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Positive Start to the Week
Mon, 19 Sep Closing

Indian equity markets continued to hover near the dotted line with positive bias in the afternoon session. At the closing bell, the BSE Sensex stood higher by 35 points, while the NSE Nifty finished up by 29 points. The S&P BSE Mid Cap finished up by 0.6% while, the S&P BSE Small Cap finished up by 0.5%. Gains were largely seen in realty and metal stocks.

Asian markets finished higher today with shares in Hong Kong leading the gains. The Hang Seng is up 0.92% while China's Shanghai Composite is up 0.77% and Japan's Nikkei 225 is up 0.70%. European markets are broadly higher today with shares in France leading the region. The CAC 40 is up 1.40% while London's FTSE 100 is up 1.32% and Germany's DAX is up 0.70%.

The rupee was trading weak at 66.87 against the US$ in the afternoon session. Oil prices were trading at US$ 44.23 at the time of writing.

Oil & Gas stocks finished on a positive note with Petronet LNG and BPCL leading the gains. According to an article in The Financial Express, the overseas subsidiary of ONGC, ONGC Videsh Ltd (OVL) is seeking US$ 537 million worth of crude oil in lieu of cash due for its share of sales from a Venezuelan oilfield.

OVL owns 40% of the San Cristobal field and had invested about US$ 190 million in the project in 2008. State-run Petroleos de Venezuela S.A., or PDVSA, holds the remaining stake. The field currently produces about 28,000 barrels a day, down from a peak of 38,000 barrels a day.

Reportedly, OVL had received its dividend from sale of crude oil produced from the field totaling US$ 56.224 million for 2008. But dividends for 2009 to 2013 totaling US$ 537.631 million remained unpaid due to cash flow difficulties being faced by PDVSA.

During 2015-16, OVL's share of crude oil production was 0.585 million tonnes as compared to 0.645 million tonnes during the previous fiscal. Its share of investment in the project was Rs 26 billion.

Since PDVSA is facing a cash crunch, OVL wants its share of revenue from the field be paid in form of crude oil. Another option was to deduct the outstanding from the money Indian firms like Reliance Industries and Essar Oil pay to import crude oil from Venezuela.

Venezuela is India's fourth largest source of crude oil, supplying some 23.6 million tonnes or 12% of the country's annual import in 2015-16.

OVL, along with Indian Oil Corp (IOC) and Oil India Ltd, also holds 18% stake in Venezuela's Carabobo-1 project, which currently produces about 16,000 bpd of oil and is expected to reach 90,000 bpd by end of 2017.

ONGC finished the day up by 1.1% on the BSE. The stock price of ONGC has surged more than 15% in the last 6 months.

Moving on to news from banking sector. According to a leading financial daily, IFCI will sell its entire stake in Assets and Reconstruction Enterprise Ltd (ACRE) to Axis Bank for Rs 227.2 million. Axis Bank Ltd will buy a 13.67% stake in ACRE. In July, IFCI had sold a 0.5% stake in National Stock Exchange of India Ltd for Rs 890 million.

Meanwhile, In September 2014, Hong Kong-based stressed asset fund SSG Capital Management (Singapore) Pte Ltd had bought a 49% stake in ACRE. The other large shareholder in the ARC is Punjab National Bank (PNB), which owned 15.3% in it.

As per the reports, Life Insurance Corporation (LIC) of India, one of the promoters of Axis Bank, also owns a 2.8% shares in the asset reconstruction company. At the end of March, ACRE had total assets under management of Rs 3.36 billion.

With this investment, Axis Bank has become the second private sector bank to enter the ARC business in recent times. In August, ICICI Bank also said it is looking at opening an ARC with Apollo India Credit Opportunity Management LLC and AION Capital Management Ltd. ACRE helps banks and financial institutions clean up their books through acquisition of non-performing financial assets.

According to an article in The Livemint, stress resolution systems such as ARCs are high in demand owing to the increase in bad debt burden on the Indian banking system. However, a lack of capital has meant that bad loan purchases by ARCs fell to Rs 197 billion in the last fiscal compared to Rs 400 billion a year ago. At the end of June, Indian banks were sitting on Rs 6.3 trillion of bad loans.

Majority of the private banking stocks finished on a firm note Lakshmi Vilas Bank and IDFC Bank leading the gains.

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Jan 17, 2018 (Close)