Sensex Opens Over 200 Points Up; Banking and Realty Stocks Rally

Fri, 15 Mar 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 1.7% while the Hang Seng is up 1.2%. The Nikkei 225 is trading up by 1%. Meanwhile, the S&P 500 slipped on Thursday, snapping a three-day streak of gains, as uncertainty over when a trade deal between the United States and China would be reached left investors on edge.

Back home, India share markets opened on a strong note. The BSE Sensex is trading up by 193 points while the NSE Nifty is trading up by 53 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.2% & 0.1% respectively.

Except metal stocks, all sectoral indices have opened in green with realty stocks and bank stocks leading the pack of gainers.

A lot of people in the market are playing the prediction game ahead of the elections these days.

A common theme is to sit on cash to escape the volatility ahead of the upcoming elections. In case there is an unexpected event, you can then get in post the correction.

But does timing the market work?

Not really, if you see the market performance in the year of the past three national elections (2004,2009 and 2014).

Downside of Timing The Stock Market

Looking at the returns in the above chart, staying out of the market to escape volatility would have been a costly affair every time.

The market gave above average returns in all three of those years.

This does not mean one can expect the same in the future.

But there's one thing for sure. Predicting short-term directions of the market is a futile and many a times a costly affair.

That's why we believe in picking safe stocks when they are actually 'safe' i.e. during such times of high pessimism and uncertainty.

Moving on, the rupee is currently trading at Rs 69.30 against the US$.

The rupee appreciated by 20 paise to close at a seven-month high of 69.34 against the US dollar on Thursday, extending gains for a fourth session in a row.

This came on the back of robust foreign inflows ahead of general elections. The domestic currency in the four sessions to Thursday has appreciated by 80 paise or 0.8% on hopes of forex inflows.

Also, rupee and sovereign bonds have recovered from day's low and turned positive even after RBI's plan to inject US$5 billion liquidity via three-year foreign exchange swap auction.

The Reserve Bank of India said it will inject long-term liquidity worth US$5 billion into the system through dollar-rupee swap arrangement with banks for three years.

The strong foreign fund flows in current month also bode well for the rupee strength. FIIs have flooded Indian markets with US$1.8 billion till date in March which has partially helped market rally.

At the Interbank Foreign Exchange market, the rupee opened weak at 69.75 a dollar over its previous closing price of 69.54. The local unit moved in a range of 69.78 to 69.26 before finally ending at 69.34, showing a gain of 20 paise over its last close.

This is the highest closing level since August 10, when the rupee had finished at 68.83.

Moving on to the news from banking sector. In the latest development, IDBI Bank has been categorised as a private sector lender following acquisition of majority stake by Life Insurance Corporation.

In January, LIC completed the process of picking up a controlling 51% stake in the nearly crippled IDBI Bank.

IDBI Bank has been under the prompt corrective action framework of RBI that bans it from corporate lending and branch expansions, salary hikes and other regular activities.

However, the lender has charted out a revival strategy to bring banking and insurance under one roof, along with its new owner Life Insurance Corporation (LIC).

Last week, IDBI Bank informed about appointment of LIC as a corporate agent under bancassurance channel.

In the long term, the bank and LIC will have a common investment strategy, use each other's resources like real estate, commercial and residential space, bank branches, premises and ATMs and digital marketing, among others, the bank stated.

Both entities will also undertake rationalisation of the common subsidiaries in mutual funds and life insurance arms, as per the strategic plan.

At Equitymaster, we believe the latest attempt to bail out the troubled IDBI Bank is a classic case of the state insurer buying toxic assets.

Ask an average Indian investor about the next best thing after safe bank deposits. I can bet they would tell you about LIC policies.

For generations Indians have treasured LIC policies in their safe deposit lockers like their gold and fixed deposit receipts.

Therefore, Vivek Kaul, the Editor, Vivek Kaul's Diary, believes dumping IDBI Bank on to LIC, is definitely not an example of saaf niyat, as the country has been promised.

Here's an excerpt of what he wrote in his article:

• "In simple English, the government is basically unloading its junkiest bank on the insurance behemoth, and hence, on the people of this country.
  
  As on March 31, 2018, the bank had Rs 55,000 crore worth of bad loans. Over and above this, it has stressed loans of Rs 60,000 crore, which means that the bad loans of the bank can keep going up in the months to come.
  
  There is a school of thought that says that LIC should be allowed into the banking sector. But on the basis of what? What expertise does LIC have in the core-banking area?"

You can read Vivek's full insight in his article titled LIC Buying IDBI Bank is Not Saaf Niyat here.

In fact, given the high stakes that LIC owns in the most troubled banks, the government needn't even consider the proposal of setting up a 'Bad Bank'. It could just turn LIC into one. At least then the investors owning investments in LIC policies, would know the real risk they carry.

IDBI Bank share price opened the day up by 1.3%.

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

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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