Sensex Ends 272 Points Lower; Realty & Metal Stocks Witness Selling

Mon, 24 Dec Closing

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   09:30 am   

   12:30 pm   

Indian share markets witnessed most of the selling pressure during closing hours and ended their trading session lower. Barring IT sector and Telecom sector, all sectoral indices ended on a negative note with realty stocks, metal stocks, and auto stocks losing the most.

At the closing bell, the BSE Sensex stood lower by 272 points (down 0.8%) and the NSE Nifty closed down by 91 points (down 0.8%). The BSE Mid Cap index ended the day down 0.5% and the BSE Small Cap index ended the day down by 1.1%.

The rupee was trading at 70.02 against the US$.

In the last few sessions, the rupee has been strengthening against the US$. Last week, dollar came under pressure after the Federal Reserve in its policy statement mentioned that rate hike in the coming year could be restricted to two compared to earlier estimates of three rate hikes next year.

Asian stock markets finished on a negative note. As of the most recent closing prices, the Hang Seng was up down 0.4% and the Shanghai Composite was up by 0.5%. The Nikkei 225 was down 1.1%.

In the news from the automobiles space, Hero MotoCorp share price witnessed selling pressure today after global brokerage house Goldman Sachs downgraded the company to sell from neutral.

The firm also cut the target price sharply from Rs 3175 to Rs 2773, implying 16.5% potential downside from December 21.

Shares of the auto company have rallied 23% from October 25, 2018.

Hero MotoCorp share price ended the day down by 4.3%.

To know more about the company, you can read Hero MotoCorp latest result analysis and Hero MotoCorp Annual Report on our website.

Moving on to the news from the banking space, Bandhan bank share price was in focus today as the bank and HDFC share price are in discussions for a possible merger between Kolkata-based private sector lender and Gruh finance.

Reportedly, the merger would help Bandhan reduce its promoter holding in the lender from 82.28%. The swap ratio would determine the extent of the stake dilution, which is mandated by banking regulation.

In September, the Reserve Bank of India had barred Bandhan Bank from opening new branches without its approval and had ordered it to freeze the MD's salary over its failure to meet shareholding rules.

The RBI took the decision as the bank was not able to bring down the shareholding of non-operative financial holding company to 40%, as required under the licensing condition.

According to RBI's new licensing guidelines, the bank's promoter, Bandhan Financial Holdings Ltd, has to reduce its stake from 82% to 40% within three years of commencing the business.

Thereafter, banks are required to reduce their shareholding to 20% and 15% within 10 years and 12 years, respectively. Bandhan Bank's deadline ended on 23 August.

Bandhan Bank share price closed the day down by 0.9%.

In another news, shares of public sector undertaking (PSU) banks were witnessing buying interest today.

Bank of India, Oriental bank of commerce , Union bank , Bank of Baroda, PNB were trading up in the range of 1% to 4%.

On Thursday, finance minister Arun Jaitley said that the government will infuse Rs 830 billion in public sector banks. Among various objectives, the infusion is aimed at helping better-performing banks under prompt corrective action (PCA) to come out of the category.

While the government has already infused Rs 230 billion into PSBs this year, the remaining Rs 830 billion will be provided in the remaining three months of FY19.

Reportedly, department of financial services sought Parliament's approval via second supplementary demand for grants for additional funds for banks' recapitalization, over and above the budgeted estimate of Rs 650 billion.

Earlier this year, the government pumped in Rs 113.4 billion into five PSBs, including PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank to improve their financial health.

However, using recapitalization bonds can only act as a short-term measure to the crisis afflicting Indian public-sector banks today. Such a measure will not address the structural issue in the banking system, i.e. the poor standard of lending and poor governance system.

Recapitalisation of PSBs Over the Years

Our big picture editor, Vivek Kaul, talks about moral hazard risk arising out of recapitalization. He writes:

• "If the government bails them around this time around, the banks know that they can count on the government bailing them out the next time around as well. And this means that they can follow fairly loose standards of lending, in order to lend money quickly."

My colleague, Ankit Shah, editor of Equitymaster Insider presents an interesting analysis of recapitalisation plan.

Here's a snippet of what he wrote:

• "The Indian stock markets are at an all-time high. The BSE Sensex has crossed the 33,000 mark.
  
  Stock prices of public sector banks are up anywhere between 10% and 40%.
  
  I did some quick math and found that the 21 listed public sector banks have gained approximately Rs 1.1 trillion of market capitalisation in just one day.
  
  In other words, 50% of the recapitalisation amount of Rs 2.11 trillion has been captured by the stock market in a single trading session".

Ankit is deeply intrigued by the interplay of politics and economics, and how it impacts the stock markets. His aim is to connect the dots and offer deeper insights into the workings of the market.

I would recommend you read his entire article here. (subscription required)

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

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