Indian Indices Open Weak

Wed, 24 Feb 09:30 am

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Major Asian stock markets have opened the day on a negative note. The stock markets in Singapore and Hong Kong are trading lower by 1.5% and 1.6% respectively. Major indices in Europe and US ended their previous session on an disappointing note with benchmark indices in US falling as much as 1.1%. The rupee is trading at 68.64 per US$.

Indian stock markets have opened the day on a negative note. The BSE Sensex is trading lower by 107 points (down 0.5%) and NSE Nifty is trading lower by 31 points (down 0.4%). Both, BSE Mid Cap and BSE Small Cap are trading lower by 0.6% and 0.5% respectively. Barring, FMCG sector, major sectoral indices have opened the day in red with stocks from banking and metal sectors witnessing maximum selling pressure.

As reported in a leading financial daily, state owned Punjab National Bank has declared 904 borrowers as willful defaulters as at 31 December 2016. The willful defaulters cumulatively owe a mammoth sum of Rs 108.7 billion to the bank.

The bank has added 140 companies as willful defaulters over the last quarter. A company is considered as willful defaulter when it has defaulted on repayments to a lender in spite it has ability to meet its financial obligation. The term is also applicable to borrowers who divert loans sanctioned for a specific purpose to other avenues, those who siphon off loan money and dispose of assets pledged as collateral.

Reportedly, PNB plans to sell up to Rs 30 billion worth of bad loans to the asset restructuring company (ARCs) in the current quarter. The company's asset quality deteriorated to 8.47% of gross advances as against 5.97% a year ago.

PNB's earnings have been hit sharply in the December 2015 quarter. This was on account of escalation in bad loans in line with intensive asset quality review conducted by RBI. Going forward too, the loans and provisions are likely to remain bloated for the March 2016 quarter too and thus keeping profits depressed.

Asset quality concerns have led to a sharp plunge in the bank's stock price. PNB's market cap has eroded by approx. 48% in the last three months. But with most of the slippages already factored in by the end of FY16, we believe that the pressure on account of rising bad loans may start easing from FY17 onwards. This is also likely to put PNB's networth and capital adequacy on a firmer ground.

In another news update, iron ore prices have recovered from the levels of US$ 40/ tonne to cross US$ 50/tonne during the month of February. Reportedly, the surge in the iron ore prices is owing to a cut in the iron ore production guidance for 2016. Another factor that has led to the increase in iron ore prices could possibly be an increase in the steel output. Having said that, there is no evidence of increase in the production of steel output till January. As per reports published by World Steel Association stated that the global steel production declined by 7.1% YoY in the month of January. Further the report states that the prices would continue to remain weak going forward.

It is also imperative to note, the surge in the prices of iron-ore is a seasonal uptick. To add to the woes, new capacity is entering the market from the Australia's Roy Hill project. This in turn could drag down the iron-ore prices.

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