Indian stocks took a beating during the final trading session with the BSE-Sensex slipping into the red before hovering around the dotted line at the time of closing. The index however ended with gains of about 23 points or 0.1%. The NSE-Nifty closed lower by about 8 points or 0.1%. Stocks from the real estate and power sectors were not in favour today, while those from the information technology and automobiles spaces were in demand. The BSE Mid Cap and BSE Small Cap indices ended the day on a weak note as well, with the indices closing lower by over 2% each.
Stock markets in other parts of Asia ended the day on a firm note with Japan and China closing higher by about 1% and 0.3% respectively. The rupee was trading at Rs 58.58 to the dollar at the time of writing.
Stocks of automobile companies ended the day on a firm note with Mahindra and Mahindra and Tata Motors leading the pack. As reported by a leading business daily, the demand for diesel variants of vehicles has been diminishing and that of petrol variants are now being preferred again. In FY14, it is believed that 58% of the cars sold were petrol cars. In the same year, the demand for diesel vehicles declined by 14% YoY. The narrowing gap between the prices of the two fuels is one reason. It also seems that buyers are not willing to pay higher prices for diesel vehicles given the same. There are also expectations of the new government increasing diesel prices - especially at a time when the Rupee has strengthened against the Dollar thereby giving a good opportunity to pass on prices. The estimated fuel subsidy in FY15 is Rs 1.1 trillion as compared to Rs 1.4 trillion in FY14. The decline would largely be due to the stronger currency coupled with the fall in diesel consumption.
Stocks from the banking space ended the day on a weak note with Union Bank, Bank of India and Bank of Baroda leading the pack of losers. As reported by a leading business daily, many public sector banks - which have been under pressure for not taking any action against the NPAs - have been increasingly selling assets of defaulters to asset reconstruction companies (ARCS). Just to give some examples, Indian Bank assigned assets worth about Rs 6.7 bn to ARCs in FY14. Bank of India sold Rs 10.7 bn worth of assets, while Canara Bank sold close to Rs 7 bn of bad loans during the year. It is believed that India's largest bank SBI sold nearly Rs 50 bn worth of poor assets. In total, assets of about Rs 500 bn have seemingly been offered by banks to ARCs. A year ago, this figure stood at Rs 120 bn. It is believed that banks have been taking such actions due to the RBI's pressure of taking early action to clean up their books. The increase in such volumes also seems to be on account of ARCs offering better prices as banks are willing to accept delayed payments. It may however be noted that the total value of bad loans in the PSU banking system stands at about Rs 2 trillion. As such, whether this trend will continue or not will depend on the collection rate of the ARCs.