Sensex Opens Marginally Up; Telecom & Power Stocks Gain

Fri, 4 Jan 09:30 am

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Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 3% while the Hang Seng is up 1.3%. The Shanghai Composite is trading up by 1.3%. Meanwhile, Wall Street plunged on Thursday after slowing US factory activity on the heels of a dire revenue warning from Apple Inc fueled fears of a global economic slowdown.

Back home, India share markets opened flat with a positive bias. The BSE Sensex is trading up by 65 points while the NSE Nifty is trading up by 21 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.4% & 0.2% respectively.

Sectoral indices have opened the day on a mixed with telecom stocks and power stocks witnessing maximum buying interest. While, IT stocks and energy stocks opened the day in red.

The rupee is currently trading at Rs 69.87 against the US$.

Pharma stocks opened the day on a mixed note with Torrent Pharma & Natco Pharma leading the gainers. As per an article in a leading financial daily, Sun Pharma has completed acquisition of Japan-based Pola Pharma to strengthen its presence in dermatology segment across the globe.

Sun Pharma had entered into a definitive agreement to acquire Pola Pharma in November 2018. Pola Pharma is engaged in research and development, manufacture, sale and distribution of branded, and generic products in Japan.

Pola Pharma's portfolio mainly comprises dermatology products. It has two manufacturing facilities in Saitama with capabilities to manufacture topical products and injectables.

Note that, Sun Pharma had forayed into the Japanese prescription market in 2016 with the acquisition of 14 established prescription brands from Novartis.

Going forward, whether this acquisition adds sheen to the pharma major will be the key thing to watch out for.

To know more about the company, you can access to Sun Pharma's Q2FY19 result analysis and Sun Pharma's 2018-19 Annual Report Analysis on our website.

Sun Pharma share price opened the day down by 0.4%.

Moving on to the news from bank sector. As per the report by ratings agency ICRA, the ongoing issues with the non-bank lenders will crimp the operating profits of such companies by up to 0.5%.

Reportedly, the decline in profitability will be primarily due to increase in the cost of funds, slowdown in portfolio growth and cost of carrying additional liquidity due to the troubles.

As the going gets tough, all the NBFCs have started building extra liquidity buffers, which will narrow the net interest margins by up to 0.15%, thereby impacting the profitability.

There can also be an impact on asset quality as the small businesses segment, one of the largest customer segments for the NBFCs, will find the going tough, it said, adding the loans against property, commercial vehicle and construction equipment will be the most affected.

It can be noted that the defaults by IL&FS in August last year percolated into concerns on wider NBFC universe.

Companies were dependent on short-term money to fund long-term assets were the ones where the concerns were the highest and witnessed huge corrections in stock prices.

While refusing to help directly, the RBI attributed the stress to troubles on asset liability mismatch. The mutual funds segment was one of the primary suppliers of liquidity and have become wary of exposures.

ICRA said the NBFCs have diversified their borrowing to the banking system which has given Rs 700 billion by September alone to support repayment of the maturing borrowings in the October-December period.

It said the growth rate for retail-focused NBFCs will halve to around 12% for the second half of the fiscal, from the 24-25% in the first half, which will take down the overall credit growth to 16-18% for FY19.

Note that, credit growth in NBFCs has seen robust growth in recent years. From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks.

Is the NBFC Party in India Coming to an End?

A major reason for this is the gain in market share from public sector banks (PSBs). The recent NPA woes of the PSBs has seen them tighten up their credit lines.

The NBFCs have stepped in, along with private sector banks, to fill this gap.

But the recent liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

Such a liquidity crisis will increase lending costs for NBFCs. Once borrowing costs rise for NBFCs, their profitability is bound to take a hit.

One way to counter that would be to raise their lending rates. But then, it would make them less competitive as compared to banks.

In times like these, we at Equitymaster believe, NBFCs with strong asset liability management will come out stronger. On the other hand, NBFCs with a low capital base will struggle in the upcoming high interest rate period.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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