Mumbai, India (BBN)-Indian shares fell around 0.3 per cent in thin trade on Monday in the first trading session of 2017, as banks fell on worries their profitability would be hit after reducing lending rates.
State Bank of India cut its so-called marginal cost of funds-based lending rate (MCLR) by 90 basis points across maturities on Sunday after a surge in deposits in old, banned 500- and 1,000-rupee notes, reports The Hindu Business Line.
Other lenders also announced cuts.
Still, the effective cut in lending rates will likely be less than 90 bps given that lenders are expected to protect their net interest margins by increasing spreads charged on mortgage and other loans.
Sentiment for lenders was also hit after Prime Minister Narendra Modi urged the sector on Saturday to act with the “public interest” in mind and to channel more credit to the poor and the middle class.
The weak start to 2017 also comes as a private survey on Monday showed Indian factory activity plunged into contraction last month as Modi’s currency crackdown severely hurt output and demand.
“Banks could be falling due to fears that lending rate cuts may hurt their net interest margins,” said Siddharth Purohit, a senior research analyst with Angel Broking.
“The market in general is expected to be rangebound in the near term while the key focus will be on the upcoming earnings season as traders wait to see the impact of demonetisation on corporates’ results.”
At about 1.30 pm, the BSE Sensex was down 0.29 per cent or 78.10 points at 26,548.36 while the broader NSE was down 0.22 per cent or 18.35 points at 8,167.45.
The NSE bank index was down 1.30 per cent. In intra-day trade, the index fell as much as 1.83 per cent in its biggest percentage fall since December 7.
SBI was down 2.5 percent and Punjab National Bank fell up to 0.74 per cent.
Among gainers, Eicher Motors Ltd was up 3.1 per cent after rising as much as 4.8 per cent earlier to its highest since December 12 on strong December sales amid the government’s demonetisation drive.
State-run oil refiners also rose after Indian Oil Corp announced a hike in petrol prices.
IOC and Bharat Petroleum Corp gained over 1 per cent each.
Lakshmi Vilas Bank rose as much as 1.1 per cent after the lender closed a $25 million share sale over the weekend.
Stocks of FMCG too were major losers, dragging the key indices down. ITC was down by 0.50 per cent, Marico by 2.44 per cent, Dabur by 0.86 per cent and HUL by 0.22 per cent.
Bucking the trend were stocks of realty companies, which were in demand after Prime Minister Narendra Modi on December 31 announced that loans of up to Rs. 9 lakh taken in the new year under the new scheme of Pradhan Mantri Awas Yojana will receive interest subvention of 4 per cent and loan of up to Rs. 12 lakh will get a 3 per cent interest waiver.
Shares of Unitech, DLF Ltd, HDIL, Oberoi Realty, Sobha Ltd, Godrej Properties, Indiabulls Real Estate and Omaxe Ltd trading in positive zone with gains of up to 7 per cent.
In the Sensex 30, HDFC was the biggest loser, down 3 per cent. SBI, Bajaj Auto, ICICI Bank, Axis Bank and Hero MotoCorp were down by up to 2.3 per cent.
Among the Sensex gainers were Tata Steel, Dr Reddy’s, Bharti Airtel, M&M and Tata Motors.
Also, absence of cues from other global markets which are closed today left an impact on the markets.
A report by SMC Global said “Investors will have few cues to work with as equity markets in China, Japan, Hong Kong, and Australia are all shut on account of the new year holiday.
US stocks slumped on the last trading day of the year, all three major indices ended the year with three straight days of losses for the first time since 4 November led by big tech stocks, but major indexes still posted solid gains in 2016.
It is expected that China’s central bank is set to tighten the supervision on cash transactions and overseas transfers from the middle of 2017. Financial institutions should report all domestic and overseas cash transfers exceeding CNY 50,000 instead of existing CNY 200,000 to the People’s Bank of China.
Also, the banks need to report any overseas transfers in other currencies of $10,000 or more.”