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Sensex & Nifty at Record High; Technical Glitch at NSE in Early Trade
Mon, 10 Jul 09:30 am

Asian equity markets are mixed today. The Nikkei 225 is up 0.68%, while the Hang Seng is up 0.96%. The Shanghai Composite is trading lower by 0.29%. The US stocks ended higher on US payrolls report that gave investors more confidence in the strength of the US economy.

Meanwhile, share markets in India have opened the day on a strong note. The BSE Sensex is trading higher by 234 points, while the NSE Nifty is trading higher by 27 points. The BSE Mid Cap Index and BSE Small Cap index have opened the day up by 0.3% & 0.4% respectively.

Price quotations for individual stocks listed on the National Stock Exchange (NSE) are not getting updated today and investors aren't able place trades due to some technical glitch. Wide discrepancy was found in stocks prices of almost all companies.

All sectoral indices have opened the day in the green with information technology stocks and automobile stocks leading the pack of gainers. The rupee is trading at 64.78 to the US$.

Sun Pharma share price surged 2.7% after it was reported that Sun Pharma and one of its wholly-owned subsidiaries have entered into settlements with certain plaintiffs in Modafinil Antitrust Litigation matter currently pending in the United States District Court for the Eastern District of Pennsylvania.

The settlements extend to all claims brought by Apotex Corporation and the Retailer Purchaser Plaintiffs.

Biocon share price fell over 5.4% after the company's biosimilars programme for Europe hit a roadblock with the French health regulator finding lapses in the quality compliance at its Bengaluru plant during a March inspection.

Bharti Airtel share price gained 4% on the reports of the merger of Bharti Airtel with Tata Teleservices, Tata Communications, and Tata Sky. Tata Group has long been seeking a way to reconfigure its capital structure and relieve the pressure of its debt, and they may have found a way to do it with the help of the rival Bharti Enterprises group, the reports noted.

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Meanwhile, bank stocks opened the day on a mixed note with Andhra Bank and UCO Bank leading the gains. As per the Reserve Bank of India's (RBI) June Financial Stability Report, the risks to the banking industry's stability have worsened.

As per the report, banking system's gross bad-loan ratio will rise to 10.2% of the total loan book in March 2018 from 9.6% in March 2017. The ratio may even jump to 11.2%.

Moreover, for public sector banks, the gross bad loan ratio could be as much as 14.2% by March 2018, from 11.4%.

The capital adequacy ratio of six banks is likely to fall below 9% in a severe macro stress scenario, pulling down the industry's capital adequacy ratio from 13.3% in March 2017 to 11.2% in March 2018.

RBI's worry for capital is more than justified if one looks at the quantum of net NPAs as a percentage of the banks' net worth or capital and reserves. Overall, for public sector banks, it was 18% in 2012. Since then, it has risen to 76%.

However, as a shareholder in banks, if the NPA number does not worry you, here is something that should. The sector's average Return on Equity (RoE) has crashed from 10.4% in FY15 to just 3.6% in FY16.

Continuous Deterioration in Banks' Return on Equity

All thanks to the profits written off on account of NPA provisions. 70% of them in the books of public sector banks. More importantly, the drag in the ROE is likely to persist in FY17 too. So, shareholders of public sector banks have a reason to re-think the margin of safety required to invest in such stocks.

In another development, the IDFC group and Shriram group have entered into an exclusive and 'standstill' agreement to evaluate the possibility of merging the two entities.

As per the deal, Shriram City Union Finance (SCUF) - a non-banking finance company with assets under management of Rs 23,000 - will be merged into IDFC Bank while the other entities will come under IDFC Ltd., the holding company of the bank.

The merged entity may be named IDFC-Shriram Bank. Shriram Transport Finance, the flagship of the Shriram group which manages assets worth Rs 800 billion, will continue as a standalone NBFC under IDFC Ltd.

Further, Shriram Transport, with a market cap of Rs 250 billion, will be de-listed if the deal goes through. The idea is to create a mass retail financial conglomerate.

Moving on to the news from the IPO space. After a stellar response to the issue, AU Small Finance Bank is all set to make a debut on exchanges today. The issue price is fixed at the higher end of the price band of Rs 355-358.

The IPO of AU Small Finance Bank was oversubscribed 53.6 times during 28-30 June and raised Rs 19.12 billion.

The category reserved for qualified institutional buyers (QIBs) was oversubscribed 78.77 times, while the portions reserved for non-institutional investors and retail investors were oversubscribed 143.51 times and 3.52 times, respectively.

AU Small Finance Bank received a licence from the Reserve Bank of India (RBI) to set up a small finance bank in December 2016 and commenced operations from April 2017.

Here's our view on the AU Small Finance Bank Ltd IPO (subscription required).

Speaking of IPO space, we don't need thousands of IPOs to get rich. That's not how super investors make their fortunes. But a few good IPOs could certainly become the multibaggers in your portfolio in a few years.

We, at Equitymaster, have always recommended IPOs cautiously. Here's Rahul Shah, co-head of research at Equitymaster, explaining our rationale behind the approach:

  • 'We know what a dirty game the IPO business is. We've seen it over and over again: It's a game where the odds are stacked against investors. So for us, the equation is simple. We'd rather face criticism in the short run than see our subscribers lose money over the longer term. We weren't afraid to do this during the hot IPO days of 2007, and we're not afraid to do it today.'

The Bottomline: You need to evaluate each IPO on its merits by considering its fundamentals, and most importantly, the valuations. And this is particularly important when the hype surrounding IPOs is at its peak.

We have reviewed each of them and have released their recommendation notes. You can check the same on their IPO page.

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