Indian Indices Open Weak

Wed, 18 May 09:30 am

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Major Asian stock markets have opened the day on a negative note. The stock markets in Hong Kong and China are trading lower by 1.6% and 1.7%, respectively. Major indices in Europe ended their session on a negative note. US markets also ended their previous session in the red. The rupee is trading at 66.93 per US$.

Indian stock markets have opened the day on a negative note. The BSE Sensex?is trading down by 171 points (down 0.6%) and NSE Nifty?is trading down by 49 points (down 0.6%). The BSE Mid Cap index?is trading down by 0.2%, while the BSE Small Cap index is trading flat. Losses are led by auto, banking and metal stocks.

PSU banking stocks have opened the day on a negative note with United Bank of India and Syndicate Bank leading the losses. As per an article in Economic Times, State Bank of India (SBI) is going to merge its five associate banks, along with the Bharatiya Mahila Bank, with itself. The bank recently announced that its board has given in-principle approval for the bank to discuss the possibility of acquiring its associate banks.

The five associate banks are State Bank of Travancore, State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner and Jaipur, and State Bank of Patiala.

However, the bank's release stated that the discussion is purely exploratory at this stage and not certain. Government officials said that no legislative changes will be required for this merger and that the process may get completed within this fiscal.

The government has been pushing 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 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 come 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 a numerically large number of banks.

Further, R Gandhi, deputy governor of the RBI, summarised this situation in a speech earlier this month. 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 one of the articles 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, one of our editions of The 5 Minute WrapUp has stated why 2016 looks a strong year for mergers and acquisitions.

In another news update it was reported that Blue Star has anticipated an overall growth of 30% during the current financial year. This is as against the 20% growth witnessed in the last financial year.

Further, the company has plans to invest over Rs 300 million on new product development as well as its research and design initiatives in the current financial year.

The company had sold 3.1 lakh room ACs last fiscal and is targeting 12% room AC sales in the current fiscal.

On a separate note, the company is planning to enter the water purifier business later this year. For this, the company will initially offer residential water purifiers and will gradually enhance its range to cover commercial water purification systems.

The company's cooling products segment continues to perform well owing to the company's growing range of products, enhanced distribution and strong brand. The company is further planning to broaden its product line in related areas such as air coolers and air purifiers.

Blue Star is India's leading central air-conditioning and commercial refrigeration company. The stock of the company has opened the day up by 1.5%.

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