Indian Markets Continue Their Downtrend

Mon, 2 May 11:30 am

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After opening the day on a negative note, the Indian stock markets witnessed choppy trades and continued to trade in the red. Sectoral indices are trading on a negative note with stocks from the <>realty, banking and IT sector witnessing maximum selling pressure.

The BSE Sensex is trading down 227 points (down 0.9%) and the NSE Nifty is trading down 63 points (down 0.8%). The BSE Mid Cap index is trading up by 0.6% and the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 66.39 to the US$.

PSU banking stocks are trading in the red with Allahabad Bank and Canara Bank witnessing maximum selling pressure. As per an article in The Economic Times, the government will push State Bank of India (SBI) to actively consider merging its five associate banks. This is because the government expects that the merger of SBI group banks into one entity will create a suitable environment for consolidation among other public sector banks.

It shall be noted that two of the five associate banks of the SBI - namely State Bank of Patiala and State Bank of Hyderabad - are still unlisted. Further, Mumbai-based SBI holds a 75% stake in State Bank of Bikaner & Jaipur, 90% in State Bank of Mysore and 79% in State Bank of Travancore. There has been no consolidation since State Bank of Indore was merged with SBI in 2010.

All of the above developments comes as some state-run banks have evinced their interest to take on smaller entities. Finance Minister Arun Jaitley had said in March that the bankers' themselves have supported the proposal of consolidation of banks in order to have strong banks rather than having numerically large number of banks.

Further, R Gandhi, deputy governor of the RBI, summarised this situation in a recent speech. As he said: "Most PSBs follow roughly similar business models and many of them are also competing with each other in most market segments they are active in. Further, PSBs have broadly similar organisational structure and human resource policies. It has been argued that India has too many PSBs with similar characteristics and a consolidation among PSBs can result in reaping rich benefits of economies of scale and scope."

However, does it really make sense to merge public sector banks? Why are these PSUs willing to consolidate their operations? Will this be a successful move knowing that public sector banks are facing huge bad loan problems? Vivek Kaul answers all of these questions in a recent article from the Vivek Kaul's Diary. He is of the opinion that the merger of two public sector banks, will give us a bigger inefficient bank.

Also, while we are on the topic of mergers and acquisitions, our recent edition of The 5 Minute WrapUp has stated why 2016 looks a strong year for mergers and acquisitions.

Stocks in the pharmaceutical space are trading on a mixed note with Biocon and Indoco Remedies leading the gains. In another news update it was reported that Cadila Healthcare is planning to raise up to Rs 185 billion through issuance of shares and various other securities.

For this, the board of directors of the company will consider raising funds through various options at its meeting to be held on May 13, 2016.

The options include issuance of equity shares, convertible bonds, debentures through qualified institutional placement (QIP), GDR, ADR for an aggregate amount of up to Rs 100 billion.

Further, the board will also consider raising up to Rs 35 billion in the 2016-17 fiscal by issuing secured/unsecured redeemable non-convertible debentures on a private placement basis.

It will also consider issuing secured/unsecured foreign currency rated bonds/foreign currency convertible bonds for an amount up to Rs 50 billion.

Cadila Healthcare is a research-oriented, technology-driven pharmaceutical company. It is focused on the research areas of biotechnology, formulations and Active Pharmaceutical Ingredients. The company is an Indian based pharmaceutical company having their presence around the world.

Presently the stock of Cadila Healthcare is trading down by 0.6%.

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