Terrible Tuesday: Sensex, Nifty suffer collateral damage!

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iifl16th July, 2013 : Comments by Amar Ambani, Head of Research, India Infoline 

 

Terrible Tuesday! Sensex, Nifty suffer collateral damage

 

It was a terrible Tuesday with the stock market witnessing serious collateral damage. The benchmark indices crashed in opening trade after the Reserve Bank on Monday announced measures to tighten rupee liquidity. In a move to curb exchange rate volatility, it raised the marginal standing facility and the bank rate to 10.25% from 8.25%. The RBI also decided to lower rupee liquidity in the system by capping the liquidity adjustment facility at Rs. 75,000cr from Wednesday.

 

Commenting on the same, Amar Ambani, Head of Research at IIFL, feels this move will hurt the stocks of banking and non-banking financial companies materially. “Apart from hurting margins through higher borrowing cost, it may impact credit growth and asset quality. Increase in yields of long-dated government securities could spell treasury losses for some banks. In our view, wholesale-funded banks and NBFCs would be more adversely impacted as they may witness higher margin contraction,” he stated.

 

According to Ambani, Yes Bank, IndusInd Bank, Axis Bank, ICICI Bank, LIC Housing Finance, Mahindra Finance and Shriram Transport Finance Company are likely to be hit adversely in the near term. However, all is not lost, he advises buying these companies in case of an over 7-8% further correction.

 

It recovered from the day’s lows to trade in a tight range. But sentiment remained weak as many international brokerage houses cut India’s FY14 growth forecast to 5.5% of GDP from 5.8% earlier.

 

In nutshell, by propping up the rupee, RBI has closed the door on further rate cuts. This is what prompted the sell-off in rate sensitives banking, realty and auto stocks. Capital goods and metals stocks also saw some weakness. Even midcap and smallcap stocks came under immense selling pressure.

 

However bucking the negative trend was defensives like FMCG and oil and gas stocks.

 

DLF, IndusInd Bank, JP Associates, IDFC, Axis Bank, Punjab National Bank, Kotak Mahindra Bank, ICICI Bank and Reliance Infrastructure lost out while ITC, BPCL, Ambuja Cements, Bharti Airtel, Hindustan Unilever, ACC, ONGC, Tata Motors and NTPC gained.

 

The Sensex closed at 19, 851, down 183 points , while the Nifty shut shop at 5,955 down 76 points over Monday’s close.

 

The advance-decline ratio favoured the bears. On the Bombay Stock Exchange, 1,421 stocks declined against 873 advances, while 138 stocks remained unchanged.

 

Volatility, as measured by India VIX, was up 1% at 18.99. It hit a day’s high of 19.82 and low of 17.79.

 

Stocks in News:

 

Ashok Leyland crashed 9% on Tuesday after posting a Q1 FY14 net loss. The commercial vehicle manufacturer posted a net loss of Rs. 1.42bn as compared to a profit of Rs. 670mn in the same period last year.

 

JSW Steel closed at Rs. 567, down Rs.22.3 or 3.9%, on reports that the company is set to buy stake in Sandur Manganese & Iron Ores.

 

Financial Technologies wiped out most of its losses and closed at Rs. 729.05, down Rs. 3.45 or 0.4%. The Consumer Affairs Department sought an undertaking from its subsidiary National Spot Exchange that no further contracts will be launched and all existing contracts will be settled by their due dates. Some clarifications were made by NSEL during the course of the day.

 

Exide Industries closed at Rs. 123.95, up Rs. 1.55 or 1.2%, after the battery maker posted a Q1 FY14 net profit after tax of Rs. 1588mn as compared to Rs. 1520.4mn YoY.

 

Oberoi Realty closed at Rs. 202, down Rs. 13.70 or 6.3%, on dismal Q1 FY14 results. The company posted a net profit of Rs 101.82cr as compared to a net profit of Rs 100.8cr last fiscal.

 

 

It was a terrible Tuesday with the stock market witnessing serious collateral damage. The benchmark indices crashed in opening trade after the Reserve Bank on Monday announced measures to tighten rupee liquidity. In a move to curb exchange rate volatility, it raised the marginal standing facility and the bank rate to 10.25% from 8.25%. The RBI also decided to lower rupee liquidity in the system by capping the liquidity adjustment facility at Rs. 75,000cr from Wednesday.

Commenting on the same, Amar Ambani, Head of Research at IIFL, feels this move will hurt the stocks of banking and non-banking financial companies materially. “Apart from hurting margins through higher borrowing cost, it may impact credit growth and asset quality. Increase in yields of long-dated government securities could spell treasury losses for some banks. In our view, wholesale-funded banks and NBFCs would be more adversely impacted as they may witness higher margin contraction,” he stated.

 

According to Ambani, Yes Bank, IndusInd Bank, Axis Bank, ICICI Bank, LIC Housing Finance, Mahindra Finance and Shriram Transport Finance Company are likely to be hit adversely in the near term. However, all is not lost, he advises buying these companies in case of an over 7-8% further correction.

 

It recovered from the day’s lows to trade in a tight range. But sentiment remained weak as many international brokerage houses cut India’s FY14 growth forecast to 5.5% of GDP from 5.8% earlier.

In nutshell, by propping up the rupee, RBI has closed the door on further rate cuts. This is what prompted the sell-off in rate sensitives banking, realty and auto stocks. Capital goods and metals stocks also saw some weakness. Even midcap and smallcap stocks came under immense selling pressure.

However bucking the negative trend was defensives like FMCG and oil and gas stocks.

DLF, IndusInd Bank, JP Associates, IDFC, Axis Bank, Punjab National Bank, Kotak Mahindra Bank, ICICI Bank and Reliance Infrastructure lost out while ITC, BPCL, Ambuja Cements, Bharti Airtel, Hindustan Unilever, ACC, ONGC, Tata Motors and NTPC gained.

The Sensex closed at 19, 851, down 183 points , while the Nifty shut shop at 5,955 down 76 points over Monday’s close.

The advance-decline ratio favoured the bears. On the Bombay Stock Exchange, 1,421 stocks declined against 873 advances, while 138 stocks remained unchanged.

Volatility, as measured by India VIX, was up 1% at 18.99. It hit a day’s high of 19.82 and low of 17.79.

Stocks in News:

Ashok Leyland crashed 9% on Tuesday after posting a Q1 FY14 net loss. The commercial vehicle manufacturer posted a net loss of Rs. 1.42bn as compared to a profit of Rs. 670mn in the same period last year.

JSW Steel closed at Rs. 567, down Rs.22.3 or 3.9%, on reports that the company is set to buy stake in Sandur Manganese & Iron Ores.

Financial Technologies wiped out most of its losses and closed at Rs. 729.05, down Rs. 3.45 or 0.4%. The Consumer Affairs Department sought an undertaking from its subsidiary National Spot Exchange that no further contracts will be launched and all existing contracts will be settled by their due dates. Some clarifications were made by NSEL during the course of the day.

Exide Industries closed at Rs. 123.95, up Rs. 1.55 or 1.2%, after the battery maker posted a Q1 FY14 net profit after tax of Rs. 1588mn as compared to Rs. 1520.4mn YoY.

Oberoi Realty closed at Rs. 202, down Rs. 13.70 or 6.3%, on dismal Q1 FY14 results. The company posted a net profit of Rs 101.82cr as compared to a net profit of Rs 100.8cr last fiscal.