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Sensex Trades Dull; Pharma Stocks Lead Losses

Wed, 31 Jan 01:30 pm

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After opening the day in red, share markets in India witnessed choppy trading activity throughout the day and are presently trading in red. Sectoral indices are trading mixed with stocks in the pharma sector and stocks in the consumer durables sector trading in red. While stocks in the realty sector are trading in green.

The BSE Sensex is down by 160 points (down 0.4%) and the NSE Nifty is trading down by 40 points (down 0.4%). Meanwhile, the BSE Mid Cap index is trading down by 1.7%, while the BSE Small Cap index is trading down by 0.9%. The rupee is trading at 63.64 to the US$.

In news from stocks in the FMCG sector. Dabur share price and Marico share price are in focus today amid a legal battle brewing between them both.

Dabur took rival Marico to the Delhi High Court for allegedly violating trademark and copyright laws by comparing their hair oil products and denigrating its Dabur Amla in a print advertisement.

The court issued a notice to Marico and scheduled the next hearing for February 7, the person said. News reports said Marico ran print ads last week that used pictures of Dabur Amla hair oil and compared it with its Nihar Shanti Amla hair oil. Mumbai-based Marico's consumer products include Parachute, Saffola, Nihar Naturals, Livon, Set Wet, Mediker and Revive. Dabur has a portfolio of over 250 herbal and ayurvedic products.

It would be interesting to see where the legal battle heads in the days to come.

At the time of writing, Marico share price was trading down by 1.4%, while Dabur share price was trading down by 0.5%.

Moving on to news from stocks in the Banking sector. Bank of India share price is in focus today after the bank recovered nearly Rs 30 billion in just one month.

The bank said that it was able to recover over Rs 30 billion worth of bad loans by invoking standby letter of credit (SBLC) and guarantees of defaulters.

The standby letter of credit is an irrevocable documentary commitment, separate from the sales contract, issued by the bank to a third-party beneficiary and promising to pay on behalf of the originator. These SBLC were invoked when some of companies defaulted on their overseas payments.

All state-run banks are on overdrive in the past year to recover dues from defaulters as the government and the regulator have been pushing them hard to set their house in order. The two forced banks to try defaulters under the bankruptcy code.

Loan Recovery Data of Major Economies

Public Sector banks (PSB) had a field day on 24^th October 2017 after the government's announcement of the recapitalisation plan. Under the plan, it is set to inject Rs 2.11 trillion into public sector banks over a period of two years. State-run bank stocks went up from 30% to 49% in a day.

The government's move was mainly aimed at resolving the long standing non-performing assets (NPA) problem of PSBs. It is expected to shore up the capital of state-run banks, spurring them to clean up the bad loan mess and revive lending.

But if historical data is anything to go by, implementation of such initiatives take a long time, especially in India. Recovery takes the longest time here as compared to other developed nations. India takes an average of 4.3 years to resolve insolvencies as compared to one year in the US. Also, recovery rates in India are amongst the lowest at 26.4%.

Although recapitalisation will benefit PSBs, it appears to be a temporary cure for a recurring disease. The main problem is the lending and corporate governance processes these banks follow. If there is improves in these operational processes, PSBs will continue to underperform in the long term.

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