Weak trade persist; Nifty below 5,800 mark

Indian equity markets continued their weak trade in the late afternoon session on account of selling in frontline blue chip counters and taking cues from European counterparts. The sentiments on the street turned pessimistic after 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. 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. Traders were seen piling positions in FMCG and Health Care stocks while selling was witnessed in Realty, Metal and PSU sector stocks. In scrip specific development, Punjab National Bank was trading under pressure after Goldman Sachs downgraded the bank to neutral from buy and cut its target price citing a weak economic environment and the elevated stress asset levels at the lender. Mumbai-based commodity exchange MCX was trading in red after government rejected the foreign direct investment (FDI) proposal of the company without giving any details. Bajaj Auto was trading in red as investors remained concerned, the strike at the company’s Chakan plant is showing no signs of ending and the company is losing market share amid a sluggish demand for two-wheelers.

On the global front, all the Asian markets were trading in red while the European markets were too trading on pessimistic note. Back home, the NSE Nifty and BSE Sensex were trading below their psychological 5,800 and 19,200 levels respectively. The market breadth on BSE was negative in the ratio of 680:1439, while 115 scrips remain unchanged. 

The BSE Sensex is currently trading at 19181.97, down by 281.85 points or 1.45% after trading in a range of 19347.11 and 19153.52. 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 1.27% respectively.

The only gaining sectoral index on the BSE was, FMCG up by 0.31% and Health Care up 0.02%, while Realty down by 4.54%, Metal down by 3.01%, PSU down by 2.89%, Power down by 2.61% and Consumer Durables down by 2.56% were the top losers on the BSE.

The top gaining on BSE Sensex were Sun Pharma up 0.73%, Cipla up 0.44%, ITC up 0.28% and Hindustan Unilever up by 0.26%. 

On the flip side, top losers on Sensex included, Tata Power down by 4.90%, Sterlite Industries down by 4.36%, SBI down by 4.21%, Tata Steel down by 3.99% and Dr. Reddy’s Lab was down 3.19%.

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 5,771.45, down by 86.10 points or 1.47% after trading in a range of 5,815.00 and 5,760.40.

Of the 50, 43 stocks were declining, those which were on gaining side, included Lupin up by 2.52%, Ambuja Cement up by 0.75%, Sun Pharma up by 0.64%, Cipla up by 0.45% and HUL up by 0.32%. On the flip side, Bank of Baroda down by 7.38%, JP Associate down by 7.05%, IDFC down by 5.91%, PNB down by 5.45% and Sesa Goa down by 4.87% were the major losers on the index.

All the Asian equity indices continued to reel under pressure; Shanghai Composite declined 0.61%, Hang Seng contracted 2.48%, Jakarta Composite decreased 2.87%, Straits Times dropped 1.26%, KOSPI Composite shed 1.64%, Taiwan Weighted was down by 1.30%, Nikkei 225 dropped by 0.31% and KLSE Composite inched lower 0.02%.

The European markets were trading in red; France’s CAC 40 was down 1.64%, Germany’s DAX lost 1.65% and the United Kingdom’s FTSE 100 edged lower by 1.51%.