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After opening the day on a firm note, the Indian stock markets pared early gains and went on to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the auto and realty sectors leading the gains. Consumer durables stocks are trading in the red.
The BSE Sensex is trading up 65 points (up 0.2%) and the NSE Nifty is trading up 13 points (up 0.2%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up 0.6%. The rupee is trading at 66.94 to the US$.
Stocks in the mining space are trading on a positive note with Metals and Minerals Trading Corporation (MMTC) leading the gains and Gujarat NRE Coke leading the losses. Global coal prices, after remaining subdued for several months, are heading north. As per a leading financial daily, coal prices have risen almost 20% or about US$ 10 per tonne on an average since June end this year.
The rise witnessed is attributed to reduced supplies from Indonesia and cut in production at Chinese mines. Reportedly, China has decided to reduce its annual coal production to 3.6 billion tonnes from 4 billion. Further, it has also clamped down on illegal mines and has reduced production due to safety issues at mines. Indonesia, too, has decided to cut its production by some 50 million tonnes (MT) since there was a decline in demand last year. It has also decided to use larger volumes of coal internally.
Notably, China's production cut of 400 million tonnes is almost 80% of Coal India's total production. The above development of reduced coal supplies is expected to help Coal India push its excess coal to companies that have been importing coal so far. The fall in imports would also help government save foreign exchange revenues.
Our latest Hidden Treasure recommendation is also expected to be a beneficiary of rise in coal prices and decline in coal production from Indonesia. To know more about the company and how this development impacts it, please click here.
Moving on to the news from the PSU banking space... As per a leading financial daily, State Bank of India (SBI), which started the process of merging all its subsidiaries with itself, is all set to become a single entity by April next year. The bank has stated that it will submit the proposal to the government in September and expects to start migrating these banks by October. The whole process, it said, will be completed by the end of this fiscal year.
The development depicts the speed at which the administration is moving to revitalise the banking system. The merger, if it pans out as stated above, is likely to be the fastest merger ever.
Regarding this merger, the management of SBI believes it will bring three sources of benefits for the bank. First, the consolidated bank is expected to manage costs better. It is estimated that the cost-to-income ratio of the consolidated bank could reduce by as much as 100 basis points (bps). Secondly, the management believes that a combined treasury could perform better. And third, the lower cost of deposit could boost margins of the consolidated bank.
There is a flipside as well. With the merger, SBI will have to bear one-time pension liability costs. This is because its employees are covered by both pension and provident fund. The management of the bank had forecast this amount to be close to Rs 30 billion. In all, the merger of SBI with its associates has its pros and cons and the actual practicalities of the merger will be clear in the time to come.
The prime question, however, is does it really make sense to merge public sector banks? Vivek Kaul, editor of Vivek Kaul's Diary, has answered this question in one of his articles.
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