Sensex Opens Over 400 Points Down; Automobiles Stocks Fall

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Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.9% while the Hang Seng is down 1.7%. The Shanghai Composite is trading down 2.6%. US stocks dipped on Friday, as the S&P 500 snapped a three-day streak of record closes, following an unexpectedly strong US payrolls report that led investors to reassess how dovish a stance the Federal Reserve may take at its next meeting.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 403 points while the NSE Nifty is trading down by 122 points. Both, the BSE Mid Cap index and BSE Small Cap index opened down by 1%.

All sectoral indices have opened the day on a negative note with automobiles stocks, capital goods and energy stocks leading the losers.

The rupee is currently trading at 68.57 against the US$.

In the latest development, reversing their five-month buying streak, foreign investors withdrew a net sum of Rs 4.8 billion from the Indian capital markets in the first week of July amid global trade tensions and pre-Budget anticipation.

Prior to this, foreign portfolio investors (FPIs) were net buyers for five consecutive months.

FPIs invested a net Rs 103.8 billion in June, Rs 90.3 billion in May, Rs 160.9 billion in April, Rs 459.8 billion in March and Rs 111.8 billion in February into the Indian capital markets (both equity and debt).

As per latest depositories data, FPIs withdrew a net amount of Rs 37.1 billion from equities but invested Rs 32.3 billion in the debt segment during July 1- 5, resulting in a net outflow of Rs 4.8 billion.

On July 5, Finance Minister Nirmala Sitharaman presented her maiden Budget which proposed increasing minimum public shareholding from 25% to 35%, easing of KYC norms for foreign portfolio investors and allowing the listing of social enterprises and voluntary organisations to enhance participation in the capital markets.

Additionally, she said investments by FPIs in debt securities would be allowed to be transferred and sold to domestic investors in a timely manner and also proposed FPI investment in debt securities issued by Non-Banking Financial Companies (NBFCs).

Other proposals included merging of NRI portfolio route with the FPI route for seamless investment in stock markets and giving relief in levy of Securities Transaction Tax (STT) by restricting it only to the difference between settlement and strike price in case of exercise of options.

While the markets on Friday gave a thumbs-down to the Budget, Tanushree Banerjee's Rebirth of India call remains intact. She explains how investors could continue to make the most of the irreversible trends and India's US$ 5 trillion potential in the video below.

Moving on to the news from the economy. The Reserve Bank of India (RBI) announced liquidity easing measures on July 5 to improve flow of credit to non-banking finance companies (NBFCs) and housing finance companies (HFCs), following steps taken by the government to ease stress in the sector.

The move comes after the Finance Minister Nirmala Sitharaman said in her maiden Budget presentation that the government will be providing a one-time six-month partial guarantee of Rs 1 trillion to state-run banks for purchasing consolidated high-rated pooled assets of financially-sound NBFCs.

In order to enable the banks to implement this announcement and deal with the NBFCs/HFCs issue effectively, the RBI will provide required liquidity backstop to banks against their excess G-Sec holdings, the reports noted.

RBI has front loaded the increase in Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) by a percent.

This was previously scheduled to be effective in August and December by 0.5% each. This means that NBFCs can dip further into their government bond holdings to avail liquidity.

For banks, the RBI has increased the FALLCR by a percent of their NDTL (Net demand and Time Liabilities) to the extent of incremental outstanding credit to NBFCs and HFCs.

This will release liquidity amounting to Rs 1.34 trillion into the banking system, the RBI said.

NDTL refers to the aggregate savings account, current account and fixed deposit balances held by a bank.

On June 6, the RBI said that it is closely monitoring the activities of top NBFCs and HFCs and will not hesitate from taking any measures, if required.

Finance Minister Nirmala Sitharaman, in her maiden Union Budget on July 5, announced a number of measures to revive the NBFC sector. She also proposed strengthening RBI's regulatory powers to better supervise the country's troubled shadow banking sector.

Speaking of NBFC crisis, a slew of corporate defaults, and the bloodbath in many stocks has left investors in deep fear and panic.

But this blanket approach doesn't work too well.

In the chart below, you can see top three NBFC gainers and losers (in terms of market capitalisation) over the last one year.

NBFC Crisis - Top Gainers and Losers

While several NBFCs have suffered badly and destroyed investor wealth, there have also been quality NBFC stocks that have been wealth creators.

So, the key takeaway here is to never write off an entire sector and to always stay on the lookout for quality stocks in sectors going through temporary headwinds.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Indian Share Market Update: Top Gainers and Losers