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Of IDBI Bank-LIC Deal, NPA Accounts, and Top Stocks in Focus Today
Wed, 29 Aug Pre-Open | Monish Vora, TM Team

Indian share markets ended at fresh record high levels on Tuesday. Gains were largely seen in the metal sector and power sector.

At the closing bell yesterday, the BSE Sensex stood higher by 202 points (up 0.5%) and the NSE Nifty closed higher by 47 points (up 0.4%). The BSE Mid Cap index ended down by 0.4%, while the BSE Small Cap index ended up by 0.4%.

Top Stocks in Focus Today

From stocks in the FMCG space, market participants will be tracking Nestle India share price as the company's Swiss parent struck a deal to market the products of US coffee giant Starbucks around the world, outside of its cafes. The agreement gives Nestle perpetual rights to sell Starbucks products such as Starbucks, Seattle's Best Coffee and Teavana outside of the U.S. company's coffee shops, and will result in about 500 Starbucks employees shifting to Nestle.

Ruchi Soya share price will also be in focus today as the company's promoters yesterday sold around 1.06 crore shares or 3.18% stake through open market transactions.

From the pharma space, Lupin share price will be in focus today as the company announced it has received final approval for its Gabapentin Tablets USP, 600 mg and 800 mg from the United States Food and Drug Administration (USFDA) to market a generic version of Pfizer Inc.'s Neurontin Tablets, 600 mg and 800 mg.

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From the IPO Space...

In the news from the IPO space, Studds Accessories Ltd - the manufacturer of helmets and two-wheeler accessories - has filed draft papers with capital markets regulator to float an initial share-sale.

The initial public offer (IPO) comprises of fresh issuance of shares worth Rs 980 million besides an offer for sale of 3.9 million equity shares by promoters Madhu Bhushan Khurana and Sidhartha Bhushan Khurana, and other existing shareholders.

As per the draft papers, the proceeds of the issue will be used to part-finance the motorcycle helmet and accessories as well as bicycle helmet manufacturing facilities in Faridabad and for general corporate purposes.

Speaking of IPOs, the stock market is gearing up for a burst of IPO activity.

This begs the question: How should one go about investing in IPOs?

We believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.

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Of IDBI Bank-LIC Deal...

From the banking space, IDBI Bank share price will also be in focus today. This comes as Life Insurance Corporation of India (LIC) will purchase 14.9% equity stake in IDBI Bank Ltd as a first step towards taking majority ownership in the lender.

IDBI Bank will approach its shareholders for an approval on the above deal on August 31.

The above development comes as earlier this month, the Union Cabinet and the Insurance Regulatory and Development Authority of India (IRDAI) permitted LIC's proposed plan to acquire up to 51% stake in state-owned IDBI Bank.

However, for LIC to increase stake in the bank beyond 15%, approvals are needed from the insurance regulator. Also, the Reserve Bank of India's approval is needed for the transfer of majority ownership to LIC. Since these approvals are yet to come through, it was decided that LIC can first proceed with picking up to 15% in the state-owned lender.

Speaking of the above deal, this attempt by LIC to bail out the troubled IDBI Bank is a classic case of the state insurer buying toxic assets.

In fact, LIC has been acting like the government's ATM for years. It has bailed out public issues of scores of PSUs.

As Tanushree Banerjee wrote in one of the editions of The 5 Minute WrapUp...

  • Given the high stakes that LIC owns in the most troubled banks, the government needn't even consider the proposal of setting up a 'Bad Bank'. It could just turn LIC into one. At least then the investors owning investments in LIC policies, would know the real risk they carry.

How the above deal completely pans out remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

Banks to Refer NPA Accounts to Bankruptcy Courts

From the banking sector, as per a leading financial daily, banks have decided to refer over 20 of 32 non-performing asset (NPA) accounts to bankruptcy courts as the Reserve Bank of India's (RBI) deadline for resolution of stressed assets ended yesterday.

On 12 February, RBI had set a 180-day timeline starting 1 March for resolving large corporate loan defaults, failing which banks have to refer these cases for insolvency proceedings.

Among the 20 new accounts that will be referred to the National Company Law Tribunal (NCLT), a majority-including Essar Power, Korba West Power Co. Ltd, Jindal India Thermal Ltd and Sravant Energy Pvt. Ltd-are power projects.

The list also has metal companies, including BMM Ispat Ltd, ISMT Ltd, BRG Iron and Steel and Splendid Metal Products Ltd. Reliance Naval is also among the companies that will be referred to bankruptcy courts

The central bank, through its 12 February circular, asked banks to craft resolution plans for defaulted accounts within 180 days in cases where the exposure is more than Rs 20 billion.

Last year, lenders referred a total of 40 large corporate accounts worth Rs 3.5 trillion to NCLT for initiating insolvency proceedings.

The RBI's strict policies seem to be having a positive impact in the resolution of the long-drawn NPA crisis.

We believe, this can be a big boon for the banking sector and the Indian economy. This will not only help banks recover bad loans to an extent but also help bring back credit growth.

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