Moratorium extension fears, Covid tally spook investors; Sensex falls 1.8%

Fears of an extension in the loan moratorium, rising Covid cases, and a surge in the US dollar dented investor sentiment on Monday, triggering a big fall in the BSE Sensex.

Going down for a fourth straight session, the benchmark Nifty ended at 10,900, with a fall of 1.6 per cent, or 174 points.

The Sensex ended at 36,940, down 667 points, or 1.8 per cent — the highest since July 14.

Union Finance Minister Nirmala Sitharaman on Friday said her ministry was working with the Reserve Bank of India (RBI) for extending the loan moratorium for the hospitality sector, which is one of the segments the pandemic has pounded. This triggered a 3.2 per cent decline in the Nifty private bank index.

The RBI has extended the moratorium period by three months till August 31. The hospitality industry wants it prolonged. However, bankers do not want that and have said many companies capable of repaying are taking advantage of this and hurting banks. The RBI’s monetary policy committee (MPC) will announce its decision on the moratorium on August 6.

 

 

Analysts said banking stocks were battered because news on a possible moratorium extension came when investors were fretting about the impact of fundraising plans of banks. They are worried that a lot of liquidity will be taken out by the fundraising.

Kotak Mahindra Bank fell 4.4 per cent, the highest among the Sensex components, followed by IndusInd Bank and Axis Bank, which declined 3.9 per cent and 3.3 per cent, respectively.

Shankar Sharma, founder, First Global, said the rally in banking stocks might be coming to an end.

“The simple message is that banks are in trouble. And they have been the most troubling part of the market. They had a rally in the past three months, and that appears to be over.”

The rise in new Covid-19 infections and expensive valuations, too, worried investors. In the past four trading sessions, the benchmark indices have given up more than 4 per cent. Still they are up 40 per cent from their March lows.

“A combination of factors, including fears of a moratorium extension and rising Covid cases, led to today’s (Monday’s) fall. Many banks are raising funds from the markets; we have not seen so much bank paper floating in the market in the recent past. Also, we have not seen any improvement in the loan data. The RBI decision on the markets will give us some indication on where we are headed,” said Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.

A rising dollar is considered negative for emerging market currencies and flows. Experts said the rise could prove to be another headwind for the market. After dropping 4 per cent in July, the dollar index, a gauge that measures the greenback against a basket of leading currencies, edged higher on Monday. The rupees slipped 20 paise against the dollar to end at 75.01.

Disjuncture

Some market experts have expressed concern at the disjuncture between the economic fundamentals and exuberance in the equity markets. In yet another signal of the impact of the lockdown, manufacturing output in July contracted. According to the data released by IHS Markit, the purchasing managers’ index (PMI) for manufacturing declined slightly in July to 46 from 47.2 in June. A figure below 50 print signals contraction.

On Monday, global markets gave a mixed performance. India was among the worst-performing major global markets.

“India is going to be an underperforming market, but at the same time, there are enough places to make money. It is not uniformly bad,” said Sharma.

More than two-thirds of the Sensex components ended the session with losses. Fourteen of the 19 sectoral indices of the BSE were in the red.

Overseas investors were net buyers of Rs 7,818 crore. The buying tally was unusually high due to large share sale in Bandhan Bank.