Sensex Trades Flat; Metal Sector Witnesses Selling

Wed, 8 Nov 01:30 pm | Prasheel Vartak, TM Team

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After opening the day in green, share markets in India witnessed choppy trades and are currently trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the healthcare sector and stocks in the IT sector leading the gains. Stocks in the metals sector are trading in red.

The BSE Sensex is trading down by 15 points (down 0.1%), and the NSE Nifty is trading down by 17 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.99 to the US$.

In news from stocks in the banking sector. Axis Bank share price is among the top gainers on the bourses, and hit a 52-week high today.

The surge came in after the bank said that its board will meet this week to consider a proposal to raise equity capital from the market at a time when the spotlight is on worsening asset quality.

India's third largest private lender's board plans to meet on 10 November to consider the fundraising proposal. Any fundraising approved by its board would be put to shareholders for a vote.

Last week, various media reports highlighted the bank was looking to raise as much as US$ 1 billion from a group of investors after an increase in bad loans. The reports have named U.S. group Bain Capital, Singapore state investor GIC and Canada Pension Plan Investment Board among potential investors.

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Axis Bank had reported a 36% increase in net profit at Rs. 4.3 billion in the second quarter ended September despite a rise in bad loans. Axis Bank's gross non-performing assets rose to 5.9% in the quarter gone by, from 4.2% a year ago.

In the previous quarter too, the bank witnessed deteriorating asset quality. Axis Bank reported a gross non-performing asset (GNPA) ratio of 5%, a rise of 249 basis points year on year.

Asset Quality Deteriorates Further for Banks

If the trend of rising bad loans continues, there's a painful road ahead for the banking sector. The RBI expects the average GNPA ratio to increase to 10.2% by March 2018. It indicated that if macroeconomic conditions worsen, this number could go up.

Although RBI is showing urgency in tackling the NPA issue, a lot more needs to be done by lenders too to stop the rot.

At the time of writing, Axis Bank share price was trading up by 3%.

Moving on to news from the telecom sector. According to an article in The Economic Times, the Telecom Regulatory Authority of India (TRAI) is considering the removal of the 50% limit on spectrum holdings within a particular band.

The article noted that TRAI is considering reducing the limit to 25%. Currently, government rules bar any company from holding more than 25% spectrum allocated in a service area or circle, and above 50% in a spectrum band. Carriers in India use airwaves in the 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands.

The proposal, if it goes through can prove beneficial for Vodafone and Idea, as they will be able to retain their spectrum post the merger as opposed to them requiring selling off the airwaves under the current rules.

The relaxation will also afford Reliance Jio Infocomm leeway to acquire more airwaves in 850 MHz band of Reliance Communications, which may otherwise breach limits in some circles, they said. The government is also likely to benefit as it should mean more bidders available for a band at the next auction, possibly boosting revenue.

TRAI recently held consultations with carriers on spectrum holding limits after the Department of Telecommunications (DoT) sought the regulator's opinion on the issue.

TRAI is likely to give its recommendations to DoT by the end of the month. It would be interesting to see how the change affect the dynamics of the Indian telecom space which is currently undergoing consolidation.

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