Key benchmark indices edged lower on the first trading session of the week after Reserve Bank of India (RBI) Governor Raghuram Rajan said that the commencement of tapering by the US Federal Reserve will mean a repricing of certain assets with consequent volatility in the global financial markets and that a potential additional source of uncertainty for India is the coming general election. The barometer index, the S&P BSE Sensex, shed 50.57 points or 0.24%, up 53.80 points from the day's low and off 161.69 points from the day's high. Investor sentiment was hit adversely after the RBI's latest financial stability report (FSR) said that the risks to the Indian banking sector have further increased since the publication of the previous FSR in June this year.
Increase in Brent crude oil prices also hit sentiment adversely. Higher crude oil prices stoked worries of increase in current account deficit and the government's fiscal deficit. India imports around 80% of its domestic oil requirement. Lower European stocks also dampened sentiment.
Indian stocks snapped 2-day winning streak today, 30 December 2013. The Sensex had garnered 160.87 points or 0.76% in two trading sessions to settle at 21,193.58 on Friday, 27 December 2013, from a recent low of 21,032.71 on 24 December 2013. The Sensex has risen 351.08 points or 1.69% in this month so far (till 30 December 2013). The Sensex has garnered 1,716.30 points or 8.83% in calendar 2013 so far (till 30 December 2013). From a 52-week low of 17,448.71 on 28 August 2013, the Sensex has risen 3,694.30 points or 21.17%. From a record high of 21,483.74 hit on 9 December 2013, the Sensex is off 340.73 points or 1.59%.
Coming back to today's trade, bank stocks declined after the Reserve Bank of India's latest financial stability report (FSR) said that the risks to the Indian banking sector have further increased since the publication of the previous FSR in June this year. Cement stocks dropped. Shares of two-wheeler majors -- Bajaj Auto and Hero MotoCorp -- edged lower. But, shares of a relatively smaller player in the two-wheeler segment, TVS Motors, jumped. Realty stocks edged lower. Among tyre shares, Apollo Tyres hit record high and JK Tyre & Industries hit 52-week high. IT stocks dropped on profit booking after recent strong gains.
Sesa Sterlite gained after the company said it has received permission from the Supreme Court appointed Monitoring Committee to resume the mining activities at its Karnataka mine. Among side counters, CMC, Tata Elxsi and PVR hit record high. The market breadth, indicating the overall health of the market, was positive.
The S&P BSE Sensex shed 50.57 points or 0.24% to settle at 21,143.01, its lowest closing level since 26 December 2013. The index declined 104.37 points at the day's low of 21,089.21 in late trade. The index jumped 111.12 points at the day's high of 21,304.70 at the onset of the trading session, its highest level since 10 December 2013.
The CNX Nifty was down 22.70 points or 0.36% to 6,291.10, its lowest closing level since 26 December 2013. The index hit a low of 6,273.15 in intraday trade, its lowest level since 26 December 2013. The index hit a high of 6,344.05 in intraday trade, its highest level since 10 December 2013.
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The total turnover on BSE amounted to Rs 2537 crore, higher than Rs 1831.45 crore on Friday, 27 December 2013.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1,368 shares gained and 1,145 shares fell. A total of 152 shares were unchanged.
The BSE Small-Cap index rose 0.22%, outperforming the Sensex. The BSE Mid-Cap index fell 0.1%, outperforming the Sensex.
The S&P BSE Metal index (up 0.68%), the S&P BSE FMCG index (up 0.33%), the S&P BSE Oil & Gas index (up 0.15%), the S&P BSE PSU index (down 0.05%) and the S&P BSE Power index (down 0.2%) outperformed the BSE Sensex.
The S&P BSE Consumer Durables index (down 0.31%), the S&P BSE Capital Goods index (down 0.41%), the S&P BSE Healthcare index (down 0.43%), the S&P BSE Auto index (down 0.45%), the S&P BSE Teck index (down 0.63%), the S&P BSE Bankex (down 0.67%), the S&P BSE IT index (down 0.85%) and the S&P BSE Realty index (down 1.59%), underperformed the BSE Sensex.
Index heavyweight and cigarette major ITC fell 0.2% to Rs 321.45 in volatile trade. The stock hit a high of Rs 324 and low of Rs 320.30.
FMCG stocks rose on renewed buying. Britannia Industries (up 0.52%), Colgate-Palmolive (India) (up 3.89%), Godrej Consumer Products (up 0.58%), Hindustan Unilever (up 0.42%), Nestle India (up 0.04%) and Tata Global Beverages (up 1.23%) gained. Dabur India (down 0.61%) and Marico (down 1.04%) declined.
Index heavyweight Reliance Industries rose 0.6% to Rs 884. The stock hit a high of Rs 889.40 and low of Rs 876.
PSU OMCs fell as crude oil prices rose. BPCL (down 0.85%), HPCL (down 1.4%) and Indian Oil Corporation (down 0.78%) declined.
US crude oil futures for February delivery rose 77 cents, or 0.8% to settle at $100.32 a barrel in New York Mercantile Exchange on Friday, 27 December 2013.
Higher crude oil prices could increase under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices. In January 2013, the government allowed PSU OMCs to raise diesel prices in small measures at regular intervals while completely deregulating diesel prices sold to institutional or bulk buyers. The government has already freed pricing of petrol.
Bhel rose 4.04%. The stock was the top gainer from the Sensex pack. The company last week said it has bagged an order for the supply of Turbine Generator (TG) Package for 2x500 MW TPS at Neyveli. The order valued at Rs 1023 crore has been secured by Bhel from Neyveli Lignite Corporation (NLC) for NLC's upcoming 1,000 MW Neyveli New Thermal Power Project at Neyveli, Tamil Nadu. Bhel's scope of work under the contract includes manufacture, supply, erection, testing and commissioning of Steam Turbine Generators & Auxiliaries along with associated civil works.
Bank stocks declined after the Reserve Bank of India's latest financial stability report (FSR) said that the risks to the Indian banking sector have further increased since the publication of the previous FSR in June this year. ICICI Bank (down 1.25%) and HDFC Bank (down 0.34%) declined.
Shares of AXIS Bank fell 0.56%. The Reserve Bank of India on Friday, 27 December 2013, notified that consequent upon approval from Government of India for increase in foreign investment from 49% to 62% of the paid up equity share capital of AXIS Bank, the aggregate share holdings through Foreign Institutional Investor (FII)/Non Resident Indian (NRI)/Person of Indian Origin (PIO)/Foreign Direct Investment (FDI)/American Depository Receipt (ADR)/Global Depository Receipt (GDR) in AXIS Bank have gone below the prescribed threshold caution limit stipulated under the extant FDI Policy. Hence, the restrictions placed on the purchase of shares of the above company are withdrawn with immediate effect, the RBI said.
The Cabinet Committee on Economic Affairs (CCEA) had approved the proposal of AXIS Bank for increase in foreign investment ceiling in the bank to 62% from 49%, subject to the aggregate foreign institutional investors holding not exceeding 49% of the paid up equity share capital of the bank. The approval would result in foreign investment of Rs 7250 crore (approximately) in the country, a government statement said on 26 December 2013.
State Bank of India (SBI) dropped 0.36%. The bank said before market hours that the Central Government, has appointed Shri P. Pradeep Kumar, Deputy Managing Director, State Bank of India, as Managing Director, State Bank of India, from the date of taking over the charge of the post and upto 31 October 2015 i.e. the date of his attaining the age of superannuation or until further orders, whichever is earlier.
Among other PSU bank stocks, Bank of India, Canara Bank, Bank of Baroda and Punjab National Bank dropped 0.38% to 2.04%.
Union Bank of India slipped 2.11% to Rs 127.40, with the stock falling on profit booking after recent upmove. Shares of Union Bank of India had gained 9.6% in five trading days to Rs 130.15 on 27 December 2013 from a recent low of Rs 118.75 on 19 December 2013.
The risks to the banking sector have further increased since the publication of the previous FSR in June this year, the RBI said. All major risk dimensions captured in the Banking Stability Indicator show increase in vulnerabilities in the banking sector. Failure of a major corporate or a major corporate group could trigger a contagion in the banking system due to exposures of a large number of banks to such corporates.
Asset quality continues to be a major concern for Scheduled Commercial Banks (SCBs). The Gross Non-performing Assets ratio of SCBs as well as their restructured standard advances ratio have increased. The total stressed advances ratio rose significantly to 10.2% of total advances as at end September 2013, from 9.2% of March 2013. Five sectors viz. Infrastructure, Iron & Steel, Textiles, Aviation and Mining together contribute 24% of total advances of SCBs, and account for around 53% of their total stressed advances.
Macro stress tests on credit risk suggest that if the adverse macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further. However, under improved conditions, the present trend in credit quality may reverse during the second half of 2014-15, the RBI report said.
Auto stocks rose on renewed buying. Tata Motors (up 0.84%), Ashok Leyland (up 3.32%) and Maruti Suzuki India (up 0.26%) gained. M&M declined 1.65%.
Shares of two-wheeler majors -- Bajaj Auto and Hero MotoCorp-- edged lower. Bajaj Auto lost 1.65%. Hero MotoCorp shed 0.94%.
TVS Motor Company surged 16.07% to Rs 79.80. The scrip hit 52-week high of Rs 81.40 in intraday trade. High volumes accompanied the rally in the counter. On BSE, 33.06 lakh shares changed hands in counter, compared with average daily volume of 3.3 lakh shares during the past one quarter.
Bosch rose 1.8%. The company said during market hours that with a view to adjust production to meet the demand for products and to avoid unnecessary buildup of inventory, the manufacturing operations at the company's Jaipur plant have been suspended on 30 December 2013 and 31 December 2013.
Tyre stocks were mixed. Apollo Tyres rose 1.19% to Rs 101.95 after hitting record high of Rs 103.90 in intraday trade.
JK Tyre & Industries rose 0.41% to Rs 170.95 after hitting 52-week high of Rs 177.95 in intraday trade.
MRF fell 1.22%. CEAT slipped 0.1%.
Sesa Sterlite gained 0.6% after the company said on Saturday, 28 December 2013, that it has received permission from the Supreme Court appointed Monitoring Committee to resume the mining activities at its Karnataka mine. Sesa Sterlite said that the company has commenced its mining operations on that day, in accordance with stipulated conditions. The Supreme Court of India had earlier given the clearance for resumption of mining operations for A and B category mines in Karnataka, vide its order dated 18 April 2013.
Welspun Corp was locked at 10% upper circuit at Rs 64.40 after the company announced that its subsidiary has entered into a share sale agreement with Leighton Group to sell its entire stake in Leighton Welspun Contractors India. The announcement was made before market hours today, 30 December 2013.
IT stocks edged lower on profit booking after recent strong gains. Tech Mahindra fell 0.76% to Rs 1,847. The stock reversed direction after hitting 52-week high of Rs 1,875 in intraday trade.
Wipro lost 0.34% to Rs 553.50. The stock had hit 52-week high of Rs 558 in intraday trade on Friday, 27 December 2013.
Infosys shed 1.72% to Rs 3,501. The stock reversed direction after hitting record high of Rs 3,575 in intraday trade.
TCS dropped 0.14% in choppy trade.
HCL Technologies rose 0.06% to Rs 1,250. The stock hit record high of Rs 1,269 in intraday trade. The company after market hours on Friday, 27 December 2013, announced that Vineet Nayar, Director of the company since 2008, has decided to retire from the board in order to devote more time to his Foundation. HCL Technologies also announced on Friday, 27 December 2013, the appointment of Vineet Nayar as a Senior Advisor to HCL Technologies and HCL Corporation.
"Vineet has been a friend and a colleague for over two decades now. His bold ideas and passion for the organisation, has inspired many others to think and dream big. His contribution to HCL and the Board has been a benchmark for others to follow and we all are very proud of him. On behalf of the Board, I thank him for all that he has done and I look forward to his continued association with HCL as a Senior Advisor," said Shiv Nadar, Chief Strategy Officer and Chairman HCL Technologies.
"I am grateful to Shiv, Board Members and the employees of HCL Technologies, for giving me an opportunity to dream, learn, explore and experiment along with them. There are very few organisations where one could rise up the ranks and become the CEO and Vice Chairman. I applaud Shiv for creating such a culture at HCL and thank him for his mentorship, guidance and friendship over these years. As I pursue my dream, of creating a Million Smiles through Sampark Foundation, I carry with me goodwill, best wishes and lots of learning. I also hope to continue to add value to both HCL Technologies and HCL Corporation through my continued association. I wish all the HCLites, exciting and energized years' ahead," said Vineet Nayar Founder, Sampark Foundation.
As a Senior Advisor, Vineet will advise HCL Corporation on key strategic issues and also work with the board of HCL Technologies on initiatives such as driving a high performance culture amongst senior managers and new strategies for growth.
CMC gained 4.37% to Rs 1,626.55 after hitting a record high of Rs 1,663.90 in intraday trade.
Tata Elxsi advanced 4.83% to Rs 413.50 after hitting a record high of Rs 427.80 in intraday trade.
Cement stocks declined. ACC (down 2.2%), Ambuja Cement (down 1.9%), UltraTech Cement (down 2.01%), India Cements (down 2.95%), J K Cement (down 0.75%), India Cements (down %), JK Lakshmi Cement (down 0.25%) and Shree Cement (down 1.5%) edged lower.
Power Grid Corporation of India (PGCIL) dropped 1.25%. The company has received shareholders' approval to increase the limit of shareholding by foreign institutional investors to 30% from 24% currently. Shareholders also approved a proposal to increase the company's borrowing limit to Rs 130000 crore from the current cap of Rs 100000 crore. Both proposals were cleared through postal ballots.
Adani Power fell 0.76%. The company said before market hours today, 30 December 2013, that the board of directors of the company at its meeting held on Saturday, 28 December 2013, approved demerger of the transmission line business of the company.
Shares of companies whose fortunes are linked to orders from Indian Railways rose on reports the government is likely to allow foreign direct investment in railway infrastructure. Kalindee Rail Nirman (Engineers) (up 20%), Stone India (up 15.75%), Titagarh Wagons (up 10%), Kernex Microsystems (India) (up 17.62%), Hind Rectifiers (up 13.27%), NELCO (up 2.44%), BEML (up 0.71%) edged higher.
According to media reports, the Cabinet Committee on Economic Affairs (CCEA) is likely to approve a proposal on foreign direct investment (FDI) in railway infrastructure projects early next month. The original proposal had mooted 100% FDI in the railways, but this cap could be lowered to 74% in some areas. Also, foreign money would be allowed only in construction and maintenance of railway projects, and not in operations, reports added.
At present, FDI is not allowed in railway segments other than mass rapid transport and component manufacturing.
Realty stocks edged lower. DLF (down 3.04%), D B Realty (down 1.65%), HDIL (down 1.11%) and Unitech down 1.92%) dropped.
PVR gained 3.14% to Rs 647.85 after hitting a record high of Rs 657.50 in intraday trade.
UPL rose 1.79% to Rs 196.70 after the company said its board approved a proposal for buyback of equity shares. The announcement was made during trading hours today, 30 December 2013. UPL announced that its board approved the buyback of upto 1.4 crore equity shares of the company at a maximum price of Rs 220 per share, upto an aggregate amount not exceeding Rs 308 crore, from the open market through stock exchanges. The maximum buyback price of Rs 220 per share is 11.84% premium to the ruling market price.
Globus Spirits surged 5.01% after board of directors approved for incorporation of a wholly owned subsidiary of the company in Singapore.
Gitanjali Gems lost 10% at Rs 67.25, with the stock declining on profit booking after recent surge. Shares of Gitanjali Gems were on a roll recently, surging 53.07% in four trading days to Rs 74.70 on 27 December 2013 from a recent low of Rs 48.80 on 20 December 2013.
Meanwhile, in a clarification to the recent spurt in share price, Gitanjali Gems during market hours today, 30 December 2013 said that stock prices of the company are governed through market forces and investor's sentiments. The company does not have any control on the same and hence it's difficult to pin down a specific reason for the same.
"We further wish to affirm that the company has been regularly disseminating all disclosures, periodic as well as events based, in line with the requirement under various clauses of Listing Agreement, Gitanjali Gems said in a statement.
"We wish to reiterate that the fundamentals of the company are strong and with a view to combat the crises and uncertainties caused due to regulatory changes in gold policy, we have realigned our business model by introducing more value added diamond and gemstone products in out existing product line. We are also venturing in other categories e.g. apparel. We are reducing focal point from plain gold jewellery with more thrust on diamond and gemstone jewellery products in domestic market with increased focus on exports as well as retail expansion in the major international markets," the company added.
In the foreign exchange market, the rupee edged lower against the dollar as signs of a quickening economic recovery in the United States boosted speculation the US Federal Reserve will keep reducing monthly debt purchases. The partially convertible rupee was hovering at 61.92, compared with its close of 61.85/86 on Friday, 27 December 2013.
In his foreword of the central bank's Financial Stability Report (FSR) - December 2013 released today, 30 December 2013, RBI Governor Raghuram Rajan said that the commencement of tapering by the US Federal Reserve will mean a repricing of certain assets with consequent volatility in the global financial markets and that a potential additional source of uncertainty for India is the coming general election. A stable new government would be positive for the economy. With confidence in the financial system still fragile, six years into the crisis, policy certainty is something investors look for in the current environment, Rajan said.
The RBI governor said that the outlook for the economy has improved, with export growth regaining momentum, but growth is still weak. The challenges of containing inflationary pressures limit what monetary policy can do, he said. It is imperative that long-delayed legislative reforms are pushed through, stalled infrastructure project clearances continue and fiscal consolidation remains on track, Rajaj said.
The current level of non-performing assets in the Indian banking system do not pose a systemic concern as the CRAR of the banking system is above the prescribed levels and many projects are just delayed, not unviable, Rajaj said. "But we cannot be complacent", he added.
The stress tests assume extreme conditions and tail events and show that the financial system in India is resilient to stresses at this point in time though continued vigilance is warranted, Rajaj said.
The Reserve Bank of India today, 30 December 2013, released the Financial Stability Report (FSR) - December 2013. The eighth in the series, the FSR - December 2013 is being released against the backdrop of a mild positive market reaction to the announcement of tapering in the US Federal Reserves' bond purchase programme from January 2014, the central bank said in a statement. The commencement of the taper should signal a calibrated return to normal liquidity and credit conditions in the global markets and also better pricing of risk, the RBI said. This will mean a repricing of certain assets with consequent volatility. Efforts during the past few months have been directed to make the Indian economy more resilient to the ultimate withdrawal of liquidity from the system and less reliant on unstable external capital for growth, the RBI said.
The US Federal Reserve has now laid to rest the uncertainty on timing of the exit and tapering in its bond purchase programme, which is set to begin from January 2014. However, financial market volatility will be conditioned by the pace of tapering going forward, RBI's FSR - December 2013 said. Realignment of global growth as well as high inflation differential between advanced economies (AEs) and Emerging Markets and Developing Economies (EMDEs) is a potential source of exchange rate volatility and may result in volatile cross-border flows with every repricing of risk, the report said. The delay in tapering allowed India to bring about adjustment in the current account deficit (CAD) and build buffers by replenishing its foreign exchange reserves. However, macro-economic adjustment is far from complete, with persistence of high inflation amidst growth slowdown, the report said. Fall in domestic savings and high fiscal deficit are other major concerns for India, the RBI report said.
Corporate performance continues to be weighed down by boom period expansions and excess capacities, amid shifting asset composition towards financial investments, the RBI report said.
House prices and outstanding loans for housing by housing finance companies have grown relatively faster during the last few years, the RBI report said.
Inadequate social security coverage in India against a backdrop of changing demographics will pose challenges for expanding the pension system given the fiscal constraints, the RBI said. The National Pension System (NPS) was created to serve Government employees and private sector workers.
The risks to the banking sector have further increased since the publication of the previous FSR in June this year. All major risk dimensions captured in the Banking Stability Indicator show increase in vulnerabilities in the banking sector. Failure of a major corporate or a major corporate group could trigger a contagion in the banking system due to exposures of a large number of banks to such corporates.
Asset quality continues to be a major concern for Scheduled Commercial Banks (SCBs). The Gross Non-performing Assets ratio of SCBs as well as their restructured standard advances ratio have increased. The total stressed advances ratio rose significantly to 10.2% of total advances as at end September 2013, from 9.2% of March 2013. Five sectors viz. Infrastructure, Iron & Steel, Textiles, Aviation and Mining together contribute 24% of total advances of SCBs, and account for around 53% of their total stressed advances.
Macro stress tests on credit risk suggest that if the adverse macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further. However, under improved conditions, the present trend in credit quality may reverse during the second half of 2014-15, the RBI report said.
India stands committed to the implementation of the global regulatory reforms agenda and has made considerable progress on this front. Although firms and markets are beginning to adjust to the regulatory approach towards ending too-big-to-fail (TBTF), recent research indicates continued expectation of sovereign support to such institutions, the RBI said.
Due to the interconnectedness with banks, liquidity pressure is felt by the money market mutual funds (MMMFs) whenever redemption requirements of banks are large and simultaneous. Regulatory measures taken to reduce the degree of interconnectedness seem to have been successful in reducing the liquidity risk in the system, the RBI said.
India's domestic markets for interest rate derivatives have not taken off due to the absence of some of the basic building blocks. Efforts are on to address these issues, the RBI said.
Action to create central repositories for the banking sector, corporate bond market and insurance sector has been initiated. This move is expected to break the information asymmetry in those markets, the RBI said.
It has been observed that the equity prices of the companies in which the promoters had pledged significant portions of their shares, are relatively more volatile than the broader market during times of correction, the RBI said.
The FSR, published every six months, aims to create awareness about the vulnerabilities in the financial system, to inform about the resilience to stress of the financial institutions and to generally serve as a health check on the financial system. The report reflects the collective assessment of RBI's Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability.
The next major trigger for the market is Q3 December 2013 corporate earnings. The Q3 earnings season will begin around mid-January 2014 and continue till mid-February 2014. Investors and analysts will closely watch the management commentary that would accompany the result to see if there is any revision in their future earnings forecast of the company for the current year and/or the next year.
European stocks edged lower on Monday, 30 December 2013. Key benchmark indices in France, Germany and UK were off 0.03% to 0.17%.
Asian stocks edged higher on Monday, 30 December 2013, with Japan's Nikkei 225 Stock Average poised for its biggest annual gain since 1972, as the yen touched a five-year low versus the dollar. Key benchmark indices in Indonesia, Japan, Taiwan, South Korea and Singapore were up 0.11% to 1.04%.
China's Shanghai Composite fell 0.18%. Hong Kong's Hang Seng rose 0.01%. Chinese Premier Li Keqiang said China has the conditions to keep its economy and financial markets stable next year by deepening reform and further opening up, according to a statement posted on the central government website yesterday, 29 December 2013.
Trading in US index futures indicated that the Dow could advance 6 points at the opening bell on Monday, 30 December 2013. US stocks slipped on Friday on light trading after stocks reached record highs earlier last week.
Later Monday, investors are due to receive the November report on pending US home sales.
The US Federal Reserve said after a two-day monetary policy review on 18 December 2013 that it will cut its monthly bond purchases to $75 billion from $85 billion starting in January 2014 amid an improved outlook for the job market in the world's largest economy. The US central bank is poised to continue winding down its stimulus measures gradually over the next year.
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