IT Stocks Lead the Losses

Fri, 6 May 01:30 pm

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After opening the day weak, the Indian indices registered some gains and are currently trading on a flat note. Sectoral indices are trading mixed with stocks from the healthcare and IT sectors leading the losses. Oil & gas stocks are trading in the green.

The BSE Sensex is trading lower by 52 points (0.2%) and the NSE Nifty is trading down by 11 points (0.2%). The BSE Mid Cap index is trading up by 0.5% while the BSE Small Cap index is trading up by 0.1%. Gold prices, per 10 grams, are trading at Rs 30,387 levels. Silver price, per kilogram, is trading at Rs 41,350 levels. Crude oil is trading at Rs 2,948 per barrel. The rupee is trading at 66.59 to the US$.

Stocks in the consumer products space are trading on a mixed note with Dabur and Emami leading the gains. As per an economic daily, ITC has forayed into the super-premium chocolate segment with a luxury offering branded Fabelle. The brand is said to be sold through boutique stores in its luxury hotels.

It is to be noted that box of the assorted chocolates will be sold at an average price of Rs 1,000 each. The chocolates will be manufactured in Bengaluru.This will help the company in utilising and expanding its non-tobacco FMCG segment.

One shall note that ITC accelerated its expansion into the non-tobacco FMCG business in order to overcome sliding cigarette sales due to recurrent tax increases. The company has recently shut its cigarette factories again in order to comply with new norms of pictorial health warnings on the pack. The development comes in the wake of the Supreme Court refusing to stay a government order mandating introduction of bigger pictorial warnings. The pictorial warnings will now cover at least 85% of the surface area of the packs, up from 40% and may lead to further contraction in sales of the company.

Presently the stock of ITC is trading up by 0.1%.

Moving on to the news from currency markets. The Indian rupee witnessed selling pressure and weakened by around 7 paise to 66.62 against the US dollar in early trade today. This was seen on the back of sustained foreign fund outflows amid appreciation in the greenback overseas. Further, losses were also seen as the US dollar strengthened ahead of US jobs report.

Speaking of dollar, one of the articles from Vivek Kaul's Diary provide some insights on why the dollar should be backed by gold.

To keep a regular tab on the movements in USD/INR and other currencies, you can read weekly market commentary from the Daily Profit Hunter team. Their weekly commentary tracks the developments in the global economy as well as equity, currency and commodity markets.

In another news update Yes Bank stated that it has been granted in-principle approval by the Securities and Exchange Board of India (SEBI) for acting as Custodian of Securities. The bank has 12 months to establish the business.

Custodian of securities is a license granted by the SEBI that allows companies to offer custodial services to financial market participants including foreign institutional investors and foreign portfolio investors. A custodian is a bank or a financial institution that holds financial securities such as stocks, bonds, gold, etc.

Some of the very few banks involved in having the custody of securities are State Bank of India (SBI), ICICI Bank, HDFC Bank, and Axis Bank.

Yes Bank is India's fifth largest private sector bank with a pan India presence. The bank recently cut its marginal cost of funds based lending rate (MCLR) by 0.10% across tenors. With this, the lender's one year MCLR now stands at 9.5% as against the earlier 9.6%.

The revision in MCLR rates is seen as banks are trying to keep up with competition since the introduction of the new system last month.

The introduction of the MCLR has been in effect since April 1, 2016. The MCLR mechanism is introduced to ensure effective transmission of policy rates. The RBI has suggested banks review their lending rates frequently, and reflect changes in their cost of borrowing.

MCLR is computed based on banks' marginal cost of borrowing, or incremental cost of funds. This is as against the computation based on the average cost of funds that banks have used so far.

What this means is that if a bank's cost of borrowing is 8% now but tomorrow the incremental cost of funds becomes 7.5%, the marginal cost of borrowing for the computation purpose will be 7.5%, rather than the average of the two.

With this regime in place, a fall in deposit rates will be quickly reflected in the lending rates. Also, a rise in deposit rates would mean lending rates going up quickly too. In all, the process will mean quick transmission of policy rates by banks.

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