Sensex Trades Marginally Lower; Metal & Automobile Stocks Slip

Thu, 18 Jul 12:30 pm

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Share markets in India are presently trading on a negative note. Barring finance sector, all sectoral indices are trading in red with stocks in the metal sector, automobile sector and realty sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 101 points (down 0.3%), while the NSE Nifty is trading down by 33 points (down 0.3%). The BSE Mid Cap index and the BSE Small Cap index are trading down by 0.9 and 0.7%, respectively.

The rupee is currently trading at Rs 68.84 against the US$.

Market participants are tracking Rallis share price, Colgate share price, and Cyient share price as these companies are set to announce their June quarter results later today.

You can also read our recently released Q1FY20 results: Infosys, TCS, IndusInd Bank, DCB Bank, Bajaj Consumer Care, Mindtree, Wipro.

In news from the pharma sector, Torrent Pharma has received a communication from the US Food and Drug Administration (USFDA) classifying the inspection conducted at its Dahej facility in March 2019 as Official Action Initiated (OAI).

Reports state that the company had already submitted its initial response to USFDA, and commitments given in response to Form 483 observations have been fulfilled. The company is sending further updates over receiving of this OAI letter.

Meanwhile, the USFDA also raised doubts about Strides Pharma Sciences' quality control practices after finding adulteration and evidence of "uncontrolled shredding of documents" at one of its plants.

USFDA found "significant violations" of current good manufacturing practice regulations at company's plant in Puducherry, the drug regulator said in a warning letter that was made public earlier this week.

Torrent Pharma share price and Strides Pharma share price are presently trading down by 3.5% and 1.1%, respectively.

Moving on, CARE Rating share price is in focus today. Stock of the company fell around 5% after the rating agency sent it's managing director and chief executive Rajesh Mokashi on leave after an anonymous complaint was filed against him to the regulator.

In an exchange filing, the company said "the board of directors of CARE have decided to appoint T.N. Arun Kumar, currently executive director (Ratings) as interim chief executive officer ("CEO") of the company. He will not be part of rating operations to ensure independence of ratings."

On July 2, ICRA, another rating company and the local affiliate of Moody's Investors Service, sent its MD and CEO Naresh Takkar on leave, pending an enquiry into "anonymous" allegations against the executive.

Reportedly, the step was taken following an anonymous complaint, which alleged that there were lapses when ICRA assigned a high rating of AAA to IL&FS last year.

In September 2018, IL&FS defaulted on its debt payments, triggering a liquidity crisis in the financial services market.

The complainant had alleged that ICRA's top brass had meddled in assigning high ratings to IL&FS and its subsidiaries. ICRA, in its earnings statement on 9 May, had told exchanges that based on market regulator's reference, the rating firm was in the process of addressing the concerns raised in the anonymous complaint.

Note that rating companies have been facing criticism amid a series of defaults over the past eight months.

This is not the first time that rating agencies have been in the spotlight for wrong reasons. They have been often accused for failing to red flag financial catastrophes in the rated companies.

At Equitymaster, we have been writing about the fact that an AAA rating is hardly a guarantee of financial health since 2009. Not just in India, but globally, the big rating agencies have been too powerful. Most of them escaped untouched ever after the massive US subprime crisis of 2008.

And in India, be it in the case of Amtek Auto or Kingfisher Airlines, rating agencies have time and again been caught on the wrong foot. More recently, in the case of Zee and DHFL too, the rating agencies were caught napping.

Even then, investors continued to remain in awe of the rating companies. The stocks fetched steep valuations.

One, because the two largest rating agencies in India are subsidiaries of global giants S&P and Moody's.

Two, because they corner a massive chunk of the rating market share.

Three, because the cash rich companies have immense potential to pay out or multiply shareholder wealth.

High Cash Levels in the Books of Rating Agencies

Here's what co-head of research at Equitymaster, Tanushree Banerjee wrote in one of the editions of The 5 Minute WrapUp:

• India's debt market remains at a nascent stage. So, the rating agencies have immense potential to grow as the market matures.
  
  Therefore, there is no denying that the business of rating agencies is not withering away anytime soon.
  
  The only risk is stricter regulation and accountability. Both of which could be benign for the long term.
  
  The stocks of rating agencies are not completely immune to such crisis.
  
  The last time this big rating agency was as cheap and out-of-favor as it is today, the stock had corrected by 40% in six months. But then, it went on to move up 400% in the next three years.
  
  The cleanup in India's financial sector is far from over. And like the auditors, the rating agencies will continue to remain a part of the cleanup.

She believes a few of these companies could lead India's financial sector revival. They could be the catalysts of what she calls the Rebirth of India. And go on to create massive wealth.

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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