Mar 03, 2016 08:12 AM IST | Source: Moneycontrol.com

New RBI capital rules lift Bank Nifty 5%; Sensex zooms 464 pts

Street was expecting some rate cut from the RBI after the Union Budget provided sufficient space but the RBI on Tuesday relaxed capital rules for banks to help meet Basel-III norms that will provide additional capital to banking sector. It is a big relief to banks that have been struggling with higher NPA issue.

New RBI capital rules lift Bank Nifty 5%; Sensex zooms 464 pts

Moneycontrol Bureau

Bulls roared again on Wednesday as equity benchmarks posted biggest second-day rally in seven years with the Sensex rising 500 points intraday, driven by banks after the Reserve Bank of India changed rules that determine banks' regulatory capital, and positive global cues. It was in addition to 777-point rally in previous session on hopes of rate cut.

The 30-share BSE Sensex surged 463.63 points or 1.95 percent to 24242.98 and the 50-share NSE Nifty climbed 146.55 points or 2.03 percent to 7368.85. The broader markets too traded in line with benchmarks as the BSE Midcap index gained 1.9 percent and Smallcap rose 2.2 percent. About three shares advanced for every share declining on the BSE.

Ajay Srivastava of Dimensions Consulting said the current bounceback may have some more legs to go but till economic fundamentals solidly change, investors must be cautious to not over invest.

He also said the RBI's move yesterday to tweak capital norms will help banks shore up capital but this may be a followed by another NPA (non-performing assets) hit in the fourth quarter.

Street was expecting some rate cut from the RBI after the Union Budget provided sufficient space but the RBI on Tuesday relaxed capital rules for banks to help meet Basel-III norms that will provide additional capital to banking sector. It is a big relief to banks that have been struggling with higher NPA issue.

As per the new rules, banks will be allowed to recognise part of their real estate assets, foreign currency assets and deferred tax assets as capital with suitable hair cut.

This measure is a big positive particularly for State Bank of India because the bank never had revaluation reserves on balance sheet, Ravikant Bhat of IDBI Capital said, adding other beneficiary could be Corporation Bank.

PS Jayakumar, MD & CEO of Bank of Baroda says the Reserve Bank’s new amendments on balance sheet items will help in improving common equity Tier 1 (CET I) by 1.1 percent while Anshula Kant, CFO of State Bank of India (SBI) says that the bank should get upward of 100 basis points (bps) of capital [adequacy ratio].

State Bank of India rallied 11.5 percent followed by ICICI Bank, Punjab National Bank and Bank of Baroda with 7 percent upside. Bank Nifty surged 4.7 percent.

Reliance Industries rose 2 percent. Morgan Stanley retained its overweight rating on the stock with increased target price at Rs 1,329 (from Rs 1,200 per share) as it believes the company should generate strong free cash flow over the next five years.

Adani Ports surged 6 percent after a media report indicated that the government approved company's proposal to club 3 SEZs in Gujarat. Hero Motocorp gained more than 5 percent, hitting fresh 52-week high of Rs 2,857.35 intraday after the world's largest two-wheeler manufacturer sold 5.5 lakh units in February, higher by 13.6 percent year-on-year.

State-owned power equipment maker BHEL climbed 5 percent on getting Rs 5,600 crore worth of order for supercritical thermal power project from Tamil Nadu government.

Mahindra & Mahindra was the biggest loser on Sensex, down more than 5 percent. Credit Suisse downgraded the stock to neutral and slashed target price to Rs 1,310 after the company sees 100 basis points negative margin impact from Q4FY16 onwards due to phase out of excise duty incentives at Haridwar plant. Haridwar plant comprises 15 percent of M&M's total volumes including manufacturing of Scorpio and Bolero.

Bajaj Auto fell more than 1 percent as its exports declined 12 percent in February, though total sales increased 12 percent to 2.7 lakh units YoY supported by domestic sales.

Among others, Infosys, HDFC, HDFC Bank, TCS, HUL, Maruti, Tata Steel and Hindalco Industries gained 3-6.5 percent while ITC, Sun Pharma and Coal India fell nearly 2 percent on profit booking.

Foreign institutional investors bought Rs 1,437.5 crore worth of shares while domestic institutional investors sold Rs 593.67 crore worth of shares today, as per provisional data available on NSE.

Meanwhile, the rupee gained for fourth consecutive session today, closing at 67.54 a dollar compared to 67.86 a dollar in previous session (and 68.71 a dollar on last Thursday).

On the global front, European markets traded marginally higher today, tracking gains in the US and Asia. FTSE, CAC and DAX gained nearly half a percent (at 16 hours IST).

Markets in Asia were higher, with Japan's Nikkei and China's Shanghai leading the way, up over 4 percent after a strong finish on Wall Street overnight. Hang Seng jumped over 3 percent.

Disclaimer: Reliance Industries owns Network 18 that publishes Moneycontrol.com.

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