Smallcaps in favour today

Wed, 29 Dec 01:30 pm

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The Indian market began to steadily rise upwards as buying activity intensified during the post noon trading session. Currently, buying activity is being witnessed in stocks across the space led by stocks from the consumer durables, metal, FMCG and banking sectors. Stocks from the IT and capital goods spaces are amongst the top underperformers at the moment.

The BSE-Sensex is trading higher by about 170 points while the NSE-Nifty is trading higher by about 50 points. The BSE Midcap is trading up by 0.7%, while the BSE Smallcap index is trading higher by 1.1%. The rupee is trading at 45.05 to the US dollar.

Power stocks are mostly trading in the green with Neyveli Lignite, Coal India and Jaiprakash Power trading firm. State-run NTPC will take over 3,000 odd acres of vacant land from Patratu Thermal Power Station (PTPS) in Jharkhand to set up 1,320 mw of thermal power generation capacity at an investment of Rs 66 bn. A memorandum of understanding between NTPC and Jharkhand State Electricity Board (JSEB), the holding company for PTPS, will be signed by December 31. Earlier, NTPC wanted to take over the entire power station along with the land and existing thermal generation units from JSEB. This plan has now been replaced with a new one, where the vacant land at PTPS will be transferred to NTPC on which the new generation units will be built through a JV. NTPC will take a 74% stake in the proposed company while JSEB will hold 26% in lieu of land at PTPS, which will be transferred to the venture.

NTPC had earlier helped JSEB in renovation and modernisation of the PTPS plant. However, it did not help much as generation dwindled. Subsequently, JSEB wanted to strike a deal with NTPC for jointly running the plant. But the power major did not agree to the proposal and wanted to take over the plant but employees of the plant did not agree to the proposal.

Banking stocks are currently trading firm led by HDFC Bank, Allahabad Bank, Union Bank, Axis Bank and Bank of India. A leading business daily has reported that India’s largest bank SBI is planning to extend its teaser loan rates beyond December 31. Teaser loans are special home loan schemes which carry lower interest rates for the first few years before increasing to the normal rates (floating rates). As per the bank, the decision for doing so is that it makes good business sense and also because it would help it cover its additional costs. However, the loans disbursed under this scheme will be slightly costlier as SBI is mulling a hike in base rates from next month onwards. The current base rate is believed to be 7.6%, one of the lowest in the industry.

Whether other major banks will reconsider their exit from these types of scheme cannot be said. However, considering that most of the banks tend to follow SBI in most developments, the same cannot be ruled out. It must be noted that SBI’s main rivals ICICI Bank and HDFC have withdrawn these schemes. The decision to continue the teaser loan schemes may not really go down well with RBI. Last week, the central bank raised concerns on teaser rates citing that the borrowers may find it difficult to repay the loans once the lower interest rate period is over. Not to mention the risk attached with such loans. The RBI, as such had increased the provisioning to 2% on such loans. The rate earlier was 0.4%. We share a similar view as the RBI’s and are not really comfortable with the bank’s decision to continue the teaser loan scheme. This is considering that the deposit rates have been increasing in recent times.