Sensex Stays Firm; Metal Stocks Witness Buying

Thu, 16 Mar 01:30 pm

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After opening the day on a positive note taking cues from the US Fed rate hike, share markets in India have continued the momentum and are trading above the dotted line. Sectoral indices are trading on a positive note with stocks in the metal sector and stocks in the capital goods sector leading the gains.

The BSE Sensex is trading up by 140 points (up 0.5%), and the NSE Nifty is trading up by 52 points (up 0.6%). Meanwhile, the BSE Mid Cap index is trading up by 1.1%, while the BSE Small Cap index is trading up by 1%. The rupee is trading at 65.36 to the US$.

In news from stocks in the banking sector. India's largest lender, State Bank of India's (SBI) board approved a plan to raise up to Rs 150 billion through equity capital in the next fiscal.

SBI plans to raise funds via public offers for sale, employee stock option purchase schemes and overseas issuance of shares.

The board added that the mode of fund raising would be decided at the "opportune time" subject to approval of the government and the Reserve Bank of India.

The bank, in November had announced plans to raise over Rs 56.8 billion by issuance of preferential shares to the government in the current fiscal, but that has not happened so far.

A fresh infusion of capital will help the bank improve its capital adequacy position which stood at 13.7% at the end of December, higher than the minimum 10.25% requirement under the Basel III norms.

SBI has received Rs 75.7 billion capital infusion in the current fiscal year Rs 18.9 billion of which has come in January. The government had announced a four-part capital infusion plan, to infuse Rs 250 billion each in 2015-16 and 2016-17 and Rs 100 billion each in 2017-18 and 2018-19 in public sector banks in 2015.

At the time of writing, SBI share price was trading down by 0.2%

PSBs dominate the banking industry in India with more than 60% of the total outstanding loans. They chose the easy life of issuing big-ticket loans to large corporations over the hard work of reaching out to many small retail subscribers. Extending credit to small and medium enterprises (SME) was also limited - to the extent of meeting priority sector lending targets set by regulators.

Credit penetration in India Remains the Lowest

This has meant that the overall credit penetration in India remains on the lower side, especially in rural areas.  Flush with liquidity post notebandi, state-run banks are going all out to make the most of this vacuum.

Does this mean the PSB fortunes are set for a turnaround?

As my colleague Madhu Gupta writes in a recent edition of the 5 Minute WrapUp:

• The return ratios of PSBs aren't likely to improve overnight on the back of the low-cost capital deluge or the steep rate cuts undertaken to boost credit offtake. They also need to address the nagging problem of stressed loans, which have crossed the Rs 12 trillion mark as per the Economic Survey.
  
  Bad loans will continue to depress the profitability of state-run banks and undermine their capital strength for future growth. However, the larger PSBs, with their wider reach and financial prowess, are likely to be much better equipped to weather the storm.

So, what must one do to make the most of the opportunity in the sector?

We don't believe we can pick the safest stocks by speculating on sector trends. Rather, the time is ripe to buy safe stocks based on a hidden undercurrent.

Download our free special report to know how.

Moving on to news from stocks in the IT sector. Wipro share price is in focus today. The stock rallied over 1% in intraday trade today as the IT major announced it has set up an automotive engineering centre in Detroit, USA.

With this development, India's third largest software exporter joins its local rivals TCS and HCL Technologies in tapping local talent access to auto customers for projects on connected cars in the US automotive hub.

The country's largest software provider TCS has presence at Detroit. The company operates through its automotive centre of excellence, which was set up in 2004, to provide technology support to the auto industry. This unit has scaled up since then and hired locals.

HCL Technologies delivers technology services in the region through its technology development centre in Michigan, which was opened in 2013.

Wipro will work with tier I vendors of auto firms such as General Motors and Ford to build and support technology development for connected cars. It will serve as a hub to support the automotive engineering and technology needs of original equipment manufacturers.

The company said the center would use local talent to support the development and validation of automotive cockpit electronic products such as navigation systems, connectivity systems, instrument clusters, head-up displays, advanced safety systems, vehicle diagnostics and advanced analytics, and end-to-end connected vehicle solutions.

One must note that Indian IT companies are facing the brunt of immigration restrictions proposed by the Trump administration. Setting up local facilities and procuring local talent, will help Indian IT firms shield themselves from uncertainties surrounding Trump's policies.

A crash led by this uncertainty may be an opportunity to act on not just IT but lots of other safe stocks as well.

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

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