Indian Share Markets Open Flat; Lakshmi Vilas Bank Tanks 20%

Wed, 18 Nov 09:30 am

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Asian share markets are trading on a mixed note today after US shares retreated as investors weighed escalating Covid-19 cases against optimism over a vaccine.

The Nikkei is trading down by 0.8% and the Hang Seng is trading up by 0.2%.

US stocks fell on Tuesday as the market's recent rally cooled off amid a sharp decline in drug store shares and disappointing economic data.

The Dow Jones Industrial Average ended down by 0.6% while the Nasdaq fell 0.2%.

Back home, Indian share markets have opened on a flat note.

The Supreme Court is scheduled to hear the interest waiver case later today.

The BSE Sensex is trading up by 62 points. Meanwhile, the NSE Nifty is trading up by 13 points.

SBI is among the top gainers today. Tech Mahindra, on the other hand, is among the top losers today.

The BSE Mid Cap index and the BSE Small Cap index have opened the day up by 0.3% and 0.5%, respectively.

Sectoral indices are trading on a mixed note with stocks in the FMCG sector and telecom sector witnessing most of the selling pressure. Power stocks are trading in green.

The rupee is trading at 74.47 against the US$.

Gold prices are trading down by 0.4% at Rs 50,550 per 10 grams.

To know more about gold, you can check out our detailed article on investing in gold here: How to Invest in Gold?

Speaking of the current stock market scenario, in her latest video, Co-head of Research at Equitymaster, Tanushree Banerjee talks about what you should expect from the stock markets this time.

She explains how you should prepare your stocks so that they could make the most of the Covid second wave.

Tune in to the video to find out more:

In news from the banking sector, Axis Bank and Lakshmi Vilas Bank are among the top buzzing stocks today.

The Securities Appellate Tribunal (SAT), which hears appeals in the securities matters, has rapped Axis Bank for contempt of court and imposed a penalty of Rs 1 lakh on the private lender.

Delivering its verdict in the matter of Modex Securities where Axis Bank was the clearing member for the trades, SAT said the penalty was due to the fact that the bank sought the same relief which was once rejected by the tribunal and also did not comply with the directions mentioned in that order.

The markets regulator had passed an order in April 2020 freezing the assets of Modex, after the brokerage was found to have misappropriated client securities. Hence, the regulator had asked NSE to take care of refunds to be provided to the clients of Modex whose securities were misappropriated.

However, Axis Bank did not release the securities to NSE. Instead it filed a petition in front of SAT in July saying Modex owed Axis Bank Rs 216 million as clearing member dues.

SAT allowed Axis Bank to retain the dues and asked the lender to transfer the rest of the securities to NSE.

Axis Bank share price has opened the day up by 0.2%.

Meanwhile, the central government has decided to place Lakshmi Vilas Bank under moratorium till December 16, 2020, based on an application made by the Reserve Bank of India. The move was announced through an order issued by the Ministry of Finance.

The bank will not be allowed to make payments exceeding Rs 25,000 to any creditors without prior approval from the RBI.

The Reserve Bank of India, in consultation with the Central government, has superseded the board of directors of the private lender for a period of 30 days owing to a serious deterioration in the financial position of the bank. TN Manoharan, former non-executive chairman of Canara Bank has been appointed as the administrator.

In other news, as per the draft scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India, the entire amount of the paid-up share capital will be written off.

However, this is only a draft scheme. The final scheme will be prepared after factoring in the feedback from various stakeholders.

Note that both the government and the RBI kept the LVB-DBS merger plan top secret till the last minute and, not even the LVB top brass had an idea of what's coming till the last minute.

The first announcement came from the central government on a one-month moratorium on the bank citing its deteriorating financials and failure to come with a revival plan on its own.

Lakshmi Vilas Bank share price has opened the day down by 20%.

Speaking of Lakshmi Vilas Bank, if there is any private sector bank that has severely underperformed in the last two years, it has to be Lakshmi Vilas Bank.

Back in May 2019, we wrote an article around how we avoided a 60% loss in Lakshmi Vilas Bank.

Here's an excerpt from the article:

• LVB had an interesting story.
  
  The bank had a new management team in place. The bank was shedding its old image to bring out a new look.
  
  The new management had a clear vision and set several goals. These included deposit and loan growth targets, CASA (current account saving account) ratio targets, a focus on retail loans, and the reduction in cost-to-income ratio.
  
  So far so good.
  
  But the bank had its own legacy issues. These were rising bad loans, a weak balance sheet with a poor capital adequacy ratio (CAR).
  
  The falling CAR was a concern.
  
  The CAR is the ratio of a bank's capital in relation to its risk-weighted assets and current liabilities. The RBI has set the minimum CAR at 9% for all banks.
  
  A ratio below 9% indicates the bank does not have enough capital to expand its operations. It ensures that banks don't expand their business without having adequate capital.
  
  On one hand, LVB had bad loan issues and on the other, it badly needed capital to shore up its CAR.

If you look at the shareholding pattern of LVB during the 2-year time frame between May 2017 to May 2019, retail investors have increased by 15%. The number of shares owned by them increased by 24%.

A typical example of retail investors catching a falling knife!

Also speaking of the banking sector, note that the sector was one of the worst affected sectors in the Indian stock market when Covid-19 struck.

Banking stocks were severely punished. No investor wanted to touch them even with a 10-ft pole.

However, sentiment have changed now as investors are chasing banking stocks like never before.

Have a look at the monthly returns of major sectors for the month of March and October 2020 in the chart below:

Banks were among major losers with a cut of 34% in the month of March. Cut to October, they are the biggest gainers for the month with more than 11% returns!

As per Apurva Sheth, senior Research Analyst at Equitymaster, banks are set to outperform the broader markets going forward.

Apurva believes PSU banks are in a sweet spot right now and offer the best investing opportunity.

You can check out his video on contrarian trading in PSU banking space here: Contrarian Trading in PSU Banks.

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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