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Of PNB Fraud, Rising Troubles at PSBs, and Top Cues in Focus Today
Tue, 20 Feb Pre-Open | Monish Vora, TM Team

Share markets in India closed on a negative note yesterday.

At the closing bell yesterday, the BSE Sensex stood lower by 236 points and the NSE Nifty closed down by 74 points.

Losses were also seen for mid-cap and small-cap stocks. The BSE Mid Cap index ended the day down by 1.1%, while the BSE Small Cap index ended the day down by 1%. Selling pressure was seen across most of the sectors with stocks in the metal sector, capital goods sector and PSU stocks leading the losses.

Top Stocks in Focus Today

Banking stocks will be in focus today as PSU banks continued to bleed on Monday, after more lenders reported exposure to the PNB scam. Many believe the fraud will lead higher provisioning and may further impact the profitability of banks, which are already struggling under mounting non-performing assets (NPAs).

Airlines stocks will be in focus today as it is reported that domestic air traffic grew 20% in January. On the back of this news, Jet Airways share price and SpiceJet share price witnessed buying interest yesterday.

Market participants will also be tracking Gitanjali Gems share price. The stock of the company plunged 10% after the Central Bureau of Investigation (CBI) filed a First Information Report (FIR) against the Mehul Choksi-run Gitanjali Group yesterday.

Siemens share price will be in focus today as it is reported that the company is planning to sell its Mobility business and Mechanical Drives business. The meeting of the Board of Directors of the company is scheduled to be held on February 21, 2018, to consider the same.

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Rs 150 Billion Plan for MSP in the Works

As per an article in the Economic Times, the government may soon unveil a Rs 150 billion plan to ensure farmers get the minimum support price (MSP) for their crops even when market prices fall below the benchmark rate.

Accordingly, Niti Aayog will soon call a meeting of central and state governments to discuss this issue and find a suitable mechanism to compensate farmers and ensure MSP.

Note that Finance Minister Arun Jaitley, in this year's Budget, had announced that the government has decided to fix MSP for kharif at at least one and a half times of their production cost.

How the above decision pans out need to be seen. We'll keep you updated on all the developments from this space.

Mutual Fund Inflows Through SIPs Hit US$ 1 Billion Mark

Inflows through Systematic Investment Plans (SIPs) in Indian mutual funds (MFs) hit the US$ 1-billion mark in January.

Data by industry body AMFI showed that Rs 66.4 billion came into mutual funds in January, capping ten months of robust inflows as benchmark equity indices repeatedly scaled new heights.

The above development indicates sustained retail interest in equities and listed securities as an asset class against the traditionally favored real estate and gold investments.

The mutual fund industry in India provides huge scope for growth and development. Real estate and gold have become less attractive forms of investments post notebandi. Even the reduction in bank deposit rates in the past year has led to a shift in investment to mutual funds and the stock markets.

Going forward, the real test would be to see if the fund flow continues in the ongoing volatile market. Should the inflow slow down, it will impact MF investment flowing into Indian markets. It will be interesting to see how mutual fund investors react under these conditions.

Crude Oil Witness Buying Interest

In the news from commodity space, crude oil started its week on a positive note yesterday. Most of the gains were seen as market participants raised bets in the commodity on the back of positive global cues.

Note that besides the one-off daily gains as above, crude oil prices have corrected by about 10% in February. Rising US oil production and crude stockpiles, as well as a stock market sell-off, heaped pressure on oil prices this month.

It will be interesting to see how the OPEC and Russia react to the increasing oil supply from the US in the coming days.

PNB Fraud Case

The Central Bureau of Investigation (CBI) has filed a First Information Report (FIR) against the Mehul Choksi-run Gitanjali Group. The FIR is based on a fresh complaint made by Punjab National Bank (PNB) on February 13th.

This marks as the second FIR filed in the alleged fraud involving overseas payments to jeweler Nirav Modi, his uncle Choksi and entities belonging to them based on guarantees issued by PNB.

As for the Nirav Modi case, the Reserve Bank of India (RBI) said it has not asked PNB to pay counter-party banks against the letter of undertakings (LoUs). The central banks stated that it has begun its assessment and will take action as needed.

The above scam has put the public-sector banks (PSB's) in the limelight. PNB is defrauded to the tune of US$ 1.77 billion.

While the bad loans struggle has been going on since a decade at PSBs, there are other issues that have recently cropped up adding to their pile of misery. Bureaucracy and a lack of autonomy have ensured the sub-optimal profitability and asset quality of these state-run banks.

That's the reason we've been wary of PSU banks since 2014. This was well before the market had caught a whiff of the NPA problem. We've recommended just two large PSU banks in StockSelect since then...and already successfully closed both of them.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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RBL BANK share price is trading up by 5% and its current market price is Rs 249. The BSE BANKEX is up by 2.7%. The top gainers in the BSE BANKEX Index are RBL BANK (up 5.0%) and FEDERAL BANK (up 5.7%).

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