A rating downgrade of country's largest public sector bank, the State Bank of India (SBI) by Moody's, rattled equity investors on Tuesday. Key index BSE Sensex and S&P CNX Nifty of NSE fell 1.77 per cent and 1.6 per cent respectively, as foreign institutional investors (FIIs) pulled out Rs 971 crore, provisional figures showed. Domestic institutions bought stocks worth Rs 555 crore.
Indian markets fell for the fifth straight session as there were no signs of recovery in global markets too, which are reeling under pressure from European and US debt problems. Investors were also averse towards equities as political situation in the country remained fragile, said market players.
The Sensex was seen at its lowest level in five weeks at 15,864. The Nifty stood at 4,772. Another technical support level for the index is at 4,750.
Ratings agency Moody's downgraded the standalone rating for SBI to D+ from C-, citing its "modest" capital and deteriorating asset quality. This saw the shares nosedive to a two-year low after it fell four per cent at Rs 1787.2. Intra-day the stock fell six per cent. The downgrade of SBI had a contagion effect on the banking sector with most stocks ending sharply lower.
Amind this global gloom and doom, Amar Ambani, head of research at brokerage firm India Infoline sees a ray of hope. "A silver lining for India is that Brent crude is now hovering around $100 per barrel. Other industrial commodities too have softened. However, it remains to be seen whether the RBI will relent on its hawkish stance,” Ambani said.
Regarding the Moody's action against SBI, market players believe that most negatives of the bank were well known and an assumption of 12 per cent gross non-performing asset was higher than expectations. "If these assumptions come true then most other Indian banks too could be at risk," said a head of equity sales at Mumbai based leading brokerage firm.
The BSE Bankex fell 3.09 per cent with ICICI Bank shedding 4.6 per cent and smaller rival HDFC Bank dropping 1.6 per cent. "Call it knee-jerk reaction, call it panic, call it whatever you want... in the short-to medium term, we should be ready for some not very pleasant surprises," Arun Kejriwal of KRIS capital said.
"The market is absolutely oversold. Even the smallest of positive triggers can take the market up," said Kishore Ostwal, chairman and managing director, CNI Research.
State-run Oil & Natural Gas Corp fell 1.5 per cent to Rs 264.05. Earlier, its newly appointed chairman Sudhir Vasudeva said the government must take a call on when it wants to go ahead with a share sale in ONGC, a divestment programme expected to raise as much as $2.5 billion.
ONGC’s share sale, first scheduled for March, has been postponed several times due to the turmoil in global markets and lingering concerns over the federal government's fuel subsidies, part of which are borne by the explorer.
Reliance Industries , which has the biggest weight on the BSE index, dropped 2.11 per cent to Rs 771.60. Shares in Reliance, India's largest listed firm, has lost more than 27 per cent of their value so far this year on concerns of slowing gas output at one of its key fields.
Maruti Suzuki outperformed the broader market, rising 2.8 per cent, as the central bank removed the company from the caution list for foreign institutional investments.
In the broader market, there were 2.2 losers for every gainer, with around 580 million shares changing hands.
World stocks hit a fresh 15-month low on Tuesday and the dollar rose to a nine-month peak as fears over a major banking crisis in Europe mounted along with expectations Greece could soon default, accelerating a global economic slowdown.
