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Indian Markets Continue Their Uptrend
Thu, 5 May 11:30 am

After opening the day on a positive note, the Indian stock markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the FMCG, auto, power and realty sectors leading the gains.

The BSE Sensex is trading up 146 points (up 0.6%) and the NSE Nifty is trading up 29 points (up 0.4%). The BSE Mid Cap index is trading up by 0.2% while the BSE Small Cap index is trading up 0.3%. The rupee is trading at 66.52 to the US$.

PSU banking stocks are trading on a mixed note with IDBI Bank and Indian Overseas Bank leading the losses. As per an article in Economic Times, India is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans. The proposal would give the panel power to define the "haircut" a bank should face on a loan gone sour.

The move is aimed at protecting bankers from a majority of criticism that they say is hobbling efforts to clean up their balance sheets. The debt pile of Indian banks, especially in the public sector banks, is in the limelight across mainstream media, prosecutors, and politicians. According to banking sources, fear of bad headlines was one reason why state-run banks declined to consider Vijay Mallya's offer to pay up to US$900 million in tranches to settle about US$1.4 billion his defunct Kingfisher Airlines owed. In case you missed, do check out this interesting piece by Vivek Kaul, editor of Vivek Kaul's Diary, on the moral hazard of settling with Vijay Mallya.

The above development will lessen up the stress for banks and also the level of bad loans.

One shall note that the issue of rising bad loans has made Prime Minister Narendra Modi repairing bank balance sheets his administration's top-most priority. Earlier, in April, the Supreme Court had asked the government to overhaul the banking system to prevent bad loans and hasten recovery from defaulting borrowers.

The Supreme Court stated that had the system been working, the public sector banks would not have had to write off more than Rs 1,140 billion of bad loans.

The court insisted that the government should carry out reforms in order to solve the problem of rising bad loans. It also insisted to set up a committee that will debate how to improve the ongoing system.

Stocks in the finance space are trading on a mixed note with Prime Securities and Power Finance Corporation leading the losses. In another news update it was reported that Housing Development Finance Corporation (HDFC), the country's largest mortgage lender, will be raising Rs 11 billion by issuing debentures.

The object of the issue is to augment the long term resources of the company. The proceeds of the issue would be utilized for financing/refinancing the housing finance business requirements of the corporation.

The issue of the Non-Convertible Debentures (NCDs) will be done on a private placement basis and will be open for a day on May 6. The NCDs will carry a coupon rate of 8.34%. ICICI Bank and SBI Capital Markets are the arrangers to the issue.

Last year, HDFC Bank had raised Rs 30 billion by issuing bonds on a private-placement basis. Reportedly, the bank is raising money to enable it to participate in the pickup in credit demand that was expected both from the corporate and the retail sector. The management had earlier stated that the bank will be looking at lending to projects in the infrastructure space which approximately accounts for up to 15% of the bank's book.

To know our view on the stock of the company, you can read our analysis of the fourth quarter results (subscription required).

Presently the stock of HDFC is trading up by 3%.

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Mar 5, 2021 10:32 AM