Sensex, Nifty record 1month closing lows; more downside likely
TAXING TIMES FOR MARKET GST implementation key as investors prefer to wait and watch before its roll out on July 1
Benchmark equity indices Sensex and Nifty tumbled to their lowest close in more than a month on Tuesday dragged down by weakness in state-run bank stocks and investor anxiety ahead of the implementation of the Goods and Services Tax on Saturday. The weakness may persist for a while, said dealers.
BSE’s 30-share Sensex closed 0.58%, or 179.96 points, lower at 30,958.25 points. National Stock Exchange’s (NSE) 50-share Nifty shed 0.66%, or 63.55 points, to close at 9,511.40 points. It was the lowest close since 25 May for both indices.
“The market will take a breather for now. We also have a strong supply in the primary market, so the flows will get absorbed there,” said Nirav Sheth, head of equities at SBICap Securities. “There is no nearterm visibility on earnings for now. The GST implementation is bound to bother earnings in the near term.”
So far this month, more than ₹3,500 crore had been raised through initial public offers (IPO) taking the total amount this year to ₹9,860 crore. There are also various other offers in the pipeline such as National Stock Exchange of India Ltd, SBI Life insurance Co Ltd, ICICI Lombard General Insurance Co Ltd and General Insurance Corporation of India. These are expected to soak up fund flows, analysts said.
Shares of state-run banks were hammered after the Reserve Bank of India (RBI) asked banks to set aside at least 50% of the loan amount for accounts referred to bankruptcy courts. For unsecured loans, they would have to set aside the whole amount advanced.
“The noose has tightened on recognition and provisioning against bad loans,” said Dipen Sheth, head of institutional research at HDFC Securities. “For some...the pain may be more intense.”
On Monday, ratings agency Crisil Ltd said that banks will have to increase provisioning by another 25% this fiscal compared with 9% in the last, based on its assessment of haircuts, or sacrifice of loan amount, that have to be made.
In Tuesday’s trade, NSE’s PSU Bank index, shed the most among sectoral indices on the exchange. It dropped 3.38% to 3,328 points — its lowest close since 23 March with all 10 con- stituents closing in the red.
Syndicate Bank and Punjab National Bank were the biggest losers, as they declined 5.82% and 5.35% respectively. Peers Canara Bank, Allahabad Bank, Bank of Baroda and Andhra Bank shed more than 4% each.
A third factor spooking the market is the GST scheduled for this week, with many expecting the impact to be negative in the short term.
“With just four days to go, the countdown to “One nation, One tax” has begun,” said Karthikraj Lakshmanan, senior fund manager – equities at BNP Paribas Mutual Fund.
“While investors are optimistic about a unified tax code for the country, they are cautious about the near term impact of its implementation.”
According to Kotak Institutional Equities, the short-term impact of GST could be neutral to negative for the broader economy.
“Production processes will likely take some time to align with the new framework as firms adjust to the input tax credit system and get a handle on the working capital requirements too,” the brokerage said in a note on Tuesday. “We would be cautious on economic growth for next one to two quarters.”
Tuesday’s fall was broadbased.
On BSE, 26 stocks lost value for every 10 stocks that gained. Twenty of 30 Sensex stocks closed lower. Top lender State Bank of India was the biggest loser among Sensex components, as it dropped 3.27%.