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Weak trade continues on Dalal Street
Dec-18-2018

Indian equity benchmarks continued their weak trade in afternoon deals, as TECK, IT, FMCG and Banking stocks retreated, tracking sell-off in the global market. The mood of the markets remained impacted with 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 took a note of Engineering exporters’ body EEPC India stating that exporters are facing the threat of losing refunds and a possible action by the Enforcement Directorate as banks are not issuing remittance receipts despite submission of required documents. On the sectoral front, appreciating rupee hurts software exporters including domestic IT services firms as weakening dollar will translate into lower earnings for these firms.

On the global front, Asian markets were trading in red, following a sharp retreat on Wall Street fuelled by increasing worries about the global economy, while investors await the Federal Reserve policy meeting this week. A speech by President Xi Jinping later in the day is also on the radar, with hopes for some clues about possible reforms to China's economy and plans for the next year.

The BSE Sensex is currently trading at 36104.52, down by 165.55 points or 0.46% after trading in a range of 36046.52 and 36226.38. There were 11 stocks advancing against 20 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index was down by 0.23%, while Small cap index was up by 0.19%.

The top gaining sectoral indices on the BSE were Capital Goods up by 0.68%, Metal up by 0.40%, PSU up by 0.35%, Utilities up by 0.31% and Telecom up by 0.30%, while TECK down by 1.08%, IT down by 1.05%, FMCG down by 0.51%, Bankex down by 0.41% and Healthcare down by 0.27% were the top losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 1.56%, Mahindra & Mahindra up by 1.12%, Larsen & Toubro up by 0.89%, Tata Steel up by 0.61% and Vedanta up by 0.61%. On the flip side, Infosys down by 2.00%, Yes Bank down by 1.74%, Wipro down by 1.21%, Indusind Bank down by 1.14% and Adani Ports &SEZ down by 1.08% were the top losers.

Meanwhile, Former RBI Governor Raghuram Rajan has warned that transfer of excess reserve by the Reserve Bnak of India (RBI) to the government may pull down credit rating of the central bank. He also said that rating downgrade of the RBI from ‘AAA’ would make borrowing costlier for the central bank and will have implication for the entire economy. He said “We are ‘Baa’ country. We are barely investment grade. Sometime, we need to undertake international transactions which require really high credit rating.”

Emphasizing that profit of the central bank largely comes due to depreciation of Indian currency, Rajan said keeping a portion for the contingency reserves, RBI usually pays entire profit. He also noted that RBI can pay profit and not whatever it holds for contingency reserves for movement up and down. He also informed that last month, the RBI board decided to set up a high-level committee soon to examine the Economic Capital Framework (ECF) of the central bank, in a move that could prompt a rethink of what constitutes adequate capital reserves for the central bank.

Former RBI Governor further said there is always a pressure on the central bank to pay the government more. He said “the three years that I was Governor, we paid the highest dividend in RBI’s history to the government. The issue at stake is not that anymore. The issue is more than that. It’s not just the profit, they want the excess. And the Malegam Committee had opined that you cannot pay more than the profit.”

The CNX Nifty is currently trading at 10844.55, down by 43.80 points or 0.40% after trading in a range of 10819.10 and 10852.20. There were 17 stocks advancing against 33 stocks declining on the index.

The top gainers on Nifty were Sun Pharma up by 1.56%, Mahindra & Mahindra up by 1.51%, JSW Steel up by 0.95%, GAIL India up by 0.93% and Larsen & Toubro up by 0.92%. On the flip side, Zee Entertainment down by 5.02%, UPL down by 2.87%, Infosys down by 2.07%, Tech Mahindra down by 1.58% and Yes Bank down by 1.52% were the top losers.

Asian markets were trading in red; Nikkei 225 slipped 391.43 points or 1.82% to 21,115.45, Jakarta Composite dropped 40.90 points or 0.67% to 6,048.41, Straits Times trembled 56.59 points or 1.82% to 3,057.66, KOSPI fell 8.98 points or 0.43% to 2,062.11, Shanghai Composite declined 13.35 points or 0.51% to 2,584.62, Hang Seng decreased 285.75 points or 1.1% to 25,802.23 and Taiwan Weighted was down by 68.71 points or 0.7% to 9,718.82.
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