Sensex Gains 150 Points; Midcap, Smallcap Stocks Extend Rally

Wed, 6 Mar 12:30 pm

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Share markets in India are presently trading marginally higher. Barring automobile sector, all sectoral indices are trading in green with stocks in the consumer durables sector, realty sector and energy sector witnessing maximum buying interest.

The BSE Sensex is trading up by 159 points (up 0.4%), while the NSE Nifty is trading up by 51 points (up 0.5%). The BSE Mid Cap index is trading up by 0.9% while the BSE Small Cap index is trading up by 1.3%.

The rupee is trading at Rs 70.58 against the US$.

The domestic currency depreciated 11 paise to 70.60 against the US dollar in opening trade today, on increased demand for the greenback from importers and banks.

Yesterday, the rupee rose for the second successive session despite strength in the dollar against its major crosses and volatility in global crude oil prices.

In the news from the pharma space, Sun Pharma share price is in focus today after news reports suggested, markets regulator has sought an explanation from the company on the alleged fund diversion of Rs 420 billion through its key distributor and subsidiary Aditya Medisales (AML).

Reportedly, in two letters dated January 28 and February 18, the regulator asked Sun Pharma to furnish a detailed methodology of AML's operations, along with the agreement between the drug maker and AML.

Note that, the pharma company had reported a nearly four-fold jump in its consolidated net profit at Rs 12.4 billion for Q3FY19. Consolidated revenue from operations of the company stood at Rs 77.4 billion in the December quarter as against Rs 66.5 billion for the same period year ago.

To know more about the company, you can read Sun Pharma's Q3FY19 Result Analysis on our website.

Sun pharma share price is presently trading down by 0.5%.

Moving on to the news from the finance space, DHFL share price is witnessing buying interest today after the company said that an independent accountancy firm TP Ostwal & Associates found little substance in Cobrapost allegations.

Shares of the company gained around 20% in early trade today on back of the above news.

As per an article in The Economic Times, the auditor concluded that DHFL has not promoted any of the alleged 26 'shell' companies that borrowed a total of Rs 115.2 billion from the firm.

Here's an excerpt from the article:

• Further, it does not have any directors in common, including members from the promoter group, with any of these alleged shell companies. Further, the company or promoters do not have any shareholding in these entities, nor are these entities shareholders of the company.
  
  We were unable to find evidence to support the allegations that the promoters have concealed shareholding in the company neither did we find any evidence to support the allegation of insider trading.

The auditor report suggested there are no indications to confirm the allegations that the company has created shell companies to divert funds.

That said, DHFL is required to monitor post disbursal end use of funds by the borrowers. The report indicated the monitoring in respect of 15 borrowers with loans amounting to Rs 74.9 billion is significantly inadequate.

Last month, shares of the company witnessed selling pressure as, Cobrapost said that DHFL diverted funds to shell companies to buy assets, and that firms linked to DHFL's controlling shareholders - the Wadhawan group made political donations beyond mandated levels.

Cobrapost had sought responses to 64 allegations, which were levelled upon the promoters, DHFL and various entities alleged to be controlled by the promoter group. The auditor said since 25 of the 64 questions did not relate to allegations against DHFL and they were not examined or addressed by it.

Last week, rating agency ICRA downgraded the company's commercial papers (CPs) worth Rs 80 billion to 'A2+' from 'A1+'.

However, the company said that the rating action by ICRA is not merit based and it has not taken cognizance of DHFL's intent to extinguish CPs by the end of March.

DHFL share price is presently trading up by 13.2%.

Note that DHFL is also facing questions about its financial health after the IL&FS default pushed up the cost of funds for the mortgage lender and made borrowing difficult.

Speaking of non-banking financial companies (NBFCs), it is evident from the chart below that their credit growth has seen robust growth in recent years.

Is the NBFC Party in India Coming to an End?

From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks. A major reason for this is the gain in market share from public sector banks (PSBs). The recent NPA woes of the PSBs has seen them tighten up their credit lines.

The NBFCs have stepped in, along with private sector banks, to fill this gap. But the recent liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

It would be interesting to see how this all pans out. Meanwhile, we will keep you updated on the latest developments from this space.

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

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