Stock markets in India are trading flat as the rupee fell to its record low for third straight session amid global tensions. Losses are largely seen in FMCG stocks and metal stocks.
The BSE Sensex is trading up by 45 points and the NSE Nifty is trading down by 4 points. Meanwhile, the BSE Mid Cap index is trading down by 1.2% while, the BSE Small Cap index is trading down by 0.6%.
Pharma stocks are trading on a mixed note with Indoco Remedies & Piramal Enterprises leading the losses. As per an article in a leading financial daily, the United States Food and Drug Administration (USFDA) has completed cGMP inspection at Lupin's Tarapur API Manufacturing Facility.
The inspection closed with one observation, a procedural deficiency. The inspection at the site was conducted during 27-31 August 2018 by three FDA investigators.
The inspection focused on cGMP compliance and also on the safety of Lupin's Valsartan, Losartan and Irbesartan APIs (commonly known as 'Sartans') in light of the safety alert issued by Regulatory Authorities on the NDMA (classified as a probable human carcinogen) impurity in Valsartan API supplied by some companies.
During the inspection, the USFDA concluded that the manufacturing processes of Lupin 'Sartans' are safe with no chance of presence of the NDMA impurity in the APIs.
To know more about the company, you can access to Lupin's Q1FY19 result analysis and Lupin's 2017-18 Annual Report Analysis on our website.
At the time of writing, Lupin share price was trading down by 1.1%.
To know what's moving the Indian stock markets today, check out the most recent share market updates here.
Moving on to the news from the economy. Indicating further traction for asset resolution, India Ratings has said it is expecting that over Rs 4 trillion of bad loans will be resolved by the end of 2018.
It stated that around 45% of total bad loans worth Rs 10.2 trillion standing in the books of the top 500 debt-heavy corporates are likely to be resolved by the end of 2018 under the Insolvency and Bankruptcy Code (IBC) Act, while the balance is to be resolved largely during 2019.
Moreover, it highlighted that the success of the IBC 2016 lies in the substantial reduction of the overall resolution time, which is in turn critical for the development of debt capital markets in India.
The bad loans include total borrowings of entities within the top 500 borrower universe as on March 2017, with either a credit rating of 'C' or 'D'. Both are non-investment category ratings.
Besides, the total stressed debt resolved (including pre-National Company Law Tribunal restructuring or highest bidder identified under NCLT) is Rs 0.82 trillion. Lenders having exposure to such loans will take an average haircut of 43%, lower than the overall estimate of 59% on the entire bad debt portfolio.
The haircut is likely to be low as some of the resolved bad debt were large-sized assets in iron and steel, and a cement asset. The infrastructure (including power), and metals and mining sectors have the most concentrated stressed debt pending resolution, followed by real estate, telecom, and petrochemicals.
The real estate sector may have a high requirement of debt refinancing to avoid falling into the stressed category.
The new framework is expected to help with early recognition and resolution of bad loans. While this may be positive for the banking sector in the long run, in the short run, banks may come under additional pressure.
Note that, when it comes to resolving insolvency, India's rank is still low at 103, much below our neighbouring countries.
On both factors (i.e. recovery rate and the time to resolve a bankruptcy), India is slower than even its poorer neighbours.
India Lags in Resolving Insolvencies
However, going forward, the IBC framework will change India's position as it is a time-bound process.
Cases once admitted are to be resolved within 270 days; if not, companies go into liquidation.
We already had a taste of success with the successful conclusion of the Bhushan steel case.
Enthused by this success, the finance ministry expects banks to write back more than Rs 1 trillion after the resolution of all 12 big NPA cases that have been referred for insolvency proceedings by the RBI.
We believe, this can be a big boon for the banking sector and the Indian economy. This will not only help banks recover bad loans to an extent but also help bring back credit growth.
This article was originally published in English at www.equitymaster.com
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