by 3.95% and SBI down by 3.72%.

Meanwhile, in order to ward-off any possibility of default by corporates having unhedged forex exposure, the Reserve Bank of India (RBI) has proposed to impose an incremental provisions and capital requirements on banks, which lend to these corporates. The central bank said in its draft guidelines that corporates who do not hedge their foreign currency exposures can incur significant losses due to exchange rate volatility and increases the probability of default and thereby affecting the health of the banking system. The RBI further said that unhedged foreign currency exposures of the corporate are an area of concern not only for individual corporates but also to the entire financial system.

As per the draft guidelines, banks will have to collect information on unhedged foreign currency exposure separately from the corporates. Further, the RBI advised banks that loss to the corporate due to dollar-rupee exchange rate movement may be calculated using the annualised volatilities and has asked banks to ensure that their policies and procedures for management of credit risk factor their exposure to currency-induced credit risks and are calibrated towards borrowers whose capacity to repay is sensitive to changes in the exchange rate and other market variables. Banks have also been advised to assess their loan pricing policies to ensure that they adequately reflect overall credit risks. 

The central bank came out with draft guidelines provisions and capital requirements on banks at a time when rupee is hovering at life time low level and some Indian companies are likely to incur losses due to their un-hedged foreign currency exposures. In past, the RBI had also issued various guidelines for advising banks to closely monitor the unhedged foreign currency exposures of their corporate clients and also factor this risk into the pricing.   The apex bank has further directed that Banks should calculate the incremental provisioning and capital requirements at least on a quarterly basis. However, during periods of high Dollar-Rupee volatility, the calculations may be done at monthly intervals. This framework may be implemented from October 1, 2013. 

The CNX Nifty is currently trading at 5,768.65, down by 88.90 points or 1.52% after trading in a range of 5,815.00 and 5,762.05.

Of the 50, 45 stocks were declining, those which were on gaining side, included Lupin up by 1.91%, HUL up by 0.40%, ITC up by 0.38%, HCL Technologies up by 0.33% and Hero MotoCorp up by 0.05%. On the flip side, JP Associate down by 6.79%, Bank of Baroda down by 6.64%, IDFC down by 6.10%, Sesa Goa down by 4.83% and PNB down by 4.62% were the major losers on the index.

Most of the Asian equity indices continued to reel under pressure ; Shanghai Composite declined 0.79%, Hang Seng contracted 1.85%, Jakarta Composite decreased 2.65%, Straits Times dropped 1.05%, KOSPI Composite shed 1.64%, Taiwan Weighted was down by 1.30% and Nikkei 225 was down by 0.31%.  On the flip side, KLSE Composite up by 0.16% was the lone gainer amongst the Asian pack.

European markets too got off to a negative start; with CAC 40 plunging 1.40%, DAX sliding by 1.61% and FTSE 100 dropping by 1.18%.