Sensex Continues Downtrend; Idea Cellular Witnesses Most of the Brunt on Merger Talks

Mon, 20 Mar 11:30 am

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After opening the day on a negative note, the Indian share markets have continued their downtrend. Sectoral indices are trading on a negative note with stocks in the telecom sector and information technology sector witnessing maximum selling pressure.

The BSE Sensex is trading down 158 points (down 0.5%) and the NSE Nifty is trading down 41 points (down 0.5%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 65.42 to the US$.

As per a leading financial daily, the central government has decided to infuse fresh capital totaling Rs 85.5 billion into 10 weak banks. This is contrary to the governments' earlier stand to infusing fresh capital in strong banks.

The above infusion is subject to commitment to quarterly milestones by bank boards, management, employees, and unions.

Apart from the above, all eyes in the banking sector are focused on PSU banks today. PSU stocks are in the limelight amid reports that the government is considering a proposal to shuffle the heads of some state-run lenders in an attempt to solve their bad loans issue and give a boost to their financials.

Please note that bad loans of PSU banks have risen at an alarming rate over the past one year. This is evident in the chart below:

Bad Loans Inventory Bloats Up

Rising to the menace of bad debts, the Reserve Bank of India is pondering over initiating tough measures against willful defaulters. While RBI's proactive measure to tighten NPAs is proactive, banks need to take their share of blame. In one of our recent editions of The 5 Minute WrapUp, we had highlighted how the banks' return ratios had deteriorated due to their profits written off on account of NPA provisions.

The RBI has done well to focus its attention on the willful defaulters. However, this seems to be a curative measure than a preventive one. For the bad loans problem to be solved, the root cause i.e. the initial lending process of banks needs to be put in order.

In other news update, the stock of Idea Cellular witnessed most of the volatility in the telecom sector today. The stock plunged 15%, just a few minutes after rallying about 15% in early trades today, after it was reported that the company's board approved merger with Vodafone India and Vodafone Mobile Services (VMSL).

The deal has put Idea Cellular's implied enterprise value at US$ 10.8 billion against US$ 12.4 billion for Vodafone India.

As per the deal, Vodafone will hold 45% in the combined entity, while Idea promoters will hold a 26% in the combined entity. The merger will create India's largest telecom player both in revenues and subscribers, taking on the likes of market leader Bharti Airtel and Reliance Jio.

Presently, Idea Cellular share price is trading down by around 9% on the BSE.

Apart from the above developments, the Cabinet may take up for approval the supporting GST legislations today. These legislations are then to be introduced in Parliament.

As per the news, set of four supporting legislations viz. the Compensation Law, the Central-GST or C-GST, Integrated-GST or I-GST and Union Territory-GST or UT-GST, are likely to together go to the Cabinet for approval.

Last week, the Goods and Services Tax (GST) Council approved the State GST and Union Territory GST laws. It also capped the proposed cess on aerated drinks and luxury automobiles at 15% and 290% on cigarettes.

The above developments have set the stage for implementing the landmark tax reform by 1 July 2017.

To get a detailed view on the Goods and Services Tax (GST), you can read Vivek Kaul's report, GST & You: What the Media DID NOT TELL YOU about the GST.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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