Losses widen at Dalal Street; benchmarks trickle down to day’s lowest point

After having slipped in red terrain, benchmark equity indices have widened their losses and have trickled down to day’s lowest point on the back of aggressive selling pressure in Fast Moving Consumer Goods, Auto and Banking counters. The sentiment turned soured after better than expected US manufacturing report trigger speculation the Federal Reserve will trim its debt purchases as soon as this month. Although, benchmarks did breakthrough in green during late morning deals on account of three year low Q2 CAD, which plunged to $5.2 billion versus $21 billion year-on-year, on the back of turnaround in exports and decline in gold imports. Additionally, some gains were also tempered with on account of 0.6% decline of Core industries' output data, which occupies 37.9% weight in the overall Index of Industrial Production (IIP). Although, near day day’s low, Sensex and Nifty, were holding above the crucial 20,850 and 6,200 levels respectively, with loss of over close to two tens of a percent. Meanwhile, broader indices too pared some of their gains.

On the global front, Asian shares sagged on Tuesday as unexpectedly strong US factory activity bolstered expectations the Federal Reserve will soon trim its stimulus, while the yen tumbled on speculation of further central bank easing. U.S. Institute for Supply Management's index of national factory activity rose in November to its best showing since April 2011, while the pace of hiring also accelerated

Back on domestic front, banking stocks witnessed heavy profit-booking after RBI proposed increased capital requirements and intense regulation for too  big to fail kind of banks. Further, RBI also issued updated guidelines for stress-testing of banks which will be effective from April. Meanwhile, Telecom stocks too were hogging some limelight ahead of EGOM spectrum meet later in the day.

The BSE Sensex is currently trading at 20863.51, down by 34.50 points or 0.17% after trading in a range of 20,927.05 and 20,826.73. There were 10 stocks advancing against 20 stocks declining on the index.

The broader indices to pared some of their early gains; the BSE Mid cap and Small cap indexes up by 0.36% and 0.29% respectively.

The gaining sectoral indices on the BSE were Oil & Gas up by 0.45%, Metal up by 0.40%, IT up by 0.36% and Teck up by 0.31%. While, FMCG down by 0.68%, Auto down by 0.40%, Bankex down by 0.36%, Capital Goods down by 0.26% and Healthcare down by 0.25% were losing indices on BSE.

The top gainers on the Sensex were Jindal Steel up by 3.90%, Gail India up by 2.41%, Hindalco Inds up by 1.44%, BHEL up by 1.26%, and Wipro up by 0.69%. On the flip side, Dr Reddy’s Lab down by 1.51%, NTPC down by 1.46%, M&M down by 1.15%, Sun Pharma down by 0.98% and Coal India down by 0.93%.

Meanwhile, In view of the aftermath of 2008 global financial crisis that led many banks and supervisory authorities across the world to question whether the existing stress testing practices are sufficient and robust to cope with the rapidly changing circumstances, the Reserve Bank of India (RBI) has issued updated guidelines for stress-testing of banks which will be effective from April.

According to the guidelines, banks will have to stress-test themselves using shock scenarios involving credit risk, market risk, foreign exchange risk, interest rate risk and equity price risk. Among other things, the guidelines also cover on overall objectives, governance, design and implementation of stress testing programmes.

Further, RBI expects that the degree of sophistication adopted by banks in their stress-testing programmes to commensurate with the nature, scope, scale and the degree of complexity in the bank's business operations and the risks associated with those operations and accordingly has decided to classify banks into three categories. Under the classifications, the first group has risk-weighted assets (RWAs) of over Rs 2 lakh crore, the second RWAs between Rs 50,000 crore and Rs 2 lakh crore; and the third RWAs of under Rs 50,000 crore.

Additionally, the new guidelines underscored that stress tests should be conducted at least annually and the assumptions underlying the stress tests should be reviewed periodically. Such periodic reviews are necessary to ensure the integrity, accuracy and reasonableness of the stress testing framework. Also, it is required by the banks to communicate their risk profile to the respective boards and senior management for setting risk limits and allocating capital for various risks. Meanwhile, the guidelines mandate banks to preserve the document for stress tests undertaken by them, the underlying assumptions, the results of the tests, for a span of at-least five years.

The CNX Nifty is currently trading at 6,204.05, down by 13.80 points or 0.22% after trading in a range of 6,225.40 and 6,194.25. There were 19 stocks advancing against 31 declining on the index.

The top gainers of the Nifty were Jindal Steel up by 3.86%, Gail up by 2.37%, Hindalco Inds up by 1.44%, NMDC up by 1.34% and BHEL up by 1.28%. On the flip side, M&M down by 1.57%, Dr Reddy’s Lab down by 1.46%, NTPC down by 1.43%, HCL Technologies and Kotak Bank were down by 1.30% each, were the major losers on the index.

The Asian equity indices were trading mixed; Nikkei 225 up by 0.60%, Straits Times up by 0.12%, KLSE Composite up by 0.52%, Shanghai Composite up by 0.90%. While, Jakarta Composite down by 0.76%, Taiwan Weighted down by 0.26%, Hang Seng down by 0.45% and Seoul Composite plunged by 1.05%.