Indian Indices Open Lower ahead of Inflation Data; Telecom & IT Stocks Drag

Wed, 12 Jun 09:30 am

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Asian share markets got off to a cautious start after US President Donald Trump stoked fears of escalation in trade war. The Nikkei 225 is down 0.1% while the Hang Seng is down 1.5%. The Shanghai Composite is trading down by 0.6%.

Back home, India share markets have opened the day on a negative note. The BSE Sensex is trading down by 136 points while the NSE Nifty is trading down by 44 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.2%.

Sectoral indices are trading on a mixed note with stocks in the telecom sector and IT sector witnessing maximum selling pressure, while metal stocks and energy stocks are trading in green.

The rupee is trading at Rs 69.37 against the US$.

In the news from the finance sector, Dewan Housing Finance Limited (DHFL) has paid Rs 9.6 billion interest on non-convertible debentures (NCD), according to a release filed with the exchanges on June 11. The payments were made within the cure period of seven working days.

On June 6, rating agencies ICRA share price and CRISIL share price downgraded the company's rating on Rs 8.5 billion worth of commercial paper to 'default', down from 'A4' due to the mortgage lender's deteriorating liquidity condition.

DHFL had commercial papers (CP) worth Rs 7.5 billion maturing this month. Last month, the company announced that it had stopped accepting fresh inflows in fixed deposits (FDs). It also stopped renewals and put premature withdrawals from existing fixed deposits on hold.

On May 17, CARE ratings had downgraded the company's FD programme worth Rs 200 billion from 'A' to 'BBB'.

The NBFC space has been under pressure since September last year after IL&FS defaulted on crucial payments, triggering fears of a liquidity crisis.

DHFL share price has opened the day up by 4%.

Speaking of non-banking financial companies (NBFCs), note that NBFCs were flush with funds from banks, insurance companies, and asset management companies i.e. mutual funds in 2016.

And with these funds and without the necessary restrictions, NBFCs become reckless in deploying the funds.

You can see this clear as day in the chart below...

One Chart that Predicted the NBFC and Mutual Fund Crisis Back in 2016

Here's what Tanushree Banerjee wrote about this in today's edition of The 5 Minute WrapUp...

• Let's look back at 2016...
  
  Banks, mutual funds, and insurance companies were competing with each other to lend to NBFCs.
  
  And why not?
  
  Not only were the fast growing NBFCs hungry for funds, they also offered attractive yields.
  
  The NBFCs took more risk than banks by lending without collaterals. But they charged higher interest rates; which meant their margins remained far higher than that of banks.
  
  It's no wonder the NBFCs caught everyone's fancy. In fact, between 2013 and 2016, the top NBFCs saw their valuation multiples move up three to eight times.

As per Tanushree, the problem in the NBFC sector is far from over. But she believes the good quality NBFCs, and housing finance companies will continue to flourish and you can make the most of the opportunity by buying the safest NBFCs.

Moving on to the news from the aviation space, the pilots' union of cash strapped Jet Airways will file a plea against the grounded airline at the National Company Law Tribunal (NCLT) for non-payment of salaries and not providing a provision for gratuity payment to its staff.

The union counted about 1,100 of the airline's 1,600 pilots as its members before the grounding of the carrier. Reports state that the airline hasn't paid salaries since January and also haven't made any provisions for gratuity.

Two operational creditors of Jet Airways, Shaman Wheels Pvt. Ltd and Gaggar Enterprises Pvt. Ltd, had filed separate insolvency pleas against the airline earlier this week at the NCLT, Mumbai, for recovery of their dues.

Reports state that in case Jet does not end up being liquidated and insolvency is resolved then the new investor who bails out Jet would need to take on the liability including salaries.

In any case, if Jet Airways is admitted to the National Company Law Tribunal, under bankruptcy resolution lenders may recover only a fraction of the Rs 84 billion the airline owes them.

The total liabilities of the airline, including unpaid salaries and vendor dues, are nearly Rs 150 billion. Yesterday, it was reported that the Hinduja Group and Etihad Airways may not proceed with plans to resurrect the airline.

Shares of the company fell as much as 15% to hit an all-time low of Rs 106 on back of the above news.

It would be interesting to watch out how things pan out in this space. Meanwhile, we will keep you updated on all the developments.

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

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