Intraday volatility continued as key benchmark indices slipped into the red once again after moving into positive zone from negative zone for a brief period in mid-morning trade. The barometer index, the S&P BSE Sensex, was down 12.13 points or 0.06%, off close to 125 points from the day's high and up about 55 points from the day's low. Investor sentiment was hit adversely 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.
Auto stocks rose on renewed buying. PSU OMCs fell as crude oil prices rose. Realty stocks edged lower. 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 railways.
The market breadth, indicating the overall health of the market, was positive.
A bout of volatility was witnessed in early trade as key benchmark indices trimmed gains after a firm start. The Sensex and the 50-unit CNX Nifty, both, hit their highest level in nearly three weeks at the onset of the trading session. Intraday volatility continued as key benchmark indices reversed initial gains in morning trade. Intraday volatility continued as key benchmark indices slipped into the red once again after moving into positive zone from negative zone for a brief period in mid-morning trade.
Foreign institutional investors (FIIs) bought shares worth a net Rs 295.76 crore on Friday, 27 December 2013, as per provisional data from the stock exchanges.
At 11:20 IST, the S&P BSE Sensex was down 12.13 points or 0.06% to 21,181.45. The index declined 70.28 points at the day's low of 21,123.30 in morning 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 13.90 points or 0.22% to 6,299.90. The index hit a low of 6,287.70 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.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1,153 shares gained and 854 shares fell. A total of 119 shares were unchanged.
Among the 30-share Sensex pack, 18 stocks declined and rest of them rose. Infosys (down 1.19%), L&T (down 1.04%) and ONGC (down 1.2%) declined.
Auto stocks rose on renewed buying. Tata Motors (up 1.36%), M&M (up 0.57%), Ashok Leyland (up 4.53%) and Maruti Suzuki India (up 0.94%) gained.
Shares of most two-wheeler companies gained. TVS Motor Company (up 14.98%) and Hero MotoCorp (up 0.44%) gained. Bajaj Auto fell 1.25%.
Realty stocks edged lower. DLF (down 1.61%), D B Realty (down 0.66%) and Unitech down 0.64%) dropped.
Bosch rose 1.07%. 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.
PSU OMCs fell as crude oil prices rose. BPCL (down 0.55%), HPCL (down 1.5%) and Indian Oil Corporation (down 0.33%) 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.
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 railways. Kalindee Rail Nirman (Engineers) (up 7.42%), Titagarh Wagons (up 5.62%), Kernex Microsystems (India) (up 4.6%), Hind Rectifiers (up 3.32%), NELCO (up 2.31%), Texmaco Infrastructure & Holdings (up 2.09%), BEML (up 0.36%) and Container Corporation of India (up 0.15%), 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 railways 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.
In the foreign exchange market, the rupee edged lower against the dollar tracking strength in dollar against other currencies in Asia 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 61.9825, compared with its close of 61.85/86 on Friday, 27 December 2013.
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.
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 0.12% to 0.77%.
China's Shanghai Composite fell 0.18%. Hong Kong's Hang Seng shed 0.03%. 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 drop 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.
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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