Sensex Opens 100 Points Higher; HCL Technologies & Hero MotoCorp Top Gainers

Thu, 8 Aug 09:30 am

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Asian share markets are higher today as Chinese and Hong Kong shares gain. The Nikkei 225 is up 0.5% while the Hang Seng is up 0.8%. The Shanghai Composite is trading higher by 0.9%.

US markets fell on Wednesday as investors rushed into the safety of US government bonds, fearing that the US-China trade war will inflict broad damage on the global economy.

Back home, India share markets have opened the day on a positive note. The BSE Sensex is trading up by 132 points while the NSE Nifty is trading up by 27 points. The BSE Mid Cap index and the BSE Small Cap index have opened the day on a flat note.

Sectoral indices opened on a mixed note with stocks in the telecom sector, auto sector, and IT sector witnessing buying interest, while metal stocks have opened in red.

The rupee is trading at Rs 70.75 against the US$.

In news from the finance sector, the Reserve Bank of India (RBI) has allowed banks' lending to non-banking financial companies (NBFCs) for on-lending to agriculture, micro and small enterprises, and housing to be classified as priority sector lending, up to specified limits.

The RBI raised any bank's exposure limit to a single NBFC from the existing 15% to 20% of tier-1 capital. The idea is to ease liquidity pressure in NBFCs.

Banks' lending to NBFCs for on-lending to agriculture up to Rs 1 million per borrower will be treated as priority sector lending.

The apex bank said that this has been done to increase the credit flow to certain sectors which contribute significantly to economic growth in terms of export and employment, and recognizing the role played by NBFCs in providing credit to these.

On NBFCs' access to liquidity, RBI governor Shaktikanta Das said, "there are NBFCs with strong balance sheets which are able to access the market. Some NBFCs are stressed because of various factors and credit flow has not happened for them. But, then again, it is for banks to make their risk assessment and take the call."

Note that after the IL&FS default last year, many large NBFCs have been struggling to get funds to even repay existing liabilities. To preserve liquidity, they have cut on disbursement.

Speaking of non-banking financial companies (NBFCs), note that NBFCs were flush with funds from banks, insurance companies, and asset management companies i.e. mutual funds in 2016.

And with these funds and without the necessary restrictions, NBFCs become reckless in deploying the funds.

You can see this clear as day in the chart below...

One Chart that Predicted the NBFC and Mutual Fund Crisis Back in 2016

Here's what Tanushree Banerjee wrote about this in today's edition of The 5 Minute WrapUp...

• Let's look back at 2016...
  
  Banks, mutual funds, and insurance companies were competing with each other to lend to NBFCs.
  
  And why not?
  
  Not only were the fast growing NBFCs hungry for funds, they also offered attractive yields.
  
  The NBFCs took more risk than banks by lending without collaterals. But they charged higher interest rates; which meant their margins remained far higher than that of banks.
  
  It's no wonder the NBFCs caught everyone's fancy. In fact, between 2013 and 2016, the top NBFCs saw their valuation multiples move up three to eight times.

As per Tanushree, the problem in the NBFC sector is far from over. But she believes the good quality NBFCs, and housing finance companies will continue to flourish and you can make the most of the opportunity by buying the safest NBFCs.

Moving on to news from the IT sector, HCL Technologies posted double-digit revenue growth numbers in the June quarter, though its profit and margin came below market estimates.

The IT services company also maintained its revenue guidance of 14%-16% in constant currency term and margin guidance of 18.5%-19.5% for this financial year, as it expects revenues flow from the IBM IP (intellectual property) deal from second quarter onwards.

The company posted 8.2% decline in its net profit at Rs 22.3 billion on a year-on-year (YoY) basis. Sequentially, it fell 12.5%. The decline in net profit was attributed to increased cost due to hiring more people in client geographies apart from sales investment towards IBM IP deal.

Revenues rose by 18.4% YoY at Rs 164.3 billion, while revenues grew 2.7% sequentially. Similarly, the revenue growth in constant currency term was 17% YoY.

With 17% constant currency revenue growth, the company reported the highest growth as compared to its larger peers. TCS' revenues grew 10.6% YoY on constant currency term in Q1FY20, while Infosys posted 12.4% growth during last quarter.

The company added 5,935 staff on net basis in Q1 to take its total head count to 143,900 at the end of the June quarter. Its attrition also fell 40 basis points to 17.3% during this period.

HCL Technologies share price has opened the day up by 3.9%.

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