A draft circular put out by the Reserve Bank of India (RBI) on project financing dragged down the shares of PSU banks on Monday and led to the benchmark indices surrendering most of their gains amid a cautious mood in the markets.
The 30-share Sensex which had at one point gained as much as 481.54 points ended 17.39 points higher at 73895.54.
On the NSE, the broader NSE Nifty declined 33.15 points or 0.15 per cent to close at 22442.70 after rising over 179 points during intra-day trades.
Analysts said investors were preferring to book profits at higher levels on account of the ongoing general elections and concerns of rich valuations.
PSU bank stocks witnessed selling pressure after the RBI proposed stricter norms on project financing.
Last week, the regulator put up a draft note where it suggested a sharp increase in the amount that has to be set aside as general provisions for infrastructure projects.
The PSU banks have a relatively higher exposure than their private sector peers to such projects. It is feared that the rules could crimp their profits as they will have to set aside more funds.
Banks have to make a provision of 0.40 per cent of the funds that they have lent to standard projects (not in default) — this has now been increased to 5 per cent.
While this will be for projects that are in the construction phase, once they reach the operational phase, the provision will stand reduced to 2.5 per cent.
Analysts at JM Financial said this will result in lower returns for lenders in project finance.
“While this is prudent from a risk management perspective, coming from the regulator’s experience in the last credit cycle, we believe this can be detrimental to growth in the capital-intensive infrastructure sectors in the economy.’’
The benchmark Sensex closed almost flat in a range-bound trade on Monday as investors booked profits in index heavyweights amid high valuation concerns.
“The surge in India VIX (volatility index) by over 70 per cent in the last eight trading sessions from around 10 to its 52-week high near 17 level, indicates increasing nervousness among investors due to the ongoing global uncertainties and Lok Sabha election outcome next month’’, Siddhartha Khemka, head — retail research, Motilal Oswal Financial Services, said.
Meanwhile, the initial public offer of healthcare tech firm Indegene got subscribed 1.67 times on the first day of bidding on Monday. The ₹1,841.75-crore IPO received bids for 4.8 crore shares against 2.8 crore shares on offer, according to NSE.
Buffett bets
Billionaire investor Warren Buffett said that the Indian market has “unexplored” opportunities which his conglomerate holding company, Berkshire Hathaway, would like to explore “in the future”.
Buffett’s remarks came at Berkshire’s annual meeting on Friday when Rajeev Agarwal of DoorDarshi Advisors, a US-based hedge fund that invests in Indian equities, asked him about the possibility of Berkshire exploring in India, the world’s fifth-largest economy.
“I’m sure there are loads of opportunities in a place like India. And the question is, do we have any advantage in either insights into those businesses or contexts, it will make possible some transaction that might what the parties in India would particularly want us to participate,” Buffett said.
“Positive comment by Warren Buffett that India is an untapped market with great potential is hugely important. FIIs can take a cue from that rather than react every time to changes in US bond yields,” said V.K. Vijayakumar, chief investment strategist, Geojit Financial Services.
