The market run up continues

Thu, 5 Jun Closing

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The Indian benchmark indices gained their lost momentum and closed today on a firm note as buying activity picked up post noon. The benchmark index, BSE-Sensex, closed above the 25K mark for the first time ever today. The index closed higher by 214 points, while the NSE-Nifty ended higher by about 75 points. Stocks from sectors such as metals, oil & gas and FMCG have been the market boosters today. Both the BSE Mid Cap and the BSE Small Cap indices closed higher by 1.0% and 1.4% respectively.

On the global front, most of the Asian indices closed the day on a positive note. The European indices have been witnessing mixed performance. The rupee was trading at Rs 59.29 to the dollar at the time of writing.

Barring few such as JK Lakshmi Cement, The Ramco Cements and Birla Corp, all the other cement stocks closed the day on a firm note. Stocks of India Cements and Heidelberg Cement led the pack of gainers. According to a leading daily, cement prices have gone up by staggering 46% in past 20 days. With the construction industry being badly hit, cement prices have spiked by Rs 100 per kg bag from Rs 215 to Rs 315. Higher prices are expected to hit home buyers and cement dealers in the near term. The rationale behind such a sharp rise in cement prices seems to be the increased power charges. However, it seems that cement manufacturers have taken this opportunity to hike prices at their will, by creating artificial demand.

PSU bank stocks have closed the day on a mixed note today. Notably, Punjab & Sind Bank and Corporation Bank have led the pack of gainers, whereas UCO Bank and Bank of India have led the pack of losers. According to a leading daily, the finance ministry has planned a new entity to deal with the bad loan problem. The Finance Minister is considering a six-point agenda to resolve the non-performing loans (NPAs) menace. The banking system today holds approximately Rs two lakh crore of NPAs. The government is planning to set up a National Asset Management Company that will take over the bad debts of the banking consortiums, and re-energizing fourteen asset reconstruction companies in the country. The new entity quite likely may have a 51:49 partnership between the government and the banks. The amount of capital to be pulled in from banks will be decided soon. The company is expected to take over the NPAs on the balance sheet of banks and also help revival of the sick units. Besides, the government is also occupied with issues such as creating a special resolution mechanism for the infrastructure sector, re-looking at corporate debt restructuring mechanism, improving the effectiveness of the insolvency regime, and liberalizing norms to increase capitalization of asset reconstruction companies. Combating the asset quality issues that have put the banks in trouble for quite some time now is the topmost priority for the Ministry.

Can the NPA problem be resolved anytime soon? Do you think the new initiatives are sufficient to combat the bad loans' crisis? Kindly share your views on the Equitymaster Club.