S&P upgrade drives Indian markets

Fri, 26 Sep Closing

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After opening weak in the morning session, the Indian markets pared losses in the post noon trading session. With S&P's revision in India's credit outlook to stable from negative, the markets surged on positive sentiments. While BSE Sensex turned green and was up by 158 points, the NSE-Nifty too closed up by 57 points. While most of the sectoral indices ended in green, the mid and small cap indices too gathered steam. Both the BSE Mid Cap and the BSE Small Cap indices were up by 0.9% and 0.7% respectively. FMCG and capital goods' stocks witnessed maximum selling pressures.

On the global front, the Asian indices closed the day on a mixed note. The European indices too have opened mixed. The rupee was trading at Rs 61.17 to the dollar at the time of writing.

In one set of news, Standard & Poor's Ratings services have revised its outlook on India to stable from negative. The rationale for the upgrade stems from the fact that the country's improved political scenario stands quite favorable for reforms which could not only propel economic growth but also improve fiscal management. The agency is also convinced about effective implementation of the Reserve Bank of India's Monetary Policy. The agency also mentioned that it will raise the rating if the economy reverts back to 5.5% GDP growth every year, and fiscal, external or inflation metrics improve. However, the rating might be lowered if the government's structural reform agenda stalls and the economic growth does not accelerate or the fiscal and debt ratios fail to improve.

Barring Vijaya Bank, all the other PSU banks' stocks have closed the day on an optimistic note. Allahabad Bank and Indian Overseas Bank led the pack of gainers for the day.

An another set of news states that the state owned IDBI Bank has mentioned that it has Rs 80 bn exposure to JP Associates, the company expected to have a large impacted with the recent Supreme Court judgement over deallocation of coal blocks. But the management does not see any stress in the account as the bank has not seen any defaults as yet. The bank has clarified that only Rs 10 bn of exposure to two accounts stands vulnerable. Moreover, IDBI bank has not done any incremental lending to JP Associates for past two to three years. The good part is also that the bank has no exposure to the state electricity boards (SEBs).

However, the bank has been facing structural problems for some time now. Weak credit off-take, asset quality pressures, shortfall in priority sector requirements and poor return ratios are reflective of a weak balance sheet. Thus, IDBI bank stands on a weak footing with respect to all the operational parameters.