Sensex Trades Marginally Higher; Asian Paints & Axis Bank Top Gainers

Wed, 19 Dec 12:30 pm

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Share markets in India are presently trading on a positive note. Barring IT sector, all sectoral indices are trading in green with stocks in the realty sector and finance sector witnessing maximum buying interest.

The BSE Sensex is trading up by 110 points (up 0.3%), while the NSE Nifty is trading up by 49 points (up 0.5%). The BSE Mid Cap index is trading up by 1.5% and the BSE Small Cap index is trading up by 1.1%.

The rupee is trading at Rs 70.17 against the US$.

The domestic currency strengthened in the early trade today following softening crude oil prices which eased concerns over India's current account deficit expansion.

On Tuesday, the rupee climbed 112 paise to register its best single-day gain in over five years.

In the news from the finance sector, shares of finance companies including banks, non-banking financial companies (NBFC), housing finance companies (HFCs) and microfinance institutions are witnessing buying interest today after the Reserve Bank of India (RBI) announced the plan to scale up liquidity infusion via purchase of government bonds.

On Tuesday, the RBI announced bond buyback programme for the current year on expectations to raise bond prices and boost bank treasury profits when lenders need capital.

Shares of Bajaj Finance, DHFL, Indiabulls housing finance, Bajaj Finserv were up by 2% - 5%.

Moving on to the news from the telecom sector, Reliance Communication share price is witnessing selling pressure today after the telecom department told the company and Reliance Jio Infocomm that it can't approve their deal to trade airwaves as it does not conform to its guidelines.

Shares of the company plunged over 12% in early trade today on back of the above news.

As per an article in The Economic Times, the development follows Jio's letter to the department of telecommunications (DoT), written last week on Friday, where it sought assurance from the government that it won't be held liable for RCom's past dues related to airwaves.

This is not in accordance with the government's spectrum trading norms, which stipulate the buyer is liable for dues that haven't been recovered from the seller.

Here's an excerpt from the article:

"The trading rules clearly say DoT can ask both the operators or any one of them to pay the dues. Since Jio has imposed conditions, we cannot accept it (the deal) as it goes against the guidelines," said a senior DoT official.

The news came as a big blow to Anil Ambani owned telecom company's efforts to repay creditors and avoid insolvency proceedings. The deal was supposed to fund the payment of Rs 5.5 billion to Ericsson.

The telecom company has already missed the Supreme Court-mandated December 15 deadline for payment to Ericsson. It now faces the prospect of being dragged back into insolvency proceedings, besides a revival of a contempt of court petition against Anil Ambani.

Earlier, the Supreme Court directed DoT to approve the spectrum trading pact and accept a Rs 14 billion corporate guarantee, instead of a bank guarantee, as well as a parcel of land from a RCom subsidiary to cover the spectrum user charge (SUC) claim of Rs 29.5 billion.

Speaking of telecom sector, the whole telecom business has been an underwhelming story so far. The below chart shows the underperformance of the telecom sector:

Telecom Sector: A Decade of Underperformance

Here's what we wrote about it in one of the editions of The 5 Minute WrapUp...

While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer. The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector. While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

With the entry of Reliance Jio, the competition has intensified further. Reliance Jio's low cost offerings and strategy of capturing market share will further dent the sector. The sector has been a classic 'valuet trap'. While it always looks cheap compared to other sectors, it has failed to provide any reasonable returns. We also believe the situation is unlikely to change in the near future. For an investor, it's important to differentiate between 'value' and 'value traps'.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Indian Share Market Update: Top Gainers and Losers