Sensex Plunges Further; Metal & Energy Stocks Decline

Mon, 5 Mar 01:30 pm

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Indian share markets continued to trade on a weak note during the noon session amid weak Asian markets. Losses were largely seen in metal stocks, oil & gas stocks and auto stocks.

The BSE Sensex is trading lower by 360 points and the NSE Nifty is trading down by 122 points. Meanwhile, the BSE Mid Cap index is trading down by 1.1% & the BSE Small Cap index is down by 1.3%. The rupee is trading at 65.22 to the US$.

The Market cap to GDP ratio for Indian companies 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.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

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 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 banking sector, India's state-owned banks have written off Rs 5.16 billion worth of bad loans owed by willful defaulters in the first half of fiscal year 2017-18 (H1 FY18).

As per the finance ministry data, 38 loan accounts of willful defaulters were written off the books of banks during April-September period of FY18.

Write-off in banking parlance means that the bank has made 100% provision from its earning against that account. Following this, non-performing asset (NPA) is no longer part of its balance sheet. However, the write-off puts pressure on bank's balance sheet as it erodes operating profit.

According to the data, the country's largest bank by asset, State Bank of India (SBI) accounts for 27% of the total outstanding loans run up by willful defaulters as on March 31, 2017.

It also highlighted that Punjab National Bank (PNB) is number two on the list with 1,120 wilful defaulters with outstanding loans to the tune of Rs 122.78 billion. The two banks account for Rs 373.82 billion or 40% of the total bad loans. It added that total outstanding loans due to public sector banks (PSBs) by 8,915 willful defaulters amounted to Rs 923.76 billion.

PSB banks are trading on a weak note with Union Bank share price and Canara Bank share price leading the losses.

In another development, as per an article in The Livemint, HDFC Bank Ltd is looking to launch its equity share sale of up to US$2.5 billion (around Rs 150 billion) in a fortnight.

HDFC Bank's equity fund-raising will be a mix of a domestic qualified institutional placement (QIP) and overseas fund-raising via American depositary receipts/shares (ADR/ADS).

Indian banks have been busy raising funds in the past 12 months, with several large QIP offerings from both private sector and state-owned banks. Last year, State Bank of India raised Rs 150 billion through a QIP, while private sector lenders Kotak Mahindra Bank raised Rs 58.03 billion.

Meanwhile, HDFC Asset Management Co. Ltd (HDFC AMC) will be reportedly filing its draft initial public offer (IPO) papers.

HDFC bank share price was trading down by 0.5% on the BSE.

Moving on to news from energy sector. As per an article in The Economic Times, Indian Oil Corp (IOC) has bid for a stake in Vietnam's Binh Son Refining and Petrochemical Company. The company plans to look at the South-Eastern nation to expand business beyond Indian shores.

IOC is among the at least four companies that have evinced interest in becoming strategic partner in Binh Son Refining and Petrochemical Company (BSR) by taking 49% stake.

Indonesian state-owned oil firm Pertamina, Vietnam's biggest petrol dealer Petrolimex and Thailand's Bangchak Corporation Public Company Ltd are the other firms which have put in an expression of interest.

Binh Son Refining and Petrochemical Company has a capacity of 6.5 million tonnes a year, meeting over 30% of Vietnam's demand for gasoline and oil.

Reportedly, IOC is looking at Myanmar, Bangladesh and Vietnam to expand its oil refining and fuel retailing business. With Vietnam short in refinery products, IOC believes it can bring efficiencies and help expand BSR.

IOC is looking to export aviation turbine fuel (ATF) and cooking gas LPG to Myanmar and auto fuel to Bangladesh. It currently has a fuel retailing subsidiary in Sri Lanka and sells products in Mauritius and West Asia.

IOC share price was trading down by 0.7% at the time of writing.

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