Indian Indices Trade Marginally Lower; Auto Stocks Witness Losses

Thu, 21 Dec 11:30 am

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After opening the day marginally higher, share markets in India witnessed volatile trades and are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the auto sector and banking sector witnessing maximum selling pressure. Stocks from the capital goods sector are trading in the green.

The BSE Sensex is trading down 11 points (down 0.03%) and the NSE Nifty is trading down by 2 points (down 0.02%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 64.09 to the US$.

In the news from the banking sector, as per an article in the Economic Times, the finance ministry yesterday said it has not provided the entire amount towards capital infusion in public sector banks as most of them failed to meet the performance target.

The government, as a part of its Indradhanush Plan to revitalise state-owned lenders, had proposed to infuse Rs 700 bn out of Budgetary Allocations in them. However, so far, it has infused Rs 518 bn in public sector banks (PSBs).

Note that the government, in October, also announced the recapitalisation plan to inject Rs 2.11 trillion into public sector banks over a period of two years. This move was mainly aimed at resolving the long standing non-performing assets (NPA) problem of PSBs. It is expected to shore up the capital of state-run banks, spurring them to clean up the bad loan mess and revive lending.

The implementation of this initiative will, however, take some time. As a recent edition of The 5 Minute WrapUp states...

• ...if historical data is anything to go by, implementation of such initiatives take a long time, especially in India. Recovery takes the longest time here as compared to other developed nations. India takes an average of 4.3 years to resolve insolvencies as compared to one year in the US. Also, recovery rates in India are amongst the lowest at 26.4%.

This is also evident from the chart below:

Loan Recovery Data of Major Economies

So while recapitalisation will benefit PSBs, it appears to be a temporary cure for a recurring disease. The main problem is the lending and corporate governance processes these banks follow.

In the news from crypto currency space, bitcoin is witnessing selling pressure this week. Prices touched as low as US $15,800 at a cryptocurrency exchange Bitstamp.

Most of the losses are seen due a rising profile for rival Bitcoin Cash.

Bitcoin Cash was allowed to list on Coinbase, which is one of the biggest global crypto exchanges. Bitcoin Cash was split off from the original bitcoin on August 1, after a group of developers decided to try to improve bitcoin transaction speeds and costs.

Losses are also seen on the back of bankruptcy of a South Korean crypto-exchange that suffered a cyber-attack this week.

Note that the popular view is that Bitcoin will redefine the global payments system, and this view has helped send bitcoin prices soaring lately, having almost doubled in price since the start of December, when it was trading at less than US$10,000.

Time travel to 2013 and Bitcoin was trading at a mere US$100. In fact, even during August this year, the cryptocurrency traded at around US$4,000 levels.

Fast forward to today, Bitcoin is seen trading around US$16,000.

Bitcoin and cryptocurrencies are a curious bunch. They have no central bank backing and have not yet been regulated. Yet, these seem to have found favour among a large number of people, with demand growing every day. There are over 800 cryptocurrencies in existence today, with new ones being added to the list every day.

While the world of digital currencies is intriguing, it can get very confusing for the layman. Our team member, Ankit Shah, Research Analyst, has decided to study cryptocurrencies and help our readers understand them.

Here's Ankit's take in a recent edition of Equitymaster Insider:

• I've been studying and tracking bitcoin for a while, and though I still understand very little about it, I believe that it is a revolutionary technology that could transform a range of businesses and money itself. It would be naive to dismiss it as a passing fad.
  
  I want my readers to be on top of the biggest megatrends in the global economy. So, you can expect to hear about bitcoin whenever there is an important update or insight.

Ankit has also released a premium guide for Equitymaster Insider subscribers, titled Bitcoin 101 which contains everything you need to know about bitcoins and other digital currencies.

If you haven't been receiving Ankit's insights, get on the Insider's list now.

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

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