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Sensex Down 420 Points; IT Stocks Tank
Fri, 19 Oct 12:30 pm | Monish Vora, TM Team

After opening the day in red, share markets in India have traded on a negative note and are presently trading below the dotted line. Sectoral indices are trading mixed with stocks in the IT sector and stocks in the auto sector trading in red. While stocks in the FMCG sector are trading in green.

The BSE Sensex is down by 420 points (down 1.1%) and the NSE Nifty is trading down by 140 points (down 1.3%). Meanwhile, the BSE Mid Cap index is trading down by 1%, while the BSE Small Cap index is trading down by 1.5%. The rupee is trading at 73.49s to the US$.

In news from stocks in the banking sector. Yes Bank share price among the top losers today after the Reserve Bank of India (RBI) denied extension to the CEO Rana Kapoor, and reaffirmed the February 1 deadline for finding his successor.

Earlier the bank's board said that it would ask the RBI to grant an extension of eight months to managing director (MD) and chief executive Rana Kapoor.

The board had sought 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.

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The board has already 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 month and was trading down by 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 over 30% 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 bank's loan book growth. After the 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.

In news from stocks in the IT sector. IT stocks are in focus today after the US administration said that it plans to apply curbs on the H1B visa.

The Trump administration said it is planning to "revise" the definition of employment and specialty occupations under the US H-1B visas by January, a move which will hit Indian IT companies in the US and small and medium-sized contractual firms mostly owned by Indian-Americans.

The H-1B is a non-immigrant visa that allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise.

IT companies depend on these visas to hire tens of thousands of employees each year from countries like India and China.

The Trump administration is reviewing the H-1B visa policy that it thinks is being misused by companies to replace American workers with foreign ones. The administration has also said it wants to revoke work permits to H-4 visa holders, a significant majority of whom are Indian-Americans and women.

The Department of Homeland Security (DHS) said on Wednesday that the US Citizenship and Immigration Services (USCIS) plans to come out with its new proposal by January 2019.

The DHS said it is also proposing to remove from its regulations certain H-4 spouses of H-1B non-immigrants as a class of aliens eligible for employment authorization.

The move to end the rule could have an impact on more than 70,000 H-4 visas holders, who have work permits. Such visas are issued by the USCIS to immediate family members (spouse and children under 21 years) of H-1B visa holders.

At the time of writing, the BSE IT index was trading down 2.7%.

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