Indian Indices Trade Marginally Lower; Metal Stocks Witness Selling

Wed, 14 Jun 11:30 am

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Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the metal sector and FMCG sector witnessing maximum selling pressure. Energy stocks are trading in the green.

The BSE Sensex is trading down 45 points (down 0.1%) and the NSE Nifty is trading down by 22 points (down 0.2%). The BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 64.33 to the US$.

Tejas Networks is set to hit the IPO markets today.

Tejas Networks is an optical and data networking products firm with customers spread over 60 nations. The company designs, develops and sells software enabled networking equipment products to telecommunications service providers, internet service providers, utility companies, defence companies and government entities.

The IPO of the company in will close on June 16, 2017. The price band for the same has been set between Rs 250 and Rs 257 per share and the company plans to issue fresh equity shares worth Rs 4.5 billion and an offer for sale of up to 12,711,605 equity shares.

We will shortly release a note on the above IPO. To know our view on the same, you can visit our IPO page.

One shall note that one of the factors drawing retail investors to Indian share markets is revival of the IPO market.

Given the ongoing buoyancy surrounding IPOs, many expect that fund raising through IPOs would remain robust in FY18.

Now, while all that remains to be seen, the question that should concern you is how to decide whether the IPO is really right for you. If you wish to know what's the smartest way to profit from the 2017 IPO rush, download our latest report How to Get Rich with IPOs.

In the news from global financial markets, investors are keeping tabs on the ongoing US Federal Open Market Committee's (FOMC) rate-setting meeting.

Most of the market participants believe that Governor Janet Yellen is poised to raise interest rates today. If it does so, it would be the third interest rate hike in the past seven months.

While sluggish US economic growth stands as a possible deterrent to the rate hike, Fed officials have clarified they are not worried about the strength of the economy.

One shall also note that most Fed policymakers now think that the central bank should take steps to trim its balance sheet later this year as long as the economic data holds up.

However, trimming the balance sheet would tighten financial conditions.

Normalising the balance sheet could also impact emerging markets.

Since 2008, the Fed's swelling balance sheet has propped up the US economy. And it has aided the rally in emerging markets all these years.

So any change to the Fed's balance sheet will have an immediate impact on emerging stock markets.

Only time will tell how this all pan out. Meanwhile, we'll keep you posted on the latest developments.

For domestic markets, the Fed's decision may bring some concerns for Indian share markets in the short run. However, a crash can be an ideal time to bet on solid Indian companies that are well-shielded from adverse developments in global markets. As these companies can turn into bargain buying opportunities.

In other news, as per an article in the Economic Times, the Reserve Bank of India (RBI) sought to address potentially about a fourth of the Rs 10 lakh-crore non-performing assets (NPAs) on the books of local lenders.

The central bank also mandated that a dozen of such above accounts should be taken to the bankruptcy courts.

While RBI didn't name any defaulter, bankers say borrowers such as Bhushan Steel, Essar Steel, Lanco, and Alok Textiles may be the first set of companies facing proceedings under stringent recovery laws.

The Internal Advisory Committee (IAC) of RBI has noted that under the recommended criterion, 12 accounts totaling about 25% of the current gross NPAs of the banking system would qualify for immediate reference under Insolvency and Bankruptcy Court.

For other bad loans that do not fall in the above category, banks will have six months to come up with a resolution plan, failing which they would also land up in the bankruptcy courts.

Please note that bad loans at state-run banks have grown more than Rs 1 lakh crore since April 2016 to Rs 6 lakh crore as of December 31, 2016. And Indian industries form a huge share of these bad accounts, as can be seen from the chart below:

India Inc in the Centre of the Bad Loan Storm

To tackle the above problem, the Reserve Bank of India is pondering over initiating tough measures against willful defaulters.

Even as RBI takes measure to resolve NPAs, banks need to take their share of blame. In one of our recent editions of The 5 Minute WrapUp, we had highlighted how the banks' return ratios had deteriorated due to their profits written off on account of NPA provisions.

The RBI has done well to focus its attention on the willful defaulters. However, this seems to be a curative measure than a preventive one. For the bad loans problem to be solved, the root cause i.e. the initial lending process of banks needs to be put in order.

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

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