Sensex Opens Flat; Telecom Stocks Drag

Tue, 9 Jun 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.2% while the Hang Seng is up 1%. The Nikkei 225 is trading down by 0.6%.

The Nasdaq posted a record closing high on Monday, becoming the first of the major indices to confirm a new bull market, while the S&P 500 ended in positive territory for the year as expectations for a swift recovery from a coronavirus-driven downturn increased.

Back home, Indian stock markets opened flat.

The BSE Sensex is trading up by 20 points. The NSE Nifty is trading higher by 5 points.

Meanwhile, the BSE Mid Cap index has opened up by 0.8%.

BSE Small Cap index is trading higher by 0.9%.

Except telecom stocks, all sectoral indices are trading in the green.

BSE Consumer Durables Index is witnessing maximum buying interest with 1.5% gains, followed by BSE Metal with 0.9% gains.

Moving on, gold prices are currently trading up by 0.9% at Rs 46,101.

The rupee is currently trading at 75.54 against the US$.

In the news from financial sector.

Infrastructure Leasing and Financial Services (IL&FS) on Monday completed the sale of its 50% stake in Gujarat International Finance Tec-City Co. Ltd (GIFTCL) to the Gujarat government, represented by the Gujarat Urban Development Co., (GUDCL).

Note that, the company has a bad debt burden of over Rs 1 trillion.

IL&FS has received Rs 327.1 million as equity value for the shares.

The sale will additionally reduce its consolidated debt by over Rs 12.3 billion.

The sale was completed following the approval of the principal bench of the National Company Law Tribunal (NCLT) on 22 May.

GUDCL, as the joint venture partner and the holder of the remaining 50% in GIFTCL, offered to purchase IL&FS's share through the exercise of a contemplated right of first refusal under the joint venture agreement.

GIFTCL is a real estate developer, which is currently developing an international financial services city in the Ahmedabad-Gandhinagar region.

Moving on to the news from automobiles sector. As per an article in a leading financial daily, Hero MotoCorp launched an integrated online sales platform, eSHOP, in the wake of the coronavirus pandemic.

The platform enables a seamless buying experience, which is completely digital.

Note that, the company is set to announce its fourth quarter FY20 results today.

The company sold 13.3 lakh units during the quarter under review, down 25% against 17.8 lakh units in the same period last year.

There are expectations that the automobile sector is likely to report sharply weak numbers in Q4, due to planned BS4 inventory correction undertaken by OEMs, lockdown in the month of March owing to spread of Covid-19 pandemic and sharp fall in export volumes.

We will keep you updated on the developments from this space.

Hero MotoCorp share price opened the day up by 1.3%.

In another development, SBI shares are in focus today as the bank sharply reduced lending rates by 25-75 basis points (bps).

This will have to be matched by other lenders at a time when margins are under pressure due to extended moratorium on loans and a ruling due on whether they can indeed charge interest on the moratorium.

The lending rate cuts come after the country's largest lender slashed its interest rates on retail term deposits by up to 40 bps across all tenors, from May 27.

In fact, the bank reduced its deposit rates twice in May, as it dealt with the challenge of managing a large pool of surplus funds, in the absence of robust credit demand.

It had revised deposit rates by 20 bps (effective May 12).

Speaking of the banking sector, note that the Bank Nifty index was underperforming the benchmark index Nifty after they hit their lows in March.

There were several reasons behind its underperformance - a rising NPA risk, lack of credit growth, and overcautious nature of banks in lending.

However, it is interesting to note that these problems haven't gone away, but banks have still managed to outperform Nifty in the last two weeks, as can be seen in the chart below:

As per Apurva Sheth, lead chartist at Equitymaster, the reason why banks are outperforming over the last two weeks is because of price action.

Here's what he wrote about it in today's edition of Profit Hunter...

• The price action of Bank Nifty when compared to Nifty suggested that banks are beaten down sharply.
  
  Bank Nifty to Nifty ratio had reached an extreme. The ratio had dropped way below its average and reversion to the mean was due.
  
  The ratio is still far below its average and Bank Nifty will attempt to claw back. Obviously, this won't happen in a hurry or in a straight line. There will be lot of zig-zag moves which will create opportunities for smart traders.
  
  To know how you can make the most of such opportunities, I recommend you read this piece.

Meanwhile, I recently reached out to Tanushree Banerjee, who is closely tracking the banking sector in the current scenario. Here's her view on the sector...

• The Covid-19 lockdown has hit cash flows of both individual borrowers and corporates. This, in turn, will impact their loan repayment capability.
  
  The RBI's repo rate cut came as a temporary lifeline for Indian companies with debt on books. It will offer both companies and retail borrowers some breather. If banks use this phase judiciously, it may save the NPA ratios from worsening significantly.
  
  However, only the banks that have adequate capital and provisioning cushion may be able to tide over the economic crisis. Eventually, another round of consolidation in private sector banks, like the one after 2002, cannot be ruled out.

Tanushree's latest StockSelect recommendation is one such midcap bank.

You can read the entire report here (requires subscription).

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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