The likelihood of interest rate increase by the United States Federal Reserve ~ as hinted at in its latest minutes ~ triggered fresh selling pressure in Wall Street in overnight trade as well as on the regional exchanges in Asia-Pacific this morning. In Dalal Street traders booked profit amid volatility caused by the expiry of F&O derivaties contracts for February. Barring IT segment, other sectors witnessed a broad-based sell-off.
Besides, bond yield in the USA rose to a four-year high also on account of strong indications of rate hike by the Fed. The US dollar firmed up against select currencies including the partially convertible rupee which slipped to 65.06/$ in morning deals against yesterday’s closing price of 64.76/dollar.
The US Fed said: “The strengthening in the near-term economic outlook increased the likelihood of a gradual upward trajectory of Federal funds rate.” The Reserve Bank of India’s minutes of the recent meeting of Monetary Policy Committee released yesterday too expressed concern over upside risk to consumer price index linked inflation and slippages in the government’s budgetary deficit management.
Dalal Street buzz suggests the central bank may increase repo rate (at which it lends money to commercial banks) by 25 basis points or 0.25 per cent in 2018 calendar year. Increase in cost of funds will impact lenders, fear market analysts.
Volatility generated by a combination of internal and external factors subsided in the afternoon as the 30-share Sensitive Index of Bombay Stock Exchange and 50-scrip Nifty of National Stock Exchange not only pared intra-day losses but managed to recover fast on short-covering.
The Sensex which was down 33,691.56 (-153.30) points closed at 33,819.50 (-25.36) points down 0.07 per cent. Nifty came back from the day’s 10,340.65 (-56.80) points low to end 0.14 per cent down at 10,382.70 (-14.75) points. Nifty Bank managed to stay in green at 24,955.20 (+18.50) points up 0.07 per cent. But Nifty PSU Bank closed at 3,155 (-15.70) points losing 0.55 per cent. In Sensex nine stocks advanced and 22 declined. For Nifty it was 16:34.
Analysing the recent trends in the aftermath of the revival of LTCG or long-term capital gains tax (effective 1 April) in the Budget 2018-19, analysts expect subdued involvement of foreign portfolio investors in equity market on a long-term basis. Kotak mahindra AMC’s Mr Nilesh Shah said: “New highs on the indices will require uptrend in corporate results and some clarity on the 2019 election verdict.
Barring PSU banks, most of the corporate earnings were either in line with the expectations or ahead of expectations. After “explosive rally of 2017, 2018 may see volatility impacting the repeat of last year’s performance. Analysts say the indices are likely to be rangebound in the near-term for want of a positive trigger.
Global bank Goldman Sachs in a report lowered EPS (earning per share) for three top state-run lenders ~ State Bank of India, Bank of Baroda and Punjab National Bank raising questions over governance or management shortcomings.
This year’s earning estimate for SBI has been cut one per cent. For BoB it was 12 per cent and in case of PNB 30 per cent “even after taking into consideration the government’s announcement to infuse $33 billion fresh capital. Goldman sachs further says EPS for SBI and BoB lowered on the back of share-dilution and on PNB it predicts a larger EPS decline.