Sensex Opens Flat; Energy & Realty Stocks Lead

Tue, 5 Sep 09:30 am

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Asian stock indices are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.06%, while the Hang Seng is down 0.19%. The Nikkei 225 is trading lower by 0.47%. US markets were shut overnight on account of Labor Day.

Back home, share markets in India have opened the day on a flat note with positive bias. The BSE Sensex is trading higher by 25 points while the NSE Nifty is trading higher by 13 points. The BSE Mid Cap and BSE Small Cap index both opened the day up by 0.5%.

All sectoral indices have opened the day in green with stocks from energy sector and realty sector leading the gainers. The rupee is trading at 64.05 to the US$.

Bank stocks opened the day on a mixed note with DCB Bank and South Indian Bank witnessing maximum buying interest. HDFC Bank share price opened the day on an optimistic note after the Reserve Bank of India has added HDFC Bank in the list of Domestic Systemically Important Banks (D-SIBs).

Since 2015, the central bank has been identifying banks whose failure would impact the whole financial system. These banks are subject to more rigorous regulation and capital requirement. State Bank of India and ICICI Bank were identified as DSIBs under the RBI rules in 2015.

HDFC Bank's inclusion in this category means that the bank would need to adhere to higher capital requirements. The positive side of being recognised as a systemically important bank is that investors would feel more secure in parking bulk funds in these institutions as they are too big to fail.

Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. HDFC Bank falls in bucket 1 and an additional CET-1 requirement of 0.15% will be applicable for it from 1 April 2018.

SIBs are seen as 'too big to fail', creating an expectation of government support for them in times of financial distress. These banks also enjoy certain advantages in funding markets.

On the downside, expectations of government support amplify risk-taking, reduces market discipline, creates competitive distortions and increases probability of distress in the future, the reports noted.

Moving on to the news from the economy. Domestic rating agency Crisil has lowered its growth forecast to 7% for fiscal 2018, down from 7.4% earlier, as it sees disruptions arising from the implementation of the new uniform tax regime to continue to impact the economy for a few more quarters.

In the first quarter of the current fiscal, the GDP growth fell to 5.7%. This was the slowest in the past three years and the country lost the tag of being the fastest growing large economy again to China.

As per Crisil, the current year will see some headwinds in the form of GST-related disruptions at a time the economy tries to recover from the impact of the note-ban announced last November.

The 7% growth forecast implies a GDP growth of 7.4% in the remaining three quarters.

Further, economic recovery will face challenges in an environment of subdued global growth and weak domestic investments even as the benefits of low commodity prices till last year may not be available this year and hence the bottomline may remain under pressure, the reports noted.

On the external front, it felt that though global growth prospects appear somewhat better relative to 2016, factors such as falling trade growth, rising geopolitical risks and uncertainties surrounding the pace of normalisation of monetary policy in the advanced nations, coupled with rupee appreciation would mean contribution of exports to domestic economic growth would be limited.

Crisil cautioned that manufacturing growth could slow down to 7.6% in 2017-18 from 7.9% last year. Agricultural growth, however, is expected to be buoyant.

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