Global Markets Continue to Weigh Down Indian Markets; SBI Slump 5.4%

Fri, 11 Aug Closing

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Indian share markets continued to fall in today's trade and finished with their first weekly loss in the last six weeks, tracking global markets as escalating tensions between the United States and North Korea continued.

At the closing bell, the BSE Sensex closed lower by 318 points and the NSE Nifty finished down 109 points. The S&P BSE Mid Cap finished down by 0.2% while & S&P BSE Small Cap finished flat. Losses were largely seen in metal stocks, auto stocks and realty stocks. Pharma stocks and consumer durables stocks finished in green.

Asian stock markets finished broadly lower today with shares in Hong Kong leading the region. The Hang Seng is down 2.04% while China's Shanghai Composite is off 1.63% and Japan's Nikkei 225 is lower by 0.05%. European markets too are lower today with shares in France off the most. The CAC 40 is down 1.16% while London's FTSE 100 is off 1.12% and Germany's DAX is lower by 0.41%.

The rupee was trading at Rs 64.17 against the US$ in the afternoon session. Oil prices were trading at US$ 48.31 at the time of writing.

In news from economic sector, the Reserve Bank of India (RBI) has made a surprise move by halving its dividend payout to the government to Rs 306.59 billion for the fiscal year ended June 30, 2017, less than half of the Rs 658.76 billion it paid the previous year.

For the year 2014-15, the RBI had paid Rs 658.96 billion dividend and Rs 526.79 billion in the year prior to that. However, the central bank hasn't given any specific reasons for the sharp fall in the surplus income for the year ended June 2017.

The government had expected Rs 580 billion in dividend from the RBI in 2017-18. In the Union Budget for 2017-18, the government had accounted for a dividend of Rs 749.01 billion from the RBI, nationalised banks and financial institutions for this fiscal. The dividend reduction by the RBI may put pressure on fiscal math and the government would have to find resources to meet its fiscal deficit target of 3.2% for 2017-18.

Explaining the rationale, former RBI Deputy Governor R Gandhi has pointed out that for the past few years, returns have been coming down on the back of negative interest rates in the developed countries. He also explained that due to increased liquidity in the system, the RBI has been borrowing money under reverse repo and paying interest which has implications on the revenue.

Moving on to news from the automobile sector. Automobile stocks plunged in today's trade with Tata Motors share price and Eicher Motors share price leading the losses.

Ashok Leyland has bagged an order for over Rs 1.2 billion from Rivigo, which is India's most innovative and fastest growing logistics company.

This order of 500 fully-built vehicles is driven by the success of the innovative Intelligent Exhaust Gas Recirculation (iEGR) technology which has been developed indigenously by Ashok Leyland.

Ashok Leyland share price finished the trading day down by 0.7%.

Meanwhile, domestic passenger vehicle sales increased 15.12% to 298,997 units in July from 259,720 units in the same month last year.

Domestic car sales were up 8.52% at 192,773 units as against 177,639 units in July last year, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Total two-wheeler sales in July grew 13.73% to 16,79,055 units as against 14,76,332 units in the year-ago month.

BSE Auto Index Witnessed the Highest Gains Since Financial Crisis

S&P BSE Auto index is the best performing sectoral index since the global financial crisis. Auto index has surged by a mammoth 823% since November 2008. This is way ahead as compared to the benchmark index returns of 230% during the same period.

The main reason leading to this surge is the booming consumption story. Driving aspirations of the rising middle class have pushed up car sales in the world's second most populous country. Further, benign interest rates and lower oil prices too have supported this consumption boom.

Not only this, value migration is pretty much evident in the auto sector. First time car buyers generally interested in entry level cars such as Alto and WagonR, are now hopping into the costlier Swift and Dzire. Five years ago, one out of three (33%) first time buyers purchased these costlier models. Now, one out of every two (50%) first times buyers purchase these costlier models.

In news from banking sector, SBI share price plunged 5.4% in today's trade after the company's heavy loan loss provisions dragged first quarter net profit down 20%. Net profit in the reporting quarter was down to Rs 20.06 billion against Rs 25.21 billion.

Asset quality worsened. As a percentage of total loans, gross non-performing assets (NPAs) spiked to 9.97% as compared to 6.9% in the previous quarter and 6.94% in the year-ago quarter.

In another development, Union bank of India share price too fell (down 5.2%) after the company reported nearly 30% fall in first-quarter net profit as provisions for bad loans remained high. Net profit fell to Rs 1.17 billion, for the three months ended 30 June, from Rs 1.66 billion a year ago.

Meanwhile, as per article in The Economic Times, Tata Steel is hopeful of 'shortly' reaching a final agreement on a deal to separate its UK pension scheme from its businesses. This development could pave the way for merger of its European businesses with German steel producer Thyssenkrupp.

Tata Steel UK and the BSPS trustee had in principle agreed on key commercial terms of a Regulated Apportionment Arrangement (RAA) in May. Tata Steel UK has offered to pay £550 million into its now closed pension scheme and give the fund a 33% stake in its UK business.

Tata Steel share price finished the day down by 1.4% on the BSE.

In news from the IPO segment, Cochin Shipyard share price surged 20% over the issue price of Rs 432 on its listing debut. The IPO was oversubscribed 76.19 times during the 1-3 August offer period.

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