Mumbai: The Reserve Bank of India's warning over a possible jump in bad loans weighed on banking stocks on Monday, resulting in a fall in benchmark indices. Mixed world equities amid US-China tensions and fast-spreading coronavirus infections too dented investor sentiment.

"Financials led the losses following an RBI report which expected a surge in bad loans this year. Global markets were impacted due to rising US-China tensions and suspected second wave of virus infections,” said Vinod Nair, head of research at Geojit Financial Services.

“Record number of virus infections in India also added to the uncertainty. Investors are advised to remain stock-specific and keep accumulating only quality stocks in this scenario,” he added.

Sensex closed 194 points lower at 37,935, while peer Nifty shed 62 points to settle at 11,132.

A total of 17 of 30 Sensex stocks closed lower with banking counters contributed the most to the benchmark’s losses, spooked by Reserve Bank of India’s financial stability report (FSR), which said that gross bad loans for banks may rise by up to 620 basis points (bps) to 14.7 per cent of the total assets by the end of the current fiscal year.


Top private lender HDFC Bank dropped 3.55 per cent while rival ICICI Bank shed 6.11 per cent. Peer Kotak Mahindra Bank, which reported a 9 per cent drop in June quarter profit on deteriorating asset quality and a surge in provisions, shed 2.03 per cent.

A surge in IT stocks limited the losses for the flagship index. Sector leader Tata Consultancy Services (TCS) rose 2.26 per cent while peer Infosys climbed 2.75 per cent.

Oil-to-telecom conglomerate Reliance Industries (RIL) scaled a fresh high of Rs 2,198.70 in early trade. However, it pared most gains and closed 0.45 per cent higher at Rs 2,155.85.

The bears were at the forefront of the rally with two shares declining for every share than advanced on the BSE. Broader market underperformed with BSE mid and smallcap indices declining 1 per cent and 0.98 per cent, respectively.

BSE Bankex was the worst sectoral performer, down 3.58 per cent, followed by BSE Finance, down 2.45 per cent. BSE IT bucked the trend and rose 2.38 per cent.

Asian Paints added 3.90 per as brokerages maintained their bullish stance on the stock despite a 67 per cent fall in net profit in the June quarter.

Private lender YES Bank's shares hit 10 per cent lower circuit due to supply of fresh shares on follow-on public offer (FPO) allotment.

"We expect a breather in the index, after rising for the six successive weeks. Meanwhile, earnings announcements from select Nifty majors and upcoming derivatives expiry of July month contracts will keep the participants busy. Globally, the US Fed meet scheduled this week and key economic data announcements will also be on their radar. We suggest limiting leveraged trades and preferring index majors over others," said Ajit Mishra, VP - Research, Religare Broking.

Markets at a glance

Who moved my market

• Bank stocks fall

Banking stocks came under pressure after the Reserve Bank of India in its financial stability report, which was released on Friday, said the system-wide gross bad loans may rise by up to 620 basis points (bps) to 14.7 per cent of the total assets by the end of the current fiscal year. “Macro stress tests for credit risk indicate that the GNPA (gross non-performing assets) ratio of all SCBs (scheduled commercial banks) may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario. [However], if the macroeconomic environment worsens further, the ratio may escalate to 14.7 per cent under very severe stress,” said the report.

• Mixed world equities

European shares slipped on Monday with travel stocks leading the declines after Britain imposed a quarantine on travellers returning from Spain, where cases of the novel coronavirus have surged in the last few weeks, Reuters reported. The pan-European STOXX 600 was down 0.2 per cent but came off early lows. Asian markets too, witnessed choppy trade. Mainland Chinese shares gave up most of their early gains, with the CSI300 index closing up just 0.2 per cent, after steep losses on Friday. Japan’s Nikkei fell 0.2 per cent, though S&P500 futures steadied and were last up 0.4 per cent in Europe.

• Coronavirus cases rise above 14-lakh mark

A total of 49,931 people tested positive for coronavirus in a day, taking India's COVID-19 tally past the 14 lakh mark, while the recoveries jumped to 9,17,568. The country's death toll rose to 32,771 with 708 fatalities being recorded in a day

What to watch out for

• The coronavirus cases in India are yet to peak and are witnessing a record surge each day and are a major cause of concern.

• The direction of global markets will be closely watched as the domestic market tends to follow the cues.

• Further developments on US-China tensions will be closely monitored.

• Progress on a domestic as well as overseas vaccine for Covid-19 treatment will be closely watched.

• The ongoing June quarter corporate earnings season is providing a better picture of the impact caused by the Covid19-induced lockdown. More than the numbers for the quarter, the commentary and the outlook have been key monitorables.