Realty Stocks Lead the Gains

Tue, 17 May 01:30 pm

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After opening the day in the green, the Indian indices continued to trade on a positive note in the post-noon trading session. Sectoral indices are trading in the green with stocks from the realty, capital goods and oil & gas sectors leading the gains.

The BSE Sensex is trading up 236 points (up 0.9%) and the NSE Nifty is trading up 71 points (up 0.9%). The BSE Mid Cap index is trading up 0.6% while the BSE Small Cap index is trading up by 0.5%. Gold prices, per 10 grams, are trading at Rs 29,960 levels. Silver price, per kilogram is trading at Rs 41,111 levels. Crude oil is trading at Rs 3,224 per barrel. The rupee is trading at 66.67 to the US$.

Stocks in the banking space are trading on a positive note with Dena Bank and Allahabad Bank leading the gains. As per a leading financial daily, banks may need an additional Rs 1 trillion in fresh capital over and above their Basel-III requirements if the Reserve Bank of India (RBI) goes ahead with its proposal to create a ceiling on bank borrowing by large corporate.

It was noted that this amount is equivalent to an equity write-down of about 1.7% of the banks' risk weighted assets, and represents the loan haircut that banks may face to revive the financial viability of distressed accounts.

One shall note that the new system seeks to limit single entity borrowing at Rs 250 billion, Rs 150 billion and Rs 100 billion for 2017-18, 2018-19 and 2019-20 onwards respectively. Also, under the proposed norms, banks will be penalised for taking any exposure beyond 50% of the incremental requirements of specified borrowers who have significant aggregate fund-based credit limits sanctioned by banks.

These measures bode well for Indian banks that are exposed to significant concentration risk posed by stressed corporates. It will also aid in solving the issue of bad loans. 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.

Tanushree Banerjee, co-head of research at Equitymaster, has stated how the PSUs have accumulated assets worth billions of rupees in one of the editions of The Equitymaster Research Digest (subscription required).

In separate news from commodities space, crude oil is witnessing buying interest this week. Most of this surge comes as Goldman Sachs, in a recent report, said that the market may have turned into deficit after years of surplus. Gains were also seen as supply outages persisted over the last weekend from Canada's wildfires that shut half the country's oil sands capacity.

Further, the US Energy Information Administration (EIA) recently stated that demand for oil worldwide is set to grow by 2,70,000 barrels per day (bpd) in 2016. The EIA's upward revisions were on the back of demand from China and India.

All of these announcements have aided crude oil prices that for months have been depressed by a global supply glut. Prices plummeted below US$30 per barrel early this year after hitting US$100 in mid-2014.

So now that the prices are recovering, does it makes sense to bet on oil? Are crude oil companies a good long-term investment? Richa Agarwal, Research Analyst, answers these questions in a recent edition of The 5 Minute WrapUp titled 'This Could Be the Biggest Buying Opportunity Out There'.

One shall also note that oil prices witnessed volatility after the summit in Doha among the world's largest oil producing countries turned out to be a complete wash.

All eyes are now on June's meeting of OPEC countries that will decide the fate of crude oil production levels ahead.

To keep a regular tab on the movements in crude oil prices, you can read weekly market commentary from the Daily Profit Hunter team. Their weekly commentary tracks the developments in the global economy as well as equity, currency and commodity markets.