Sensex Sheds Morning Gains to Finish Flat; Energy Stocks Continue to Fall

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Indian share markets erased gains it made earlier in the day on heavy selling in oil & gas stocks, realty stocks, metal stocks and PSU stocks amid weak European cues.

At the closing bell, the BSE Sensex stood higher by 7 points, while the NSE Nifty finished down by 4 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished down by 0.6% respectively. Only banking sector finished in green in today's trade.

Asian stock markets finished lower today with shares in China leading the region. The Shanghai Composite is down 0.28% while Japan's Nikkei 225 is off 0.14% and Hong Kong's Hang Seng is lower by 0.08%. European markets too are lower today with shares in France off the most. The CAC 40 is down 0.57% while London's FTSE 100 is off 0.44% and Germany's DAX is lower by 0.19%.

The rupee was trading at Rs 64.49 against the US$ in the afternoon session. Oil prices were trading at US$ 42.83 at the time of writing.

In news from economic sector, with forecast of normal monsoon, economic think-tank, the National Council of Applied Economic Research (NCAER) in its latest 'quarterly review of the economy' has revised upward the gross domestic product (GDP) growth for the current financial year to 7.6% from 7.3% projected earlier. NCAER also scaled up the country's gross value added (GVA) growth from 7% to 7.3% for the year.

The think tank further projected wholesale price index-based (WPI) inflation at 6.7% for the current fiscal year and kept optimistic prospects for the agricultural sector in 2017-18, owing to normal monsoon forecast. It added that the level of water storage in the country's main reservoirs in 2017-18 is better compared to last year, in fact better than the average storage over the last ten years.

NCAER though stated that while there is ample liquidity in the system and bank lending rates have come down post- demonetisation, bank credit is yet to pick up, as it is being weighed down largely by an excess amount of gross non- performing assets on balance sheets.

India's GDP stood at 7.1% for the fiscal year 2016-17, as compared to 8% in the previous year, while for the Jan-Mar quarter it stood at 6.1% against 7% in the previous quarter of FY17. Gross value added (GVA) for FY17 stood at 6.6% over 7.9% in the previous year, while for the fourth quarter it stood at 5.6% against 6.7% in the previous quarter.

Moving on to news from bank stocks. As per an article in The Economic Times, banks may be forced to write off more than half the loans taken by companies in the debt-smothered steel sector which are facing bankruptcy proceedings.

And in the process, banks will have to take steep haircuts of around 56% of the loans because of the unsustainably high debt of these companies. There are five steel companies in the list of 12 identified by the Reserve Bank of India which faces bankruptcy proceedings.

Reportedly, the five companies Monnet Ispat, Essar Steel, Bhushan Steel, Electrosteel and Bhushan Power & Steel together make up more than Rs 1 trillion of loans.

More significantly, these companies contribute 22 million tonnes or 17% of India's total steel capacity.

The steel sector accounts for 20% to 30% of bank NPAs and the above contribute 50% - 80% of the steel sector NPAs. A resolution in these five can, therefore, result in a 100-200 basis point reduction in gross NPAs.

Bad Loans Inventory Bloats Up

Rising to the menace of bad debts, the Reserve Bank of India is pondering over initiating tough measures against willful defaulters. Gross NPAs have risen at an alarming rate over the past 1 year. While RBI's proactive measure to tighten NPAs is proactive, banks need to take their share of blame. In our recent The 5 Minute WrapUp edition, we had highlighted how the banks return ratios had deteriorated due to its profits written off on account of NPA provisions.

In another development, Axis Bank is planning to raise up to Rs 350 billion in about a year's time in line with its growth projection in domestic as well as overseas operations

In this regard, the country's third largest private sector lender may issue debt securities denominated in Indian rupees or any other permitted foreign currency including long term bonds, green bonds, non-convertible debentures on a private placement basis during the period of one year from the date of passing of the special resolution.

Axis bank share price finished the trading day up by 0.1% on the BSE.

In news from power sector, Tata Power has offered to sell 51% stake in its 4,000 MW Mundra power project for Re 1 to states like Gujarat.

Coastal Gujarat Power Ltd (CGPL), the Tata Power unit which operates the Mundra project, wrote to Gujarat Urja Vikas Nigam Ltd earlier this month offering to retain only 49% stake and operate the project as a contractor provided the procurers buy all the power at higher tariffs.

The Mundra project has outstanding loan of Rs 101.59 billion and lenders have stopped further disbursal due to non-viability of the project.

Tata Power share price finished the day up 0.8%.

Meanwhile, NTPC and Ministry of Power, Government of India have signed Memorandum of Understanding (MoU) for the year 2017-18.

As per the MOU, NTPC has generation target of 250 Billion Units during the year under excellent category. Revenue target from Operations under Excellent category is Rs 792.8 billion.

Furthermore, parameters related to financial performance, operational efficiency, CAPEX, projects monitoring and HR Management are also part of MoU in line with guidelines of Department of Public Enterprises.

NTPC share price finished the day down by 0.7% on the BSE.

As per an article in the Economic Times, China's entry into MSCI index is unlikely to weigh down the Indian equity market due to the lower weights assigned by MSCI to Chinese 'A' shares. According to a Morgan Stanley note, the latest inclusion will reduce India's current weight of 8.9% in MSCI by less than 10 basis points. This means potential outflow from passive funds due to the relocation of weight will be limited to around US$200-300 million (Rs 13-19 billion). The loss can be made up by inclusion of new stocks.

It was earlier feared that the inclusion of China 'A' shares in the MSCI would reduce the weightages of countries like India and Taiwan on the index, resulting in sizeable outflows.

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