Sensex, Nifty End Higher as IT and Energy Stocks Outperform; ONGC Rallies 6.8%

Mon, 23 Nov Closing

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Indian share markets witnessed buying interest during closing hours and ended today's volatile session higher.

Both the benchmark indices touched their fresh record highs during the day but pared some gains before closing their session.

At the closing bell, the BSE Sensex stood higher by 194 points (up 0.4%).

The NSE Nifty closed higher by 67 points (up 0.5%).

ONGC and IndusInd Bank were among the top gainers today.

The SGX Nifty was trading at 12,953, up by 71 points, at the time of writing.

The BSE Mid Cap index ended up by 1.3%. The BSE Small Cap index ended up by 1.4%.

On the sectoral front, gains were largely seen in the IT sector and oil & gas sector.

Finance stocks and banking stocks, on the other hand, witnessed selling pressure.

Asian stock markets ended on a mixed note. As of the most recent closing prices, the Hang Seng ended up by 0.1% while the Nikkei ended down by 0.4%.

The rupee is trading at 74.03 against the US$.

Gold prices are trading down by 0.2% at Rs 50,114 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?

Moving on to the news from the banking sector...

IDFC and IDFC First Bank were among the top buzzing stocks today.

Both the stocks rose to their multi-month highs after the Reserve Bank of India's (RBI) internal working group suggested raising promoter holding threshold among lenders and changes in ownership structure.

IDFC share price posted its biggest intraday gain since May 2009 to hit an upper circuit of 20%. The shares also touched their 10-month high.

IDFC First Bank share price gained as much as 10% - the highest in eight months.

RBI Panel Suggests Hike in Promoter Stake Cap for Private Banks

The central bank's Internal Working Group (IWG) has proposed 12 changes to ownership guidelines and corporate structure for Indian private sector banks. Here are some of these top changes proposed:

• The group has recommended that large corporate/industrial houses may be permitted to promote banks only after necessary amendments to the Banking Regulations Act, 1949 to deal with connected lending and exposures between the banks and other financial and non-financial group entities.
• The cap on promoters' stake in the long run may be raised from the current levels of 15% to 26% of the paid-up voting equity share capital of the bank. The group, however, suggested a long 15-year transition for this change.
• As regards non-promoter shareholding, a uniform cap of 15% of the paid-up voting equity share capital of the bank has been proposed for all types of shareholders.
• Another major recommendation of the RBI's Internal Working Group (IWG) is that the minimum initial capital requirement for licensing new banks should be enhanced from Rs 5 billion to Rs 10 billion for universal banks and from Rs 2 billion to Rs 3 billion for small finance banks.
• Large NBFCs with an asset size of Rs 500 billion, including those owned by corporate houses may be allowed to convert to private banks.
• As for urban-cooperative banks that want to convert into SFBs, the initial capital requirement should be Rs 1.5 billion and that has to be increased to Rs 3 billion in five years.
• Payments banks that intend to convert into small finance banks can do so with three years' experience rather than five. As per media reports, this relaxation, if accepted, may open the door for payments banks that wish to convert. Paytm, IndiaPost, and Fino Payments may benefit from this relaxation.

Here's what Tanushree Banerjee, co-head of Research at Equitymaster, has to say about the above recommendations by the RBI for private banks...

• The RBI's new ownership guidelines for corporate structure of Indian private-sector banks seeks to change the central bank's conservative stance on the subject. The RBI's latest recommendation may allow large corporate houses to run banking businesses.
  
  From the conditional nature of the recommendation, it appears that large corporates could acquire NBFCs, which may be allowed to convert into banks.
  
  However, such recommendations were earlier rejected by the central bank on the grounds of 'conflict of interest' with the corporates' other businesses.
  
  Do note that even today 70% of the bad loans in the banking system are in the form of corporate NPAs.
  
  So, while stronger regulations may be necessary to issue banking licenses to large corporates, in the near term the guidelines could bring in liquidity and better valuations for the sector.

How these suggested changes pan out remains to be seen. Meanwhile, we will keep you updated on the latest developments from this space.

In news from the defence sector...

The government is planning to sell up to 10% stake in defence PSU Mishra Dhatu Nigam Ltd (MIDHANI) in the current fiscal ending March. The company got listed on stock exchanges in April 2018 and the government had raised Rs 4.4 billion by selling 26% stake through IPO.

As per the reports, with the opening of space sector to foreign investment and bringing defence sector under automatic route for 74% foreign direct investment (FDI), MIDHANI shares are expected to attract investors.

MIDHANI manufactures special steel and super alloys for use in defence, nuclear and space sectors.

At the current market price, the government can raise about Rs 3.6 billion by selling 10% stake in the company.

Note that with big ticket divestment plans hit by the COVID-19 pandemic, the government is readying public-sector companies for minority stake sale in the remaining months of current fiscal.

So far this fiscal, the government has raised Rs 61.3 billion by selling minority stake in Hindustan Aeronautics and Bharat Dynamics through offer for sale (OFS). The government also divested 15.2% in Mazagon Dock Shipbuilders through an initial public offering.

Speaking of the defence sector, have a look at the chart below which shows the top 5 military spending countries in the world as of 2019:

According to a SIPRI (Stockholm International Peace Research Institute) report, India was the third largest military spending country in the world in 2019.

Here's what Girish Shetty wrote about it in one of the editions of Profit Hunter:

• If you look at the chart closely, you will realise it is likely to remain among the top spenders in the coming years.
  
  It's because of the second largest spender shown in the chart, China.
  
  With rising tensions between the two countries, the incentive is strong for India to keep up with China.
  
  It all makes sense for the government to focus on this sector in a big way in the near future.
  
  The government's 'Atmanirbhar' push will get a massive boost through local defence manufacturing. This will create profitable opportunities in defence stocks for astute investors.

Co-head of Research at Equitymaster, Tanushree Banerjee keeps a close watch on stocks in the defence space. As per Tanushree, defence will be a big wealth-creating opportunity.

Back in June, she recorded a video about India's best defence stocks.

Tune in to the video here:

In news from the steel sector...

Jindal Steel and Power share price was also in focus today. The stock of the company rose to its highest in more than two years after the steelmaker reported an increase in production and sales as economic activity gradually picks up.

The company's standalone sales rose 10% year-on-year (YoY) to 6 lakh metric tonnes in October. Standalone production for the month was up 13% over the year earlier to 5.85 lakh metric tonnes.

Its exports grew 37% YoY, and contributed 28% to the company's overall sales volumes for October. JSPL also reported the highest ever production of pellets and wire rods at 7.01 lakh metric tonnes and 49,062 metric tonnes, respectively.

Note that India's steel sector has staged a recovery in the last few months as demand picked up after the nation eased the lockdown curbs.

Steel consumption, according to CARE Ratings research report, grew 96% in the quarter ended September compared with the preceding three months.

Base metal prices, too, have firmed up on improving demand.

Prices of coking coal, a key raw material used in steel-making, however, remained soft after China stopped buying coal from Australia amid diplomatic tensions. This, however, bodes well for Indian steel companies given their dependence on imported coking coal.

We will keep you updated on how these numbers pan out in the coming quarters. Stay tuned!

And 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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