Benchmarks end higher on Wednesday

Indian equity benchmarks edged higher and gained nearly half a percent on Wednesday driven by gains in Oil & Gas, Energy and Metal stocks. After the initial gap-up move, the markets remained range bound for most of the session, as traders took support with a private report that India is expected to see a normal monsoon in 2024, promising some respite after a prediction of more-than-normal heat wave days in the summer preceding the June-September rainy season. Monsoon rains are expected to be 102% of the long-period average of 868.6 mm for the four-month period. Traders took a note of the US National Security Advisor’s statement that the partnership between India and the United States has reached a new height with collaboration on technology and other fields.

Markets added gains in late afternoon deals, amid ease in crude oil prices as talks for a ceasefire in Gaza continued. Traders overlooked report by credit rating agency ICRA in which it has revised the banking sector outlook to Stable from Positive on the expectation of moderation in credit growth and profitability metrics, though the same would continue to remain healthy. It said while the compression in the interest margins over the last 18 months has been driven by rising deposit cost, the expectations of a rate cut in H2 FY2025 could lead to margin pressure, driven by a likely downward repricing of advances. Traders also paid no heed towards report that the Indian Meteorological Department has predicted that in the April-June period, various parts of the country could record 10-20 heat wave days compared to the normal four to eight days. Nearly half of India’s farmland, which has no irrigation cover, depends on the annual June-September rains to grow crops such as rice, corn, cane, cotton and soybeans. 

On the global front, European markets were trading higher amid bets that cooler inflation will allow the European Central Bank (ECB) to start lowering borrowing costs sooner than the Federal Reserve. Asian markets ended mostly down on Wednesday as investors awaited the release of U.S. CPI data for March and the Fed's March meeting minutes later in the day for additional clues on when the U.S. central bank will start lowering interest rates.

Finally, the BSE Sensex rose 354.45 points or 0.47% to 75,038.15 and the CNX Nifty was up by 111.05 points or 0.49% points to 22,753.80.   

The BSE Sensex touched high and low of 75,105.14 and 74,807.55 respectively. There were 21 stocks advancing against 9 stocks declining on the index. 

The broader indices ended in green; the BSE Mid cap index rose 0.89%, while Small cap index was up by 0.46%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 1.74%, Energy up by 1.71%, Metal up by 1.66%, PSU up by 1.42% and Basic Materials up by 1.30%, while Utilities down by 0.07% and Auto down by 0.04% were the few losing indices on BSE.

The top gainers on the Sensex were ITC up by 2.49%, Kotak Mahindra Bank up by 2.40%, Bharti Airtel up by 2.11%, SBI up by 1.94% and Asian Paints up by 1.36%. On the flip side, Maruti Suzuki down by 1.60%, HDFC Bank down by 0.83%, Larsen & Toubro down by 0.78%, Mahindra & Mahindra down by 0.62% and Tata Steel down by 0.48% were the top losers.  

Meanwhile, credit rating agency ICRA has revised the banking sector outlook to Stable from Positive on the expectation of moderation in credit growth and profitability metrics, though the same would continue to remain healthy. It said while the compression in the interest margins over the last 18 months has been driven by rising deposit cost, the expectations of a rate cut in H2 FY2025 could lead to margin pressure, driven by a likely downward repricing of advances. Notwithstanding the margin compression, it said the growth in loan book shall translate into steady operating profits, aided by benign credit costs. ICRA expects this to drive healthy earnings, that will largely be sufficient for most banks to meet their regulatory as well as growth capital requirements.

According to the report, the credit to deposit ratio (CD ratio) for the banks is estimated to have increased to 78% (excluding the merger of HDFC) as on March 22, 2024, the highest since December 21, 2018 (77.9%) and much higher compared to 75.7% as on March 24, 2023, and 71.9% as on March 25, 2022. This will pose significant challenges for the banks to pursue credit growth as their on-balance sheet liquidity has been deployed towards strong credit growth during the last two years. The CD ratio is likely to remain elevated at 77-78% (excluding HDFC merger) and over 80% (including HDFC merger) at the sector level in FY2025, even though some of the private banks may see a decline, while some of the public banks may see an increase in their CD ratio.

Rating agency expects the headline asset quality metrics of the banking sector to remain on an improving trajectory. Gross and net additions to non-performing advances (NPAs) are likely to increase amid seasoning of recently originated book and slower recoveries and upgrades as low hanging resolutions and recoveries are largely completed. However, continued growth in the loan book would lead to an improvement in the headline asset quality metrics. ICRA expects the gross NPAs (GNPAs) and net NPAs (NNPAs) to decline to 2.1-2.3% and 0.5-0.6%, respectively, by March 2025 from 3.0% and 0.7%, respectively, estimated for March 31, 2024, which would remain the best in more than a decade. Notwithstanding this, ICRA remains cautious about the impact of macro-economic shocks such as slowdown in credit growth, and high interest rates locally as well as in developed markets on the asset quality, if these were to materialise.

The CNX Nifty traded in a range of 22,775.70 and 22,673.70. There were 32 stocks advancing against 18 stocks declining on the index. 

The top gainers on Nifty were Coal India up by 3.56%, BPCL up by 3.46%, ITC up by 2.26%, Kotak Mahindra Bank up by 2.26%, ITC up by 2.26%, Kotak Mahindra Bank up by 2.26% and Hindalco up by 2.26%.  On the flip side, HDFC Life Insurance down by 2.04%, Cipla down by 1.68%, Maruti Suzuki down by 1.65%, Divi's Lab down by 1.58% and Shriram Finance down by 1.21% were the top losers.

European markets were trading higher; UK’s FTSE 100 increased 47.51 points or 0.6% to 7,982.30, France’s CAC rose 33.96 points or 0.42% to 8,083.13 and Germany’s DAX gained 124.27 points or 0.69% to 18,200.96.