Key benchmark indices languished in negative zone in early afternoon trade. At 12:15 IST, the barometer index, the S&P BSE Sensex, was down 141.23 points or 0.5% at 27,935.77. The Nifty 50 index was currently down 48.95 points or 0.56% at 8,617.95. The Sensex was currently trading below the psychologically important 28,000 level. Weakness in Asian stocks weighed on sentiment on the domestic bourses.
The latest slide on the bourses materialized after the government on Saturday, 20 August 2016, named Reserve Bank of India (RBI) deputy governor Urjit Patel as new RBI governor. Patel is known for his hawkish view on inflation just like Raghuram Rajan whose term as the RBI governor ends on 4 September 2016. Patel will take charge as RBI governor for a 3 year term from 4 September 2016. Patel handles the monetary policy department as the RBI deputy governor. By naming Patel who is a deputy governor at the central bank as the new RBI governor, the government is sending signal to markets that there will be continuity of central bank's policies.
The government early this month notified consumer price inflation target of 4% with upper tolerance level of 6% and lower tolerance level of 2% to be achieved by RBI. This target is valid until 31 March 2021.
In overseas stock markets, most Asian stocks edged lower amid uncertainty whether the US Federal Reserve is readying an interest rate hike next month. US stocks registered small losses on Friday, 19 August 2016, with traders holding their horses ahead of a speech from Federal Reserve chair Janet Yellen at Jackson Hole later this week. Yellen's speech at the Kansas City Fed's annual Monetary Policy Symposium in Jackson Hole, Wyoming is scheduled on Friday, 26 August 2016. Minutes from the Federal Open Market Committee's (FOMC) July meeting showed officials were split on whether an increase in interest rate was needed soon.
Closer home, the market breadth indicating the overall health of the market was negative. On BSE, 1,294 shares declined and 1,094 shares rose. A total of 168 shares were unchanged. The BSE Mid-Cap index was currently down 0.41%. The BSE Small-Cap index was currently down 0.17%. The losses for both these indices were lower than the Sensex's decline in percentage terms.
IT stocks edged lower. TCS (down 1.46%), Wipro (down 0.77%), Oracle Financial Services Software (down 0.91%) and HCL Technologies (down 0.75%) declined. Tech Mahindra (up 0.05%) edged higher.
Index heavyweight and software major Infosys was down 0.57% at Rs 1,015.30. The stock hit a high of Rs 1,030 and a low of Rs 1,013 so far during the day.
Auto stocks also declined. TVS Motor Company (down 1.8%), Maruti Suzuki India (down 1.1%), Hero MotoCorp (down 0.96%), Mahindra & Mahindra (down 0.41%), Tata Motors (down 0.95%), Eicher Motors (down 0.82%), Ashok Leyland (down 0.46%) and Bajaj Auto (down 0.38%) edged lower.
Pharma major Lupin was down 1.79% at Rs 1,549. The company during market hours today, 22 August 2016, announced that it has received approval for Acotiamide 100 mg Tablets from the Central Drugs Standard Control Organisation (CDSCO). Lupin said it shall commence promoting the product in India shortly. Acotiamide is a first-in-class novel drug to be introduced into the Indian Pharmaceutical Market (IPM) which could benefit millions of patients suffering from Dyspepsia or Indigestion, amongst the most common stomach complaints encountered in clinical practice. The current market for plain Gastrointestinal (GI) prokinetics and combinations is estimated to be around Rs 2640 crore, growing at 14%. The overall GI market is estimated at Rs 11438 crore which is growing at 13% as per IMS MAT June 2016 data.
Welspun India was locked at 20% lower circuit at Rs 82.30 after US based retailer Target Corporation said that it is in the process of terminating its contract with the company over a cotton supply dispute. Target Corporation in a statement issued on 19 August 2016 said that its vendor, Welspun Global Brands (Welspun), was one of the producers of Egyptian Cotton 500-thread count sheets under the Fieldcrest label for Target. After an extensive investigation, Target recently confirmed that Welspun substituted another type of non-Egyptian cotton when producing these sheets between August 2014 and July 2016 without Target having any knowledge of this substitution. These sheets were produced by a number of vendors and only Welspun was substituting product. Target said it was a clear violation of both Target's Code of Conduct and Standards of Vendor Engagement, and was contrary to the high ethical standards to which the company hold itself, and its vendors.
As soon as Target's investigation confirmed the substitution, it pulled all remaining product from Target stores and Target.com.
Welspun India in a statement on Saturday, 20 August 2016 confirmed that it encountered a product specification issue with one client program of its subsidiary, Welspun Global Brands. Welspun India said that it has initiated immediate actions to investigate the root cause of the issue. The company is appointing one of the Big Four external audit firms to audit its supply systems and processes. This is an issue of highest priority for the company and the company will take all necessary steps to address it, Welspun said in a statement. Welspun added that it has an impeccable record of supplying quality products to customers globally for over two decades and reiterated its commitment to the highest standards of customer service and compliance.
Meanwhile, global credit rating agency Moody's Investors Service said in a report that India's credit profile is supported by the strong growth potential of its large economy and the high private savings rate which underpins the government's access to domestic financing at relatively favorable terms. These credit strengths are balanced against a high government debt burden (67.4% of GDP in 2015), regulatory and infrastructure constraints on its competitiveness, slow pace of policy reform, and the contingent liability risk to the sovereign from public sector banks' high and rising non-performing loans, the rating agency said. Moody's expect Indian corporate sector's profitability to remain muted which will continue to dampen its ability and willingness to invest in the next few quarters. Moody's expects India's real GDP growth at around 7.5% in the next two years.
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