Indian Markets Gain Momentum

Fri, 27 May 11:30 am

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After opening the day on a positive note, the Indian stock markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the oil and gas and healthcare sectors leading the gains.

The BSE Sensex is trading up 175 points (up 0.7%) and the NSE Nifty is trading up 62 points (up 0.8%). The BSE Mid Cap index is trading up by 1.3% while the BSE Small Cap index is trading up 0.7%. The rupee is trading at 67.06 to the US$.

Moody's Investors Services stated that Indian banks will be in a better position with the Bankruptcy Act in place. It stated that corporate borrowers will now intensify their efforts to avoid loan defaults with the threat of likely loss of management control of business.

Earlier this month the Rajya Sabha passed the much awaited Insolvency and Bankruptcy Code, 2016. The Code has enabling provisions to deal with cross border insolvency. Further, an Insolvency and Bankruptcy Board of India would be established to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and information utilities.

Also, as per the new code, when a firm defaults on its debt, control shifts from the shareholders or promoters to a Committee of Creditors. The Committee would have 180 days in which to evaluate proposals from various players about reviving the company or taking it into liquidation.

As per an article in Economic Times, it presently takes 4.3 years to resolve loan default cases in India. This is as against 6 months in Japan, 8 months in Singapore, and 1.5 years in the US. However, with the Bankruptcy Act, the resolution process- from the date of filing cases to the final resolution-is said to be completed within a maximum of 270 days, with three-fourth of the total lenders agreeing to drag a defaulting borrower to court.

The objective of the new law is to promote entrepreneurship. This could possibly make India a more attractive destination as it would help the country move up in the Ease of Doing Business rankings. Above all, the bankruptcy code will provide huge relief to banks. Marred by NPAs, Indian banks are in a sorry state. According to central bank data, stressed assets (which include gross bad loans, advances whose term has been restructured and written-off accounts) rose to 14.5% of the banking sector loans as of December 2015. The bill will enhance the banks' ability to recover the loans in a timely manner. This will free up the locked capital and will lower their NPA levels.

Moving on to the news from power sector. National Thermal Power Corporation (NTPC) has decided to raise Rs 10 billion through private placement of secured non-convertible debentures (NCDs).

The debentures will be issued at a coupon of 8.10% per annum with a door to door maturity of 15 years on May 27, 2016.

It was note that the proceeds will be utilised to finance the company's capital expenditure in ongoing projects including recoupment of expenditure already incurred.

NTPC is engaged in generating power. Presently the company is facing subdued demand from the state electricity boards (SEBs) owing to their poor financials.

However, even if problems of the power sector get partially sorted out, NTPC is likely to be the biggest beneficiary. To know why, read our research report update on the company (subscription required). Presently, the stock of the company is trading down by 0.6%.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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