Of Mounting Losses at PNB, Dip in Investments for P-Notes, and Top Cues in Focus Today

Thu, 17 May Pre-Open

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Share markets in India closed on a negative note yesterday. Sectoral indices ended mixed, with stocks in the realty sector and stocks in the FMCG sector leading the gains, while stocks in the oil and gas sector losing the most.

At the closing bell yesterday, the BSE Sensex stood lower by 156 points (down 0.4%) and the NSE Nifty closed down by 61 points (down 0.6%). The BSE Mid Cap index was down 0.3%, while the BSE Small Cap index was up by 0.1%.

Top Stocks in Focus Today

From the FMCG space, ITC share price will also be in focus today as the company yesterday posted a 9.9% YoY rise in profit for the quarter ended March 2018.

Hindalco share price will also be in focus today as the company reported a 25% YoY drop in its net profits for the quarter ended March 2018.

From stocks in the pharma sector, Glenmark Pharma share price will be in focus today as the company launched an asthma drug in Denmark. The pharma major launched a generic version of Seretide Accuhaler, used to treat asthma, in Denmark.

P-Notes Investments Dip to Nearly 9-Year Low

As per an article in the Economic Times, the total investment via participatory notes (P-notes) into Indian capital markets plunged to nearly 9-year low of Rs 1 lakh crore in April.

The dip was seen amid stringent norms put in place by the stock market regulator to check misuse of these instruments.

P-Notes are derivative instruments issued by registered foreign portfolio investors (FPIs). They are issued to overseas investors to enable them to trade in Indian stocks without having to register with the regulator themselves. However, the overseas investors need to go through a proper due diligence process.

PNB Reports Rs 134 Billion Net Loss in Q4FY18

In the news from the banking sector, Punjab National Bank (PNB) share price will be in focus today. The stock of the company witnessed selling pressure yesterday as the state-run lender reported loss of Rs 134 billion for the quarter ended March 2018. This was the biggest loss ever reported by any domestic lender.

Losses at the bottomline level were seen on the back of bank's surging bad loans. With regards to provision made for the loss incurred on account of Nirav Modi fraud case, the bank said it provided for Rs 71.8 billion in the fourth quarter. This is 50% of the total amount of Rs 143 billion and the remaining amount will be covered in the three quarters of the current fiscal year.

Note that the massive fraud at Punjab National Bank in conjunction with the diamond merchant Nirav Modi, has put the spotlight on the growing bad loan problems in Indian banks.

It has brought to the fore the painful issue of willful defaulters especially after the Vijay Mallya fiasco.

Unsurprisingly, Punjab National Bank tops the list of banks with the highest number of willful defaulters.

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.

All Eyes on Governor Vajubhai Vala Post Karnataka Elections

As the Congress and allies chipped away at the BJP seats in Karnataka elections yesterday, all eyes are now on Governor Vajubhai Vala.

The Governor will have to decide whether to call BJP to try to form the government or go with the JD(S)-Congress combine, which together have a clear majority in the 224-member Assembly.

There are high stakes involved as the final outcome will have a bearing on the stock markets too.

As Ankit writes in one his editions of Equitymaster Insider (requires subscription)...

• Dalal Street logic says BJP win will give a boost to the Indian stock markets. BJP's loss would spell bearishness.
  
  And now that the next general elections are just a year away, politics will remain a focal point of discussion in the context of the stock markets.
  
  Remember that the stock markets like Mr Modi. And currently, they're pricing in a Modi victory in 2019. If this premise starts developing cracks, it may weigh negatively on your stock portfolio.

How the above decision pans out remain to be seen. Meanwhile, we'll keep a close watch on the developments in this space and keep you updated. Stay tuned.

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

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