Sensex Opens Lower; Energy & PSU Stocks Lose

Thu, 22 Feb 09:30 am

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Asian stocks are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1.67% while the Hang Seng is down 0.87%. The Nikkei 225 is trading down by 1.18%. US stocks closed lower on Wednesday in a rocky session after the release of the minutes from the Federal Reserve's January meeting pushed yields on the benchmark 10-year US Treasury note to a four-year high.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading lower by 94 points while the NSE Nifty is trading lower by 39 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.4% & 0.3% respectively.

Sectoral indices have opened the day on a mixed note with information technology stocks and consumer durables stocks witnessing maximum buying interest. While, oil & gas stocks and PSU stocks have opened the day in red. The rupee is trading at 64.82 to the US$.

In the news from the banking sector. As per an article in a leading financial daily, Bank of India had sanctioned some loan to Rotomac group companies as a consortium lender and that had turned into a non-performing asset (NPA) or bad loan in the 2015-16 fiscal for which it has already made 100% provisioning.

However, the bank did not disclose the amount of its exposure to the Rotomac group, in response to a clarification sought by exchanges on news article 'Rotomac owner flees country after taking Rs 8 billion loan'.

Recently, three state own lenders--Bank of Baroda, Union Bank of India and Indian Overseas Bank -- had clarified about their exposure to the firm.

Bank of Baroda had an exposure of Rs 4.6 billion to Rotomac Global, which is under investigation by CBI and the Enforcement Directorate in connection with an alleged bank loan fraud.

Reportedly, BoB has also initiated action against Rotomac Global under SARFAESI Act.

Union Bank of India and Indian Overseas Bank also informed about certain lending to the group as consortium partners and that their loans had turned NPA in the past.

Both these banks said that they have initiated recovery process and have filed cases before the competent authorities.

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

This has reflected in their stock performance too. The returns of PSBs over the last five years have underperformed at the Sensex.

That's the reason we at Equitymaster have been wary of PSU banks since 2014. This was well before the market had caught a whiff of the NPA problem.

PSB Underperformance vis a vis Sensex

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Bank of Baroda share price opened the day down by 0.2%.

Moving on to the news from automobiles sector. As per an article in a leading financial daily, Tata group is planning to sell its automotive parts manufacturing company Tata AutoComp Systems Ltd (TACO).

Pune-based Tata AutoComp, a subsidiary of Tata Motors Ltd, has more than 33 manufacturing facilities across India and China, and five joint ventures in partnership with leading global auto parts makers.

One shall note that, N. Chandrasekaran is planning to divest companies that are not making money and allocate capital to businesses where the group's prospects are brighter.

The plan involves reducing costs and increasing efficiency of the company, which has struggled to make money or increase its market share in the country.

In June, Tata Motors and two other group entities had announced the sale of a 43% stake in engineering unit Tata Technologies Ltd to private equity firm Warburg Pincus in a deal worth US$360 million. However, the deal was called off this month following a delay in securing regulatory approvals.

Under Chandrasekaran, the Tata group is making partial and complete exits from various non-core businesses.

Tata Motors share price opened the day down by 0.7%.

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