Sensex Ends 289 Points Lower; Realty and Banking Stocks Witness Selling

Fri, 14 Jun Closing

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Indian share markets fell sharply during closing hours. Barring capital goods sector, all sectoral indices ended on a negative note with realty stocks, telecom stocks, and banking stocks losing the most.

At the closing bell, the BSE Sensex stood lower by 289 points (down 0.7%) and the NSE Nifty closed down by 91 points (down 0.8%). The BSE Mid Cap index closed lower by 1% and the BSE Small Cap index ended the day down by 0.8%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng was down 0.7% and the Nikkei was up by 0.4%. The Shanghai Composite stood lower by 1%.

In the news from the pharma space, Aurobindo Pharma share price was in focus today. The stock of the company witnessed selling pressure today after USFDA pointed out data integrity lapses at the company's finished dosages plant at Bachupally in Telangana.

The FDA issued Form 483 with 10 observations to Aurobindo Pharma on the plant which was audited by the US drug regulator between May 13 and May 24.

The USFDA said that laboratory records do not include complete data derived from all tests, examinations and assay necessary to assure compliance with established specifications and standards.

From the aviation space, Jet Airways share price hit its all-time low level today after reports showed that Directorate General of Civil Aviation (DGCA) has cancelled critical authorisations to Jet Airways' engineering department.

As per the news, it was stated that India's aviation regulator has cancelled critical authorisations to Jet Airways' engineering department, rendering the grounded airline defunct and unable to carry out any maintenance work on aircraft.

The action taken by the DGCA will impact the airline's most critical assets, its planes, which are in constant need of maintenance and preservation even as they are grounded.

The airlines stock also witnessed sharp selling yesterday and fell over 20% after stock exchanges decided to impose trading restrictions on the debt-laden airline.

According to a circular issued by NSE, the decision was taken as a part of preventive surveillance measures to curb excessive volatility. The decision would be effective from 28 June.

The stock exchange notified that the shares of the airline will be shifted from rolling segment to trade for trade segment, wherein the settlement in the scrip will take place on gross basis with 100% upfront margin and 5% price band.

Trading in the futures and options (F&O) segment of the exchanges will also be removed. The exchanges also cited the company's failure to submit financial results for the year ended 31 March, as well as observations made by its auditor, as reasons for its decision.

Note that several people from the top management have left the airline company in the past few months. Lenders to the cash-strapped airline, led by the State Bank of India (SBI), are seeking investors to recover their dues.

The airline's total liability, including unpaid salaries and vendor dues, is nearly Rs 150 billion. 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.

How this pans out remains to be seen. Meanwhile, we will keep you updated on all the developments form this space.

In the news from the macroeconomic space, India's wholesale price-based inflation (WPI) slipped to 22-month low at 2.45% in May.

The fall here was helped by lower prices for food articles, and fuel and power items.

Inflation in food articles basket was 6.99%, down from 7.37% in April. However, onion prices spiked during the month with inflation at 15.89%, as against -3.43% in April. Vegetables inflation eased to 33.15% in May. This was down from 40.65% in the previous month. Inflation in potato was -23.36%, against -17.15% in April.

Inflation in 'fuel and power' category cooled to 0.98%, from 3.84% last month. Manufactured items too saw decline in prices with inflation at 1.28% in May, against 1.72% in April.

The WPI inflation in May is the lowest in 22 months, since July 2017, when it was at 1.88%.

It was at 3.07% in April and 4.78% in May 2018.

Earlier this week, government data showed retail inflation touching a seven-month high of 3.05% in May 2019.

Higher vegetable and food prices led to the fourth consecutive monthly increase in retail inflation, which is calculated on the basis of Consumer Price Index (CPI).

As per the data released by Central Statistics Office (CSO), inflation in the food basket increased to 1.83% in May. The same was recorded at 1.1% in April.

The retail inflation in April 2019 was revised upwards to 2.99% from the earlier 2.92%. The retail inflation level during the May 2018 was recorded at 4.87%.

The Reserve Bank of India has set the targets of 4% for the inflation rate.

The Monetary Policy Committee (MPC) under the central bank factors in CPI-based retail inflation while finalising its monetary policy.

From the NBFC sector, market participants were also tracking Gruh Finance share price. Stock of the company witnessed selling pressure today after the promoter Housing Development Finance Corporation (HDFC) sold more than 4% of the company's paid-up capital in the open market.

Earlier, on May 25, the housing finance company had sold 32.6 million equity shares, representing 4.4% of the paid-up capital of Gruh Finance at price of Rs 310 per share.

While on March 28, HDFC had sold 12.2 million shares of Gruh Finance at a price of Rs 260 per share.

Reportedly, HDFC being a shareholder of Gruh Finance is entitled to 14.96% of post-amalgamation paid-up capital of Bandhan Bank, based on the share exchange ratio.

However, the Reserve Bank of India (RBI) has directed the Corporation to hold 9.9% or less of the paid-up capital of Bandhan, post the merger.

In view of this, HDFC is required to sell such number of shares in Gruh Finance so as to be entitled to 9.9% of the post amalgamation paid up capital of Bandhan.

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.

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

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

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

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.

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

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