Key benchmark indices dropped to fresh intraday low in early afternoon trade. The S&P BSE Sensex was down 300.56 points or 1.54%, off 183.85 points from the day's high and up 7.95 points from the day's low. The market breadth, indicating the overall health of the market, was weak. Weakness in Asian stocks also weighed on sentiment.
Bank stocks fell across the board after Reserve Bank of India (RBI) on Tuesday, 2 July 2013, issued draft guidelines that would require banks to make higher provisions and increase risk weights on exposure to companies that have unhedged foreign-currency exposure. Power finance stocks declined sharply. PSU OMCs edged lower as crude price rose. Realty stocks tumbled. Tata Power Company (TPC) fell for second day in a row after credit rating agency Moody's Investors Service downgraded the outlook on the stock to negative from stable.
Key benchmark indices dropped in early trade on weak Asian stocks. The market extended initial losses to hit fresh intraday low in morning trade. Key benchmark indices hit fresh intraday low in mid-morning trade. The market extended losses in early afternoon trade.
The rupee fell below the psychological 60 a dollar level and bond prices also declined. The rupee was hovering at 60.17, weaker than Tuesday's close of 59.66/67.
In the government bond market, the yield on the most traded 8.33% GS 2026 was currently at 7.7404%, higher than Tuesday's close at 7.6702%. Bond yield and bond prices are inversely related.
Foreign institutional investors (FIIs) sold shares worth a net Rs 43.20 crore on Tuesday, 2 July 2013, as per provisional data from the stock exchanges.
At 12:19 IST, the S&P BSE Sensex was down 300.56 points or 1.54% to 19,163.26. The index lost 308.51 points at the day's low of 19,155.31 in early afternoon trade, its lowest level since 28 June 2013. The index fell 116.71 points at the day's high of 19,347.11 in opening trade.
The CNX Nifty was down 90.90 points or 1.55% to 5,766.65. The index hit a low of 5,762.05 in intraday trade, its lowest level since 28 June 2013. The index hit a high of 5,815 in intraday trade.
The market breadth, indicating the overall health of the market, was weak. On BSE, 1,340 shares declined and 620 shares rose. A total of 112 shares were unchanged.
The total turnover on BSE amounted to Rs 997 crore by 12:20 IST compared to Rs 818 crore by 11:20 IST.
Among the 30-share Sensex pack, 28 stocks declined and only two of them gained. ITC (up 0.34%) and Hindustan Unilever (up 0.09%) edged higher from the Sensex pack.
Tata Power Company (TPC) lost 3.92%. The stock fell for second day in a row after credit rating agency Moody's Investors Service downgraded the outlook on TPC to negative from stable. The negative outlook reflects renewed uncertainties related to the material covenant breaches on bank debt associated with TPC's Gujarat-based Mundra Ultra Mega Power Project which is being executed under its fully owned subsidiary, Coastal Gujarat Power or CGPL, said Ray Tay, a Moody's Associate Vice President and Analyst.
Bank stocks fell across the board after Reserve Bank of India (RBI) on Tuesday, 2 July 2013, issued draft guidelines that would require banks to make higher provisions and increase risk weights on exposure to companies that have unhedged foreign-currency exposure.
Among private sector banks, ICICI Bank (down 1.5%), HDFC Bank (down 1.36%), Kotak Mahindra Bank (down 1.63%), Yes Bank (down 1.53%) and Axis Bank (down 1.83%), edged lower.
Among PSU bank stocks, State Bank of India (down 3.83%), Canara Bank (down 4.54%), Union Bank of India (down 5.84%), Punjab National Bank (down 4.75%), Bank of Baroda (down 6.69%), and Bank of India (down 6.34%) declined.
RBI said in its draft guidelines issued on Tuesday, 2 June 2013 that unhedged foreign currency exposures of the corporate are an area of concern not only for individual corporates but also to the entire financial system. Corporates who do not hedge their foreign currency exposures can incur significant losses due to exchange rate movements. These losses may reduce their capacity to service the loans taken from the banking system and thereby affect the health of the banking system, it added.
RBI said that it had issued various guidelines advising banks to closely monitor the unhedged foreign currency exposures of their corporate clients and also factor this risk into the pricing. However, the extent of unhedged foreign currency exposures of the corporate continues to be significant and increases the probability of default in an environment of high currency volatility. RBI, therefore, decided to introduce incremental provisioning and capital requirements for bank exposures to corporates having unhedged foreign currency exposures.
Starting 1 October 2013, banks will have to monitor unhedged foreign currency exposure of borrowers at monthly intervals.
As per the new guidelines, for likely loss of 15-30%, the incremental provisioning over and above the existing standard provisioning will be 20 basis points (bps); for loss of 30-50%, it will be 40 bps; for loss of 50-75%, the provisioning will be 60 bps and above 75%, it will be 80 bps.
There is no provisioning for loss up to 15%. Besides, for a loss of 75% and above, there is a 25% increase in risk weight, the RBI said in its draft guidelines.
The draft guidelines advised banks to ensure that their policies and procedures for management of credit risk factor their exposure to currency-induced credit risks and are calibrated towards borrowers whose capacity to repay is sensitive to changes in the exchange rate and other market variables.
Power finance stocks declined sharply. REC (down 6.16%) and Power Finance Corporation (down 7.32%) fell.
PSU OMCs edged lower as US crude oil futures crossed $100 a barrel for the first time since September 2012 as Egypt's political tensions escalated and as stockpiles in the US shrank the most this year. HPCL (down 3.08%), BPCL (down 3.58%) and Indian Oil Corporation (down 4.36%) edged lower.
US crude oil futures for August 2013 delivery were up $1.67 a barrel at $101.27 a barrel in the electronic trading today, 3 July 2013. The contract had surged $1.61 a barrel or 1.64% to settle at $99.60 a barrel on the New York Mercantile Exchange on Tuesday, 2 July 2013, its highest closing level since May 2012.
Higher crude oil price will increase under-recovery of PSU OMCs on domestic sales of diesel, LPG and kerosene at government 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.
PSU OMCs raised diesel price by 50 paise per litre, excluding state levies, effective from Tuesday, 2 July 2013.
Realty stocks declined. DLF (down 4.17%), Indiabulls Real Estate (down 6.33%), HDIL (down 7.45%), Unitech (down 7.25%), Godrej Properties (down 2.46%), Oberoi Realty (down 0.96%) and Parsvnath Developers (down 0.62%) declined.
Indian services firms lost momentum in June as new business trickled in at the slowest pace in nearly two years, dashing hopes of a sustained pick-up in economic growth, a survey showed on Wednesday. The HSBC Markit Services Purchasing Managers' Index fell to 51.7 in June from May's three-month high of 53.6.
Asian stocks fell on Wednesday, 3 July 2013, as concerns about growth in China's services sector added to the selling pressure amid caution ahead of US jobs data later in the week. Key benchmark indices in China, Hong Kong, Indonesia, South Korea, Taiwan, Singapore and Japan were down 0.31% to 2.44%.
A pair of surveys monitoring China's services sector released Wednesday showed weak growth for June. The government-sponsored version of China's services Purchasing Managers' Index fell to 53.9 for June from May's 54.3, though it remained above the 50 level dividing expansion from contraction.
The services PMI in a separate survey by HSBC ticked up to 51.3 from 51.2 in May, but HSBC chief China economist Hongbin Qu said growth in the sector is expected to slow in coming months as the effect of value-added-tax reforms filter through.
Trading in US index futures indicated that the Dow could fall 34 points at the opening bell on Wednesday, 3 July 2013. US stocks edged lower on Tuesday, 2 July 2013, losing steam gained from reports showing solid growth for car sales and factory orders as investors anticipated the jobs report at the end of the week. The US government will unveil the influential nonfarm payrolls data for June 2013 on Friday, 5 July 2013.
The US stock market is open for a short duration today, 3 July 2013, and remains closed tomorrow, 4 July 2013, for Independence Day holiday.
Among US data due later on Wednesday, ADP is slated to release private-sector payroll projections for June, and the Labor Department is scheduled to publish weekly jobless-claims numbers. Also, the Institute for Supply Management is due to report on activity at service-sector companies in June.
The European Central Bank is widely expected to keep interest rates on hold after a monetary policy review on Thursday, 4 July 2013.
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