May 8th 2024 Stock Market analysis

Sensex and Nifty 50 Close Flat, BSE Midcap and Smallcap Indices Finish Higher in Today's Stock Market

Indian stock market benchmarks, the Sensex and the Nifty 50, ended Wednesday flat, with gains in select heavyweights such as Reliance Industries, Larsen & Toubro, and Tata Motors being offset by losses in HDFC Bank, ICICI Bank, and Infosys shares. The session saw volatile trading, reflecting cautious market sentiment ahead of the Lok Sabha election outcome on June 4. Experts noted a trend of foreign portfolio investors (FPIs) selling Indian equities before the election outcome, though investors have also been buying stocks amid the recent correction, remaining positive about the Indian market's medium- and long-term prospects. The Sensex closed at 73,466.39, down 45 points (0.06%), while the Nifty 50 settled flat at 22,302.50. Of the 30 stocks in the Sensex index, 15 closed higher, with an equal number closing with losses. In terms of index contribution, shares of Reliance Industries, Larsen and Toubro, Tata Motors, SBI, and NTPC were the main contributors supporting the Sensex index, while shares of HDFC Bank, ICICI Bank, Infosys, Hindustan Unilever, and Asian Paints were the top drags.

Technical Outlook on 9th May

Nifty is anticipated to find immediate support levels near 22,211 followed by 22,120, with resistances expected at 22,393 and 22,484. Currently, Nifty is poised for mixed trading.

Bank Nifty is likely to encounter immediate support around 47,839, followed by 47,657, while resistances are expected at 48,205 and 48,387. Presently, Bank Nifty is indicating mixed trading conditions.

Derivative Outlook on 9th May

Nifty PCR-OI has increased with nifty has Flat which shows PUT WRITING.

Open Interest Analysis: Nifty future MAY contract OI has increased with positive close which shows Long Buildup.

Cost of Carry Analysis: Nifty MAY month contract has ended in high compare with JUNE contract and high range compare with previous session which indicates a mixed trade.

India VIX Analysis: India VIX has closed at 17.08 vs 17.01 (DoD) basis which shows increase in volatility.

‍Stocks of SBI, PNB, and HDFC Bank Tumble by Up to 9% in 3 Days Amid RBI's Draft Project Finance Norms

Banking stocks, including HDFC Bank, ICICI Bank, State Bank of India (SBI), Punjab National Bank, among others, have experienced a decline of up to 9 percent over the past 3 days following the Reserve Bank of India's (RBI) proposal to tighten project financing norms by introducing standard asset provisioning of up to 5 percent on loans.

However, reports suggest that lenders are likely to oppose the imposition of higher provisions for under-construction projects. This matter is expected to be discussed within the Indian Banks Association (IBA), which will then provide its feedback to the RBI. The proposed rules may undergo alterations based on the feedback received until June 15, 2024.

Analysts at Macquarie have expressed concerns, stating that the project finance heads view the RBI's proposed norms as 'onerous.' If implemented, these measures could potentially dampen the recovery in project finance or capex cycle. It is believed that banks would significantly reduce their exposure to project finance credit if these new measures are enforced. In the meantime, banks are anticipated to carry 2.5-5 percent of the loan amount as provisioning.

Although the RBI rules indicate that around 1 percent of provisioning can only occur after 20 percent of debt repayment, it typically takes 6-7 years to achieve this 20 percent mark of debt repayment, as noted by Macquarie analysts. The RBI's proposal suggests that banks should set aside a provision of 5 percent of the loan amount for projects at the construction phase. This provision can be reduced to 2.5 percent when the project becomes operational, and further reduced to 1 percent when a certain level of cash flow is attained, and 20 percent of the debt is repaid.