Sensex Opens Lower; Lakshmi Vilas Bank Dips 20%

Thu, 19 Nov 09:30 am

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Asian share markets eased from all-time highs as widening Covid-19 restrictions in the United States weighed on Wall Street indices.

The Nikkei is trading down by 0.6% and the Hang Seng is trading down by 0.7%.

On Wall Street, the Dow Jones Industrial Average fell 1.2% and the Nasdaq Composite dropped 0.8% on Wednesday after New York City joined other large school districts in cities like Boston, Detroit, Las Vegas, Philadelphia to cancel in-person learning due to rising coronavirus cases.

Back home, Indian share markets have opened on a negative note, tracking weak global cues.

Benchmark indices staged a gap-down opening as revived coronavirus fears and new shutdowns in major US cities dampened bullishness linked to new vaccine progress.

Market participants are tracking banking and finance stocks as the Supreme Court is scheduled to resume hearing in the interest waiver case later today.

The BSE Sensex is trading down by 223 points. Meanwhile, the NSE Nifty is trading lower by 67 points.

TCS is among the top gainers today. Power Grid, on the other hand, is among the top losers today.

The BSE Mid Cap index has opened down by 0.4%. The BSE Small Cap index is trading down by 0.2%.

Sectoral indices are trading on a mixed note with stocks in the banking sector and finance sector witnessing most of the selling pressure. Energy stocks are trading in green.

The rupee is trading at 74.28 against the US$.

Gold prices are trading down by 0.3% at Rs 50,190 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 stock markets, in his latest video, Co-head of Research at Equitymaster, Rahul Shah discusses why he preferred a little known stock over Nestle and how he was proven right.

Tune in to the video to find out more:

Also, speaking of the current stock market scenario, note that Indian share markets have climbed back to their highest levels since the pandemic began.

The Sensex is trading above the 44,000-mark. Meanwhile, the Nifty is less than 150 points away to hit the 13,000-mark.

The smallcap index is up more than 78% since 23 March.

As per Richa Agarwal, lead smallcap analyst at Equitymaster, there could still be a lot of steam left to this smallcap rebound rally.

Have a look at the history of previous smallcap crashes and rebounds over the last two decades...

As you can see, every big fall in the smallcap index was followed by a sharp up move, a minimum gain 200%. Twice the rebounds were just shy of touching 300%.

Richa believes if you focus on the quality of business, margin of safety in valuations, and an optimum asset allocation, you are likely to create huge wealth for yourself.

In news from the mutual funds space, Franklin Templeton Mutual Fund on Wednesday said its six shut schemes have received Rs 9.4 billion from maturities, pre-payments and coupon payments in a fortnight.

On April 23, Franklin Templeton shut six debt mutual fund schemes, citing redemption pressures and lack of liquidity in the bond market.

This includes Rs 8.1 billion received as pre-payments and takes the total cash flows received till date since April 24, 2020, to Rs 96.8 billion.

Individually, Franklin India Ultra Short Bond Fund, Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have 43%, 27%, 26% and 8% of their respective assets under management (AUM) in cash.

Franklin Templeton MF said that cash available stands at Rs 59.5 billion as of November 13 for the four cash positive schemes.

Speaking of mutual funds, note that equity mutual funds have been witnessing net outflows for the last five consecutive months even as equity markets extended their rally.

Equity MF schemes witnessed the fifth consecutive month of net outflows of Rs 73 billion in October as the redemption pressure continued.

Reports state that a strong rally in the equity market is seen as a reason for outflow from equity MF funds.

We will keep you updated on the latest developments from this space. Stay tuned.

Moving on to stock specific news...

Vedanta is among the top buzzing stocks today.

Vedanta Group on Wednesday confirmed putting in a preliminary expression of interest (EoI) for buying government's stake in Bharat Petroleum Corp (BPCL).

As per media reports, Vedanta's interest in India's second largest fuel retailer is because of synergies with its existing oil and gas business.

The government is selling its entire 52.98% stake in BPCL and last date of putting EoI was November 16.

The government had at the close of bidding stated that multiple EoIs had been received. It, however, did not reveal the identity of the bidders.

Vedanta share price has opened the day up by 4.8%.

Market participants are also tracking Lakshmi Vilas Bank share price.

RBI appointed administrator on November 18 assured depositors of the Lakshmi Vilas Bank that their money is safe and the proposed merger with the Singaporean lender DBS will be completed before the deadline.

He also said that the bank has the complete backing of the regulator to ensure that there is no cash shortfall.

Earlier this week, the central government decided to place the private lender 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.

Reacting to the above news, shares of Lakshmi Vilas Bank tanked 20% yesterday.

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!

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

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