Sensex Closes Weak; Consumer Durables & Oil & Gas Stocks Fall

Wed, 28 Jun Closing

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Indian share markets continued to witness profit booking in the afternoon session amid weak global cues. At the closing bell, the BSE Sensex stood lower by 124 points, while the NSE Nifty finished down by 20 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 0.2% and 0.1% respectively. Losses were largely seen in consumer durables stocks, FMCG stocks, and oil & gas stocks.

Asian stock markets finished lower today with shares in Hong Kong leading the region. The Hang Seng is down 0.61% while China's Shanghai Composite is off 0.56% and Japan's Nikkei 225 is lower by 0.47%. European markets are mixed to lower. Shares in France are off as the CAC 40 drops 0.50%. The DAX is down 0.47% while the FTSE 100 in London is unchanged.

The rupee was trading at Rs 64.52 against the US$ in the afternoon session. Oil prices were trading at US$ 44.12 at the time of writing.

In news from economic sector, just few days before the implementation of GST, Finance Minister Arun Jaitley has said that people may have to face some difficulty initially during the Goods and Services Tax (GST) is rolled out, but in the long run the new indirect tax regime would help cut tax evasion and check price rise. He also said that the GST Council will look at bringing real estate within the GST net by next year and revisit taxing of petroleum products under the new regime in 1-2 years.

He added that while negotiating with the states on GST there were some tough issues like petroleum and potable alcohol on which states were unwilling to leave their taxation powers. He said "If we insisted on that, then the deal would have been broken. The Constitution amendment provides that petroleum products can be taxed under GST as and when GST Council decides. And once GST is implemented, in 1-2 years once again the Council will get opportunity to revisit it."

Finance Minister said that he was in favour of a proposal to bring real estate under GST, but few other states were not in favour. GST will be launched on July 1 and will subsume a host of indirect levies like excise, service tax and VAT. Products like kerosene, naphtha and LPG will be under GST but five items including crude oil, diesel, and petrol have been excluded.

Airlines Stocks continued to surge as InterGlobe Aviation share price and Spicejet Ltd share price finished the day up by 3.7% and 5.4% respectively.

India's aviation industry is on a high-growth trajectory. India's domestic air passenger traffic has almost doubled in the past six years. This is on the back of strong economic growth and emergence of low-fare airlines. Indian carriers have now set their sights on International traffic. Indian carriers have been slowly increasing their market share. It is important to note that foreign carriers still dominate international traffic to and from India.

Domestic Airlines Fly High in Foreign Skies

As per the report by rating agency ICRA, the share of domestic airlines in India's international traffic increased from 30.1% in FY14 to 35.1% in FY17. In the coming years, this share is expected to increase as the government replaced the 5/20 rule with 0/20 rule. The 5/20 rule mandates that airlines need to fly at least 5 years domestically and should possess 20 aircraft. The new 0/20 rule does away with the five-year requirement, but carriers will still need to demonstrate a fleet of 20 aircraft.

It is important to note that certain industries have relatively dull economics compared to others. And investors would do well to keep this in mind, particularly in the case of aviation. Investors need to understand the industry dynamics before buying up aviation stocks.

Moving on to news from bank stocks. ICICI bank share price finished the trading day on an encouraging note (up 1%) after it was reported that the bank has received an approval and allotted 21,470 senior unsecured redeemable long-term bonds in the nature of debentures aggregating Rs 21.47 billion on private placement basis.

The notes were issued in two tranches - Rs 4 billion maturing in 7 years at a coupon of 7.42% payable annually and Rs 17.47 billion maturing in 10 years at a coupon of 7.47% payable annually. The notes were issued at par.

The bonds would be listed in the Wholesale Debt Market segment of BSE and/or National Stock Exchange of India. The bonds are rated CARE AAA/Stable by Credit Analysis & Research and AAA/Stable by ICRA.

Meanwhile, the Government of India is looking to reduce its stake in two state-owned banks namely Andhra Bank and Dena Bank through share sale in a move to support their capital requirement.

Both Andhra Bank and Dena Bank are seeking merchant bankers for managing fund raising proposals through sale of shares.

Dena Bank is planning to raise up to Rs 18 billion through a qualified institutional placement (QIP). The bank may raise the capital within a period of one year upon getting shareholders' approval.

Dena Bank stated that this will be done in such manner that the Central Government shall at all times hold not less than 52% of the paid-up equity share capital of the bank.

Presently, government holds 68.55% stake in Dena Bank and 61.3% stake in Andhra Bank as on March 2017. The indicative allocation of capital is expected to Rs 11 billion for Andhra Bank.

Both the banks' gross NPAs have risen on year-on-year basis in the financial year 2016-17 (FY17). Gross NPAs of gross advances stood at 16.7% (Rs 126.18 billion) and 12.25% (Rs 176.69 billion) for Dena Bank and Andhra Bank as on March 2017 compared to 9.98% (Rs 85.60 billion) and 8.39%(Rs 114.43 billion) as on March 2016.

Andhra Bank share price finished up by 0.8% while Dena Bank share price finished the trading day down by 0.7% on the BSE.

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