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Sensex Trades on a Volatile Note; Capital Goods Stocks Witness Selling
Tue, 1 Aug 01:30 pm

After opening the day marginally higher, Share markets in India witnessed volatile trading activity and are presently trading marginally above the dotted line. Sectoral indices are trading on a mixed note with stocks in the auto sector and metal sector witnessing maximum buying interest. Capital goods stocks and consumer durables sector are trading in the red.

The BSE Sensex is trading up by 20 points (up 0.1%) and the NSE Nifty is trading up by 12 points (up 0.1%). The BSE Mid Cap index is trading up by 0.6%, while the

In news from stocks in the banking sector, State Bank of India (SBI) share price is in focus today after the country's largest lender cut interest rate on savings bank accounts by 50 basis points to 3.5% on balance of Rs 1 crore and below, after over six years of status quo.

It is worth noting that over 90% of the bank's savings deposits have less than the threshold amount.

This is the first time since interest rates were deregulated in October 2011 that the bank has cut interest rates. The bank said the cut was on the back of a surge in savings deposits during notebandi.

The state run bank will, however, continue to offer 4% for those maintaining above Rs 1 crore in savings accounts.

Apart from this, SBI said that its real interest rates - cost of funds adjusted for inflation - was at the highest level and the bank expected softening of interest rates in the system.

SBI's rate cut could ignite a rate war among the large state-run and private banks, but most mid-sized and small finance banks looking to gain incremental market share could decide to hold rates.

The move comes just a few days ahead of the Reserve Bank of India's (RBI) monetary policy review, and at a time when credit off-take was at a decade low.

According to RBI data, credit off-take was down to a decade low of 5.1% in FY17 compared to 10.7% a year ago. This was despite a declining cost of borrowing. The data shows the economy might still be reeling from the aftershocks of notebandi.

Credit Growth at Lowest Levels in a Decade

Rural regions bore most of the brunt of the lending slowdown. RBI data shows that growth in rural loans between 30 September 2016 and 31 March 2017 was a mere 2.5%. The picture becomes clearer when you compare it with growth of 12.9% in the second half of 2015-16.

Apart from notebandi, rising NPA levels are also hampering the banks' ability to lend. Banks with significant bad loans on their books are reluctant to lend to even healthy companies. This will adversely impact the growth of the economy going forward.

At the time of writing, SBI share price was trading lower by 0.9%.

Moving on to news from the manufacturing sector. Indian manufacturing activity contracted for the first time this calendar year in Ju.ly following the launch of the Goods and Services Tax (GST).

According to the Nikkei Purchasing Managers' Index (PMI) survey by Markit the introduction of the GST weighed heavily on the Indian manufacturing industry in July.

The PMI is the reading of the country's manufacturing sector output and is updated monthly. A reading above 50 indicates expansion, while any score below the mark denotes contraction.

PMI stood at 47.9 in Jul, down from 50.9 in June, its lowest point since February 2009, indicating the first deterioration in manufacturing and business conditions in 2017 so far.

The survey noted that the GST launch affected demand and he reductions in output, new orders and purchasing activity were all the steepest since early 2009.

Consequently, companies purchased fewer quantities of inputs for use in the production process, leading to an overall decline in holdings of raw materials and semi-finished items. Cost burdens increased further, but factory gate charges were lowered as firms attempted to win new business.

With lower incoming orders, companies lowered production in July. The fall ended a six-month sequence of growth, and the rate of reduction was the most pronounced since the global financial crisis.

However, companies expect the manufacturing growth to pick up in the coming months. Clarity regarding GST going forward is expected to support growth.

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Feb 19, 2018 (Close)