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India's Third Giant Leap
This Could be One of the Biggest Opportunities for Investors
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- Indian Stock Market News March 21, 2017
Sensex Trades Below the Dotted Line; Pharma Stocks Tank Tue, 21 Mar 01:30 pm
After opening the day on a flat note, share markets in India witnessed selling activity and are trading in the red. Sectoral indices are trading on a negative note with stocks in the pharma sector and stocks in the banking sector leading the losses.
The BSE Sensex is trading down by 116 points (down 0.4%), and the NSE Nifty is trading down by 31 points (down 0.4%). Meanwhile, the BSE Mid Cap index is trading down by 0.8%, while the BSE Small Cap index is trading down by 0.5%. The rupee is trading at 65.29 to the US$.
Pharma stocks are net losers in today's trade as Divi's Lab share price tanked over 19% after the USFDA issued an import alert for company's Vishakhapatnam unit II. The unit contributes 60-65% to the company's total sales and 20-21% to US sales.
In news from the IPO space, D-Mart promoter Avenue Supermarts made a stellar debut on the Indian indices today. Avenue Supermarts share price listed at Rs 604.4 on the BSE - a 102% premium over its issue price of Rs 299 apiece.
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In news from stocks in the banking sector. State Bank of India (SBI), which approved plans to merge with five of its associate banks, announced plans to shut down almost half the offices of these banks, including the head offices of three of them. This process will start from April 24.
The public sector lender plans to retain only 2 of the 5 head offices. Three head offices of the associate banks will be unbound along with 27 zonal offices, 81 regional offices and 11 network offices of the associate bank
The five associate banks that will merge with SBI are: SBBJ (State Bank of Bikaner and Jaipur), SBM (State Bank of Mysore), SBT (State Bank of Travancore), SBP (State Bank of Patiala) and SBH (State Bank of Hyderabad).
There are currently 550 SBI offices while its associate banks have 259. The target for the number of controlling offices after the merger is 687 -- a reduction of 122 offices.
The bank explained its decision by saying it is intended to avoid overlapping offices in the same area, avoid duplicity, and maintain a leaner controlling structure.
While the SBI merger was a step to consolidate the banks' revenues and to strengthen SBI's position. Other public sector banks do not have this option.
If one does a SWOT analysis for Indian economy, bad debts and precarious position of banks would be the number one threat.
The Big Rescue Plan for Weak Public Sector Banks
A lot of measures have been announced to address the issue. The latest has been capital infusion for 10 PSU banks that include weak and non- performers.
The condition is that banks will have to attain certain quarterly milestones before they avail capital support. The arrangement will include the government, bank management and employees of the concerned bank.
It's a good step to attach strict performance conditions before throwing good money after bad. Yet, given the issues related to asset quality, profitability and governance issues, revamping PSU banks, especially the weaker ones, could be an ambitious target.
At the time of writing, SBI share price was trading down by 1%.
Moving on to news from stocks in the energy sector. India's largest coal producer Coal India is considering producing petroleum oil at its Chatra coal mine in Jharkhand.
Petroleum oil from coal is part of the state-run coal major's diversification plan and it will soon invite an expression of interest for it.
Oil from coal can be used in automobiles. With crude prices on the rise, it will be a viable option for the company. Having been able to meet most of country's coal demand, the miner now plans to diversify into related fields to keep its bottom-line healthy.
The company recently invited quotes from technology licensors for converting coal to chemical for a commercial project at Dankuni in West Bengal. The Dankuni project is for a coal-based methanol plant which uses high-quality coal from Eastern Coalfields, another subsidiary of Coal India.
Coal India is looking to diversify its area of operations in order to make the most of its operating capacity and increase profitability.
It remains to be seen how whether the company is able to extract feasible volumes of petroleum oil from coal.
At the time of writing, Coal India share price was trading up by 0.4%.
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