Sensex Down 125 Points; IT Stocks Witness Selling

Tue, 23 Oct 12:30 pm

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Share markets in India are presently trading on a negative note. Most of the sectoral indices are trading in the red with stocks in the IT sector and oil & gas sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 125 points (down 0.4%) and the NSE Nifty is trading down by 60 points (down 0.6%). Meanwhile, the BSE Mid Cap index is trading down by 1%, while the BSE Small Cap index is trading down by 0.9%.

The rupee is trading at 73.73 to the US$.

Market participants are tracking Ambuja Cements share price, HCL Technologies share price, Bajaj Finance share price, HDFC Life share price, ICICI Prudential Life share price, and RBL Bank share price today as these companies are set to announce their quarterly results today.

Small cap stocks are witnessing selling pressure today with the BSE Small Cap index trading down by 0.9% at the time of writing.

Speaking of small cap stocks, let's take a look at how the BSE SmallCap index has performed during the years. Have a look at the chart below:

The Smallcap Index Is Up Merely 1% from Its 2008 Top

On 7 January 2008, at the height of the previous bull run, the Smallcap index hit a high of 13,975. In the market crash that followed, the index hit a low of 2,867 on 9 March 2009. In other words, the Smallcap index tanked a whopping 79%!

Ankit Shah shares an interesting observation around this data. Here's him in a recent edition of The 5 Minute WrapUp...

• From its 2009 low, the BSE SmallCap index has risen 391%, compounding at an annual rate of 18%.
  
  But here's the most telling observation...
  
  From its January 2008 peak to now, the BSE SmallCap index has gained just 0.8%.
  
  If you factor in inflation, the returns are actually negative.
  
  In other words, investors who bought smallcap stocks at market peaks and didn't go bargain hunting in the subsequent crashes didn't make any money.

Moving on to the news from the finance space, as per a leading financial daily, the new board of debt-laden Infrastructure Leasing and Financial Services (IL&FS) will be coming up with a revival plan for the lender that could include selling stakes in some of its businesses.

The revival plan could include selling big stakes in the company's group businesses, including IL&FS Financial Services and IL&FS Energy Development, or even closing them.

Note that this month the government, in a court-led process, replaced IL&FS's board with six industry professionals to tackle the debt crisis at the company which has triggered fears for the stability of India's financial sector.

Note that the complete collapse of IL&FS group will mean a huge default of Rs 910 billion. This is a big mess.

However, the government has taken over and new board is now in place. This is a bit of silver lining to this problem.

But guess what - there are way more cockroaches then initially thought.

As per IL&FS's annual report, there were group companies in the range of 176-251. However, the new board has clarified that there are more than 340 group entities. That means more pain than anyone initially thought.

In fact, the new board believes the actual liabilities could be understated and has appointed the Serious Investigation Office (SFIO) for forensic audit. This will also help to identify if there was any fraud involved.

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

It would be interesting to see how this pans out. Meanwhile, we will keep you updated on all the developments form this space.

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