Markets Crumble on Chinese Woes

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Weakness across international markets took its toll on Indian stocks as benchmark indices remained weak throughout today's trading session after China accelerated the depreciation of the yuan (Subscription Required), sending currencies across the region reeling and domestic stock markets tumbling. China also suspended its stock markets for the rest of the day, less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week. While the BSE Sensex closed lower by around 555 points, the NSE Nifty ended down by around 173 points. S&P BSE Midcap and S&P BSE Smallcap indices fared worse, losing around 2.6% and 2.9% respectively. Losses were largely seen in realty, metal and auto stocks.

Asian markets finished sharply lower today with shares in China leading the region. The Shanghai Composite was down 7.04% while Hong Kong's Hang Seng was off 3.09% and Japan's Nikkei 225 down by 2.33%. European markets are sharply lower today with shares in Germany off the most. The DAX is down 3.67% while France's CAC 40 is off 3.08% and London's FTSE 100 is lower by 2.83%. The rupee was trading at 66.54 against the US$ in the afternoon session.

According to a leading financial daily, the government is considering a plan to sell part or all of its stake in Axis Bank Ltd. At the current market price, the government's stake of 11.6% is worth around US$ 1.8 billion. Reportedly, the government may trim the 11.6% stake it holds in Axis Bank through the Specified Undertaking of the Unit Trust of India as it seeks to meet an asset sale target of Rs 695 billion for the year ending 31st March. The sale will boost efforts of Finance Minister Arun Jaitley to narrow the country's budget deficit to 3.9% of the gross domestic product. So far, the government has managed to raise only Rs 127 billion from selling state assets, less than one-fifth of the target.

The bank recently reported 15.2% YoY and 18.9% YoY growth in net interest income and net profits respectively in 2QFY16 (Subscription Required). The script of Axis Bank finished the trading day down by 5% on the BSE amidst the broader sell off. The stock slumped 10.6% in full year 2015.

The Reserve Bank of India (RBI) recently released the Financial Stability Report. One of the key highlights of the report was corporates are essentially responsible for the rising bad loans of banks. As of September 30, 2015, loans to large borrowers made up 64.5% of total loans. On the other hand, bad loans held by large borrowers amounted to 87.4% of total bad loans. Five sectors have been responsible for a major part of the trouble. These are mining, iron & steel, textiles, infrastructure and aviation.

According to a leading economic daily, Jaiprakash Associates has signed an agreement with Shree Cement to divest its stake in the 2.1-million tonne Bhilai Jaypee Cement for an enterprise (BJCL) value of Rs 21-22 billion. Jaypee Cement has loans of Rs 6 billion and is expected to realize a net value of around Rs 16 billion, after adjusting the debt.

Of this, Jaiprakash Associates is expected to net around Rs 12 billion, which will be used for paring its loans from banks. Reportedly, banks are pushing the company to divest a substantial portion of its cement and power generation assets to reduce its debt. The company is the third largest cement manufacturer in the country with a capacity of around 33 million tonne. Shree Cement has a capacity of 23.6 million tonne.

2015 had been a rather poor year for stocks from the cement sector. Barring Shree Cement, the overall returns generated from the top companies from this sector have been quite lackluster (Subscription Required). The average cement prices have declined to levels of Rs 300 a 50 kg bag. This is largely on the back of weak demand from the rural markets (which forms about 40% of the market).

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