Indian markets fail to hold recovery; fall sharply in early noon

Indian equity benchmarks failed to hold recovery and again fell sharply in early afternoon deals, on the back of heavy selling at almost all sectors except FMCG counter which was also marginally higher. Zomato was worst performer among major industry leaders on the BSE, falling around 10%. Sentiments were pessimistic, amid private report stating that India is likely to be among the nations hit by higher tariffs if incoming US President Donald Trump makes good on his election-campaign promise to impose retaliatory duties against certain countries. Meanwhile, the Reserve Bank of India (RBI) has issued revised guidelines for the settlement of dues payable by borrowers to Asset Reconstruction Companies (ARCs) on January 20, and to take immediate effect.

On the global front, Asian markets were trading mostly in green, after the Malaysian foreign trade surplus increased sharply in December from a year ago as exports grew faster than imports. The data from the statistical office showed that the trade surplus rose to MYR 19.2 billion in December from MYR 11.8 billion in the same month last year. The surplus also rose from MYR 15.0 billion in November. Exports surged 16.9 annually in December, driven by growth in both domestic and re-exports. Data showed that imports also rose at a faster pace of 11.9 percent annually versus a 1.6 percent rise in November.

The BSE Sensex is currently trading at 76248.23, down by 825.21 points or 1.07% after trading in a range of 76137.83 and 77337.36. There were 7 stocks advancing against 23 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index fell by 1.45%, while Small cap index was down by 1.37%.

The only gaining sectoral index on the BSE was FMCG up by 0.05%, while Consumer Durables down by 3.48%, Realty down by 3.00%, Consumer discretionary down by 2.22%, Power down by 1.87%, Telecom down by 1.78% were the top losing indices on BSE.

The top gainers on the Sensex were Ultratech Cement up by 1.65%, HCL Tech. up by 0.57%, Asian Paints up by 0.51%, Nestle up by 0.42% and ITC up by 0.29%. On the flip side, Zomato down by 9.92%, Adani Ports & SEZ down by 2.60%, Mahindra & Mahindra down by 2.38%, ICICI Bank down by 2.09% and NTPC down by 2.08% were the top losers.

Meanwhile, the State Bank of India (SBI) in its latest report has said that the Reserve Bank of India (RBI) is likely to announce significant changes to its Liquidity Management Framework (LMF). These adjustments could include daily Variable Rate Repo (VRR) auctions as the first step, alongside innovative measures to balance liquidity needs and strengthen the banking system. SBI said ‘More changes in RBI Liquidity Management Framework likely…Daily VRR the first step…Such changes and frontloading next round of moves are smart and pragmatic by RBI…Delicate mix of temporary and permanent liquidity injection / withdrawal remains a work in progress’.

The report also suggested that the RBI might introduce longer-term buy-sell swaps, spanning two to three years, to bolster foreign exchange reserves and release liquidity into the system. These measures could serve as a pragmatic approach to manage the delicate balance between temporary and permanent liquidity requirements. Over the past few months, liquidity in the banking system has been under pressure, primarily due to volatile movements in government cash balances and interventions in the foreign exchange market. This persistent liquidity crunch has raised concerns as it has crossed the comfort zone for the banking sector.

To address this, the RBI has reverted to daily dynamic VRR auctions, which are seen as short-term liquidity injections aimed at countering fluctuations in government cash balances. However, these transactions are also acting as a substitute for more permanent liquidity adjustments, such as those needed to offset currency leakage or the liquidity impact of RBI’s forex interventions. In a strategic move, the RBI has been selling foreign currency in the spot and non-deliverable forward (NDF) markets, while conducting short-term buy-sell swaps. This helps replace maturing forward positions and counter the durable liquidity drain caused by spot market interventions.

the report said ‘To negate such, in a smart move RBI has started to sell in Spot and NDF forwards and then doing short term buy sell swaps to replace the maturing forward sale position and also to counter the durable liquidity drain from spot intervention’. The report highlighted that these measures reflect a smart and proactive approach by the RBI to address the ongoing liquidity challenges. However, the long-term resolution of the liquidity conundrum remains a work in progress, with the central bank likely to frontload further moves in the coming months. These initiatives signal the RBI’s commitment to maintaining financial stability while adapting to the evolving economic environment.

The CNX Nifty is currently trading at 23138.55, down by 206.20 points or 0.88% after trading in a range of 23111.10 and 23426.30. There were 13 stocks advancing against 37 stocks declining on the index.

The top gainers on Nifty were Apollo Hospital up by 2.59%, Ultratech Cement up by 1.64%, BPCL up by 1.62%, Tata Consumer Products up by 1.24% and HCL Tech. up by 0.57%. On the flip side, Trent down by 4.29%, Adani Ports & SEZ down by 2.61%, Mahindra & Mahindra down by 2.32%, NTPC down by 2.11% and ICICI Bank down by 2.10% were the top losers.

Asian markets were trading mostly in green; Hang Seng advanced 170.07 points or 0.85% to 20,095.88, Jakarta Composite gained 41.63 points or 0.58% to 7,212.37, Nikkei 225 surged 125.48 points or 0.32% to 39,027.98 and Taiwan Weighted added 33.19 points or 0.14% to 23,300.01, while Shanghai Composite weakened 2.93 points or 0.09% to 3,241.45, Straits Times fell 7.41 points or 0.19% to 3,800.56 and KOSPI dropped 2.02 points or 0.08% to 2,518.03.