Indian equity markets crash

Fri, 16 Aug Closing

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The Indian equity markets continued to bleed throughout the day and have ended on a weak note. Most of the decline was attributable to the decline in the Indian Rupee that plunged to a new low during the day. In addition to this there were panic signals attributable to the early signs of trimming the monetary stimulus program by US Federal Reserve next month that have kept markets in the region under pressure. Stocks across the board ended on a weak note with those from the consumer durables, realty, banking and metal sectors facing the maximum selling pressures. The BSE Sensex closed down by about 769 points while the NSE-Nifty closed down by 235 points. The Sensex today eroded the close to 600 point gains it had notched up on the remaining days of the week. The BSE Mid Capand the BSE Small Cap indices closed on a weak note as well and were down by 2.6% and 2.1% respectively.

As regards global markets, Asian indices also closed on a weak note. European indices have opened on a mixed note. The rupee was trading at Rs 61.79 to the dollar at the time of writing.

All PSU Bank stocks have ended the day in red with Bank of India, Canara Bank, and Bank of Baroda facing maximum selling pressure. In an announcement today from Finance Ministry, the appraisals of top public sector bank managers will accord higher weightage to debt recovery. In the backdrop of the surge in bad loans particularly in the books of public sector lenders, this move comes as no surprise. The non-performing assets to total credit ratio of public sector banks have increased to 3.78% as reported at the end of March 2013 from 3.17% a year ago. The performance incentives of top executives of these lenders will now be increasingly linked to the performance of credit portfolio and debt recovery. The finance ministry has already ordered banks to review their top 300 non-performing accounts by the top management committee of the bank board.

Non-performing assets (NPAs) have been eating away into the profits of the bank. State Bank of India (SBI), the country's largest lender in its 1QFY14 earnings review reported a 13.6% YoY decline in its net profits. The gross NPAs for the bank stood as high as 5.56% and the net NPAs touching 3% levels. SBI share closed down by 3.3% today.

All Cement stocks have closed in red today with Madras Cements, Birla Corp and Mangalam Cement facing the maximum selling pressures. The second biggest cement maker in South India, Madras Cements has come under scanner. This was with regards to the company's CSR funds being allocated to a promoter-run trust for building an engineering college. The company has set aside already a huge sum of Rs 305 m as part of its CSR (corporate social responsibility) strategy. The donations in recent periods have led to an increase in other expenditure giving rise to investor concerns. The top management has defended the move as being part of the company's corporate social responsibility activity and hence no cause of concern. The step has been particularly drawn attention as the contributions to the company trust is a non-core activity and comes without a shareholder approval. Moreover, minority shareholders also have a claim on part of the funds.