Benchmarks extend their plunge in early trade

The Indian equity markets have witnessed sharp decline in the early trade on sustained selling by foreign funds and retail investors after the RBI raised key policy rates by 50 basis points on Tuesday. The US markets closed flat overnight with a negative bias and all the Asian peers were trading in the negative terrain at this point of time, further dampening the sentiments. Back home, sustained selling in most of the heavyweights was keeping the momentum on a negative side. BSE's -- Sensex -- breached its crucial 18,400 level while, NSE's -- Nifty -- was trading just above its crucial 5,500 mark. On the sectoral front, auto, software and technology were the major losers, while there was no gaining sectoral gauge in the trade. The broader indices too were bleeding badly in the early morning session. However, PSU oil marketing companies viz BPCL, HPCL and IOC were trading with good gains in a range of 0.50-1.50 percent as RBI called for a hike in petrol and diesel prices in its credit policy on Tuesday and the international crude prices declined. The market breadth on the BSE was negative; there were 1184 shares on the losing side against 460 shares on the gaining side while 58 shares remained unchanged.

The BSE Sensex opened at 18,558.33; about 24 points higher compared to its previous closing of 18,534.69, and has touched a low of 18,339.53, while high remain its opening. The index is currently trading at 18,385.57, down by 149.12 points or 0.80%. There were just 4 stocks advancing against 26 declines on the index.

The overall market breadth has made a dismal start with 27.03% stocks advancing against 69.57% declines. The broader indices too were bleeding terribly; the BSE Mid cap and Small cap indices lost 0.92% and 0.78% respectively.

All sectoral indices on the BSE were trading down; Auto down by 2.05%, IT down by 1.38%, TECk down by 1.23%, Metal down by 1.10% and HC down by 0.95%, were the major losers on the index.

HUL up by 0.79%, BHEL up by 0.45%, SBI up by 0.15% and RIL up by 0.05%, were the only gainers on the BSE.

On the flip side, Bajaj Auto down by 4.97%, Hero Honda down by 2.85%, JP Associates down by 2.47%, Jindal Steel down by 1.97% and Infosys down by 1.93% were the top losers on the index.

Meanwhile, the Reserve Bank of India (RBI) in its Monetary Policy Statement for the fiscal 2011-12 has stated that the framework of regulations of microfinance institutions (MFI) recommended by the Malegam Committee had been broadly accepted by the central bank. There were a few changes here and there but overall the RBI agreed to what was suggested by the committee.

Explaining the microfinance crisis and the need for regulations, RBI Governor D Subbarao said that amidst the Andhra Pradesh micro finance crisis in 2010, there were concerns expressed by various stakeholders and the need was felt for more rigorous regulation of non-banking financial companies (NBFCs) functioning as MFIs. He added that the report submitted by the Malegam Committee provided valuable inputs in this context and most of the recommendations have been accepted.

Among other things, the committee had recommended creation of a separate category of NBFC-MFIs; placing a margin cap and an interest rate cap on individual loans; ensuring transparency in interest charges; ceiling of maximum two MFIs lending to one individual and establishment of a proper system of grievance redressal procedure by MFIs. The committee had also called for creation of one or more social capital funds and continuation of categorisation of bank loans to MFIs, complying with the regulation laid down for NBFC-MFIs, under the priority sector.

The RBI stated in annual policy release that it had decided to accept the broad framework of regulations recommended by the Committee. Thereby, bank loans to all MFIs, including NBFCs working as MFIs on or after April 1, 2011, will be eligible for classification as priority sector loans under respective category of indirect finance. However, for this purpose such loans must confirm to certain qualifying conditions.

Most of the criteria set by the RBI are same as recommended by the Malegam Committee but the same have been relaxed a bit by the central bank. For instance, the MFI loans are eligible for only household with annual income not exceeding Rs 60,000 in case of rural areas and Rs 1,20,000 in case of urban areas. Malegam Committee had pegged urban income criteria at Rs 50,000 which was considered insufficient given the rising cost of living. Similarly, the MFIs will face a ceiling of interest rate of 26% compared with 24% recommended by the committee. There are some other conditions involved too like MFI loans must not to exceed Rs 35,000 in the first cycle and Rs 50,000 in subsequent cycles and total indebtedness of the borrower must not to exceed Rs 50,000 at any point.

The S&P CNX Nifty opened at 5,567; about 2 points higher compared to its previous closing of 5,565.25, and has touched a low of 5,503.00, while high remain its opening. The index is currently trading at 5,509.40, down by 55.85 points or 1%. There were 6 stocks advancing against 44 declines on the index.

The top gainers of the Nifty were Ranbaxy up by 1.52%, BPCL up by 1.01%, Kotak Bank up by 0.80%, HUL up by 0.55% and BHEL up by 0.44%.

The top losers of the index were Bajaj Auto down by 5.57%, Ambuja Cement down by 5.21%, ACC down by 4.79%, Dr Reddy down 2.67% and Hero Honda was down by 2.46%.

All the Asian counterparts were trading in the red; Shanghai Composite was down 27.86 points or 0.95% to 2,904.33, Hang Seng was down 297.60 points or 1.26% to 23,335.65, Jakarta Composite was down 13.39 points or 0.35% to 3,800.48, KLSE Composite was down 7.47 points or 0.49% to 1,524.00, Straits Times was down 37.95 points or 1.20% to 3,115.62, Seoul Composite was down 23.43 points or 1.06% to 2,177.30 and Taiwan Weighted was down 55.77 points or 0.62% to 8,890.31. 

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