Sensex Up Over 450 Points; Metal Sector Up 3.7%

Thu, 5 Apr 12:30 pm

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After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the metal sector and realty sector witnessing maximum buying interest.

The BSE Sensex is trading up 455 points (up 1.4%) and the NSE Nifty is trading up 147 points (up 1.5%). The BSE Mid Cap index is trading up by 1.5%, while the BSE Small Cap index trading up by 1.7%. The rupee is trading at 65.04 to the US$.

Stocks from the interest-rate sensitive sectors such as banking sector, auto sector, and realty sector are witnessing buying interest ahead of the Reserve Bank of India's (RBI) monetary policy decision today.

Market participants are closely tracking the outcome of first bi-monthly RBI monetary policy meet for the new fiscal 2018-19.

The Reserve Bank of India (RBI) will today make public the resolution of the Monetary Policy Committee (MPC) and also declare its decision on key interest rates.

There's little hope of a cut in the key policy rate because of the rising global crude oil prices. Note that the central bank has maintained a status-quo on the key short-term borrowing rate (repo) in its last three policy meets. The benchmark lending rate was reduced by 0.25 percentage points to 6% last August, bringing it to a 6-year low.

The outcome of the meeting is keenly awaited amidst pressure on RBI to cut interest rates in the wake of declining retail inflation and the need to fuel economic growth.

In the news from banking sector, as per a leading financial daily, the Reserve Bank of India has temporarily relaxed provisioning norms for lenders to defaulters undergoing bankruptcy resolution.

As per the development, provisions for accounts referred to the National Company Law Tribunal (NCLT) have been reduced to 40% of dues at the end of March for secured loans, down from 50% earlier. However, the RBI stated that provisions will go back up to 50% for secured loans at the end of the June quarter.

The major beneficiaries of the above move will be the banks with the highest number of willful defaulters, as stated in the chart below. It will help bolster their financial results for the year and quarter ended March 2018.

Banks with the Highest Number of Willful Defaulters

Speaking of bank loan defaults, note that the share of large corporates, in total advances of the banking sector, has almost remained unchanged over past three years (at an average of 55%).

However, their contribution to incremental slippages has been huge. At one point, the big corporate borrowers accounted for nearly 90% of total NPAs of the sector.

Banks, in principle, must be careful about not extending loans to borrowers with poor creditworthiness or payment track record. That too, irrespective of the size of the borrower.

While the bad loans struggle at PSBs has been going on since a decade, bureaucracy and a lack of autonomy have ensured the sub-optimal profitability and asset quality of these state-run banks.

That's the reason we've been wary of PSU banks since 2014. This was well before the market had caught a whiff of the NPA problem. We've recommended just two large PSU banks in StockSelect since then...and already successfully closed both of them.

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

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