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Indian Markets Extend Gains
Mon, 9 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 banking, capital goods and FMCG sectors leading the gains.

The BSE Sensex is trading up 357 points (up 1.4%) and the NSE Nifty is trading up 102 points (up 1.3%). The BSE Mid Cap index is trading up by 0.9% while the BSE Small Cap index is trading up 0.8%. The rupee is trading at 66.44 to the US$.

PSU banking stocks are trading on a positive note with Punjab & Sind Bank and Syndicate Bank witnessing maximum buying interest. As per an article in Economic Times, the net profit of five associate banks of State Bank of India (SBI) during the quarter ended March 2016, fell to one-tenth of what it was a year ago. The total net profit during the fourth quarter stood at Rs 1,080 million from Rs 11,790 million in the corresponding period a year ago.

This was seen on the back of higher provisioning on stressed assets. The combined provisioning of five associate banks rose 51% to Rs 81,610 million for the FY16. It was noted that State Bank of Patiala (SBP), due to its exposure to high value corporate loans, reported a Rs 5,050 million loss in its fourth quarter earnings against 1,260 million profit in the comparable period.

To solve this problem of rising bad loans, the government has recently insisted State Bank of India (SBI) to actively consider merging its five associate banks. This is because the government expects that the merger of SBI group banks into one entity will create a suitable environment for consolidation among other public sector banks.

However, does it really make sense to merge public sector banks? Are these PSUs willing to consolidate their operations? Will this be a successful move knowing that public sector banks are facing huge bad loan problems? Vivek Kaul answers all of these questions in one of his articles in the Vivek Kaul's Diary. He believes, the merger of two public sector banks, will give us a bigger inefficient bank.

Also, while we are on the topic of mergers and acquisitions, in a recent edition of The 5 Minute WrapUp Madhu Gupta (Research Analyst) wrote why 2016 looks a strong year for mergers and acquisitions.

The rising bad loans has been a serious concern for Indian banks, especially for the PSUs. The debt pile of Indian banks, especially in the PSBs, is in the limelight across mainstream media, prosecutors, and politicians. One of our recent editions of The 5 Minute WrapUp explains why rising bad loans can be a potent risk for the Indian economy.

In another news update it was reported that Thyrocare Technologies made an impressive debut today by listing at Rs 662 on the Bombay Stock Exchange (BSE). This records a 48.43% premium to its issue price of Rs 446.

The listing gain is backed by a stellar 73.55 times subscription received by initial public offering (IPO) that ran between April 27 and April 29.

These are the kind of numbers that typically only come in when the IPO season is in full swing. Apart from Thyrocare Technologies, other IPOs that have come out recently like TeamLease Services and Ujjivan Financial Services also saw oversubscription to the tune of 66 times and 41 times respectively.

Unlike winter and summer, the IPO season doesn't follow a yearly pattern. It comes when the markets are rising and investors are willing pay up. Slightest sign of a weak market, and it is quick to go away too. And so does the hype around many of the stocks, especially the fundamentally weak ones.

As we wrote in one of our editions of The 5 Minute WrapUp... "We've been highlighting the perils of the IPO season to you. Note: of the 66 IPOs we've covered (and that still trade) since CY08 to CY15, forty are trading below the closing price on the day of listing. That's a 61% failure rate. Actually, it's higher as the positive returns on some of the IPOs lag the Sensex's returns for the same period. As a long term investor, you will do well not to get swayed away by the buoyancy surrounding IPOs."

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Jan 19, 2018 (Close)