Sensex Finishes on a Weak Note; ICICI Bank Falls on SFIO Probe

Wed, 7 Mar Closing

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Indian share markets continued to trade negative following losses in Asian and US stocks and as PNB fraud investigation widened. At the closing bell, the BSE Sensex finished lower by 284 points. While, the NSE Nifty finished lower by 95 points. Meanwhile, the S&P BSE Midcap Index and S&P BSE Small Cap Index ended down by 1.3% & 2.1% respectively.

Barring consumer durables stocks & FMCG stocks, all sectoral indices ended the day in red with capital goods stocks and power stocks leading the losses.

Overseas, Asian stock markets finished broadly lower today with shares in Hong Kong leading the region. The Hang Seng is down 1.03% while Japan's Nikkei 225 is off 0.77% and China's Shanghai Composite is lower by 0.55%. European markets are lower today with shares in Germany off the most. The DAX is down 0.47% while France's CAC 40 is off 0.39% and London's FTSE 100 is lower by 0.18%.

The rupee was trading at Rs 64.96 against the US$ in the afternoon session.

ICICI Bank share price fell 2.5% as the bank's senior officials were summoned by the Serious Fraud Investigation Office (SFIO) with regard to the PNB scam.

Automobile stocks ended the day on a mixed note with Force Motors share price & Escorts Ltd share price leading the losers. Tata Motors-owned Jaguar Land Rover (JLR) today reported 2.6% decline in global sales at 39,911 units in February.

Sales of Jaguar brand of vehicles in February were at 11,565 units, a fall of 5.2%.

Further, Land Rover range posted sales of 28,346 units in the month, down 1.5%.

Reportedly, solid demand in China (up 3.3%) and other overseas markets (up 1.5%) was offset by lower sales in the UK (down 15.2% for the month) and Europe (down 6.9%), where trading conditions remained challenging.

Tata Motors, on the consolidated level, derives ~80% of its revenue from JLR, which had witnessed EBITDA margin decline in FY16 and FY17 on account of weakness in volumes growth, model mix and forex losses.

During Q3FY18, JLR saw some weakness due to run out of two of its models Range Rover and Range Rover Sport. However, the standalone business saw more than 750bps y-o-y EBITDA margin expansion due to market share gains in CVs.

Tata Motors share price ended the day up by 0.4%.

Moving on to the news from the economy. In the latest development, Finance Minister Arun Jaitley has stated that public sector banks (PSBs) have written-off loans worth Rs 816.8 billion in the financial year 2016-17, including Rs 203.4 billion by the State Bank of India.

Reportedly, the amount written off by nationalized banks was Rs 287.8 billion during the current fiscal (up to September, 2017). Besides, it was noted that writing-off of loans is done for tax benefit as well as capital optimization. However, borrowers of such loans continued to be liable for repayment.

As per the Reserve Bank of India (RBI) guidelines and policy approved by bank Boards, non-performing loans, including those in respect of which full provisioning has been made on completion of four years, are removed from the balance-sheet of the bank concerned by way of write-off.

The minister further stated that recovery of dues takes place on ongoing basis under legal mechanisms, which include, the Secularisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Debts Recovery Tribunals and Lok Adalats. Therefore, write-off does not benefit borrowers, the reports noted.

Besides, in the five-financial years since 1 April 2013, banks have reported 13,643 cases of fraud involving a total amount of Rs 527.2 billion.

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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