Sensex Ends 191 Points Lower; Metal and Energy Stocks Witness Selling

Fri, 28 Jun Closing

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India share markets continued to witness selling pressure during closing hours and ended their day in the red.

At the closing bell, the BSE Sensex stood lower by 191 points (down 0.5%) and the NSE Nifty closed down by 52 points (down 0.5%).

The BSE Mid Cap index ended the day down 0.3%, while the BSE Small Cap index ended the day down 0.1%.

Sectoral indices ended on a negative note with stocks in the metal sector, energy sector and telecom sector witnessing most of the selling pressure.

The rupee was trading at 69.00 against the US$.

Asian stock markets finished on a negative note. As of the most recent closing prices, the Hang Seng was down by 0.28% and the Shanghai Composite was down by 0.60%. The Nikkei 225 was down 0.29%.

European markets were trading on a positive note. The FTSE 100 was up by 0.27%. The DAX was trading up by 0.43%, while the CAC 40 was up by 0.22%.

In the news from the macroeconomic space, the Reserve Bank of India's (RBI) Financial Stability Report warned that the non-banking finance companies (NBFCs) and mortgage firms in dire straits pose a serious threat to markets.

As per the report, the contagion from the malaise gripping shadow lenders, along with a looming global trade war and instability stemming from US actions, is among the biggest threats to the markets.

The report stated that some of the large NBFCs and housing finance companies (HFCs) have the potential to cause the kind of instability that big banks could trigger.

The RBI also called for tighter supervision of NBFCs and mortgage lenders.

Note that the financial markets have been in flux ever since Infrastructure Leasing & Financial Services (IL&FS) defaulted on its payments in September. This lead to a liquidity squeeze on NBFCs.

Subsequently, mutual funds shut out many NBFCs and HFCs to which they had been lending earlier, leading to a fire sale of assets to meet payment obligations.

This led to the rise in the cost of funds for shadow lenders despite falling policy rates.

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 one of the editions 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.

In the news from the power sector, Power Grid Corporation of India share price was in focus today as the company said its board will meet next week to consider raising up to Rs 100 billion through issuance of non-convertible debentures/bonds on private placement basis during the next financial year.

As per the news, the funds will be raised from domestic market through issue of secured/unsecured, non-convertible, non-cumulative/cumulative, redeemable, taxable/ tax-free debentures/bonds under private placement during the financial year 2020-21 in up to 20 tranches/offers.

From the pharma space, Sun Pharma share price was also in focus today. The stock of the company witnessed buying interest to extend its uptrend for the fifth consecutive session.

Gains were seen as the drug major said one of its wholly-owned subsidiaries has entered into a licensing agreement with a subsidiary of China Medical System Holdings for the development and commercialisation of its dermatology products.

Regarding the products, Tildrakizumab is a biologic product for psoriasis and psoriatic arthritis, while Cyclosporine A 0.09% is an eye drop.

The agreement is for development and commercialisation in Greater China, including Mainland China, Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan.

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

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