Indian Indices Trade Higher; SBI and Axis Bank Top Gainers

Fri, 27 Dec 12:30 pm

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Share markets in India are presently trading on a positive note, buoyed by strong global markets. The BSE Sensex is trading up by 268 points while the NSE Nifty is trading up by 78 points.

The BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading up by 0.6%.

Sectoral indices are trading mixed with stocks in the banking sector and realty sector witnessing buying interest, while IT stocks and consumer durables stocks are witnessing selling pressure.

The rupee is trading at 71.21 against the US$.

Speaking of stock markets, as the new year 2020 is about to kickstart, Girish Shetty shares a simple guide on how to improve your stock picking process.

This quick guide will surely help you make better decisions.

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In news from the IT sector, shares of major IT companies are witnessing selling pressure today after a report said IT outsourcing contracts of more than US$ 1 billion currently executed by Indian companies are at risk of termination because Boeing has halted the production of its flagship Boeing 737 Max jets with effect from January.

According to the report, firms such as TCS, HCL Technologies, Infosys, Cyient, and L&T Technology have direct exposure to Boeing or its suppliers' ecosystem, which comprises engine manufacturers, body suppliers, and avionics providers.

The contracts, worth over US$ 1 billion, are now at risk of termination. The future of the contracts is at stake since the 737 Max was grounded in March after 346 people were killed in two crashes.

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

Moving on, Care Ratings share price and ICRA share price are in focus today.

The markets regulator has slapped a penalty of Rs 2.5 million each on credit rating agencies Care and ICRA for violation of the regulator's (Credit Rating Agencies) Regulations pertaining to assigning of rating to various non-convertible debentures (NCDs) of IL&FS.

The market regulator, in two orders passed on Thursday evening found credit ratings agencies lapsing and lacking in conduct when they rated the NCDs of Infrastructure Leasing and Financial Services Ltd (IL&FS).

In its order, the regulator said the rating agencies had failed to exercise their duty to investors at large and did not downgrade the ratings of NCDs of IL&FS in time despite having knowledge of the deteriorating financials of the issuer.

IL&FS had defaulted on its obligations in respect of the commercial papers and inter-corporate deposits, due for payment on September 14, 2018, and rated by the two agencies. It also defaulted in interest payments on its NCDs on September 17, 21, 26 and 29.

Note that rating companies have been facing criticism amid a series of defaults over the past eight months.

This is not the first time that rating agencies have been in the spotlight for wrong reasons. They have been often accused for failing to red flag financial catastrophes in the rated companies.

At Equitymaster, we have been writing about the fact that an AAA rating is hardly a guarantee of financial health since 2009. Not just in India, but globally, the big rating agencies have been too powerful. Most of them escaped untouched ever after the massive US subprime crisis of 2008.

And in India, be it in the case of Amtek Auto or Kingfisher Airlines, rating agencies have time and again been caught on the wrong foot. More recently, in the case of Zee and DHFL too, the rating agencies were caught napping.

Even then, investors continued to remain in awe of the rating companies. The stocks fetched steep valuations.

One, because the two largest rating agencies in India are subsidiaries of global giants S&P and Moody's.

Two, because they corner a massive chunk of the rating market share.

Three, because the cash rich companies have immense potential to pay out or multiply shareholder wealth.

High Cash Levels in the Books of Rating Agencies

Here's what co-head of research at Equitymaster, Tanushree Banerjee wrote in one of the editions of The 5 Minute WrapUp:

• India's debt market remains at a nascent stage. So, the rating agencies have immense potential to grow as the market matures.
  
  Therefore, there is no denying that the business of rating agencies is not withering away anytime soon.
  
  The only risk is stricter regulation and accountability. Both of which could be benign for the long term.
  
  The stocks of rating agencies are not completely immune to such crisis.
  
  The last time this big rating agency was as cheap and out-of-favor as it is today, the stock had corrected by 40% in six months. But then, it went on to move up 400% in the next three years.
  
  The cleanup in India's financial sector is far from over. And like the auditors, the rating agencies will continue to remain a part of the cleanup.

She believes a few of these companies could lead India's financial sector revival. They could be the catalysts of what she calls the Rebirth of India. And go on to create massive wealth.

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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Indian Share Market Update: Top Gainers and Losers