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Benchmarks make pessimistic start
Dec-18-2018

Indian equity benchmarks made a pessimistic start and are trading with a cut of around half a percent on weak global cues amid lingering concerns about global economic growth. Traders remain concerned about S&P Global Ratings’ statement that the increasing involvement of the government in the affairs of the Reserve Bank of India (RBI) could undermine the hard-fought improvements in the banking system over the past few years. It termed the exit of Urjit Patel as credit negative. Traders also remain cautious as Former RBI Governor Raghuram Rajan cautioned that transfer of excess reserve to the government may bring down rating of the central bank. Rating downgrade of the RBI from ‘AAA’ would make borrowing costlier for the central bank and will have implication for the entire economy.

Global cues too remained sluggish with all the Asian counters trading in red at this point of time following sell-off on Wall Street. Besides, investors are keeping a close watch on a major speech by Chinese President Xi Jinping. The US markets ended sharply lower on Monday as investors worried about the health of the global economy ahead of the final policy meeting of the Federal Reserve this year.

Back home, the e-commerce sector related stocks remained buzzing with report that the National Association of Software and Services Companies (NASSCOM) Strategic Review 2018, in the Information Technology and Business Process Management (IT-BPM) sector in India, said that the Indian e-commerce market grew 17% to $38.5 billion in the financial year 2018-19. In scrip specific developments, Glenmark Pharma surged on receiving ANDA approval for Fluocinolone Acetonide Oil and M&M strengthened on inking agreement with Sampo Rosenlew.

The BSE Sensex is currently trading at 36086.30, down by 183.77 points or 0.51% after trading in a range of 36047.49 and 36226.38. There were 12 stocks advancing against 19 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index rose 0.08%, while Small cap index was up by 0.18%.

The top gaining sectoral indices on the BSE were Power up by 0.51%, Capital Goods up by 0.45%, Telecom up by 0.45%, Utilities up by 0.31% and PSU was up by 0.26%, while IT down by 1.17%, TECK down by 1.07%, Energy down by 0.61%, Bankex down by 0.44% and Oil & Gas was down by 0.37% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 1.06%, Mahindra & Mahindra up by 1.05%, Power Grid Corporation up by 0.91%, Bajaj Auto up by 0.62% and Larsen & Toubro up by 0.53%. On the flip side, Infosys down by 1.98%, Wipro down by 1.71%, Adani Ports & SEZ down by 1.10%, ONGC down by 1.04% and Yes Bank down by 0.88% were the top losers.

Meanwhile, S&P Global Ratings in its latest report has termed the recent resignation of Urjit Patel as credit negative and said Indian government’s sustained and intense involvement in the affairs of the Reserve Bank of India (RBI) could undermine the hard-fought improvements in the banking system over the past few years as well as the long-term financial stability in the country. It added ‘We await any changes to banking system regulation at the next RBI board meeting in January 2019’.

The report said it does not anticipate any material change in the central bank’s level of independence, especially with regards to its adoption and implementation of prudent policy. It said the RBI has traditionally shown greater independence than many regional peers, and a robust institutional culture but sustained and intense external pressure from the Indian government risks eroding these settings over time, and could also undermine the long-term financial stability in the country.

S&P noted that the Central Bank’s actions in recent years have materially improved accountability and transparency in the banking system, since asset quality reviews were introduced by former governor Raghuram Rajan. However, this is off a low base and continues to face headwinds. It added that their assessment of India’s banking system continues to factor in its relatively weak governance and transparency.

Observing that the recognition of stressed assets significantly improved following the RBI’s circular on February 12, 2018, the report said, this simplified recognition and associated provisioning for stressed assets. It emphasised that more needs to be done to recapitalize public sector banks in general. It said ‘In our view, the RBI’s Prompt Corrective Action to rebuild capitalisation at distressed banks is appropriate given the fundamental issues these banks face’.

As per the report, resolution of stressed assets is likely to occur within the next 12-18 months, particularly given the new bankruptcy framework and courts. It, however, said restrictions on the RBI’s authority to reform governance of public sector banks as a weakness in its mandate. The central bank has demonstrated a willingness and ability to reform governance at private sector banks, which they see as a healthy check-and-balance that supports accountability and renewal of leadership.

The CNX Nifty is currently trading at 10837.15, down by 51.20 points or 0.47% after trading in a range of 10826.20 and 10852.20. There were 14 stocks advancing against 36 stocks declining on the index.

The top gainers on Nifty were Mahindra & Mahindra up by 1.24%, Sun Pharma up by 1.19%, Bajaj Finserv up by 0.73%, Larsen & Toubro up by 0.70% and Power Grid Corporation up by 0.70%. On the flip side, Zee Entertainment down by 2.78%, Infosys down by 2.01%, Wipro down by 1.74%, Tech Mahindra down by 1.59% and Adani Ports & SEZ down by 1.32% were the top losers.

All the Asian markets are trading in red; Nikkei 225 tumbled 352.34 points or 1.64% to 21,154.54, Straits Times declined 56.42 points or 1.81% to 3,057.83, Hang Seng dipped 235.00 points or 0.90% to 25,852.98, Taiwan Weighted decreased 59.36 points or 0.61% to 9,728.17, KOSPI shed 11.27 points or 0.54% to 2,059.82, Jakarta Composite slipped 39.19 points or 0.64% to 6,050.12 and Shanghai Composite was down by 28.32 points or 1.09% to 2,569.65.
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