Sensex Opens Higher; Power and Realty Stocks Top Gainers

Fri, 9 Aug 09:30 am

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Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.7% while the Hang Seng is down 0.5%. The Shanghai Composite is trading down by 0.2%. Meanwhile, the S&P 500 registered its largest one-day percentage gain in about two months on Thursday, with technology shares providing the biggest boost as equities continued to rebound along with bond yields. All major sectors advanced at least 1%, and the S&P 500 technology index climbed 2.4%.

Back home, India share markets opened on a strong note. The BSE Sensex is trading up by 225 points while the NSE Nifty is trading up by 47 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.4%.

Barring IT stocks, all sectoral indices have opened the day in green with power stocks and realty stocks witnessing maximum buying interest.

The rupee is currently trading at 70.49 against the US$.

The Indian rupee opened higher by 14 paise at 70.55 per dollar today versus Thursday's close 70.69.

The rupee snapped its five-day losing streak to close higher by 20 paise at 70.69 against the US dollar on August 8, tracking sharp gains in domestic equities after reports of rollback of a tax surcharge on foreign portfolio investors.

At the interbank foreign exchange, the rupee witnessed high volatility against the US dollar.

The local unit opened strong at 70.80 and during the day touched a high of 70.55 and a low of 70.94 against the American currency.

Speaking of currencies, Vijay Bhambwani, editor of Weekly Cash Alerts, tells you the main reasons why not to trade commodities and currencies the same way you would trade equities. Here's an excerpt of what he wrote...

• Currencies are traded in pairs and the most liquid is the USDINR. Currencies are traded in four decimal points just as bonds are. The international derivative trader's association has indicated that forex may be traded in 6 decimals in the coming few years.
  
  It takes months sometimes for the currency pair to pass the next round figure, say from 70 to 71.
  
  Can you really trade commodities and currencies alike or for that matter, equities and currencies alike? Definitely not!

To know more, you can read Vijay's entire article here: Is Trading in Equities, Commodities, and Currencies the Same?

Moving on to the news from the NBFC sector. The Reserve Bank of India (RBI) has allowed banks' lending to non-banking financial companies (NBFCs) for on-lending to agriculture, micro and small enterprises, and housing to be classified as priority sector lending, up to specified limits.

The RBI raised any bank's exposure limit to a single NBFC from the existing 15% to 20% of tier-1 capital. The idea is to ease liquidity pressure in NBFCs.

Banks' lending to NBFCs for on-lending to agriculture up to Rs 10 lakh a borrower will be treated as priority sector lending.

So, too, for loans up to Rs 20 lakh for micro and small enterprises and housing.

This has been done to increase the credit flow to certain sectors which contribute significantly to economic growth in terms of export and employment, and recognising the role played by NBFCs in providing credit to these, the reports noted.

In the Union Budget, the government aimed to encourage public sector banks to buy high-rated pooled assets of up to Rs 1 trillion of financially sound NBFCs. For which, it said, it would give a one-time and six-month partial credit guarantee for the first loss of up to 10%.

And, the RBI had changed banks' bond-holding norms, saying government securities of up to one per cent of the deposit base would be considered high-quality assets under Basel-III norms.

This will allow banks to borrow an additional Rs 1.34 trillion exclusively for buying such pooled assets and giving loans to NBFCs.

After the IL&FS default last year, many large NBFCs have also been struggling to get funds to even repay existing liabilities. To preserve liquidity, they have cut on disbursement. RBI has assured the sector that it will do what is required to support it.

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.

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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