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Sensex Surges 250 Points; IT, Pharma Stocks Gain Most

Tue, 25 Sep 12:30 pm

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After opening the day in red, share markets in India are trading on a volatile note and are presently trading above the dotted line. Sectoral indices are trading on a mixed note, with stocks in the IT sector and stocks in the pharma sector witnessing maximum buying interest.

The BSE Sensex is trading up by 240 points (up 0.7%) and the NSE Nifty is trading up by 65 points (up 0.7%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading down by 0.5%. The rupee is trading at 72.80 to the US$.

In news from stocks in the financial services sector. In what could be a further deepening of the ongoing debt crisis in Infrastructure Leasing & Financial Services (IL&FS) Group it was reported that a group firm could not service commercial papers.

A Group firm, IL&FS Financial Services (IFIN), said it could not service commercial papers (CPs) that fell due on Monday. IFIN has been having trouble servicing CPs over the past 10 days or so.

It could not service CPs that fell due on September 14; they were settled the next day. Again, on September 18, the company could not service CPs due that day.

CPs, which are issued in the form of a promissory note, are unsecured money market instruments - a low-cost alternative to bank loans.

Earlier this month, it came to light that IL&FS group defaulted on a short-term loan of Rs 10 billion from SIDBI, while a subsidiary has also defaulted Rs 5 billion dues to the development finance institution.

While IL&FS has nearly Rs 350 billion consolidated debt, IL&FS Financial Services has Rs 170 billion of debt, which sits as standard asset for most of the lenders, the reports noted.

The group has seen its various long-term and short-term borrowing programmes downgraded to 'default' or 'junk' grades by credit rating agencies, even as the regulators are also probing alleged delay in disclosure about certain loan defaults.

Shadow Banking in India has outperformed the traditional private and public-sector banks in India in recent times.

Credit growth in non-banking financial companies (NBFCs) has seen robust growth in recent years. From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks.

A major reason for this is the gain in market share from public sector banks (PSBs). The recent NPA woes of the PSBshas seen them tighten up their credit lines.

The NBFCs have stepped in, along with private sector banks, to fill this gap.

Is the NBFC Party in India Coming to an End?

But the recent liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

Such a liquidity crisis will increase lending costs for NBFCs. Once borrowing costs rise for NBFCs, their profitability is bound to take a hit.

One way to counter that would be to raise their lending rates. But then, it would make them less competitive as compared to banks.

In times like these, I believe, NBFCs with strong asset liability management will come out stronger. On the other hand, NBFCs with a low capital base will struggle in the upcoming high interest rate period.

Moving om to news from stocks in the IT sector. Infosys share price is in focus today after the company bagged a major contract.

The company's public services arm announced that it has been awarded a CAD 80.3 million approx Rs 4.5 billion contract by Public Services and Procurement Canada (PSPC) to modernise and automate their procurement processes.

Infosys Public Services Inc (IPS) is working with Ernst & Young LLP (EY) and SAP Canada Inc (SAP) to digitise PSPC procurement system through the implementation and management of a cloud-based electronic procurement solution, the homegrown IT firm said in a statement.

The new solution will provide an intuitive, web-based portal for PSPC and its suppliers to access procurement information and services in both English and French, it added.

The new platform will enable PSPC to purchase various goods and services through a single portal, configure specific requirements, and access data, reporting and analytics information in real-time to support more effective decision-making.

At the time of writing, was trading up by 2%.

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