Sensex Trades Marginally Lower; Yes Bank Jumps 8%

Fri, 8 Nov 12:30 pm

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Share markets in India are presently trading on a negative note. Benchmark indices edged lower in early trade today after Moody's Investors Service changed the outlook on the government of India to negative from stable.

Moody's said its decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, leading to a gradual rise in the debt burden from already high levels.

Sectoral indices are trading on a mixed note with stocks in the FMCG sector, power sector, and telecom sector witnessing maximum selling pressure, while realty stocks are trading in green.

The BSE Sensex is trading down by 83 points while the NSE Nifty is trading down by 32 points. The BSE MidCap index and the BSE SmallCap index are trading up by 0.1%.

The rupee is trading at 71.25 against the US$.

In news from the banking sector, an affidavit filed by Citizens Whistle Blower Forum in the Delhi high court has alleged that private sector lender Yes Bank had lent over Rs 20 billion to several companies linked to the Indiabulls Group.

According to documents which were submitted by the NGO, Yes Bank loaned Rs 21.8 billion to eight unlisted companies of the Indiabulls Group which had either negative net worth or had an average equity capital of Rs 10 million each.

These companies include Airmid Aviation Services, Tupelo Constructions, Tupelo Land Development, Paidia Conconnection, Viswamukha Properties, Paidia Softinfo, Keysha Mining and Bobinar Infrastructure.

Reports state that the grant of over Rs 20 billion to companies with so little equity could raise suspicions of lax due diligence by the bank.

However, the Indiabulls Group had repaid all the loans in January, according to the data available on Registrar of Companies (RoC).

A Citizens Forum activist said that, "many of these companies are shell companies with negative net worth, no income from business operations and a huge amount of accumulated losses. Most of these companies have used the loan amount to give loan/advances to other companies or to invest in compulsorily convertible debentures with 0.001% (coupon) of other companies."

A spokesperson for Indiabulls Group said that promoters of Indiabulls have no loans outstanding from Yes Bank and all loans were fully paid back to Yes Bank a few years back, as stated in the company's rejoinder to the Delhi high court and the affidavit.

Yes Bank share price is presently trading up by 5.9%.

Moving on to news from the realty sector, shares of DLF surged 7% today after the company reported a strong set of numbers for the quarter ended September 2019 (Q2FY20).

DLF reported 18% year-on-year (YoY) jump in its consolidated net profit at Rs 4.4 billion on the back of higher revenue. Consolidated revenues increased 26% YoY at Rs 19.4 billion.

Earnings before interest, tax, depreciation and amortization (EBITDA) margins rose at 30% for the development business.

The company's management said that the development business has been performing well and achieved net sales of Rs 7.3 billion in Q2FY20.

The net debt for the company stood at Rs 44.6 billion, pursuant to the settlement of inter-company payables.

Buying interest was also seen as stock of the real estate developer was included in the MSCI Global Standard Index with effect from November 26, 2019.

Morgan Stanley Capital International (MSCI) last night announced big semi-annual rebalancing in its global standard index.

DLF was among the eight stocks that were included in the MSCI's India Domestic Index. Others to be included were Berger Paints, Colgate, HDFC AMC, ICICI Prudential Life, SBI Life Insurance, and Siemens.

The company also appointed Vivek Anand as group chief financial officer (CFO). Anand was earlier CFO-India subcontinent of GlaxoSmithKline Consumer Healthcare.

DLF share price is presently trading up by 6%.

Speaking of quarterly results and corporate profits, economic growth (GDP) and corporate profit growth hardly go hand in hand.

Over the past few years, the share of corporate profits to GDP has steadily declined.

This is evident in the chart below:

Rebound in Corporate Profits May Not Immediately Reflect in GDP

As per Tanushree Banerjee, the revival of capex cycle may cause corporate profits to soar much faster than the GDP growth. Investors who stay focused on macro numbers may miss this bus.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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