Government's Mega PSB Merger, Slowdown in Infra Industries, and Top Cues in Focus Today

Wed, 4 Sep Pre-Open

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On Tuesday, Indian share markets fell sharply during closing hours, tracking weak domestic and global cues.

The BSE Sensex closed lower by 770 points to end the day at 36,563. ICICI Bank and IndusInd Bank were among the top losers.

While the broader NSE Nifty ended down by 225 points to end at 10,798.

Among BSE sectoral indices, metal stocks fell the most, followed by energy stocks and telecom stocks.

Top Stocks in Focus Today

From the steel sector, Tata Steel share price will be in focus today as the company said it would shut parts of its non-core businesses in the United Kingdom, a move that could cost about 400 jobs.

The steelmaker proposed to close its loss-making Orb Electrical Steels site in South Wales, potentially affecting up to 380 jobs, as it was "unable to find a way forward" for the business.

The company said it would cost the company more than US$ 61.4 million to upgrade the site to produce steel for electric vehicle production.

PSB Stocks Tumble After Merger Announcement

Public sector bank (PSB) stocks such as Punjab National Bank (PNB) and Corporation Bank will be in focus today. Stock of PSBs witnessed sharp selling pressure yesterday after the government announced the merger of ten state-run lenders into four.

Note that in order to revive the deepening economic slowdown, the government on Friday unveiled a mega plan to merge 10 public sector banks into four with a view to create fewer and stronger global-sized lenders with robust balance sheets that can be used to boost credit and spur growth.

Oriental Bank of Commerce and United Bank will merge with Punjab National Bank to create the nation's second-largest lender behind State Bank of India. Also, Syndicate Bank will merge with Canara Bank while Andhra Bank and Corporation Bank would subsume into Union Bank of India. Allahabad Bank will be amalgamated with Indian Bank.

The above mergers, together with two set consolidations done last year, will reduce the number of public sector banks to 12 from 27 in 2017.

Needless to say, most investors would be worried about the level of NPAs and current and savings accounts (CASA) of the merged entities.

Lower NPA ratio and sustenance of high CASA, in the future, could signal the banks' fitness levels to lend more.

Here's what Tanushree Banerjee wrote about the above development in the recent edition of The 5 Minute WrapUp...

• But what could go unnoticed is the efficiency potential of the merged entities.
  
  Post merger, the employee per branch ratio of the consolidated PSU entities could be in the range of 7 to 9 per branch. This would be almost half that of their private sector counterparts like HDFC Bank and Kotak Bank.
  
  Leaner operations would mean use of technology to support growth.
  
  So, I would not be surprised if the PSU entities leverage technology at a much bigger scale than their private sector peers, in a few years.

Slowdown in Growth of Core Infra Industries

Data released by the ministry of Commerce and Industry showed the growth of eight core infrastructure industries slowed down to 2.1% in July 2019 as compared to 7.3% in the same month a year ago. The slowdown was seen on the back of contraction in coal, crude oil and natural gas production.

The combined Index of eight core industries was 2.1% higher compared to the index of July 2018. Its cumulative growth during April to July, FY20 was 3%.

The Eight Core Industries, coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity comprise 40.3% of the weight of items included in the Index of Industrial Production (IIP).

Among eight core sectors, coal production having 10.3% weight declined 1.4% in July 2019 over July 2018. Petroleum Refinery production having 28% weight fell 0.9% in July 2019 as compared to same month last year.

The Natural Gas production having 6.9% weight declined by 0.5% percent in July 2019.

Steel production having 17.9% weight increased by 6.6% in July this year. Electricity generation having 19.9% weight jumped by 4.2% in July 2019.

Cement production rose by 7.9%, fertilizer production surged by 1.5%, while crude oil production declined by 4.4% in July this year.

How this pans out in coming months remains to be seen. We will keep you updated on all the news from this space.

Maruti Suzuki Reduces Production for Seventh Straight Month

In the news from the automobile sector, Maruti Suzuki has reduced its production by 34% in the month of August 2019. The company produced a total of 1,11,370 units in August as against 1,68,725 units in the year-ago month.

This is the seventh straight month that the country's largest car maker reduced its output. In July, the automaker had cut its production by 25.2% at 1,33,625 units.

Passenger vehicles' production declined by 33.7% at 1,10,214 units as against 1,66,161 units in August 2018.

Production of mini and compact segment cars including Alto, New WagonR, Celerio, Ignis, Swift, Baleno and Dzire stood at 80,909 units as against 1,22,824 units in August last year, down 34.1%.

Production of utility vehicles such as Vitara Brezza, Ertiga and S-Cross declined 34.9% to 15,099 units as compared with 23,176 units in the year-ago month.

On Sunday, the company reported a 33% dip in total sales at 1,06,413 units as compared with 1,58,189 units in August 2018.

The company also said that it will make all the small cars in its portfolio available in compressed natural gas (CNG) variants to reduce dependence on imported oil and cut down on vehicular pollution.

The company's Chairman RC Bhargava told The Economic Times that all small cars in the company's portfolio will get converted to CNG. There is an acceptance from the government that CNG is a cleaner fuel, and it is being accepted for transportation. They are setting up 10,000 CNG distribution outlets.

To know more about the company, you can read Maruti Suzuki's latest result analysis and Maruti Suzuki's 2018-19 annual report analysis on our website.

Speaking of the Indian auto industry, note that the sluggish market environment prevalent in the first quarter has continued in the beginning of the second quarter as well as its impact are visible in the dispatch volumes.

The sector has been battling many negative forces - slowing economic activity, rising car prices (led by stricter emission norms and insurance costs), shortage of financing options because of the NBFC crisis, and weak rural sentiment. All these factors have dampened demand.

It seems unlikely that the upcoming festival season will work wonders in terms of bolstering growth...unless the government steps in to help the industry.

In the video below, Tanushree Banerjee talks about what helped the auto stocks back in 2002 become 7, 15 and 24 baggers in a decade.

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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