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Sensex, Nifty show hints of a pullback rally: Thursday closing report

A close above 5,425 on the Nifty may signal more strength

The indices back home had a slightly lower opening today and throughout the morning session it moved around yesterday’s closing. However from the beginning of the noon session they begun moving higher and continued till the end of the session when it closed almost near the day’s high. If the Nifty closes above 5,425, it may continue to rally subject to intraday dips.

 

Today the Sensex opened at 17,897 while the Nifty opened at 5,283. Soon they hit their respective low of 17,760 and 5,254. By the end of the session they hit a high of 18,350 and 5,419 and closed almost near it. Sensex closed at 18,313 (407 points up, 2.27%) while the Nifty closed at 5,408 (106 points up, 2%). The Sensex covered up all the losses of past two trading days while the Nifty covered almost all the losses of previous two trading days. The Sensex made the highest closing percentage gain since 28 June 2013 while the Nifty made the highest percentage gain since 11 July 2013. The National Stock Exchange (NSE) recorded a volume of 71.44 crore shares.

 

Among the major indices, Nifty Midcap 50 shot up 2.85%, CNX 100 leapt 1.86%, CNX 200 was up 1.75% and CNX 500 rose 1.64%.

 

Among the other indices, the losers were Media (1.19%); Realty (0.53%) and Finance (0.38%) while the top gainers were Metal (7.54%), Commodities (4.01%), PSE (3.38%), Energy (3.21%) and Pharma (2.76%).

 

Of the 50 stocks on the Nifty, 44 ended in the in the green. The major gainers were Ranbaxy (16.02%); Sesa Goa (13.09%); Hindalco (11.04%); Reliance Infrastructure (10.15%) and Tata Steel (10.01%). The main losers were DLF (4.06%); HDFC (1.45%); HDFC Bank (0.73%); Axis Bank (0.66%) and ACC (0.63%). Today the rupee made a record low again when it hit 65.56 to the dollar.

 

The indices abroad pulled back since Asian indices opened lower, following a fall in the US indices yesterday, after the minutes of the Federal Reserve's last meeting showed that the central bank was on course to pare bond purchases this year. However, with Germany’s manufacturing purchasing managers’ index rising faster than expected in August and the preliminary reading for a purchasing managers' index unexpectedly showing an expansion in China brought the indices recording a gain after losses for four consecutive trading days.

 

The pressure on Indian currencies and asset prices is not a trigger for rating action at this point, Fitch ratings said in note on Thursday. Fitch has a stable outlook on the 'BBB-' sovereign credit ratings for India.

 

Most of the Asian indices ended in the red with only Hang Seng closing in the green (0.36%) while KLSE Composite was major loser, (1.40%).

 

A Chinese manufacturing index rose in August from the lowest level in 11 months, adding to signs the world's second-biggest economy is strengthening after a two-quarter slowdown. The preliminary reading of 50.1 for a Purchasing Managers' Index released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 47.7 in July.

 

Manufacturing activity in Germany expanded at the fastest pace in more than two years in August, easing concerns over the impact of the euro zone’s debt crisis on the region’s largest economy, preliminary data showed on Thursday. The preliminary German manufacturing purchasing managers’ index rose to a seasonally adjusted 52.0 in August from a final reading of 50.7 in July. The report showed that service sector activity in Germany improved more-than-expected in August, hitting a six-month high. The preliminary services purchasing managers’ index rose to a seasonally adjusted 52.4 this month from a reading of 51.3 in July.

 

European indices were trading higher; US Futures too were in the trading green.

 

Dr Reddy's Laboratories, in pursuance of notification issued by United States Food and Drug Administration, has initiated recalling of total five lots of Ranitidine Hydrochloride tablets, USP, used in gastric problems, and 150 mg bottles from the US market due to microbial contamination of non-sterile products. Ranitidine Hydrochloride is indicated in gastro- oesophageal reflux disease, treatment of peptic ulcers, treatment of benign gastric ulceration, Zollinger-Ellison syndrome and treatment of duodenal ulceration. The stock rose 3.58% to close at Rs2119.90 on the NSE.

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Appraisal standards of nationalised banks responsible for steep rise in NPAs, says Chakrabarty

According to the deputy governor of RBI, poor appraisal standards of PSBs have led to increased NPAs, something that Moneylife pointed out over a year back. He also said that lack of quality projects and poor implementation of the PPP model was hurting the infrastructure sector

Public sector banks (PSBs) in India are not adhering to best practices while lending out capital to infrastructure companies, which have resulted in steep rise in non-performing assets (NPAs), feels a top official from Reserve Bank of India (RBI).
 

“There is enough evidence to suggest that a substantial portion of the rise in impaired assets in the sector is attributable to non-adherence to the basic appraisal standards by the banks,” said Dr KC Chakrabarty, deputy governor, RBI, while speaking at a conclave organised by SBI Capital markets.
 

This is exactly what Moneylife had pointed out in a cover story more than a year ago (Public sector banks - Loans turning bad)!
 

Dr Chakrabarty also deflected criticism that the infrastructure sector was stalled because of lack of funding. He said it was because of lack bankable and commercially viable projects. The infrastructure sector has been plagued by delays, which had led to an enormous rise in NPAs on part of banks, especially PSBs which has reached worrying levels.
 

According to the deputy governor, gross NPAs and restructured standard advances for the infrastructure sector, together as a percentage of total advances to the sector, has increased considerably to Rs1.37 lakh crore (17.43%) as at the end of March 2013 from Rs12,190 crore (4.66% of total advances) as at the end of March 2009.  “The evidence suggests that the higher NPA in the sector is not an industry wide issue, it is rather bank specific. In our assessment, the project appraisal and the decision making in public sector banks has been more impressionistic rather than being information based. How else does one defend the eagerness of some banks to fund power distribution companies with negative net worth,” he said.
 

Dr Chakrabarty also lashed out at infrastructure companies for their over-reliance on debt and expectations from the financial sector to fund their capital needs and the failure of the public-private partnership (PPP) model because infrastructure companies do not have what it takes for a project to succeed.  “In my view, the ‘Public-Private Partnership’ has, in effect, remained a ‘Public only’ venture. The infrastructure companies are highly leveraged and the flow of equity in the infrastructure project funding has been very minimal. The lack of equity investment in a project means that the promoter-developer has little ‘skin in the game’ and the motivation for the success of the venture is that much limited,” he said.
 

He also said, “The government has tried to address some major impediments like lack of transparency and accountability in procurement in order to ensure that PPP projects are procured and implemented by observing principles of transparency, competitive bid process, affordability, and value for money. But, the impact of these efforts on the ground level implementation is yet to show.” In other words, the government has not done enough to steer the infrastructure sector.
 

He also highlighted the dismal state of our infrastructure sector, according to which will leave you shocked:
 

  • Out of 576 SEZs that have received formal approval, only 172 are operational;
  • Against a target of awarding road projects aggregating 50,621 kms during 2008-13, only 10,690 kms have been awarded;
     
  • Out of 16 Ultra Mega Power Projects planned, contracts for only 4 were awarded. Out of this only one has become operational and another is nearing completion and that too much beyond the scheduled dates. Even the one project that has commenced operations is running much below capacity;
     
  • Under the New Exploration and Licensing Policy for exploration of crude oil and natural gas, of the 251 blocks allotted, 110 have reported discoveries but only 6 are actually operational.
     

In order to plug funding gaps, he said that there could be a possibility of relaxing norms for pension/insurance/provident funds so that they can fill in some of the gap in debt financing.

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COMMENTS

MG Warrier

3 years ago

It has become a fashion to blame ‘public sector’ when anything goes wrong in financial or social sectors. In the instant case, PSBs are used as ‘sources’ for financing projects which do not find favour with private sector banks and which are ‘popular’ from a government/political perspective. Several factors contribute to the unsatisfactory functioning of public sector. Interference by an inefficient and ‘caged’ government in functioning is one. Posting of ‘yours obediently’ executives at the top is another. The remuneration packages for CEOs and other top positions which are much below market rates ensure that PSUs/PSBs are managed by average people.

S Santhanam

3 years ago

How will he explain cases similar to that of King Fisher Airlines with over Rs.7000 crore default with a dozen banks involved? It is not the lack of knowledge of appraisal of proposals of corporates among the bankers, but the external factors- compulsion from vested interests who work in connivance with the bank officials which include management. None of these loans would have been cleared without the knowledge of the Boards of the concerned banks. Then how come the blame be shifted to lower level officials. Then how come the collaterals taken for the loan were inadequate to cover the full value of the loan outstanding? All should introspect including the RBI. Shifting blame on others is easy but we cannot disown our responsibilities.

nagesh kini

3 years ago

Dr. Chakrabarty needs to be reminded that there is absolutely nothing wrong with the appraisal process.
It is the 'higher ups' beginning with the MOF netas and babus who push for advances without any appraisals whatsoever. The Big Fish succumb but the smaller fry are trapped.
What is the Banking Regulator RBI doing for such inadequate appraisals? A special on-site stock audit of all potential NPAs will throw more light when this inadequate appraisal/push from the top is specifically included in the audit mandate

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