Banking Stocks Lead the Gains

Thu, 18 Aug 01:30 pm

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Indian equity markets continue to trade higher in the post noon session amid strong international markets. Barring metal and consumer durables sector, majority of the sectoral indices are trading above the dotted line. Banking and power stocks are leading the gains.

The BSE Sensex is trading higher by 154 points and the NSE Nifty is trading higher by 55 points. The BSE Small Cap index & the BSE Mid Cap index are also trading higher by 0.6% and 1% respectively. The rupee is trading at 66.78 to the US$.

Buying is witnessed across majority of the energy stocks with MRPL and Gujarat State Petronet leading the charts. According to an article in The Economic Times, some foreign oil companies have expressed interest in partnering with Hindustan Petroleum (HPCL) and GAIL to build a petrochemicals complex in Andhra Pradesh. The companies are looking at inducting a strategic investor and may offer up to 50% stake in the joint venture. If a deal goes through, HPCL and GAIL may end up jointly holding just 50% in the project.

An equal joint venture of HPCL and GAIL is planned to build a petrochemicals complex at Kakinada in Andhra Pradesh at an estimated cost of about Rs 300 billion. The petrochemicals plant, which will use both natural gas and liquid feeds, may take about four years from financial closure to build. Reportedly, two-thirds of the project cost will come via debt and the balance through equity.

Rising demand for petrochemicals has encouraged Indian oil firms to set up new manufacturing facilities or expand the existing ones. Indian Oil Corporation also plans to spend about Rs 300 billion on setting up new petrochemicals facilities by 2022.

Lower oil prices have boosted demand for oil products and refining margins. As per the reports, fuel consumption jumped 11% in 2016 in the country.

Moving on to news from banking sector. Shares of Bank of India are trading on an encouraging note (up 0.4%) after it was reported that the bank has raised Rs 5.4 billion through monetization of its non-core assets so far in 2016-17 and is planning to raise a similar amount in the rest of the year.

In June, the bank had raised Rs 5.4 billion by selling 18% stake in life insurance joint venture with Dai-ichi and Union Bank of India to the Japanese firm thereby diluting its stake to 30%.

Reportedly, the bank has completed monetizing 'more than half' of its non-core assets earmarked for sale in FY17.

In an another development, Foreign and public sector banks (PSBs) have lost share of primary banking relationships to new private banks. As per the reports by industry body Federation of Indian Chambers of Commerce and Industry), IBA (Indian Banks' Association) and BCG (Boston Consulting Group) the share of primary banking relationships for PSBs, excluding SBI and its associates, fell from 35% in 2013 to 30% in 2016 while that of foreign banks fell from 13% to 6%. At the same time, the share of private banks during the period has risen from 29% to 36%. This comes amid the fact that corporates are increasingly consolidating towards two bank accounts.

The reason for an increase in the share of private banks is that they have better transaction banking propositions which determine primary banking relationships. They are more aggressive in marketing current accounts, payments and collection solutions than PSU banks.

The report also reveals that digital transactions have increased by 70% over the last year while bank branches have decreased.

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