Indian Indices Open Flat; Pharma Stocks Gain

Wed, 26 Sep 09:30 am

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Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.5% while the Hang Seng is up 1%. The Shanghai Composite is trading up by 1%.

Back home, India share markets opened flat. The BSE Sensex is trading up by 20 points while the NSE Nifty is trading up by 11 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.5% & 0.4% respectively.

Healthcare stocks, capital goods stocks and energy stocks, have opened the day in green, while FMCG stocks and IT Stocks witnessing maximum selling pressure.

The rupee is trading at Rs 72.64 against the US$.

In news from stocks in the banking sector. Yes Bank share price is in focus today after the company's board said that it would ask the Reserve Bank of India (RBI) to grant an extension of eight months to managing director (MD) and chief executive Rana Kapoor.

The board will first seek an extension for Kapoor till 30 April for finalization of financial statements for the year to 31 March, and thereafter a further extension till 30 September for completing the annual general meeting process, it said in an exchange filing.

In June, Kapoor had sought a three-year extension till 31 August 2021, but the regulator had agreed to extend his tenure only till 31 January 2019.

The board in its meeting on Tuesday also decided to set up a search committee to identify a successor to Kapoor. The committee will include three existing nomination and remuneration committee board members, along with two external experts.

Yes Bank share price has been in focus since last week and opened the day up by 1.6%.

On Friday, 21 Sep 2018, the markets witnessed a flash crash in the afternoon when the Sensex suddenly crashed 1,100 points, before recovering some of the losses.

Yes Bank, one of the constituents of the Sensex, crashed 28.7% after the Reserve Bank of India cut CEO Rana Kapoor's tenure to just four months. He has to step down from the post by 31 January 2019.

Several brokerages that had a 'buy' view on the stock were quick to downgrade the stock after the crash.

Co-Head of Research at Equitymaster, Tanushree Banerjee, on the other hand, had been concerned about the quality of lending and management's approach in provisioning for non-performing assets. As such, she stayed away from joining the pack that was cheering the company's loan book growth. After Friday's crash, she views the situation differently and has published her latest view on Yes Bank.

But as you know, Yes Bank was not the only one at the heart of Friday's market panic.

The elephant in the room was the NBFC (non-banking financial companies) sector.

Housing Finance Stocks Take a Beating

Several NBFC stocks came crashing down on Friday, Dewan Housing Finance Corporation Ltd being the leader of the pack. Nearly Rs 8,129 crore worth of the company's market cap got wiped out in a single session.

Housing finance companies came under sudden heavy selling pressure as interest rates on their debt spiked. As I mentioned earlier, one of the reasons for this sell-off was linked to the recent financial stress in the key Indian shadow bank Infrastructure Leasing & Financial Services (IL&FS) Group.

Recently, IL&FS and its subsidiaries were downgraded directly from the highest credit rating "AAA" to "Junk". This has led to nervousness about the credit profile of other private issuers, especially NBFCs. Many investors are now rushing to sell debt securities of various housing finance companies which are heavily dependent on debt refinancing.

It must be noted that IL&FS has missed payment on more than five of its obligations since August 2018. It has total debt of US$ 12.6 billion, of which 61% is in the form of loans from banks and other financial systems.

According to Moody's Investor Services, IL&FS's outstanding debentures and commercial paper accounted for 1% and 2%, respectively, of India's domestic corporate debt market as of 31 March 2018. Its bank loans made up about 0.5% to 0.7% of banking system loans.

There are concerns that the defaults by IL&FS could cause a contagion in the Indian financial sector.

Moving on to news about the economy. According to data published by the Comptroller General of Accounts (CGA), India's budgetary fiscal deficit for April-August at Rs 5.91 trillion accounted for 94.7% of the full year's target of Rs 6.24 trillion.

Till August this year, the government's total expenditure stood at Rs 10.70 trillion (43.85 per cent of the budget estimates) while the total receipts were Rs 0.0479 billion (26.38 per cent of the budget estimates).

Notably, fiscal deficit during the corresponding five months of the previous financial year was 96.1%.

The government missed its fiscal deficit target for FY18 by 30 basis points. Against a target of 3.2%, the government managed to keep fiscal deficit at 3.5% in FY18. It has also outlined the projected fiscal deficit target of 3.3% in FY19 in its budget.

Maintaining this deficit target in FY19 won't be easy. Fiscal deficit basically means the amount a government earns minus the amount it has to spend. The lesser the fiscal deficit, the better the government has performed.

In the past, the government has relied on reducing expenditure to keep the fiscal deficit in check.

For this year, the government is banking on earning much more than it has in the past. It expects a major portion of the revenue to be collected through GST tax collections. Also, the recent rise in crude oil prices has cast a doubt over how much the government will be to curb its spending.

The dual pressure of increasing expenditure and lower inflows makes this FY19 deficit target an uphill challenge.

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