Sensex Finishes Flat; HDFC Bank Surges 2.4% on Firm Q3 Results

Fri, 21 Apr Closing

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After a positive opening, Indian share markets witnessed selling pressure in the afternoon session to close marginally below the dotted line due to selling in FMCG stocks, healthcare stocks and metal stocks despite firm global cues.

At the closing bell, the BSE Sensex stood lower by 57 points, while the NSE Nifty finished down 17 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.1% and 0.2% respectively.

HDFC Bank share price surged 2.4% in today's trade after the bank reported 18.25% YoY rise in net profit at Rs 39.9 billion for the quarter ended March 31, 2017. It had posted a net profit of Rs 33.74 billion in the corresponding quarter last year.

Asset quality of the bank remained stable, with gross non-performing assets (NPAs) or bad loans stood at 1.05% of gross advances as on March 31, 2017, as against 1.05% as of December 31, 2016. Percentage of net NPAs to net advances stood at 0.33% in Q4FY17 against 0.32% in Q3FY17.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 1.03% and the Shanghai Composite rose 0.03%. The Hang Seng lost 0.06%. European markets are lower today with shares in France off the most. The CAC 40 is down 0.68% while Germany's DAX is off 0.10% and London's FTSE 100 is lower by 0.02%.

The rupee was trading at Rs 64.57 against the US$ in the afternoon session. Oil prices were trading at US$ 50.67 at the time of writing.

The International Monetary Fund (IMF) in its report on Fiscal Monitor has said that India has recorded quite an impressive growth performance in recent years which makes room for tax broadening efforts by the government. The report also stated that India returned to fiscal consolidation in the fiscal year 2016-17 largely due to the near-elimination of fuel subsidies and enhanced targeting of social benefits, notwithstanding the impact of notebandi.

It further stated that India is also making progress toward strengthening its fiscal responsibility framework, through anchoring fiscal adjustment by means of a debt-to-GDP ratio of 60% to be achieved by fiscal year 2022-23.

The director of IMF Fiscal Affairs Department, Vitor Gasper said the elimination of fuel subsidies and better targeting of social benefits have delivered in terms of allowing the union budget fiscal deficit target to be achieved at 3.5% of GDP.

Gasper further said that in this context, the rollout of Goods and Services tax (GST) is an extremely important step that will create a true unified national market in India. He also said that there is room for tax broadening efforts and for more progressive income taxes in line with trends in income inequality.

Moving on to news from bank stocks. IndusInd Bank share price finished the day on a positive note (up 0.7%) after it was reported that the bank is planning to double its business in terms of clients, loans and profits by 2020.

As part of the plan, the bank is planning to rebalance its loan book, expanding its non-vehicle retail portfolio (which includes loan against property and shares, credit cards, and personal, rural, gold and business loans) to 30% by 2020 from 18% now.

As at March-end 2017, IndusInd bank had a client base of over 9.5 million. The bank's net profit grew 21.1% to Rs 7.51 billion for the last quarter ended March of fiscal 2016-17. The bank's gross non-performing assets (NPAs) or bad loans were 0.93% of gross advances as on March 31, 2017, slightly up from 0.87% a year ago.

Bad Loans Inventory Bloats Up

Rising to the menace of bad debts, the Reserve Bank of India is pondering initiating tough measures against willful defaulters. Gross NPAs have risen at an alarming rate over the past 1 year. While RBI's proactive measure to tighten NPAs is proactive, banks need to take their share of blame. In our recent 5 Minute WrapUp edition, we had highlighted how the banks return ratios had deteriorated due to its profits written off on account of NPA provisions.

Meanwhile, Fitch Ratings, the international ratings agency in its latest report has said that more than half of the country's Public Sector Banks (PSBs) can be impacted by the Reserve Bank of India's (RBI) revised Prompt Corrective Action (PCA) framework and they would breach at least one of the new thresholds, primarily due to high non-performing loans (NPLs).

The report stated that the RBI's PCA framework suggests a greater willingness to regulatory action to address problems of struggling banks. However, it noted that the implementation of the new rules is only expected to be effective if it is matched by credible plans to address banks' significant asset quality issues and capital shortages.

The report underscored that the central bank has tightened the thresholds for capital ratios, NPLs, profitability and leverage at which banks enter the PCA framework. It also said that this appears to be an acknowledgement of stressed assets and that more banks need regulatory intervention. It observed that the RBI has given itself greater discretion in terms of the measures it can use to intervene in banks once they fall under the PCA framework.

In news from metal sector, Tata Steel has received an approval for issue of debt securities of up to Rs 90 billion in the form either of Non-Convertible Debentures on private placement basis or Foreign Currency or Rupee Denominated Bonds or a combination thereof in one or more tranches.

The funds will primarily be deployed towards re-financing the existing debt, capex/working capital requirements and general corporate purposes.

Tata Steel share price finished down by 0.7% on the BSE.

Meanwhile, the government has raised over Rs 12 billion through the sale of 9.2% stake in National Aluminium Company (Nalco) as both retail and institutional investors lapped up the shares offered to them.

With bids, over 1.84 times the shares on offer, the subscription of institutional investors was valued at Rs 9.54 billion. Retail investors on their part bid for 3.17 times the shares reserved for them valued at Rs 2.5 billion. Together, the bids are valued at over Rs 12 billion. Of its total holding of 74.58% in the company, the government has offloaded 9.2% at a floor price of Rs 67.

Nalco share price finished the day down by 1.8% on the BSE.

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