Key benchmark indices edged lower in choppy trade as the US Federal Reserve's move to cut its bond-buying program rekindled concerns of slowing foreign inflows. The Fed on Wednesday, 18 December 2013, announced plans to cut its monthly bond purchases to $75 billion from $85 billion, taking its first step toward unwinding the unprecedented stimulus put in place to help the US economy recover from the worst recession since the 1930s. The reduced availability of cash in the global financial system could temper the flow of foreign money into India, which has been one of the biggest beneficiaries of foreign capital. Foreign institutional investors (FIIs) have purchased shares worth a net Rs 106674.30 crore in 2013 so far (till 17 December 2013). FIIs had bought shares worth a net Rs 128359.80 crore in calendar 2012. The barometer index, the S&P BSE Sensex, was provisionally down 150.92 points or 0.72%, off 308.51 points from the day's high and up 62.91 points from the day's low. The market breadth, indicating the overall health of the market, was negative. Fed's bond-buying program had become a source of funds for investment in Indian as well as other emerging markets in recent years.
Index heavyweight Reliance Industries (RIL) edged lower in volatile trade. Shares of car maker Maruti Suzuki India hit record high as the Japanese yen touched a five-year low against the dollar overnight on the US Federal Reserve's decision to reduce monetary stimulus for the US economy. Power Grid Corporation of India (PGCIL) fell in volatile trade amid huge volumes as shares allotted in the company's follow-on public offer (FPO) were admitted for trading on the bourses today, 19 December 2013. Bank stocks fell in volatile trade. Capital goods stocks also edged lower.
Volatility ruled the roost in early trade as the key benchmark indices reversed direction after a firm opening. The Sensex fell below the psychological 21,000 level soon after breaching that level at the onset of the trading session. Key benchmark indices extended initial losses in morning trade. Weakness persisted on the bourses in mid-morning trade. Key benchmark indices trimmed losses in early afternoon trade after Finance Minister P. Chidambaram said that India is better prepared to deal with any consequences of the US Federal Reserve's move to reduce monetary stimulus.
Intraday recovery witnessed in early afternoon trade proved short-lived as key benchmark indices weakened once again in afternoon trade. Intraday volatility continued as key benchmark indices once again trimmed losses in mid-afternoon trade as European stocks surged as the Federal Reserve's decision after a two-day monetary policy meeting on Wednesday, 18 December 2013, to slow the pace of its bond purchases boosted investor confidence in the US economic recovery. Volatility ruled the roost as the key benchmark indices once again weakened in late trade.
As per provisional closing, the S&P BSE Sensex was down 150.92 points or 0.72% to 20,708.94. The index lost 213.83 points at the day's low of 20,646.03 in morning trade. The index jumped 157.59 points at the day's high of 21,017.45 in early trade, its highest level since 12 December 2013.
The CNX Nifty was down 47.10 points or 0.76% to 6,170.05. The index hit a low of 6,150.70 in intraday trade. The index hit a high of 6,263.75 in intraday trade, its highest level since 12 December 2013.
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The market breadth, indicating the overall health of the market, was negative. On BSE, 1,285 shares declined and 1,133 shares rose. A total of 157 shares were unchanged.
The total turnover on BSE amounted to Rs 3073 crore, higher than Rs 2486 crore on Wednesday, 18 December 2013.
Among the 30-share Sensex pack, 19 stocks declined and rest of them gained.
Index heavyweight Reliance Industries (RIL) edged lower in volatile trade. The stock shed 0.68% at Rs 852.80. The stock hit a high of Rs 864.70 and low of Rs 845.10.
Bank stocks fell in volatile trade. ICICI Bank lost 3.25% to Rs 1,061.20. The stock hit a high of Rs 1,112 and low of Rs 1,058.30.
HDFC Bank shed 2.31% to Rs 652. The stock hit high of Rs 681 and low of Rs 651.30. The bank announced after the market hours on Wednesday, 18 December 2013, that it has filed an application with the Foreign Investment Promotion Board (FIPB) seeking approval for increasing foreign shareholding limit in the bank in accordance with the now prevailing guidelines as the total foreign shareholding in the bank (FII and FDI) has crossed 49%.
The Reserve Bank of India had recently notified that the foreign shareholding through Foreign Institutional Investors (FIIs)/Non Resident Indians (NRI)/Persons of Indian Origin (PIO)/Foreign Direct Investment (FDI)/ADRs/GDRs in HDFC Bank has crossed the overall limit of 49% of its paid-up capital and that no further purchases of shares of HDFC Bank would be allowed through stock exchanges in India on behalf of FII/NRI/PIO/FDI/ADRs/GDRs.
Total foreign shareholding in the bank as on 13 December 2013 was 52.18% of its paid-up capital. This includes investments through the FDI route in ADRs/GDRs of 17.01% which were raised in accordance with the then applicable guidelines, and other foreign holdings made under the FII route of 35.17%. Necessary approval from the shareholders is in place for FII investments up to 49%, HDFC Bank said in a statement.
State Bank of India slipped 1.98% to Rs 1,730. The stock hit high of Rs 1,776.80 and low of Rs 1,716.10.
Bank of Baroda slipped 1.89%. The state-run bank after market hours on Wednesday, 18 December 2013, said it has privately placed non convertible, redeemable, un-secured Basel III compliant Tier-II Bonds (Series XVII Coupon 9.73% per annum) aggregating Rs 1000 crore for which allotment process has been completed.
IndusInd Bank (down 1.73%), Yes Bank (down 3.27%), Kotak Mahindra Bank (down 3.46%), Axis Bank (down 2.13%), Bank of India (down 2.58%), Punjab National Bank (down 1.84%), Oriental Bank of Commerce (down 4.18%) and Union Bank of India (down 1.49%) declined.
The Reserve Bank of India (RBI) kept its main lending rate viz. the repo rate unchanged at 7.75% after a monetary policy review on Wednesday, 18 December 2013, contrary to market expectations of a 25 basis point increase. The central bank said its decision to keep the repo rate unchanged was a close call. The RBI said while it has maintained status quo now, the central bank can help guide market expectations through a clearer description of its policy reaction function: if the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank of India will act, including on off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable growth takes hold. The Reserve Bank's policy action on those dates will be appropriately calibrated, the central bank said.
The Reserve Bank of India early this week released on its website a Discussion Paper on 'Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy'. The Discussion Paper outlines a corrective action plan that will incentivize early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts.
With the slowdown of the Indian economy, a number of companies/projects are under stress. As a result, the Indian banking system has seen increase in NPAs and restructured accounts during the recent years. Not only do financially distressed assets produce less than economically possible, they also deteriorate quickly in value, the central bank said in a statement. Therefore, there is a need to ensure that the banking system recognises financial distress early, takes prompt steps to resolve it, and ensures fair recovery for lenders and investors, the RBI said. 'Improving the system's ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery' has been indicated by the Governor, RBI as one of the five pillars on which Reserve Bank of India's developmental measures will be built for improving the financial system over the next few quarters. This Discussion Paper is a step in that direction, the RBI said.
Shares of car maker Maruti Suzuki India edged higher as the Japanese yen touched a five-year low against the dollar overnight on the US Federal Reserve's decision to reduce stimulus for the US economy. The stock advanced 3.2% at Rs 1,784.75 after hitting a record high of Rs 1,796.45 in intraday trade. The yen's weakness could reduce import costs for Maruti as the car major sources a large portion of its parts from Japan.
Capital goods stocks edged lower. ABB (down 3.68%), Bhel (down 0.77%), L&T (down 2.82%), Crompton Greaves (down 0.89%) and Thermax (down 3.08%) declined.
Power Grid Corporation of India (PGCIL) fell 1.1% to Rs 99 on high volume of 9.83 crore shares. The stock was volatile. The scrip hit a high of Rs 101 and low of Rs 96.15. Shares allotted in the company's follow-on public offer (FPO) were admitted for trading on the bourses today, 19 December 2013. PGCIL had priced the FPO at Rs 90 per share, the top end of the Rs 85-90 per share price band, following strong investor response for the issue. Retail investors and employees were allotted the shares at Rs 85.50 per share, which is a discount of Rs 4.50 per share on the issue price.
The FPO was subscribed 6.74 times. The portion reserved for institutional investors i.e. Qualified Institutional Buyers (QIBs) was subscribed 9.09 times. Category wise subscription data showed that foreign institutional investors (FIIs) put in bids for a total of 186.93 crore shares, compared with 39.20 crore shares reserved for the QIB category as a whole. The portion reserved for retail individual investors was subscribed 2.17 times. The portion reserved for non-institutional investors was subscribed 9.7 times.
The PGCIL FPO was a combination of fresh issue of 60.18 crore shares by the company and disinvestment by the Government of India (GoI) of 18.51 crore equity shares held by the President of India, acting through the Ministry of Power. After the successful divestment, GoI's holding in PGCIL has dropped to 57.89% from earlier 69.42%.
PGCIL, a navaratna public sector undertaking under the ministry of power, is the country's central transmission utility (CTU). The company owns and operates more than 90% of India's inter-state and interregional electric power transmission systems (ISTS). As principal electric power-transmission company of the country, it owns and operates 102109 circuit kilometers of electrical transmission lines and 172 electrical substations with a total transformation capacity of 172378 MVA as end of 30 September 2013.
In the foreign exchange market, the rupee edged lower against the dollar in choppy trade as the Federal Reserve's move to cut its bond-buying program rekindled concerns of slowing foreign inflows. The partially convertible rupee was hovering at 62.175, compared with its close of 62.09/10 on Wednesday, 18 December 2013.
India is better prepared to deal with any consequences of the US Federal Reserve's move to reduce monetary stimulus, Finance Minister P. Chidambaram said in a statement today, 19 December 2013. "(The) government is of the view that the markets had already factored in the US Federal Reserve's decision and therefore is not likely to be surprised by these moderate changes," Chidambaram said in a written statement released by his office. Chidambaram also spoke to Reserve Bank of India Governor Raghuram Rajan on Thursday morning to discuss the Fed tapering, the statement added.
The Government of India on Wednesday, 18 December 2013, approved the enhancement of the bilateral currency swap arrangement between the Reserve Bank of India (RBI) and Bank of Japan from $15 billion to $ 50 billion. This measure will further strengthen the bilateral financial cooperation between Japan and India, the Ministry of Finance said in a statement.
European stocks surged on Thursday, 19 December 2013, after the Federal Reserve's decision to slow the pace of its bond purchases boosted investor confidence in the US economic recovery. Key benchmark indices in UK, France and Germany were up 0.93% to 1.45%.
European Union finance ministers agreed late Wednesday on a new system to centralize control of failing euro-zone lenders in the hope that it will stop expensive banking crises from ruining the finances of entire countries. The deal ends a monthslong standoff between Berlin and other European capitals over the design of the so-called Single Resolution Mechanism and particularly over its ability to tap European taxpayer money as a last resort.
But EU governments appeared to be heading for a clash with the European Parliament, which must approve a compromise deal before the law can enter into force.
Asian markets edged higher on Thursday, 19 December 2013, after the US Federal Reserve expressed enough confidence in the US labor market to taper asset purchases while still promising to hold interest rates close to zero in the world's biggest economy. Key benchmark indices in Taiwan, Japan, Singapore, Indonesia and South Korea rose by 0.05% to 1.74%. Key benchmark indices in China and Hong Kong fell by 0.95% to 1.1%.
The Bank of Japan's (BoJ) two-day monetary policy meeting begins today, 19 December 2013. The Japanese central bank currently buys more than 7 trillion yen ($67.6 billion) of Japanese Government Bonds (JGBs) every month in its bid to stoke inflation.
Trading in US index futures indicated that the Dow could drop 15 points at the opening bell on Thursday, 19 December 2013. US markets soared with the Dow Jones Industrial Average and the S&P 500 closing at all-time highs on Wednesday as markets interpreted the Federal Reserve's decision to begin the tapering of bond purchases in January as confidence in the underlying strength of the economy and welcomed its commitment to low rates for a considerable time.
The Federal Reserve on Wednesday took the first step to exiting from its controversial bond-buying program, showing greater confidence that the US economy will grow faster and hiring will pick up over the next year. Starting in January, the Fed will reduce the pace of asset purchases to $75 billion from $85 billion a month. And if the economy improves at the pace the Fed expects, outgoing Chairman Ben Bernanke said in a press conference that he could foresee the bond-purchase program coming to an end by late next year. "We are hopeful the economy will continue to show progress," Bernanke said, and return to a "more normal" path of growth. The central could taper at each meeting if the economy continues to improve. He didn't rule out pausing if the economy stumbles or tapering more quickly if growth surprises to the upside.
The Fed split the reduction in asset purchases evenly between Treasurys and mortgage-backed securities. It will now purchase $40 billion per month of Treasurys, down from $45 billion, and $35 billion of mortgage-related securities, down from $40 billion.
In an effort to keep market rates stable, the Fed stressed that it will be in no hurry to raise short-term interest rates. The central bank added new language that it plans to maintain the target Fed funds rates "well past the time that the unemployment rate declines below 6.5%".
The US Senate on Wednesday, 18 December 2013, cleared and sent to President Barack Obama a $1.01 trillion budget deal, lowering the US deficit over 10 years and easing $63 billion in automatic spending cuts. The plan keeps in place about half of the reductions known as sequestration for next year, and about three-quarters of the planned cuts for 2015.
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