Sensex Closes Marginally Higher; Jewellery Stocks Surge

Mon, 5 Jun Closing

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Share markets in India continued to trade above the dotted line in the afternoon session ahead of a central bank policy meeting this week. At the closing bell, the BSE Sensex closed higher by 36 points. While, the NSE Nifty finished higher by 22 points. Meanwhile, the S&P BSE Midcap finished up by 0.2% while the S&P BSE Small Cap Index ended up by 0.7%.

Among BSE sectoral indices, consumer durables stocks gained over 6%, followed by the realty stocks up 1%%. While, metal stocks witnessed maximum selling pressure.

Asian equity markets closed mostly lower today following an attack in central London and as oil prices gained sharply after four countries snapped diplomatic ties with Qatar. The Shanghai Composite ended down 0.45% while Hang Seng slipped 0.24% and Nikkei 225 finished lower by 0.03%. European markets are mixed. The DAX is higher by 1.65%, while the CAC 40 is leading the FTSE 100 lower. They are down 0.55% and 0.21% respectively.

The rupee was trading at Rs 64.35 against the US$ in the afternoon session. Oil prices were trading at US$ 47.88 at the time of writing.

Coal India share price fell by 1.7% after it was reported that the government's policy think-tank NITI Aayog decided to break up the seven subsidiaries of Coal India after stalling it for past two years.

NITI Aayog suggested coal mining should be based on competition leading to the determination of the fossil fuel's market price.

TCS share price rose over 1.5% as the company applied for only a third of the H-1B work visas this year compared to 2015, helped by increased hiring from engineering campuses and B-schools in the US.

The move comes at a time when the Indian IT companies are confronted by closer scrutiny and tighter visa norms in the US.

In another development, the Goods and Services Tax (GST) Council cleared the pending decision to impose GST rates on Gold. The council has decided to impose GST tax rate of 3% on Gold, Silver, and processed Diamonds.

Reportedly, the existing import duty on Gold is 10% and after GST rollout consumers will have to pay an effective duty of 13% on Gold jewellery.

While the industry was lobbying for a 2% GST rate on gold and jewellery, street expectation was that it would be fixed at 5%, the minimum tax rate as per the four-tier structure earlier introduced. The tax rate of 3% is only slightly higher than current 2-2.5% that's levied.

Reacting to the news, jewellery stocks such as PC Jeweller share price, Gitanjali Gems share price, and Titan Company share price surged over 3% to 17%, after the GST Council finalised the tax rate.

Further, the council decided rough diamonds will have a tax levy of 0.25%, introducing another new tax slab. Companies must re-evaluate the cutting and polishing activity in India, in the light of GST strain and this may lead to significant shift of business and employment to other jurisdictions, the reports noted.

The government will roll out GST on July 1, and has categorically stated that it plans to stick to the deadline.

Moving on to news from the stocks in banking sector. As per an article in a leading financial daily, Bank of India is exploring opportunities to divest stake in some other non-core subsidiaries depending on right valuation.

This step is taken in order to unlock capital and turn the corner as it has been saddled with bad loans.

The bank's gross non-performing assets (NPAs) or bad loans were restricted to 13.22% of the gross advances at the end of March 2017, marginally higher than 13.07% a year ago.

Net NPAs, however, declined to 6.90% of the net advances at the end of the last FY, as against 7.79% a year earlier.

In the past one year, stocks such as Oriental Bank, Bank of India, Central Bank, Allahabad Bank and Dena Bank have yielded returns of over 30%. But a look at their financial scorecard shows that they are lame ducks waiting for disaster to happen.

The bad loans of these banks have shot up to alarming proportions such that out of every Rs 100 lent out by them a minimum of Rs 10 has gone dud.

Bad Loans Inventory Bloats Up

Rising to the menace of bad debts, the Reserve Bank of India is pondering over initiating tough measures against willful defaulters. Gross NPAs have risen at an alarming rate over the past 1 year.

While RBI's proactive measure to tighten NPAs is proactive, banks need to take their share of blame. In our recent 5 min wrap up edition, we had highlighted how the banks return ratios had deteriorated due to its profits written off on account of NPA provisions.

The RBI has done well to focus its attention on the willful defaulters. However, this seems to be a curative measure than a preventive one. Unless the root cause i.e. the initial lending process of banks is put in order, bad debt is likely to remain a cancer on economic growth.

Bank of India share price finished the day up by 0.5%.

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