Sensex Ends 95 Points Higher; Automobile and IT Stocks Witness Buying

Wed, 23 Oct Closing

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Indian share markets traded rangebound throughout the day and ended marginally higher.

Sectoral indices ended on a mixed note with stocks in the automobile sector and IT sector witnessing buying interest, while telecom stocks and energy stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 95 points and the NSE Nifty closed up by 16 points.

The BSE Mid Cap index ended the day down by 0.1%, while the BSE Small Cap index ended up by 0.3%.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was down 1% and the Shanghai Composite stood lower by 0.4%. The Nikkei 225 was up 0.3%.

The rupee is trading at 70.92 against the US$.

In news from the banking sector, shares of RBL Bank witnessed selling pressure today after the private sector lender posted its worst quarterly results for the July-September quarter (Q2FY20).

Shares of the lender tanked 20% in early trade today to Rs 231, its fresh life-time low.

For Q2FY20, the bank's standalone profit after tax (PAT) plummeted 74% year-on-year (YoY) at Rs 540 million due to higher provisioning for bad loans.

Net interest income increased by 47% YoY to Rs 8.7 billion in Q2FY20. Profit before tax fell 67% YoY.

Provisioning cost rose by 281% or nearly three times YoY to Rs 5.3 billion from Rs 1.4 billion reported in the corresponding quarter of the previous fiscal.

Asset quality of the bank worsened during the quarter with gross non-performing assets (NPA) ratio increasing from 1.4% a year-ago to 2.6% in Q2, and net NPA ratio jumping to 1.56% versus 0.74% last year.

With this, the bank has already breached its full-year gross NPA guidance of 2 - 2.5% provided after June quarter results.

In a filing to exchanges, the lender said, "given the difficult credit environment, the bank has faced challenges in a few corporate accounts. As matter of prudence, the bank has taken higher than required provisions on these accounts which have impacted bank's bottom-line."

Selling pressure was also seen as many global brokerage houses remained bearish due to a poor show in the September quarter results.

Global brokerage house Morgan Stanley assigned underweight rating to RBL Bank and slashed target price by 40%, while JP Morgan cut target price by 15%.

RBL Bank share price ended the day down by 9.7%.

Speaking of quarterly results and corporate profits, economic growth (GDP) and corporate profit growth hardly go hand in hand.

Over the past few years, the share of corporate profits to GDP has steadily declined.

This is evident in the chart below:

Rebound in Corporate Profits May Not Immediately Reflect in GDP

As per Tanushree Banerjee, the revival of capex cycle may cause corporate profits to soar much faster than the GDP growth. Investors who stay focused on macro numbers may miss this bus.

Moving on to news from the finance sector, shares of Dewan Housing Finance Corp (DHFL) fell 5% after reports of a forensic audit of the housing financier found fund diversion of around Rs 200 billion to private entities of the promoters.

As per an article in a leading financial daily, KPMG, which carried out the forensic audit, submitted a draft report to the lenders, having found that DHFL promoters diverted nearly Rs 200 billion of bank loans to related entities.

However, a DHFL source told PTI that the company is surprised at the purported KPMG report, as the consultancy was not asked to do any forensic audit on one hand, and on the other it has not shared the report with them.

In February, the Finance Ministry had directed DHFL's top three lenders - Bank of Baroda, State Bank of India and Union Bank of India to initiate a forensic audit following allegations of fund diversion by investigative news portal Cobrapost in the previous month.

The portal alleged that the housing financier had sanctioned and disbursed large loans without filing any charge documents with the Ministry of Corporate Affairs (MCA) in most of the cases.

The promoters were accused of siphoning off funds through a network of shell companies to create personal wealth.

In other news, DHFL promoter Dheeraj Wadhawan was directly named in a case of alleged terror financing against late gangster Iqbal Memon known by the alias Iqbal Mirchi.

Humayun Merchant, a close aide to Iqbal told a special court that he had received Rs 50 million from Wadhawan for facilitating a deal with Sunblink Real Estate.

Wadhawan is being probed by Enforcement Directorate, which has found a web of transactions between real estate firms linked to him and Sunblink, to which his non-banking finance company DHFL gave loans worth Rs 21.9 billion.

DHFL share price ended the day down by 5%.

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