Stocks
Nifty, Sensex lose momentum; may decline a bit – Thursday closing report
We had mentioned in Wednesday’s closing report that Nifty, Sensex were still on a short-term uptrend. The major indices of the Indian stock markets were range-bound on Thursday and closed with small losses over Wednesday’s close. NSE trading volumes were however high. The trends of the major indices in the course of Thursday’s trading are given in the table below:
 
 
Negative global markets, coupled with lower crude oil prices and a weak rupee, dented the equity markets during the mid-afternoon trade session on Thursday. Selling pressure was witnessed in automobile, banking and IT (information technology) stocks. The BSE market breadth was tilted in favour of the bulls -- with 1,366 advances and 1,506 declines. On the NSE, there were 658 advances, 960 declines and 255 unchanged. 
 
Initially on Thursday, the benchmark indices opened on a higher note in sync with their Asian peers. However, the global markets, especially the European markets, remained subdued over speculation on curtailment of stimulus measures by the European Central Bank (ECB). Besides, caution prevailed ahead of key US macro-data on jobs to be released on Friday. In addition, lower crude oil prices, profit booking and consolidation added to the downward trajectory. The short-covering rallies earlier in the week have been halted by consolidation and caution ahead of key global event risks, pointed out market analysts.
 
Three public sector banks -- Indian Overseas Bank (IOB), Bank of India and Syndicate Bank -- on Wednesday announced reduction in their marginal cost of funds-based lending rate (MCLR) for various tenors. City-based IOB, in a statement issued here, said its MCLR for one year is reduced to 9.50% from 9.55% with effect from October 1. Similarly, Syndicate Bank said it has cut its MCLR for one year to 9.45% from 9.55% effective from October 7. On its part, Bank of India said its one year MCLR will be 9.35% effective from October 7. In this context, the bond market is not likely to be more attractive for stock market investors in the immediate context.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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Stagnant property prices and risk aversion may lead to higher delinquencies in urban portfolio: Report
Delinquencies in India's non-banking financier's loan against property (LAP) portfolio could significantly increase in the next four quarters and may even exceed 5% on a static basis for a few players, says India Ratings and Research (Ind-Ra). 
 
In a research note, the ratings agency says, "A combination of stagnant property prices especially in metros and large cities, which are the primary markets for large and medium ticket LAP, and squeeze on refinancing due to risk aversion building up in some financiers is bringing stress to the fore.”
 
 
Ind-Ra sees signs of early stress in the LAP business loan pools assessed by it, including a sharp rise in 90 days past due delinquencies for some of the large players. 
 
Ind-Ra analysed data from the LAP portfolios generated over the last five years and observed that all loans, irrespective of their years of origination, are experiencing a concurrent rise in delinquencies in 2016. 
 
 
According to the ratings agency, the LAP market has now entered into a delicate phase with rising delinquencies accompanied by shrinking yields, thereby leaving limited buffers to absorb unexpected shocks. 
 
The average lending rate in the urban high-ticket LAP segment has shrunk to close to 300 basis points (bp) from 500bp over State Bank of India (SBI)'s base rate, which in Ind-Ra's opinion may not be adequate to absorb any spike in credit costs.
 
 
Increasing acceptance of non-residential properties as collateral may impact liquidation recovery, the ratings agency says, adding, "The quest to expand loan portfolio in the face of intensive competition has diluted the use of risk mitigation practices. Non-residential properties, including industrial, commercial, freehold land, unoccupied residential property, among others are increasingly being accepted as collaterals. This proportion could go as high as 30% of the portfolio for some players. While loan-to-values (LTVs) are lower for non-residential properties, realisation on liquidation is also lower for these properties."
 
 
Ind-Ra says its study on the recovery of SME loans pool acquired by asset reconstruction companies (ARCs) through non-residential collaterals indicates a poor recovery at 25% of principal outstanding (POS).
 
The ratings agency says it believes that the eventual losses through the liquidation route could be higher than what is being priced in by non-banking financial institutions (NBFIs). 
 
Ind-Ra's rated transaction pool data for the housing loan mortgage portfolio acquired by asset reconstruction companies since 2006 show a recovery rate of over 100% of principal outstanding, but when adjusted for the time value it drops to 70%.  
 
Over the last few quarters, portfolio churn, through balance transfer among NBFIs, has been the significant driver of incremental loan growth. Additionally, a large segment of the market utilised third-party intermediaries to expand its loan portfolio. This has led to less than optimum credit assessment rigour. Furthermore, elevated balance transfer has led to inadequate seasoning for a part of the portfolio, the ratings agency added. 
 
 
As per Ind-Ra observations, a small ticket LAP portfolio has shown a better performance than large ticket loans, though the portfolio is less seasoned. It says, "Newer geographies are facilitating volume growth and due to limited competitive intensity, are allowing lenders to price in the risk. Also, the recent applicability of SARFAESI Act (to systemically important NBFIs and on a loan amount higher than Rs1 crore) may improve portfolio performance as it could reduce slippages and improve recovery."
 
As per the ratings agency, credit appraisal systems based on borrower cash-flow assessment and standardised valuation practices would be critical risk mitigants. "We expects players with largely residential mortgage collaterals to fare well on asset quality metrics. Finally, strong equity and liquidity buffers and matched asset liability profile would continue to differentiate players in this segment," Ind-Ra concluded.
 

 

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COMMENTS

Akshay Kini

7 months ago

Properties are dead investment just like gold. Many young urban families are paying huge amounts for apartments, treating then like a lifetime investment. Little realising that the quality of construction gives these apartments a life of at most 25 years. Many people are going to have a shock in the next few years.

Mahesh S Bhatt

8 months ago

Simple Copy paste global fraud in 1980's by Japan & 2007 by USA so they were well developed & US is 1/4 of India's population Watch the fun in India screw up is well made now coverups & then burst ups
Mahesh

tapan sur

8 months ago

Prophets of doom may be lurking in the society since man started giving more importance to economic growth going North than any balance with agrarian growth.This has led to a situation where to save banks & govt's, more liquidity is pressed into a market which is not there but dominated by dead assets, assets which may have been entered into for the sole purpose of growth,without actual need of such assets.Property as an asset class is finished,& now good if ONLY one needs a roof over his own head.The proof is recent lowering of interest on loans,with an eye on growth of economy & relief to this asset class which was grasping for Oxygen.We may be in for some shock in times to come,as there will be a further dead asset added to the almost stagnant asset class.My take we are proceeding to dangerous times.Only asset class remaining today is the stock market through Mutual Fund the SIP route,rest is dead money.This is an alarm bell for those who want to hear some sane voice,rest B.O.L.

US FDA Looks to Redefine the Term 'Healthy' on Food Labels
The US Food and Drug Administration (FDA) has been doing some soul searching of late over key marketing terms popular in food advertising. Last fall it reached out to consumers to ask whether the agency should define “natural.” Now it is looking at another term prominent on many food labels that seeks to attract nutrition-conscious consumers: “healthy.” 
 
Under the current FDA definition, a food must be very low in fat to be marketed as healthy. But there are good fats – like those contained in nuts, avocados and salmon—as the KIND snack company argued after the agency ordered it to stop using the term because some of its bars exceeded the saturated fat limit. And what about foods high in sugar? Why are they allowed to be labelled healthy, KIND questioned the agency.
 
The FDA, noting that dietary recommendations have evolved, relented saying KIND could continue to label the bars “healthy” and signalled it will not enforce the current requirements if certain nutritional criteria are met. Meanwhile, companies can, at least for now, still use the term healthy on foods that meet the FDA’s current definition.
 
Here are a few whose “healthy” claims should be taken with, ahem, a grain of salt.
 
 
 
 
 
Consumers can weigh in on how they think the FDA should define “healthy” by submitting electronic comments here.
 
Find more of our coverage on food labelling terminology here
 

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COMMENTS

Anil Kumar

7 months ago

Good article!

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