Developments in the Banking Sector, IRCTC IPO, and Top Cues in Focus Today

Thu, 26 Sep Pre-Open

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On Wednesday, Indian share markets witnessed selling pressure throughout the day and ended deep in the red. Selling pressure was seen amid political uncertainty in US after impeachment inquiry over President Donald Trump.

The BSE Sensex closed lower by 504 points to end the day at 38,594. State Bank of India and Tata Motors were among the top losers.

While the broader NSE Nifty ended down by 148 points to end at 11,440.

Among BSE sectoral indices, automobile stocks fell the most, followed by realty stocks and metal stocks.

Top Stocks in Focus Today

From the media space, Zee Entertainment Enterprises (ZEEL) share price will be in focus today. The stock of the company witnessed buying interest yesterday on reports that lenders have unanimously agreed to extend the timeline for Essel Group to repay debt.

From the steel sector, Tata Steel share price will also be in focus today. The company's Joda East Iron Mine (JEIM) in Odisha and Jharkhand have been awarded with the Federation of Indian Mineral Industries (FIMI) Bala Gulshan Tandon excellence award for the year 2018-19.

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

Market participants will also track JSW Steel share price as the company has received approval for issuance of fixed rate senior unsecured notes aggregating to US$ 400 million and has approved the pricing, tenure and other terms of the notes.

Developments in the Banking Space...

State Bank of India (SBI) has approached the markets regulator, seeking a one-time exception for mutual funds over a rule on segregation of assets so that they could be part of a resolution plan being worked on for Dewan Housing Finance Corporation (DHFL).

Lenders to debt laden DHFL are scheduled to meet tomorrow as they seek to finalize an inter creditor agreement (ICA). A joint lenders' meeting is also scheduled on Friday.

Under the ICA, participation of mutual funds which hold bonds issued by the company, is key to any resolution plan, as approval of at least 75% of lenders by value and 60% by number is compulsory to executive any resolution plan.

As per an article in The Economic Times, most mutual funds could not sign the ICA as they were not compliant to the markets regulator mandated side-pocketing, or segregation of stressed assets from performing investments.

The article further added that SBI's chairman Rajnish Kumar has written to the regulators as the latest rules on side-pocketing does not allow fund houses to sign the ICA.

A circular issued by the markets regulator last month allowed mutual funds to join any resolution process for stressed companies and sign ICAs.

But the approval came with a condition, they must segregate assets through side pocketing, which should be done on the day of any credit event, or downgrade of debt below investment grade.

SBI's chairman has requested the market regulator to issue "suitable directions" so that the resolution plan was collectively agreed on and implemented by a group of lenders.

Note that banks have Rs 350 billion of exposure to the company through loans and also hold non-convertible debentures issued by it. Bond holders including mutual funds, insurance companies and pension funds have a Rs 450 billion exposure.

Catalyst, the custodian of bondholders in DHFL, had sent communications to about 87,000 debenture holders asking if they could join the ICA. Some of those respondents have agreed to sign the ICA, while many others declined.

In other development in the banking sector, Yes Bank share price will be in focus today after Rana Kapoor-controlled Morgan Credits, a promoter, paid Rs 7.92 billion to Reliance Nippon Asset Management (RNAM).

The entity last week sold 2.3% of the promoter holding in the bank in a bulk deal to reduce Kapoor group's ownership of the embattled bank to 7.4%.

Following the above development, the scrip of YES Bank rose 1.24% to hit a high of Rs 56.75.

Note that Morgan Credits had raised money by issuing non-convertible debentures, which were subscribed by various schemes of RNAM and were due in April 2021.

A Morgan Credits statement said the payment of Rs 7.92 crore constitutes a substantial portion of the outstanding NCDs and has been done with interest.

The stock of YES Bank has been under pressure ever since the Reserve Bank of India (RBI) curtailed its promoter-chief executive Kapoor's term on corporate governance concerns. Many of the bank's past lending bets under Kapoor are haunting the earnings now and keeping the share prices depressed.

Global Stock Market Drivers

Global stock markets ended lower on Wednesday after US lawmakers on September 24, called for an impeachment inquiry into President Donald Trump, increasing the prospects of prolonged political uncertainty in the world's largest economy.

The move by House of Representative Democrats dented sentiments which were already shaken by fresh US-China trade worries.

Nancy Pelosi, the speaker of the House of Representatives, said that Trump betrayed his oath of office by seeking help from a foreign power to hurt democratic rival Joe Biden.

Reports state that Trump had attempted to pressure the president of Ukraine, Volodymyr Zelensky, to open a corruption investigation into Biden and Biden's son Hunter, who had done business in the Eastern European country.

However, Trump has denied the claims, saying he would release the full transcript of the controversial call. In a series of tweets, he said that "I have authorized the release tomorrow of the complete, fully declassified and unredacted transcript of my phone conversation with President Zelensky of Ukraine."

From the IPO Space: IRCTC IPO

State-owned Indian Railway Catering and Tourism Corp (IRCTC) has set its price band at Rs 315-320 per share for its IPO.

The IPO will open on 30^th September and will close on 3^rd October.

The company sells tickets for Indian Railways and manages its catering services.

The proposed IRCTC IPO is expected to see the government sell stake worth Rs 4.8 billion through an offer for sale. The company will announce the price band for the IPO on Wednesday.

As per a leading financial daily, the government is looking to offload up to 20 million shares in IRCTC via the IPO. The stake sale will result in the government reducing its stake in the company by about 12.5%.

IRCTC's business is divided into four segments - internet ticketing, catering, packaged drinking water under the 'Rail Neer' brand, and travel and tourism.

According to the draft red herring prospectus (DRHP) filed with the regulators in August, IRCTC's sales rose 25% year-on-year to Rs 19 billion. Profits grew by 23.5% to Rs 2.7 billion in FY19.

More than half of its revenues at Rs 10.4 billion came from the catering business, while internet ticketing business contributed about 12%.

Note that the company's plan to launch initial share sale comes immediately after a sharp turnaround in the Indian stock markets, following the finance minister's announcement last week to cut corporate taxes.

How this IPO sails through remains to be seen. We will keep you updated on all the news from this space.

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

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