Sensex & Nifty Open Flat; Nalco Dips 6%

Wed, 19 Apr 09:30 am

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Asian equity markets are lower today tracking Wall Street's negative close overnight, with resources and financial shares losing ground. The Shanghai Composite is off 1.44%, while the Hang Seng is down 0.79%. The Nikkei 225 is trading slightly down by 0.01%. The US and European markets closed lower in their previous trading session, weighed down by a drop in Goldman Sachs and Johnson & Johnson following their quarterly results.

Meanwhile, share markets in India have opened the day on a flattish note. The BSE Sensex is trading down by 9 points while the NSE Nifty is trading flat. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.1%.

Sectoral indices have opened the day on a mixed note with stocks from metal sector and realty sector leading the losses. Gains were largely seen in fast moving consumer goods stocks and power stocks. The rupee is trading at 64.57 to the US$.

National Aluminium Company Ltd share price dropped 6.3% after it was reported that the government will open the first divestment account today with up to 10% stake sale in Nalco and may mop up over Rs 6 billion. The issue price has been set at Rs 67 a share, a discount to Tuesday's closing price of Rs 73.45 per share.

Information Technology stocks opened the day on a mixed note with Mphasis Ltd and Infosys Ltd witnessing maximum buying interest. Tata Consultancy Services Ltd share price fell over 1.5% after it missed analysts' estimates for both revenue and profit in the fourth fiscal quarter, even as the firm's full-year sales rose 6.2% to US$17.58 billion.

TCS' fourth quarter (January-March) earnings were muted as consolidated profit fell 2.5% sequentially to Rs 66.08 billion on lower-than-expected growth in topline. Revenue during the quarter declined 0.3% to Rs 296.42 billion QoQ, dented by subdued growth in key segments like BFSI and retail.

However, on the face of it, TCS that ended the 2016-17 fiscal with an 8.3% growth in revenues (in constant currency terms), has delivered on par with Infosys. In the March quarter too, TCS reported a sequential revenue growth of 1%, against Infosys' flat revenues. But TCS has fared better than its peer across a few parameters during the March quarter.

Further, TCS has maintained an operating margin forecast of 26-28% for fiscal 2018 despite missing it last financial year. Margins for financial year 2017 stood at 25.7%. While it is positive that they have maintained the margin range target, it will be interesting to see how they achieve it.

The results come as India's more than US$150-billion software services sector faces uncertainties over visa rules in its biggest market, the United States. US President Donald Trump, on Tuesday ordered federal agencies to look at tightening a temporary visa program used to bring high-skilled foreign workers to the United States, the reports noted.

Trump signed an executive order on enforcing and reviewing the H-1B visa, popular in the technology industry, on a visit to the headquarters of Snap-On Inc, a tool manufacturer in Kenosha, Wisconsin. Tight regulations can raise costs and slow business for Indian IT services firms.

Moving on to the news from stocks in banking sector. As per an article in a leading financial daily, Indian banking industry is working towards the next round of consolidation and public offers in the next few months so that banks can raise fresh capital. This would mean that Punjab National Bank (PNB) and Bank of Baroda might be taking over smaller lenders.

Punjab & Sind Bank can be merged into PNB, and big lenders like BoB can take over banks like Indian Overseas Bank, report noted.

Notably, it was only last month that India's biggest bank State Bank of India (SBI) absorbed five of its associate lenders and Bharatiya Mahila Bank.

This also comes as the finance ministry is working closely with the Reserve Bank of India to address non-performing assets. Last week, RBI had unveiled stricter norms under the revised prompt corrective action framework, which may force lenders to consolidate in case they don't meet the regulatory requirements.

The government will push large state-owned lenders to tap the markets this fiscal. Under the Indradhanush road map, banks were to raise Rs 1.8 trillion from the markets for capitalization. That money will be needed as the government has allocated just Rs 100 billion toward capital infusion in banks this fiscal. It included a programme to deal with bad debt and called for capital infusion to the tune of Rs 70,000 crore till FY19, the reports noted.

While value migration could be the biggest opportunity, if we have to do a SWOT analysis for Indian economy, bad debts and precarious position of banks would be the number one threat. A lot of measures have been announced to address the issue. The latest has been capital infusion for 10 PSU banks that include weak and non- performers.

The Big Rescue Plan for Weak Public Sector Banks

It's a good step to attach strict performance conditions before throwing good money after bad. Yet, given the issues related to asset quality, profitability and governance issues, revamping PSU banks, especially the weaker ones, could be an ambitious target.

However, the government is reported to be mulling creating six large public sector banks of global scale, also with an aim to help the smaller banks with weaker balance sheets get support from the larger ones with strong finances.

Bank stocks opened the day up by 0.1%

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