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Sensex Opens Over 600 Points Higher; Banking Stocks Surge

Mon, 8 Jun 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.3% while the Hang Seng is up 0.7%. The Nikkei 225 is trading up by 0.9%.

Wall Street surged on Friday after a strikingly upbeat May jobs report unexpectedly provided the clearest evidence yet that the US economy is headed for a quicker-than-anticipated recovery.

Back home, Indian stock markets opened higher.

The BSE Sensex is trading up by 622 points. The NSE Nifty is trading higher by 181 points.

Meanwhile, the BSE Mid Cap index has opened up by 1.2%.

BSE Small Cap index is trading higher by 1.7%.

All sectoral indices are trading in the green. BSE Bankex is witnessing maximum buying interest with 2.7% gains, followed by BSE Realty with 2.6% gains.

Moving on, gold prices are currently trading down by 2.1% at Rs 45,698.

The rupee is currently trading at 75.58 against the US$.

Reliance Industries shares are in focus today after the company on Sunday announced that the Abu Dhabi Investment Authority will buy 1.2% of its digital unit Jio Platforms for Rs 56.8 billion through a wholly owned subsidiary.

Reliance Industries stated that the investment will be made at an equity value of Rs 4.9 trillion and an enterprise value of Rs 5.2 trillion.

With this investment, Jio Platforms has raised Rs 978.9 billion from leading global investors including Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala and ADIA in less than seven weeks.

In the news from pharma sector.

Aurobindo Pharma share price is trading higher today after it reported a 45.2% YoY rise in net profit of fourth quarter of FY20.

The company's consolidated net profit after JV share and minority interest was up by 45.2% to Rs 8.5 billion for the quarter ended 31 March 2020.

The consolidated revenue from operations grew by 16.4% YoY.

For the full year FY20, revenue from operations was at Rs 231 billion, witnessing a growth of 18.1% over FY19.

Diversified product basket has helped the company to maintain the growth momentum in core geographies like the USA and Europe.

The company remained focused on strengthening its existing businesses, developing a differentiated and specialty product basket and regulatory compliance.

In another development, AstraZeneca Plc has made a preliminary approach to rival Gilead Sciences Inc. about a potential merger, in what would be the biggest health-care deal on record.

Reportedly, the firm informally contacted Gilead last month to gauge its interest in a possible tie-up.

AstraZeneca Pharma opened up by 8.4%.

Moving on to the news from banking sector.

SBI share price surged 4.7% in the opening session today. About 21.8% of SBI's retail borrowers have availed the three-month moratorium on repayments, from March to May, offered by the bank and India's largest bank expects the number to improve for the next three-month period.

The Reserve Bank had initially allowed banks to offer moratorium on repayment of term loans till May 31 but later extended it for another three months (till August) amid the coronavirus pandemic.

Reportedly, nearly 82% of retail borrowers have paid two or more instalments and about 92% have paid one or more instalments during March to May.

Meanwhile, SBI on Friday registered its highest ever yearly profit in FY20 of Rs 144.9 billion.

On a quarterly basis, the bank posted a four-fold rise in March quarter profit at Rs 35.8 billion boosted by a one-time gain of Rs 27.3 billion on sale of some stake in SBI Cards and Payment Services in March quarter.

Speaking of the banking sector, note that the Bank Nifty index was underperforming the benchmark index Nifty after they hit their lows in March.

There were several reasons behind its underperformance - a rising NPA risk, lack of credit growth, and overcautious nature of banks in lending.

However, it is interesting to note that these problems haven't gone away, but banks have still managed to outperform Nifty in the last two weeks, as can be seen in the chart below:

As per Apurva Sheth, lead chartist at Equitymaster, the reason why banks are outperforming over the last two weeks is because of price action.

Here's what he wrote about it in today's edition of Profit Hunter...

• The price action of Bank Nifty when compared to Nifty suggested that banks are beaten down sharply.
  
  Bank Nifty to Nifty ratio had reached an extreme. The ratio had dropped way below its average and reversion to the mean was due.
  
  The ratio is still far below its average and Bank Nifty will attempt to claw back. Obviously, this won't happen in a hurry or in a straight line. There will be lot of zig-zag moves which will create opportunities for smart traders.
  
  To know how you can make the most of such opportunities, I recommend you read this piece.

Meanwhile, I recently reached out to Tanushree Banerjee, who is closely tracking the banking sector in the current scenario. Here's her view on the sector...

• The Covid-19 lockdown has hit cash flows of both individual borrowers and corporates. This, in turn, will impact their loan repayment capability.
  
  The RBI's repo rate cut came as a temporary lifeline for Indian companies with debt on books. It will offer both companies and retail borrowers some breather. If banks use this phase judiciously, it may save the NPA ratios from worsening significantly.
  
  However, only the banks that have adequate capital and provisioning cushion may be able to tide over the economic crisis. Eventually, another round of consolidation in private sector banks, like the one after 2002, cannot be ruled out.

Tanushree's latest StockSelect recommendation is one such midcap bank.

You can read the entire report here (requires subscription).

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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