A sell-off in the markets resumed after the previous week’s breather, with the volatile Nifty trading in a wide range between 10,250 and 10,700 levels. Growth concerns in China and global trade tensions weighed on global sentiments. Plans for bilateral trade talks between the United States and China have stalled, keeping markets shaky and putting pressure on China’s already softening economy and weakening currency.
Index heavyweight Reliance Industries fell sharply despite posting a record quarterly profit. Investors seemed disappointed as the company’s gross refining margins fell to a 3.5-year-low. In addition, trade deficit continued to haunt sentiments on the street.
Fresh liquidity concerns emerged in the NBFC space, particularly in the housing finance companies, after real estate developer Supertech Ltd’s credit facilities were downgraded to default status. Currently it’s not just a question of default by any of the other NBFCs but the short-medium mismatch of assets vs liabilities which could create a liquidity crisis going ahead. This is leading to risk aversion among investors.
Mid-cap and small-cap indexes declined by 1.6 percent and 0.5 percent, respectively. Auto index declined by 4.3 percent, Realty index was down 2.5 percent, Metal index fell 2.1 percent while FMCG index gained 2.4 percent and the Pharma index rose 1.3 percent. FIIs were net sellers to the tune of 15.76 billion rupees during the week while DIIs bought 10 billion rupees worth of shares.
The rupee remained stable for the week and closed below 73.5 against the dollar despite the latter’s strength and weakness in equity markets. Brent Crude corrected to close at $79.66.
The NBFC sector was in the line of fire after IL&FS defaulted again on its payments and the downgrading of real-estate developer SuperTech Ltd’s 18.66 billion rupee credit facilities. Indiabulls Housing Finance, L&T Finance Holdings and other mortgage lenders slumped as rising cases of defaults raised liquidity concerns. To counter these fears, the RBI announced additional measures to ease near-term liquidity pressure on NBFCs/HFCs. However, the measures failed to impress markets and NBFC stocks continued to take a beating.
On the earnings front, MphasiS, Mindtree, NIIT Tech, Infosys, TCS and Zee Entertainment reported better-than-estimated numbers, while Ultratech Cement, ACC, Karnataka Bank, Indiabulls Housing Finance, Indusind Bank and Avenue Supermarts performed below expectations. SBI Life, RIL, Hero MotoCorp and HUL reported numbers which were in line with expectations. HDFC Bank’s record profit, announced during the weekend, may bring some cheer to the markets on Monday morning.
Company results to watch out for in the coming week include those of Asian Paints, Adani Ports, Ambuja Cements, HCL Tech, Bajaj Auto, Kotak Bank, Wipro, Bharti Airtel, Maruti Suzuki, Yes Bank, Dr. Reddy’s, ICICI Bank and ITC.
Markets are expected to be volatile again due to expiry of derivatives contracts on Thursday and the jitters over the NBFC sector. Investors will be fearful of more skeletons tumbling out of the closet of IL&FS and its ilk.
I would suggest a wait-and-watch approach as any action at such an uncertain time could be counterproductive. With many investors’ portfolios in the red, one may need to patiently bear this pain for a while.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.
The views expressed in this article are not those of Reuters News.