SBI Cuts Lending Rates, Equity Mutual Fund Flows in May, and Top Cues in Focus Today

Wed, 10 Jun Pre-Open

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Indian share markets ended deep in the red yesterday.

After opening the day on a flat note yesterday, Indian stock markets extended gains as the session progressed and rose over 1%. However, benchmark indices saw a sharp fall during the last hour of trading amid panic selling around mounted fear of coronavirus and weakness in European markets.

Stocks in the telecom sector and banking sector witnessing most of the selling pressure.

On the other hand, healthcare stocks witnessed buying interest.

At the closing bell yesterday, the BSE Sensex stood lower by 414 points, down 1.2%.

Meanwhile, the NSE Nifty closed down by 121 points.

The BSE Mid Cap index ended down by 0.2%, while the BSE Small Cap index ended down by 1%.

Asian stock markets rallied for the ninth straight day yesterday as the lifting of coronavirus lockdowns in many countries fed investor hopes of a relatively quick global economic recovery.

Global stock markets have been particularly encouraged by a US jobs report last week that showed a surprise fall in the unemployment rate, sending Wall Street indices surging with the Nasdaq hitting a record close on Monday.

Speaking of Indian stock markets, after the long coronavirus lockdown, the Unlock 1.0 phase has been surprisingly positive for the stock markets.

Most have justified the sharp run of last few sessions in Indian stock markets on the grounds that all negative news is already priced in.

But is that truly the case? Or is there something more to it?

In her recent video, Tanushree Banerjee answers these questions and talks about how investors should act on the Unlock 1.0 market rally.

Tune in to know more...

Equity Flows to Mutual Funds Fall for the Second Month in May

In news from the mutual funds space, equity flows continued to decline in the month of May.

Moreover, the contribution through systematic investment plans (SIPs) also remained on a downward trajectory amid market volatility.

According to the data from Association of Mutual Funds in India (AMFI), equity schemes garnered net flows of Rs 52.6 billion, 15% lower than the previous month.

The monthly contribution through SIPs saw another dip of 3%. In May, these flows stood at Rs 81,230.3 million, compared to Rs 83,760 million in April.

Barring large and midcap fund, all equity categories saw a slowdown in flows. For the large and midcap category, the flows more than doubled to Rs 7 billion in May.

On the debt side, credit-risk funds continued to see net outflows of Rs 51.7 billion. However, the figure was considerably lower than the previous month, which saw Rs 190 billion of net outflows in light of Franklin Templeton MF's move to wind-up six of its yield-oriented schemes.

Corporate-bond funds saw inflows worth Rs 38.3 billion, while banking & PSU debt fund received flows worth Rs 88.7 billion last month.

Medium-duration funds saw net outflows of Rs 15.2 billion.

Meanwhile, shorter-duration categories saw positive flows in May after seeing outflows in the previous month.

Adani Green Energy Bags World's Largest Solar Contract

Adani Green Energy hit a new high of Rs 312.75 on the BSE yesterday after the company said it has bagged the world's largest solar bid worth US$ 6 billion.

In an exchange filing, the company said that it has won the first of its kind manufacturing linked solar agreement from the Solar Energy Corporation of India (SECI).

As a part of the award, Adani Green Energy will develop 8 GW of solar projects along with a commitment that will see Adani Solar establish 2 GW of additional solar cell and module manufacturing capacity.

It further said that this award, the largest of its type, in the world, will entail a single investment of Rs 450 billion and will create 400,000 direct and indirect jobs.

It will also displace 900 million tonnes of carbon dioxide over its lifetime.

The company's management said this award will take the company closer to its target of achieving an installed generation capacity of 25 GW of renewable power by 2025 which in turn will see it committing an investment of Rs 1,120 billion (US$ 15 billion) in the renewable energy space over the next 5 years.

Titan March Quarter Results

In news from the retail sector, jewellery maker Titan posted a growth of 21.1% in its net profit at Rs 3,567.9 million for the quarter ended March 31, 2020 (Q4FY20).

In Q4FY19, the company had reported an exceptional item of Rs 700 million on account of a provision for impairment of investment in a subsidiary Favre Leuba, Switzerland.

Titan's standalone profit before tax stood at Rs 5.2 billion during the quarter under review, against Rs 4.6 billion last year.

In a press release, the company said, "the standalone growth in profit before tax for the quarter, despite the decline in the revenue, was possible due to significant compression of cost in anticipation of the disruption".

However, the company's total income declined by 5.5% year-on-year (YoY) to Rs 44.7 billion.

The company's jewellery revenues declined by 5.8% YoY.

The company's income from watches grew 4.9% to Rs 5.6 billion. The eyewear business declined 17.4% in the quarter, recording income of Rs 1.1 billion.

For the whole year ended March 2020, Titan posted total revenue of Rs 201.6 billion, growing 4.7% over the previous year.

SBI Slashes Lending Rates

State Bank of India has 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).

The bank reduced the marginal cost of fund based lending rate (MCLR) by 25 bps across all tenors.

The one year MCLR will fall to 7% from 7.25% with effect from June 10, 2020. This is the thirteenth consecutive reduction in bank's MCLR.

The lending rate reduction comes after Reserve Bank of India (RBI) cut the repo rate by 40 bps in May. SBI has reduced its deposit rate twice in May which also helped to reduce the lending rate.

What effect these cuts in lending rates have on the lender's business remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

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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