Sensex Opens Strong; FMCG Stocks Rally on GST Boost

Fri, 19 May 09:30 am

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Asian stock markets continued to trade traded sideways in morning trade, despite a higher lead from Wall Street as markets in the U.S. took a breather after their worst day of the year. The Nikkei 225 is off 1.48% while the Hang Seng is down 0.38%. The Shanghai Composite is down 0.52%. Stock markets in Europe also finished below the dotted line in previous trading session.

Meanwhile, Indian share markets have opened the day on a strong note. BSE Sensex is trading higher by 221 points and NSE Nifty is trading higher by 56 points. Meanwhile, S&P BSE Mid Cap and S&P BSE Small Cap are trading up by 0.5% and 1% respectively. Gains are largely seen in power stocks, FMCG stocks and realty stocks.

The rupee is trading at 64.34 against the US$.

Moving on to news from IT sector. Amid rising worries over job losses due to the ongoing H-1B visa troubles, industry body, the Associated Chambers of Commerce of India (Assocham) has said that the Indian IT and BPM industry should shift their focus on domestic opportunities, noting that this is time to redraw strategy that gives a good look at the home market, which can more than make up at least in the short to medium term, for the possible dent on jobs in the disruptive overseas markets.

Assocham's secretary general DS Rawat claimed "lakhs of new jobs" can be created through the focus on domestic opportunity which can make up for the losses due to upheavals in global markets and changing technologies.

The industry body has said government's financial inclusion programmes like Prime Minister Jan Dhan Yojana (PMJDY) and Aadhar based service delivery models offer interesting job opportunities in the country itself and added that an increased focus on the domestic front will be a win-win move for both the country as well as the IT industry.

Besides, it has said that data generated by PMJDY and its linkages with Direct Benefit Transfer (DBT) can be a delight for different set of analytics and can be used to help the fast-moving consumer goods, auto, telecom, insurance, agriculture sectors.

As per Assocham, the Indian IT-BPM industry employs about four million young workforces in the country in over 16,000 companies and 60% of the current work done by the Indian IT industry is for global companies in the banking, financial services and insurance sector. It has cited factors like huge Internet base (400 million) and said that increasing adoption of digital payments that will further fuel the growth of technology uptake in the country.

Software stocks began the day on a firm note with HCL Infosys and NIIT leading the gains.

In news from banking sector, Bank of Baroda (BoB) reported a profit of Rs 1.54 billion for the March quarter as provisions for bad loans witnessed significant decline.

The bank had reported a huge loss of Rs 32.30 billion in the same period a year ago. The bank's total income rose to Rs 128.52 billion in the March quarter from Rs 127.89 billion in the year ago period.

The provisions declined to Rs 26.22 billion from Rs 68.57 billion in the year ago period as gross non-performing asset (NPA) ratio moved up marginally to 10.46% from 9.99%. Its net NPAs also eased to 4.72% as against 5.06% at the end of March 2016.

Bank of Baroda share price began the trading day up by 3.6% on the BSE.

Meanwhile, IDBI Bank's share price fell 7.5% in yesterday's trading session soon after the bank announced a historic loss of Rs 32 billion in fourth quarter against Rs 22.5 billion posted in third quarter. The higher loss are on the back of huge provisions for the bad loans which stood at 21%.

The bank also reported its highest ever gross non-performing asset (NPA) ratio at 21.25%. Provisions for NPAs stood at Rs 53.33 billion in the March quarter, 29 times more than what it had reported in Q4 FY16 and total provisions were up 40% YoY to Rs 62.1 billion.

The Reserve Bank has already initiated prompt corrective action (PCA) on the bank as it has posted losses for two consecutive years, reported higher level of bad loans and breaching the minimum capital norms. PCA restricts banks from hiring, opening branches and giving big ticket loans.

IDBI Bank share price is down 0.8% in morning trade.

During the financial crisis in 2008, when global financial behemoths were falling like a pack of cards, Indian banks were unscathed. Their strong and conservative credit systems were greatly lauded at that time.

However, a few years down the line, they seemed to have lost the plot completely. As the economic downturn gripped the country, not only did credit growth slow to multi-decade lows but souring loans that were extended to India Inc started to push banks down a deep chasm.

India Inc in the Centre of the Bad Loan EyeStorm

During the spiraling bad loan crisis, private banks were largely seen as safer than their troubled public sector counterparts. The perceived safety of some of these private sector banks has turned out to be a mirage, an illusion of water created by burning sands in deserts.

This became amply clear after a recent RBI notification mandated banks to report diversion in their reported and audited NPA numbers (varied more than 15%). Yes Bank a gross bad loan ratio of 0.76% for FY16, much lower than the 5% as per the RBI audit.

Reportedly, other private sector banks also kept their bad loans under wraps.

The question now is how much can we trust these banks? They failed to be fair and transparent in disclosing bad loans, which are an important metric to judge their risk preparedness and ultimately their earnings capability.

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