Sensex Finishes 100 Points Lower; PNB Plunges 12% as Fraud Gets Deeper

Tue, 27 Feb Closing

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Indian share markets finished the trading session on a negative note snapping a two-day winning streak. At the closing bell, the BSE Sensex closed lower by 99 points and the NSE Nifty finished lower by 28 points. The S&P BSE Mid Cap finished down by 0.5% while S&P BSE Small Cap finished down by 0.3%.

Losses were largely seen in realty stocks, bank stocks and PSU stocks.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 1.07%, while the Shanghai Composite & the Hang Seng fell 1.13% and 0.73% respectively. European markets are mixed. The FTSE 100 is higher by 0.13%, while Germany's DAX is off 0.15%. Shares in France are unchanged with the CAC 40 at 5,344.35.

Rupee was trading at Rs 64.85 against the US$ in the afternoon session. Oil prices were trading at US$ 63.73 at the time of writing.

The Market cap to GDP ratio for Indian companies too is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

In news from cement sector, ACC Ltd share price (down 1.9%) and Ambuja Cement share price (down 4%) slipped in today's trade after they announced that "there are currently some constraints to implement a merger".

Reportedly, one of the major constraints, related to the transfer of rights of mining assets.

Reportedly, the announcement could weigh on sentiment in the short term as the Street was more optimistic on potential synergy benefits while valuations are already steep.

The two cement majors had proposed the merger in May last year. The combined entity would have had a capacity of 63 million tons, helping parent LafargeHolcim get closer to market leader Ultratech Cement of the Aditya Birla Group. UltraTEch has nearly 70 million tons of annual capacity.

Meanwhile, telecom stocks finished the day on a positive note with Bharti Airtel share price and Idea share price leading the gains.

Bharti Airtel share price was among the top gainers today. Bharti Airtel and technology giant Google have partnered to launch low-cost 4G smartphones powered by Android Oreo (Go edition) in India. The entry-level 4G smartphones under Airtel's 'Mera Pehla Smartphone' program will be shipped with Android Oreo (Go edition) starting March this year.

In another development, the company has also joined a global alliance which will use satellite technology to offer uninterrupted, high-speed internet connectivity to mobile users when they are in a flight.

The sentiments also remained upbeat after the Telecom Regulatory Authority of India on Monday said Bharti Airtel, Idea Cellular and Vodafone India are free to match tariffs offered by newcomer Reliance Jio Infocomm in circles where they have a dominant position and such actions will not be seen as predatory.

Moving on to news from banking sector. PNB share price continued to slip and plunged 12% after the bank revealed additional unauthorised transactions related to the scam by billionaire diamantaire Nirav Modi and his uncle and business partner, Mehul Choksi, increasing the estimated size of the fraud by US$204 million (Rs 13.22 billion).

This increase means that the total fraud now amounts to nearly US$2 billion (Rs 126.2 billion) as against the original estimated US$1,772 million (over Rs 113 billion).

Notably, the value of the additional unauthorised transactions is almost equal to PNB's entire net income of Rs 13.2 billion for fiscal year 2017.

The fresh letters of undertaking (LoUs) were understood to have been discovered after being reported by overseas bank branches, which checked their portfolio in light of the recent fraud.

In news from the economy, domestic rating agency, ICRA in its latest report has said that it expects the growth of India's gross value added (GVA) at basic prices in year-on-year (YoY) terms to record a sequential recovery to 6.8% in Q3 (October-December) of FY18, on the back of improvement in the services and industrial sectors even as the expansion of agriculture, forestry and fishing is likely to display some moderation. Besides, it indicated that the country's real GVA growth was at 6.1% in the second quarter of 2017-18.

According to the report, economic activity remained subdued during first half of fiscal year 2018, partly on account of the structural transition to the Goods and Services Tax (GST), however, signs of a pick-up in economic growth are starting to appear.

Elaborating further, it said that higher growth in volumes in manufacturing and some of the services sub-sectors and in the government's expenditure, a favourable base effect and an improvement in corporate earnings are expected to contribute to a sequential recovery in the y-o-y growth of GVA at basic prices in Q3.

Besides, it expects that growth in the services sector to record a base-effect led pick-up to nearly 8.8% in Q3 from 7.1% in Q2, reflecting the improvement recorded by indicators such as bank credit, cargo handled at major ports, passengers carried by domestic airlines and foreign tourist arrivals.

It also expects that GDP and GVA growth to improve to around 7.5% in the fourth quarter.

And here's a note from Profit Hunter:

In the aftermath of the fraud, the stock price of Punjab National Bank (PNB) is witnessing selling pressure and is down by approximately 12%.

The bank has revealed additional unauthorised transactions related to the Nirav Modi scam and his uncle and business partner, Mehul Choksi, increasing the estimated size of the fraud by US$ 204 million.

The above increase means that the total fraud now amounts to nearly US$ 2 billion as against the original estimated US$ 1,772 million.

The last time we reviewed the stock, it was trading just above its important support level of 135. But it broke this support level and continued to tumble. The volumes during this down move was very heavy indicating selling pressure in the counter. The stock is now trading at 98 and is nearly 30% away from its February 2016 low, which could provide a good support if the stock comes to that level.

So, will we see the stock crawling to its February 2016 low, given the selling pressure it is witnessing? Let's wait and watch...

PNB Plunged 12% for the Day

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