Indian stocks begin the new year with a rally as bad loans fall
Financial companies drove India stocks higher on the first trading day of the year after soured debt ratios at the lenders narrowed.
The S&P BSE Sensex climbed 0.5 per cent to close at 36,254.57 points in Mumbai yesterday after ending 2018 as Asia’s best performing major market in local currency terms. It had fallen as much as 0.5 per cent earlier in the session. The broader NSE Nifty 50 Index rose 0.4 per cent.
The ratio of bad loans with the country’s banks fell for the first time since 2015, with the central bank predicting the number may drop further. The industry’s gross bad-loan ratio is expected to fall to 10.3 per cent by March from 10.8 per cent in September, the Reserve Bank of India said in its Financial Stability Report on Monday.
Fifteen of 19 sub-indexes compiled by BSE advanced, led by a gauge of realty companies. Housing Development Finance and HDFC Bank gave the biggest boosts to the benchmark index. Bank of Maharashtra and Central Bank of India also gained after government announced funding of 45 billion rupees (Dh2.37bn) and 16.8bn rupees, respectively
“Bank stocks are likely to do well as investors expect the bad loan situation to improve while lower inflation and crude may pave for lower interest rates,” said Jitendra Panda, managing director at Peerless Securities in Kolkata.
“Government’s focus now will be on winning back the elections and investors will closely watch how it strikes a balance between the need to spend while maintaining fiscal discipline,” said A K Prabhakar, head of research at IDBI Capital Market Services.
In a note, JM Financial analysts said they expect a 20 basis points fiscal slippage for the federal administration owing to unaccounted expenditure (increase in crop support price, under-provided fuel subsidy, net supplementary grant) and revenue shortfall.
The market recovery came as China was said to be seeking talks with India to allay concerns on a regional free trade agreement it is spearheading, as Beijing seeks newer markets amid the ongoing trade war with the US.
The 16-country Regional Comprehensive Economic Agreement has been in the works for a while and China is said to be keen to conclude it by end of 2019. India’s wariness about a possible flood of Chinese goods, and its demand for looser immigration rules for its tech professionals remain sticking points.
China’s inability to close the trade deal highlights the continuing suspicion among its Asian trading partners over Beijing’s effort to increase its influence in the region.
RCEP, along with the Belt and Road Initiative to build investment and trade links with countries along the old Silk Road to Europe, is a key element in China’s efforts to seize the geopolitical advantage. This follows what many in the region consider a US retreat under President Donald Trump.
The discussions between India and China are likely to take place before the end of this month, sources said.