A Weak End to The Week
Asian markets finished their session on a negative note as of the most recent closing prices. Stock markets in Japan and Hong Kong ended the day lower by 0.4% and 1.2% respectively. At the time of writing, most of the European markets too were trading in the red. The FTSE 100 was down by 1.62%, France's CAC 40 was down 1.87% and Germany's DAX was down by 2.16%. Markets in the US were also trading in the red with the Nasdaq Composite down by 0.32%. The rupee was trading at Rs 66.83 to the dollar at the time of writing.
Back home, Indian equity markets remained weak and closed the day in the red. Stocks from sectors such as realty,auto and consumer durables were leading the losses. The BSE-Sensex ended the day lower by 128 points (down 0.5%), while the NSE-Nifty ended lower by about 34 points (down 0.4%). The BSE Mid Cap ended lower by 0.4%, while the BSE Small Cap closed lower by 0.2%.
PSU banking stocks closed the day on a negative note with State Bank of India (SBI) and IDBI Bank leading the losses. As per an article in Economic Times, Moody's Investors Services has said that government will have to infuse Rs 1,200 billion into PSU banks by 2020 in order to bolster their balance sheets and make good the losses suffered by them. This is way higher than an additional Rs 450 billion capital infusion plan envisaged by the government.
According to the agency, the asset quality of banks will remain under pressure over the next twelve months and increased provisioning would constrain profitability and limit internal capital generation.
One shall note that public sector banks cumulatively suffered huge losses during the last fiscal. This was mainly seen on the back of higher provisioning of bad loans. The clean-up exercise undertaken in line with RBI's Asset Quality Review (AQR) exposed these bad loans and hit profitability of banks. Tanushree Banerjee, Co-Head of Research at Equitymaster, discussed how banks have accumulated NPAs worth billions of rupees in one of the editions of The Equitymaster Research Digest (subscription required).
The government is doing all it can to bring down the level of these bad loans. Finance Minister Arun Jaitley earlier this year announced that the government will provide sufficient funds to recapitalise public sector banks (PSUs) to ensure that they play a significant part in boosting economic growth. The announcement made in the Union Budget 2016-17was an allocation of Rs 250 billion towards the recapitalization of PSU banks. Apart from this, Rs 100 billion each is going to be infused in 2017-18 and 2018-19 for the recapitalisation of PSU banks.
Moving on to the news from the power space. National Thermal Power Corporation (NTPC) has laid out plans for Rs 10 billion investments in Karnataka.
The company has signed an agreement with South Western Railway for doubling of the Hotgi-Kudgi section under the customer funding concession scheme. The section consists of 10 block stations, 8 major bridges and 2 important bridges.
The company has agreed to finance the cost of doubling of the 134-km section and has already deposited Rs 9 billion with the South Western Railway.
NTPC is an Indian Central Public Sector Undertaking (PSU) under the Ministry of Power. It is engaged in the business of generation of electricity and allied activities. The stock of the company closed the day up by 0.6%.
