Indian Indices Trade Marginally Higher; IT Stocks Witness Buying Interest

Wed, 21 Feb 11:30 am

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Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the IT sector and FMCG sector witnessing maximum buying interest. Metal stocks are trading in the red.

The BSE Sensex is trading up 70 points (up 0.2%) and the NSE Nifty is trading up 10 points (up 0.1%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 64.86 to the US dollar.

In the news from the aviation sector, SpiceJet share price is witnessing buying interest today. Most of the gains are seen on the back of news that Rakesh Jhunjhunwala has bought an additional 10 lakh shares of the airline company last week.

Note that India's aviation industry is on a high-growth trajectory. India's domestic air traffic has seen a prolific growth of 20-25% during 2015 and 2016. And in 2017, it tapered to 17.4%. However, for the first time, domestic air traffic crossed an important landmark of 100 million passengers in a calendar year, as can be seen from the chart below:

Indian Aviation Spreading its Wings

Air travel has recorded double-digit growth for 40 consecutive months, thanks to low fares, the addition of new flights/destinations, and overall growth in the economy.

As for our view on the aviation industry, here's an excerpt of what we recently wrote in one of our editions of The 5 Minute WrapUp...

• What's foreseeable for India's aviation traffic in 2018 is some pressure on the back of the consistent rise in crude oil prices. Earlier this month, Brent crude oil briefly breached US$70 per barrel and touched its highest level since December 2014. Crude prices have been driven up by production curbs in OPEC nations and Russia, as well as by robust demand on the back of healthy global economic growth.
  
  Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.
  
  Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.

In the news relating to the PNB fraud case, as per an article in the Economic Times, the Central Bureau of Investigation (CBI) said CBI said 10 more officials of Punjab National Bank (PNB), including the bank's executive directors, were being questioned.

Meanwhile, yesterday CBI arrested Vipul Ambani, the president (finance) of Nirav Modi's Fire Star Diamond along with executive assistant Kavita Mankikar and Senior Executive Arjun Patil in connection with the first FIR registered by the agency.

The PNB case involves bank employees issuing unauthorized LoUs to three companies and four people, including Nirav Modi.

The fraud is essential that Nirav Modi did not pay the security deposit needed to raise an LoU. These LOUs were used to obtain short-term credit from overseas branches of other Indian banks.

The detailed investigation found that Nirav Modi had not been putting in enough of security deposit since 2011; the value of LoUs without these deposits is now around Rs 114 billion.

The above scam has put the public-sector banks (PSB's) in the limelight for all the wrong reasons. PNB is defrauded to the tune of US$ 1.77 billion. That's the last thing these banks needed after the crisis they've had in the past few years.

While their bad loans struggle has been going on since a decade, 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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