The Sensex and Nifty were trading in the green amid an ongoing board meeting of the RBI where the apex bank and the government are expected to reach a common ground over issues ranging from MSME credit to the central bank’s reserves, though both sides are in favour of reaching a common ground.
While the Sensex rose 102 points higher at 35,559 level, the Nifty gained 20 points to 10,702 level.
In early trade too, the Sensex opened 190 points higher at 35647 compared to its previous close of 35457 points. The Nifty too rose 49 points to 10,731 level.
One of the key issues is addressing the liquidity shortage hampering the Non-banking finance companies (NBFCs). The shortage could cause the credit markets to collapse putting the broader economy at risk. These NBFCs are now demanding a special liquidity window to tide over their mismatches. Ideally, the NBFCs should sell their assets to banks or other strong entities to generate liquidity. If this option is fully exercised, only then there is a need to open a special RBI window.
The NBFC stocks were trading mixed amid the ongoing meeting.
PNB Housing Finance was trading 0.89% lower, Indiabulls Housing Finance dipped 2.32%, Dewan Housing Finance rose 2.86%, Mahindra & Mahindra Financial Services fell by 0.74 per cent, Ujjivan Financial Services declined 0.22 per cent and Shriram Transport Finance softened by 0.85 per cent on the BSE.
Shares of Bajaj Finance were trading lower by 0.80%. Edelweiss Financial Services was trading 0.95% higher, JM Financial rose 1.45% and IIFL Holdings gained 2.07%.
Stocks of NBFC companies have led the market lower since hitting their all time highs in August end.
On August 29, the Sensex and Nifty reached their lifetime highs of 38,989 and 11,760 respectively.
Since then, the Sensex has fallen 8.71% and Nifty is down 8.93% till date partly due to NBFC stocks taking a hit as IL&FS crisis led to shortage of liquidity among these firms.
Discussions are also expected between the government and the RBI related to restrictions on the public sector banks brought under prompt corrective action (PCA). There are close to a dozen public sector banks that are under Prompt Corrective Action (PCA), which means they cannot lend money to the industry. There is no doubt that the government has to commit more capital to make these banks healthy, but RBI can also lift some of the discretionary restrictions, like those on credit and operations. The RBI can easily allow banks with improved performance to start lending to good MSMEs.
The RBI has placed 11 public sector banks and one private lender under its prompt corrective action list.
While stocks of PCA banks such as IDBI Bank (0.16%), UCO Bank (3.63%), Central Bank of India (0.80%), Indian Overseas Bank (0.67%) , Dena Bank (2.42%), Indian Overseas Bank (0.67%), Bank of Maharashtra (3.95%) United Bank of India (1.51%) Allahabad Bank (0.92%) gained, the losers in the PCA list were Bank of India (0.74%), Oriental Bank of Commerce (1.36%), Dhanlaxmi Bank (1.84%).
Meanwhile, YES Bank (6.17%) , Tata Motors (2.68% )and Vedanta were the top Sensex losers.
ONGC, Bharti Airtel and Adani Ports were the top Sensex losers falling over 1% each.