Sensex Stays Strong; Bank Stocks Rally

Fri, 24 Mar 01:30 pm

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After opening the day on a positive note, share markets in India have continued the momentum are trading above the dotted line. Sectoral indices are trading on a mixed note with stocks in the banking sector and stocks in the psu sector leading the gains, while stocks in the IT sector are trading in red.

The BSE Sensex is trading up by 110 points (up 0.4%), and the NSE Nifty is trading up by 26 points (up 0.3%). Meanwhile, the BSE Mid Cap index is trading up by 0.3%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 65.44 to the US$.

Stocks in the banking sector are in the limelight today after the Finance Minister commented that a policy for resolution of Non-Performing Assets (NPAs) would be announced in a couple of days.

ICICI Bank share price was trading up by as much as 3%, while SBI share price was trading up by 2.5%.

The Finance Minister said that the government in working in tandem with the Reserve Bank of India (RBI) on a radical proposal to resolve the issue of bad debts currently plaguing the Indian banking industry.

The government, RBI and banks have had a series of meetings over the past couple of months to look at ways to address the issue of bad loans estimated at Rs 7 trillion.

This is in line with the government's plan to quickly charter out a resolution mechanism to resolve and recover the mounting bad loans in the banking sector, especially public sector banks.

Bad Loan Inventory Bloats Up

The government and the central bank have been debating many measures to tackle the bad debt problem including the creation of a private asset management company which will work out a feasible resolution plan for a stressed company as well as a national asset management company with a minority government stake for companies that are more stressed.

In a separate development, the RBI signaled that it may introduce third-party assessments of bad loans-a move that could help accelerate resolution of sticky assets choking the country's banking system.

The central bank is also looking at expanding the oversight committee mechanism to look at all bad loan cases and not just those under the S4A scheme.

S4A allows banks to break up debt into sustainable and unsustainable halves, allowing deep restructuring of the latter, while the former continues to be serviced.

Twenty-nine state-owned banks were allowed to write off a total of Rs. 1.14 trillion of bad debts between financial years 2013 and 2015. Due to this, the banks have very little incentive to put their house in order.

Details about the promised policy are unclear. If structured and implemented properly it has the potential to clear up the bad loans holding back the banking sector and spur growth in return.

Moving on to news from stocks in the oil & gas sector. State owned oil marketing companies (OMCs) such IOC, BPCL and HPCL announced interim dividend for the financial year 2016-17.

HPCL declared an interim dividend of Rs 6.4 per equity share of face value of Rs 10 each for the financial year 2016-17. The board has fixed March 27 as the record date to determine the eligibility of the shareholder to receive the said second interim dividend. The dividend is proposed to be paid on or before March 31, 2017.

BPCL declared second special interim dividend of Rs 12 per equity share of face value Rs 10/- each i.e. 120% on the paid-up equity share capital of the Company for the Financial Year 2016-17

Moreover, Indian Oil Corporation declared an interim dividend of Rs 4.5 per share for FY17. The board of IOC has fixed March 27 as the record date.

These developments come a day after when another commodity firm, Hindustan Zinc, declared a special one-time interim dividend of 1,375% i.e. Rs 27.5. This would entail an outflow of Rs 139 billion including dividend distribution tax. The record date for the dividend will be March 30, 2017.

The company's aggregate payout including tax during FY17 comes to Rs 272 billion. This comes to a yield of almost 17% on the company's current stock price.

Coming back to the major OMCs, the government is mulling over consolidating all the major oil players into an integrated public sector 'oil major'. Our energy sector analyst Richa Agarwal, had written about her view of this development in one of the recent editions of the 5 Minute WrapUp Premium. Give it a read to form a better understanding of the development.

HPCL share price was trading down by 1.3%, while BPCL share price was trading down by 0.5%.

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