Sensex Opens Lower; Realty Stocks Gain

Fri, 7 Apr 09:30 am

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Asian equity markets pared gains after the US launched an attack on Syria. The Shanghai Composite is off 0.07% while the Hang Seng is down 0.68%. The Nikkei 225 is trading down by 0.1%. The US equities closed higher in their previous trading session.

Meanwhile, share markets in India have opened the day on a negative note tracking Asian cues. The BSE Sensex is trading down by 86 points while the NSE Nifty is trading down by 33 points. The BSE Mid Cap index and BSE Small Cap index have opened the day down by 0.1% & 0.2% respectively.

Barring realty stocks and consumer durable stocks, all sectoral indices have opened the day in red with fast moving consumer goods sector and power sector leading the losses. The rupee is trading at 64.98 to the US$.

In the latest development, it was reported that, banks will be allowed to invest in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), attracting more institutional investors to such assets and expanding the investment scope of banks. REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed?buildings to investors.

In this regard, the Reserve Bank of India (RBI) proposed yesterday in its monetary policy to allow banks to invest in such investment trusts following a request from the markets regulator.

Currently, banks are allowed to invest in equity-linked mutual funds, venture capital funds (VCFs) and equities to the extent of 20% of their net owned funds.

The move would result in increased availability of low-cost funds for the real estate industry, which is short on cash and capital due to demonetisation and dried up funding. It's a win-win situation for both, the banking industry and the realty sector, the reports noted.

A Realty Check on The Banks

One of the biggest sectors hit by the demonetisation drive was real estate. The sector largely thrived on cash transactions. However, banks having exposure to commercial real estate also faced the music from the government's crackdown on black money.

Among banks, Yes Bank has the highest share of exposure to commercial property at 6.8%. However large private sector banks such as Axis Bank, ICICI Bank, and HDFC Bank have shares of 4.3%, 3.2% and 2.2%, respectively. State Bank of India has a miniscule 0.9% share of exposure to commercial real estate.

Moreover, it is a crucial move because including it will bring in more institutional investors into these trusts, who are looking at relatively stable assets with steady but slightly lower returns, the reports noted.

Moving on to the news from stocks in FMCG sector. As per an article in a leading financial daily, Hindustan Unilever (HUL) plans to shed jobs as part of the Dutch parent's global mandate to reduce costs across markets. While the extent of job cuts will be known by the end of April, it could be between 10% and 15%, including layoffs and reduction in new hiring. HUL currently employs 18,000 people in India including more than 1,500 managers, as per the data of its 2015-16 annual report.

Further, the company said it would increase its margin targets and review the dual structure of the Anglo-Dutch company which exists as two separate entities in the UK and the Netherlands.

One must note that, Unilever announced a restructuring after the Anglo-Dutch consumer goods giant faced an aborted takeover bid from Kraft Heinz Inc. The company said it will cut costs, sell its spreads business, buy back shares worth 5-billion euros and target a 20% operating margin by 2020, up from 16.4% last year.

Further, Unilever announced that it will combine its foods and refreshment business to unlock future growth and faster margin progression.

However, with GST implementation, there will be reduction in warehouses and supporting infrastructure, resulting in some job losses. But India is still one of the better-performing markets for Unilever and the restructuring will not be as severe as in other markets, the reports noted.

HUL share price opened the day down by 0.5%.

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