Sensex Trades Higher; FMCG and Banking Stocks Gain

Wed, 17 Jul 12:30 pm

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Stock markets in India are presently trading higher. The BSE Sensex is trading up by 104 points and the NSE Nifty is trading up by 32 points. Meanwhile, the BSE Mid Cap index and the BSE Small Cap index are trading up by 0.3% and 0.2% respectively.

Among the sectoral indices, FMCG stocks, IT stocks and bank stocks are witnessing maximum buying interest. Automobiles stocks and oil & gas stocks are trading in red.

In the news from the banking sector. In the latest development, finance minister Nirmala Sitharaman has said that total non-performing assets (NPAs) of scheduled commercial banks (SCBs), after reaching a peak of Rs 10.4 trillion as on March 2018, dropped by Rs 1 trillion to Rs 9.3 trillion in the fiscal ended March 2019 (FY19) as a result of steps taken by the government.

She noted that the government has implemented a comprehensive 4R's strategy, consisting of recognition of NPAs transparently, resolution and recovery of value from stressed assets, recapitalising of public sector banks (PSBs), and reforms in PSBs and the wider financial ecosystem for a responsible and clean system.

The minister also said that among others, change in credit culture with the Insolvency and Bankruptcy Code (IBC) fundamentally changing the creditor-borrower relationship, taking away control of defaulting companies, debarring wilful defaulters from taking part in resolution process as well as raising funds from markets are the steps that have been employed.

Sitharaman further highlighted that comprehensive measures have been taken to prevent frauds including directions to banks to examine all NPA accounts above Rs 500 million from the angle of possible fraud, initiation of criminal proceedings, enactment of Fugitive Economic Offenders Act 2018, creation of Central Fraud Registry, empowering heads of Public Sector Banks to request for issue of Look Out Circular.

She also stated that other steps under the banking reform process such as a board-approved loan policy in public sector banks, use of third-party data sources for comprehensive due diligence across data sources have been put in place to check frauds.

Speaking of banks, in one of the editions of The 5 Minute WrapUp Tanushree Banerjee shares an interesting observation she is witnessing in the banking sector.

Here's what she wrote...

• After the IL&FS debacle, the NBFC sector is in a liquidity crisis. The housing finance regulator, National Housing Bank, has also restrained some entities from lending.
  
  So, the quantum of funds as well as the cost of loans have both shot up.
  
  Smaller public sector banks are struggling to keep themselves afloat.
  
  The few good quality private sector banks are only lending to retail clients, most cautiously.

This is evident in the chart below:

Banks are Lending Only to the Aam Aadmi

No wonder funding to corporates for capex has come to a standstill.

Amid this it is difficult to expect Indian companies to increase their capacities. Thus, their earnings may not grow at a fast clip.

And sooner than later their valuations will also succumb to a reality check.

But according to Tanushree, there is a silver lining to this cloud. You can read all about it here: The Bitter Pill that Will Lay the Foundation for Sensex 100,000

Moving on to the news from the engineering sector. As per an article in a leading financial daily, the Water and Effluent Treatment Business of Larsen & Toubro (L&T) Construction and Tecton Engineering a Construction LLC, UAE JV have secured a prestigious contract for a 100 MLD Desalination plant from Gujarat Industrial Development Corporation, Gujarat, India.

L&T Construction will be the lead in this project.

The EPC order is envisaged to provide desalinated water to Petroleum, Chemicals a Petrochemicals Investment Region (PCPIR) in the Dahej district of Gujarat.

As part of the contract, the JV will operate and maintain the plant for 10 years post completion.

Notably, diversification continues to help L&T negotiate and get better terms and margins for projects. Apparently, this is because it is less desperate to win orders as compared to a company which are present in only a couple of sectors.

Its reputation, extensive technical prowess, and large skilled workforce have enabled L&T to command a certain premium from customers and vendors alike.

Whether, further addition to these new projects provides a cushion to its profitability will be an interesting thing to watch out for going forward.

To know more about the company, you can access to L&T's Q4FY19 result analysis and L&T's 2017-18 Annual Report Analysis on our website.

L&T share price was trading flat at the time of writing.

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

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