Sensex Trades Higher; Capital Goods & Metal Stocks Rise

Thu, 4 Jan 01:30 pm

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Indian share markets continue to trade higher in the noon session. Gains are largely seen in capital goods stocks, metal stocks and PSU stocks. Meanwhile, automobile stocks are witnessing majority of the selling activity.

The BSE Sensex is trading higher by 161 points and the NSE Nifty is trading higher by 50 points. Meanwhile, the BSE Mid Cap index is trading up by 0.5% & the BSE Small Cap index is up by 0.8%. The rupee is trading at 63.39 to the US$.

As part of the banks recapitalisation plan to boost capital adequacy ratio,the Ministry of Finance has given its nod to the proposal for capital infusion of Rs 75.77 billion in six weak public sector banks (PSBs).

All of these banks that would be receiving capital support are those who have been put under the prompt corrective action of the Reserve Bank of India (RBI). The six lenders, which will receive capital through preferential issue of shares are Bank of India, IDBI Bank, Central Bank of India, Dena Bank, Bank of Maharashtra and UCO Bank.

The recapitalisation is part of the Indradhanush plan of the government which promised Rs 700 billion over period of four years ending March 2019. The actual fund infusion will happen in the next few weeks after necessary regulatory approval and nod from the shareholders.

While the government decides the mode for recapitalisation of all state-run banks, it advanced the release of funds to these six banks to help them meet their equity requirements and enable them to resume normal business and help them come out of prompt corrective action.

PSU Bank stocks are trading on a strong note with UCO Bank share price and IDBI Bank share price leading the gains.

Well, that's what it looks like when the Government unveiled the Rs 2.11 trillion public sector bank (PSB) capitalization plan on 24 October. This will be carried out over the next two years with maximum allocation in the current year.

And implemented through the budgetary provisions of Rs 18,139 crore, recapitalisation bonds to the tune of Rs 1.35 trillion. The balance will be through raising capital by issuing new shares to the tune of Rs 580 billion.

India had used this tool in the 90s. When the Government recapitalised PSBs with the total amount up to Rs 20,000 crore by recapitalization bonds.

Recapitalisation of PSBs Over the Years

PSBs are burdened by bad loans that have doubled in the past five years. This has led to a slowdown in the loan growth segment. Due to this, PSBs lost their market share from 70.9% in FY16 to 64% in FY17.

Moving on to news from energy sector. As per a leading financial daily, the government is reportedly mulling a proposal to split GAIL (India) with the marketing operations spun off into a separate company.

The plan is being discussed in the petroleum ministry as the Centre is unhappy with the state-run player's performance in building a pipeline network in addition to a possible conflict of interest in its role as the infrastructure provider as well as a carrier.

Natural gas transmission and marketing are the core businesses of the PSU, which has also diversified into petrochemicals and renewable energy.

Last year, GAIL earned over 70% revenue from marketing operations, while over 40% of the profit came from natural gas transmission. The discussions come at atime when the government is working on completing ONGC acquisition of Hindustan Petroleum Corporation to bolster both the entities.

GAIL share price is presently trading up by 0.6% on the BSE.

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