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Indian Indices End Strong, RBI's Capital Infusion, and Top Cues in Focus Today
Thu, 7 Mar Pre-Open | Monish Vora, TM Team

Indian share markets continued their momentum during closing hours yesterday and ended on a positive note. Gains were largely seen in the energy sector and consumer durables sector.

At the closing bell yesterday, the BSE Sensex stood higher by 194 points (up 0.5%) and the NSE Nifty closed higher by 66 points (up 0.6%). The BSE Mid Cap index closed up by 0.5%, while the BSE Small Cap index ended the day up by around 1%.

Top Stocks in Focus Today

From the pharma space, Sun Pharma share price will be in focus today after reports yesterday suggested markets regulator has sought an explanation from the company on the alleged fund diversion of Rs 420 billion through its key distributor and subsidiary Aditya Medisales (AML).

Reportedly, in two letters dated January 28 and February 18, the regulator asked Sun Pharma to furnish a detailed methodology of AML's operations, along with the agreement between the drug maker and AML.

To know more about the company, you can read Sun Pharma's Q3FY19 Result Analysis on our website.

Endurance Technologies share price will also be in focus today as the two-day offer for sale (OFS) by Endurance Technologies witnessed a tepid response from non-retail investors yesterday.

The OFS is by promoter Anurag Jain and has opened for bidding from today.

The move is aimed at reducing Jain's stake to meet market regulator's minimum public shareholding norm of 75%.

Currently, the promoters of the company hold 82.5% stake in the company.

RBI to Infuse Rs 125 Billion through OMO

Moving on to the news from the macroeconomic space, the Reserve Bank of India (RBI) on Tuesday said it would infuse Rs 125 billion into the financial system through open market operations.

The central bank said it has decided to purchase certain government securities under Open Market Operations (OMO) on 7 March 2019 through multi-security auction using the multiple price method.

Reportedly, the decision on OMO is based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward.

OMOs are the tools which can be used to either inject or drain liquidity from the system.

It is employed to adjust rupee liquidity conditions in the market on a durable basis.

If there is excess liquidity, RBI resorts to sale of government securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, it buys securities from the market, thereby releasing money into the market.

DHFL in Focus after Auditor Report on Cobrapost Allegations

From the finance space, DHFL share price will also be in focus today. Stock of the company witnessed buying interest yesterday after the company said that an independent accountancy firm TP Ostwal & Associates found little substance in Cobrapost allegations.

Shares of the company gained around 20% in early trade yesterday on back of the above news.

As per an article in The Economic Times, the auditor concluded that DHFL has not promoted any of the alleged 26 'shell' companies that borrowed a total of Rs 115.2 billion from the firm.

Here's an excerpt from the article:

  • Further, it does not have any directors in common, including members from the promoter group, with any of these alleged shell companies. Further, the company or promoters do not have any shareholding in these entities, nor are these entities shareholders of the company.

    We were unable to find evidence to support the allegations that the promoters have concealed shareholding in the company neither did we find any evidence to support the allegation of insider trading.

The auditor report suggested there are no indications to confirm the allegations that the company has created shell companies to divert funds.

That said, DHFL is required to monitor post disbursal end use of funds by the borrowers. The report indicated the monitoring in respect of 15 borrowers with loans amounting to Rs 74.9 billion is significantly inadequate.

Last month, shares of the company witnessed selling pressure as, Cobrapost said that DHFL diverted funds to shell companies to buy assets, and that firms linked to DHFL's controlling shareholders - the Wadhawan group made political donations beyond mandated levels.

Cobrapost had sought responses to 64 allegations, which were levelled upon the promoters, DHFL and various entities alleged to be controlled by the promoter group. The auditor said since 25 of the 64 questions did not relate to allegations against DHFL and they were not examined or addressed by it.

Also, ratings agency ICRA downgraded the company's commercial papers (CPs) worth Rs 80 billion to 'A2+' from 'A1+' last week.

However, the company said that the rating action by ICRA is not merit based and it has not taken cognizance of DHFL's intent to extinguish CPs by the end of March.

Note that DHFL is also facing questions about its financial health after the IL&FS default pushed up the cost of funds for the mortgage lender and made borrowing difficult.

Speaking of non-banking financial companies (NBFCs), note that their credit growth has seen robust growth in recent years.

From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks. A major reason for this is the gain in market share from public sector banks (PSBs). The recent NPA woes of the PSBs has seen them tighten up their credit lines.

The NBFCs have stepped in, along with private sector banks, to fill this gap. But the recent liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

It would be interesting to see how this all pans out. Meanwhile, we will keep you updated on the latest developments from this space.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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Mar 5, 2021 09:46 AM