Sensex Continues Momentum; Auto Stocks Gain

After opening the day firm, share markets in India have continued the momentum and are trading comfortably above the dotted line. Sectoral indices are trading on a mixed note with stocks in the auto sector and stocks in the IT sector leading the gains, while stocks in the metal sector are trading in red.

The BSE Sensex is trading up by 151 points (up 0.5%), and the NSE Nifty is trading, up by 40 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 64.96 to the US$.

In news from the IPO space. Bandhan Bank is set to come out with its own initial public offering (IPO) by next week. The bank plans to raise over Rs 44.7 billion from its share offering beginning on 15 March 2018.

The Kolkata-based bank and its shareholders will be selling up to 119.3 million shares, or about 10% of the post-issue share capital of the bank, in a price range of Rs 370–375 each in the IPO.

The bank will sell up to 97.7 million new shares in the IPO. International Finance Corp, part of the World Bank Group, and IFC FIG will sell 21.6 million shares.

Bandhan Bank’s IPO will the largest by a local bank.

The bank is majority controlled by its holding company Bandhan Financial Holdings Ltd (BFHL) which owns 89.7% of the stake. IFC and IFC FIG together hold 4.9% stake while Caladium Investment an affiliate of Singapore’s sovereign wealth fun GIC owns 4.99% stake. The IPO will ensure that BFHL’s stake falls to 40%. RBI timeline also stipulates that the holding company’s shareholding is cut further to 20% and 15% within 10 years and 12 years respectively.

The Kolkata based Bandhan Bank along with IDFC Bank received the final nod to start banking operations by RBI in 2015. One of the conditions of the license was public listing within three year which the bank will fulfil now. It started operations on August 23, 2015 and converted its microfinance business into a bank. As of September 2017, it had 864 branches in 33 states across the country.

Poor IPO Returns Post Listing

If you’ve been tracking the demand for IPOs, you would certainly think that 2017 was the year of IPOs. For one, IPO subscriptions were at sky high levels. But if the performance of recently listed IPOs are anything to go by, they have flattered to deceive.

Of the five recent high-profile IPOs which listed on the stock market, four have given negative returns soon after listing.

The IPO activity in FY17 is mainly driven by Offer for Sale (OFS) rather than fresh issues. An OFS is a route through which existing promoters and private equity investors offload their stake. Here, the money from the sale goes to the selling shareholder. Whereas, in a fresh issue, the money raised goes to the company who, normally, utilizes this money to repay debt, for capital expenditure, etc.

Also, the number of Private Equity (PE) investors exiting these companies raised a red flag. These PE investors had bought a stake in the IPO recently at a fraction of the listed price. Sensing the frenzy, they were able to offload their stake with multifold returns.

The only person left high-and-dry here was the retail investor. And, this is not a recent occurrence. The IPO euphoria is something similar to what was seen in 2007–08. More than 70% of the IPOs listed in 2007 and 2008 were in the red, even today when the Sensex is at an all-time high.

But it doesn’t make sense to completely ignore this space. The IPO space has also given us names like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders.

For the retail investor, it is very important to ignore the noise and focus on the fundamental and valuations on the table. And more often than not, this approach works much better than following the herd.

That’s Ankit Shah’s approach at Equitymaster Insider. He keeps an eagle-eye on the developments in the IPO space and updates his readers on the big-ticket IPOs.

Ankit and his team of researchers constantly reference this handbook on investing in IPOs. You can download a copy for yourself. It is free. Just click here.

In news from the GST space. The Goods and Service Tax (GST) Council, is set to meet on Saturday to consider proposals to further delay rolling out the e-way bill system by about 5–6 months and levy GST on a concentrated form of alcohol.

The 26th GST Council meeting will also try to reach a consensus on simplifying tax returns.

E-way bills will automate the paperwork for goods transportation, check instances of inflating or under-reporting the value of consignments aimed at tax evasion, create an electronic trail of goods movement and generate valuable data about goods consumption pattern across the country.

The scheme, earlier proposed to be enforced from 1 February was deferred on the same day due to technical glitches. Policymakers now do not want premature roll out of the scheme risking a trade disruption.

Once implemented, e-way bill is needed for all movement of goods valued at more than Rs 50,000. within or outside a stat.

Every coin has two sides. GST is no exception. It has had its fair share of chaos in the months immediately post its implementation from 1 July 2017. Many businesses reported depressed earnings due to the transition to GST.

Our colleague Vivek Kaul has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report — The Good, the Sad and the Terrible (GST).

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Indian Indices Pare Earlier Gains; Telecom and IT Stocks Witness Buying Interest

After opening the day on a positive note, stock markets in India witnessed selling pressure and are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the telecom sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 80 points (up 0.2%) and the NSE Nifty is trading up 25 points (up 0.3%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.6%. The rupee is trading at 64.92 to the US dollar.

Gitanjali Gems share price has continued its downtrend and is witnessing selling pressure today. Most of the losses are seen as the CBI has registered a fresh FIR against Nirav Modi in the Punjab National Bank (PNB) fraud case.

The CBI has also noted that the violation of norms for issuance of Letters of Undertaking (LoUs) to benefit Nirav Modi and his uncle Mehul Choksi had been going on since 2010.

Note that the stock of Gitanjali Gems has nosedived on several occasions since 2013, eroding market capitalisation by over 80%. Its promoter’s role in aiding Nirav Modi carry out one of the biggest frauds in the banking history has damaged the stock’s position and credibility. Reportedly, Gitanjali Gems and its two subsidiaries fraudulently acquired letters of undertaking and letters of credit worth Rs 48.9 billion issued through Punjab National Bank.

Gitanjali Gems, the Fall Guy

It has emerged that Gitanjali Gems’ receivables position has been outstanding far longer than that allowed by the RBI. Auditors have pointed out the overdue loans/debentures and overdrawn working capital limits by the company in the latest annual report. In fact, the company has said that it does not even have funds to honour debenture redemption liability of as low as Rs 14.8 m.

We had stuck our necks out, warning investors that Gitanjali Gems’ shiny exterior is a sham. Being in a working capital business of importing gold and exporting jewellery, regulatory restrictions on gold imports in FY13 pushed the company in deeper debt. But the company’s weak management, integrity, and ethics were completely unacceptable to us. Therefore, despite Gitanjali Gems attracting institutional interest during the gold rally, we had clearly asked investors to steer clear of this value-trap.

Connecting the dots in the aftermath of the fraud undoubtedly confirms that the dubious management is responsible for the company’s downfall, something we had seen coming long back. Clearly, management integrity is one aspect that shareholders cannot afford to compromise in their frenzy to ride the bull run.

In other news, as per an article in the Economic Times, the head of the International Monetary Fund (IMF) head Christine Lagarde on Wednesday warned that a trade war US President Donald Trump apparently intends to provoke with tariffs on steel and aluminium would snuff out global growth.

She noted that if international trade is called into question by these types of measures, it will be a transmission channel for a drop in growth, a drop in trade and it will be fearsome. She further added that in a trade war that will be fed by reciprocal increases of customs tariffs, no one wins.

The comments follow Donald Trump’s plan to impose across-the-board tariffs on steel and aluminum imports to which the European Union (EU) proposed to apply a retaliatory tariff of 25% on a range of goods imported from the US.

Trump proposes to slap a 25% tariff on imports of steel and a 10% tariff on imports of aluminum. The formal announcement is expected to be made this week.

As for domestic markets, the above announcement by Trump also sent Indian metal stocks in the red, with SAIL share price, NMDC share price, JSW Steel share price, and Tata Steel share price witnessing most of the selling pressure.

Note that India’s steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll.

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it’s not that simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices across the industry.

This would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry. As Ankit wrote in a recent edition of the Equitymaster Insider…

If metal producers are deterred from selling their goods in the US, they will come looking for other markets to sell their produce. This is likely to create an ‘excess-supply’ situation in those markets.

What happens when there’s too much supply? Basic economics says that when supply increases more than the growth in demand, prices decline. So, Indian metal producers are likely to be faced with the possibility of lower metal prices. This will impact their revenues and profitability.

How exactly this trade war will unfold is something to watch out for. We’ll keep you updated on all the developments from this space.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

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Originally published at www.equitymaster.com.

Sensex Opens 250 Points Higher; Telecom Stocks Rally

Asian stock markets are in positive territory in morning trade as concerns about a global trade war eased after the White House indicated that some countries could be exempt from President Donald Trump’s planned tariffs on steel and aluminum imports. The Nikkei 225 is up 0.75% while the Hang Seng is up 1.47%. The Shanghai Composite is trading up 0.20%. Overnight, US markets closed mixed.

Meanwhile, Indian share markets have opened the day on a strong note. BSE Sensex is trading higher by 250 points and NSE Nifty is trading higher by 75 points. S&P BSE Mid Cap is trading higher by 0.7% and S&P BSE Small Cap is trading up by 0.9%.

Gains are largely seen in realty stocks, metal stocks and software stocks. The rupee is trading at Rs 64.96 against the US$.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it’s relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India’s GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

In news from steel sector, as per a leading financial daily, Tata Steel Ltd has emerged as the highest bidder to buy a controlling stake in Bhushan Steel Ltd, which is currently undergoing bankruptcy proceedings.

Reportedly, Tata Steel has offered close to Rs 348 billion as upfront payment to banks and an additional Rs 12 billion to operational creditors. In addition, Tata Steel has also offered 12% equity stake to lenders in Bhushan Steel. With this, Tata Steel has outbid rival JSW Steel Ltd.

Bhushan Steel is the largest manufacturer of auto-grade steel in India and owes close to Rs 440 billion in debt to various lenders.

The company is into manufacturing of flat products, hot rolled and cold rolled coils, besides operating a galvanised coil and sheet line. Its clients include General Motors Co., Hyundai Motors Co., Ford Motor Co., Mahindra and Mahindra Ltd and Eicher Tractors Ltd.

Tata steel share price opened the trading day up by 1.3%

Telecom stocks opened the trading day on a strong note with Idea share price and Bharti Airtel share price leading the gains.

As per a leading financial daily, the government approved a relief package for the stressed telecom sector, easing spectrum-holding caps and extending the payment period for spectrum acquired in auctions to 16 years from 10 years.

The Union Cabinet has approved two key measures in the telecom sector to facilitate investments, consolidation in the sector, and enhancing ease of doing business. These include restructuring the deferred payment liabilities of the spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers.

As per the reports, the government expects to receive more than Rs 744.46 billion from this move by 2034–35. Restructuring the deferred payment liability will increase the cash flow for the telecom service providers in the immediate timeframe, providing them some relief.

The cabinet approved raising the overall spectrum cap per operator in a telecom circle to 35% from the current 25%. It also scrapped a rule that restricted operators from holding more than 50% spectrum in a single band in a circle.

The earnings of telecom operators, grappling with a heavy debt load, have come under further pressure following the entry of Reliance Jio Infocomm Ltd in September 2016.

Moving on to news from airlines stocks. As per an article in The Business Standard, the Competition Commission of India (CCI) has imposed a penalty of over Rs 540 million on Jet Airways, SpiceJet and IndiGo for fixing fuel surcharge.

The penalty levied on Jet Airways is Rs 398.1 million, IndiGo was fined Rs 94.5 million and SpiceJet Rs 51 million. The CCI acted on a cartelisation complaint by Express Industry Council of India against Jet, IndiGo, SpiceJet, Air India and GoAir.

In November 2015, the CCI had imposed a penalty of Rs 1.51 billion on Jet Airways, Rs 637.4 million on IndiGo and Rs 424.8 billion on SpiceJet for cartelization. The fine corresponded to 1% of the annual revenue of the companies. This time, the penalty has been brought down as the commission has considered only the relevant turnover.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Trades Flat; PSU Stocks Lead Losses

After opening the day in green, share markets in India witnessed choppy trading activity and are presently trading flat. Sectoral indices are trading mixed with stocks in the banking sector and stocks in the PSU sector trading in red. While stocks in the FMCG sector are trading in green.

The BSE Sensex is down by 45 points (down 0.1%) and the NSE Nifty is trading down by 20 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading down by 0.2%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 64.89 to the US$.

In news from stocks in the FMCG sector. Fast-moving consumer goods major Hindustan Unilever (HUL) said that it will the government another tranche of goods and services tax (GST) benefits that it could not pass on to consumers.

HUL had by itself handed over to the government Rs 1.19 billion in two tranches of Rs 600 million and Rs 590 million for November and December, which is yet to be deposited in the Consumer Welfare Fund.

However, The Directorate General of Safeguards (DGS) has sought clarifications from HUL% on the methodology used to arrive at Rs 1.19 billion that the company offered to the government after it could not pass the entire benefits of GST.

Since the past two months, DGS, the investigation arm of the revenue department, has been checking to make sure companies are passing on the benefits of lower levies under the goods and services tax (GST) regime to consumers. In November, the GST Council dropped tax rates on 200 products, including chocolates, toothpaste, shampoo, washing powder and shaving creams, to 18% from 28%.

The Union Cabinet approved the setting up of the anti-profiteering authority under the GST regime in a bid to ensure that the benefit of lower rates is passed on to consumers.

Anti-profiteering measures will provide an institutional framework to ensure that the full benefits of input tax credits and reduced GST rates on goods or services flow to consumers. This institutional framework comprises the National Anti-Profiteering Authority (NAA), a Standing Committee, a Screening Committee in every state and the Directorate General of Safeguards under the Central Board of Excise and Customs (CBEC).

Crucially, the authority has been granted wide-ranging powers, including to cancel the registration of offending firms in extreme cases.

According to the rules, if the NAA confirms that there is a need to apply anti-profiteering measures, then it has the authority to order the supplier to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services. If this can’t be done, then the company can be ordered to deposit the amount in the Consumer Welfare Fund.

India’s Tax Revenues to Get a GST Boost

The current GST regime has created a lot of uncertainties, at least for the time being. On the corporate earnings front, the GST implementation may impact near term earnings of the companies however, over a long run, the market expectations are that earnings would normalize. In addition, it is expected to be a big support to the depressed earnings of the organised listed Indian companies.

As we have saying, GST is a much-needed economic reform, and measures such as setting up of the NAA in order to ensure its efficacy are a step in the right direction. It should eventually expand India’s narrow tax base and increase government revenues.

That said, every coin has two sides. GST is no exception. It has had its fair share of chaos in the months immediately post its implementation from 1 July 2017. Many businesses reported depressed earnings due to the transition to GST.

Our colleague Vivek Kaul has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report — The Good, the Sad and the Terrible (GST).

In news from the banking sector. Airtel Payments bank, run by the country’s largest telecom operator, Bharti Airtel, slashed its interest rates 175 basis points (bps) to 5.5% per annum, effective 1 March 2018.

The payments bank, first such to launch in 2017, said the management was trying to keep rates competitive and was keeping it higher than or at par with competition.

Notably, the payments bank had begun with an introductory interest rate offering of 7.25% per annum, which it now says was only an introductory offer.

Last year, the Unique Identification Authority of India (UIDAI) had temporarily barred Bharti Airtel and Airtel Payments Bank from conducting Aadhaar-based SIM verification of mobile customers using eKYC process, as well as e-KYC of payments bank clients.

Bharti Airtel was allegedly using the Aadhaar e-KYC-based SIM verification process to open payments bank accounts of its subscribers without their ‘consent’. The UIDAI also took strong objection to allegations that such payments bank accounts were being linked to receive a cooking gas subsidy.

At the time of writing, Bharti Airtel share price was trading up by 1.1%.

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

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Originally published at www.equitymaster.com.

Sensex Opens Firm; PNB Plunges 6% as Fraud Gets Bigger

Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 1.39% while the Hang Seng is down 0.10%. The Shanghai Composite is trading up by 1.13%. US stocks ended sharply higher Monday, regaining roughly half of their correction-level losses amid stabilization in Treasury rates.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading higher by 128 points while the NSE Nifty is trading higher by 32 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.2% & 0.4% respectively.

Barring realty stocks & bank stocks, all sectoral indices have opened the day in green with capital goods stocks and automobile stocks witnessing maximum buying interest. The rupee is trading at 64.66 to the US$.

In the news from the IPO space. The Rs 4.6 billion initial public offering (IPO) of Jodhpur-based HG Infra Engineering Ltd witnessed an overall subscription of 11% on Monday, the first day of the share sale.

Reportedly, the portion of shares reserved for institutional investors in the HG Infra IPO had seen no subscription at all, while the portions reserved for retail investors and high net-worth individuals (HNIs) were subscribed 21% and 4%, respectively.

HG Infra's shares have been priced in a band of Rs 263-270 per share. The IPO will close on 28 February.

The initial share sale of HG Infra comprises a fresh issue of shares of Rs 3 billion and an offer for sale of 6 million shares by the promoters of the company.

At the upper end of the price band, the share sale will fetch the promoters about Rs 1.6 billion. Proceeds from the fresh issue will be used for buying equipment, repayment of debt and meeting general corporate expenses.

Meanwhile, Aster DM Healthcare Ltd. listed at a discount of 4.2% at Rs 182.1 per share on the BSE Ltd. yesterday, compared to its issue price of Rs 190 apiece. The stock fell as much as 7.1% to Rs 176.5 thereafter.

The healthcare services provider's Rs 9.8-billion initial public offering was subscribed 1.3 times on the final day of bidding. The portion reserved for qualified institutional buyers was subscribed 2.1 times the number of shares on offer, while the retail investors' portion was subscribed 1.1 times. The non-institutional portion received bids for 0.6 times the number of shares allotted.

Aster DM has 323 operating facilities in nine nations, including 19 hospitals with 4,754 beds, of which 3,584 were operational as of 30 September 2017. It's building or expanding 10 hospitals to add about 727 beds.

Speaking of IPOs, the demand for IPO's had reached sky-high levels last year.

One shall note that, more than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often than not.

To know more, download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the IPO rush.

Moving on to the news from banking sector. In the latest development, Punjab National Bank has revealed additional unauthorised transactions related to the scam by billionaire diamantaire Nirav Modi and his uncle and business partner, Mehul Choksi, increasing the estimated size of the fraud by US$204 million (Rs 13.22 billion).

This increase means that the total fraud now amounts to nearly US$2 billion (Rs 126.2 billion) as against the original estimated US$1,772 million (over Rs 113 billion).

Notably, the value of the additional unauthorised transactions is almost equal to PNB's entire net income of Rs 13.2 billion for fiscal year 2017.

The fresh letters of undertaking (LoUs) were understood to have been discovered after being reported by overseas bank branches, which checked their portfolio in light of the recent fraud.

In addition to the LoUs, PNB is understood to have a line of credit of close to Rs 10 billion to the Mehul Choksi/Nirav Modi groups. The total exposure of the banking sector is expected to be well in excess of Rs 200 billion.

Speaking of scandals, here's a look at the kind of price correction we have seen in the stocks of these three companies - all of them making headlines for the wrong reasons! It's quite a fall from their 52-week highs.

Scandals Have Hit This Terrible Trio Hard

PNB share price opened the day down by 6.3%.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Opens Marginally Down; Tata Steel Top Loser

Asian stocks rose in morning trade on Monday, after the US's S&P 500 extended its winning streak on Friday to six days. Markets in the Greater China region remain closed for the Lunar New Year holiday. Japan's Nikkei 225 rose 1.13% in early trade, while the Topix index was up 1.2%. South Korea's Kospi index gained 0.87%. US stocks too rose over the weekend.

Back home, India share markets opened the day marginally down. The BSE Sensex is trading lower by 37 points while the NSE Nifty is trading lower by 47 points. The BSE Mid Cap index and BSE Small Cap index opened the day down by 1.6% & 0.4% respectively.

All sectoral indices have opened the day in red with metal stocks and PSU stocks witnessing maximum selling pressure. The rupee is trading at 63.91 to the US$.

In the news from the steel sector. As per an article in a leading financial daily, Tata Steel has emerged a frontrunner to acquire debt-laden Bhushan Power and Steel after lenders to the company decided that they would only consider Tata Steel's offer of Rs 245 billion for further negotiations on Wednesday.

Reportedly, Tata and JSW steel were the only two bidders for the company.

Tata Steel's offer includes an upfront payment to lenders of Rs 170 billion, a cash infusion in the company of Rs 70 billion to meet working capital requirements and a payout to operational creditors as well as employees.

Further, Bhushan Power and Steel was admitted to bankruptcy court in June last year.

The unlisted Bhushan Power and Steel has a capacity to produce 3.2 million tonnes per anum of steel and also owns a 700-megawatt captive power plant.

Reportedly, Tata Steel will have to approach the anti-trust regulator Competition Commission of India (CCI) for approval post its offer being accepted by the bankruptcy court. An acquisition of both Bhushan Steel and Bhushan Power and Steel could give the company an almost 50% share of the market for flat-steel products in India.

A consortium comprising over two dozen banks are owed Rs 485.2 billion by the debt-laden Bhushan Power and Steel. Punjab National Bank leads the lenders consortium though state Bank of India has disbursed the largest proportion of loans to the company.

Meanwhile, the Reserve Bank of India (RBI) has tightened the bad debt resolution framework by scrapping numerous loan restructuring programmes. This includes the likes of strategic debt restructuring scheme (SDR), Joint Lenders' Forum (JLF), Corporate Debt Restructuring Scheme, and Scheme for Sustainable Structuring of Stressed Assets (S4A) that's prevalent among banks to restructure defaulted loans. The RBI replaced all these schemes by the Insolvency & Bankruptcy Code (IBC).

With this, a loan worth over Rs 2.8 trillion, with payments outstanding for 60-90 days, carry the risk of slipping into the category of non-performing assets (NPA). This will result in a surge in NPAs and may put additional pressure on the banks to make provisions.

NPAs Set to Rise Further with New RBI Rules

The strict timelines could mean that a larger number of accounts will go into insolvency. Haircuts that banks may need to take and the probability of liquidation in some accounts may also rise. Similarly, under the new scenario, corporate lenders, which have already been under pressure due to rising bad loans and increased provisions, could take another hit.

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.

Tata steel share price opened the day down by 2.5%.

Moving on to the news from pharma sector. As per an article in a leading financial daily, the government has ordered a Serious Fraud Investigation Office (SFIO) probe against Fortis Healthcare and Religare Enterprises. Both the companies are at the centre of a controversy involving accusations of misconduct against their promoters Malvinder and Shivinder Singh.

Reportedly, the market regulator had ordered an inquiry against it and had asked it to furnish information and documents.

One shall note that, the Singh brothers had recently quit the boards of the two companies. The move came days after the Delhi high court ruled that the Rs 35 billion arbitration award that Daiichi Sankyo won against the billionaire brothers for concealing facts about erstwhile Ranbaxy Laboratories was enforceable in India.

Nearly a decade ago, the Singhs had sold their stake in Ranbaxy to the Japanese company, which subsequently exited from the venture.

The move came amid reports that the promoters had diverted funds from Fortis, a charge that has been denied. Fortis, which runs a chain of hospitals, has not declared results as auditor Deloitte has refused to sign them amid differences over accounting issues.

Fortis Healthcare share price & Religare Enterprises share price opened the day down by 1.8% & 1.2% respectively.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.