Stocks
Nifty, Sensex to move sideways – Tuesday closing report
We had mentioned in Monday’s closing report that Nifty, Sensex might pause for breath. The major indices of the Indian stock markets were range-bound on Tuesday and closed with small losses over Monday’s close. The trends of the major indices, in the course of Tuesday’s trading, are given in the table below:
 
 
Profit booking, coupled with caution ahead of release of key macro-economic data, depressed the Indian equity markets on Tuesday. Consequently, the key indices provisionally closed the day's trade flat -- marginally in the red. Selling pressure was witnessed in healthcare, IT (information technology) and capital goods stocks. The BSE market breadth was skewed in favour of the bears - with 1,564 declines and 1,001 advances. The key indices on Monday had closed at their highest levels since October 2015. Initially on Tuesday, the key indices opened on a higher note, in-sync with their Asian peers. The equity markets soon ceded their initial gains on the back of profit booking after five consecutive sessions of rise.
 
Major macro-economic data like the fourth quarter GDP (gross domestic product), fiscal deficit and eight core industries (ECI) are expected to be released later on Tuesday. These key data points can give further cues towards a rate decision by the Reserve Bank of India (RBI) in its monetary policy meet scheduled on June 7.
 
Terming the banks non-performing assets (NPAs), or bad loans, issue a serious concern to the economy, Union Minister of State for Finance Jayant Sinha has said the government was working to sort it out and reduce NPAs. "For this, the government has brought the Bankruptcy Bill and given more freedom and transparency to the banking sector," the minister told ETV News Network. "Most of the banks incurred heavy NPAs between 2008 and 2012, during the UPA government. The present government decided to make it public, so that people should know what is the present situation," he said. Sinha said his government is serious about taking action against wilful defaulters. The Bank Nifty gained 0.57% in Tuesday’s trading to close at 17,620.90.
 
International cigarette companies including ITC and Godfrey Phillips have implemented the rule requiring 85% pictorial warning, they said on Tuesday. According to the companies, the decision was taken following the Supreme Court ruling making the new rule mandatory, even if the case was transferred back to Karnataka High Court. "It is a welcome change to see old packets with 40% warnings on one side of the pack giving way to new packs with larger warnings... There was criticism against the industry that the companies had flooded the market with old stocks in the absence of any clear guideline from the government on the date by which these should be exhausted," said a statement from the companies. "We have implemented the 85% pictorial warnings and now they can be seen on the new packets in the market," a company spokesman told IANS. ITC shares closed at Rs351.60, down 1.40% on the BSE. Godfrey Phillips India closed at Rs892.50, down 0.46% on the BSE.
 
The Krishi Kalyan Cess of 0.5% on services imposed by Finance Minister Arun Jaitley comes into force from Wednesday through which the government proposes to collect Rs5,000 crore during the remaining 10 months of the current fiscal. The government policies are aimed at improving the rural sector and manufacturers of consumer goods, fertilisers and farm equipment are likely to benefit in the stock market from the improved rural purchasing power. This is however, likely to occur only after the monsoon.
 
On a consolidated basis, the Sun Pharmaceuticals group has posted a net profit of Rs4,715.91 crore for the year ended March 31, 2016 against Rs4,539.38 crore for the year ended March 31, 2015. The group's total income stood at Rs28,728.95 crore for the year ended March 31, 2016 against Rs27,842.84 crore for the year ended March 31, 2015. According to a company statement, the board of directors of Sun Pharmaceuticals has decided to meet on June 23 to evaluate a proposal for buy-back of equity shares. Sun Pharma shares closed at Rs762.70, down 6.13% on the BSE.
 
State-run generator NTPC on Monday posted a 7.73% drop in its standalone net profit for the fourth quarter ended March at Rs2,716.41 crore owing to low demand from state distribution companies (discoms). NTPC had posted a net profit of Rs2,944.03 crore in the corresponding quarter of last year, the company said in a stock exchange filing. "The standalone net profit saw a dip this quarter due to lower demand from discoms," a senior company official told reporters. Many discoms' purchasing capacities are under stress from huge accumulated debts. Thus affected, the company's standalone net sales of electricity fell to Rs17,990 crore during the quarter in question, as against sales of Rs19,229.94 crore in the same period year ago. Total standalone income in the fourth quarter fell to Rs18,560.70 crore, from Rs19,879.38 crore in the same quarter of 2014-15. The company supplied 57.95 billion units of electricity during the period as compared to 57.38 billion units in the corresponding quarter of the previous fiscal. For the full fiscal 2015-26, the company reported a standalone net profit of Rs10,242.91 crore as compared to Rs10,290.86 crore in 2014-15. NTPC shares closed at Rs143.25, up 0.10% on the BSE.
 
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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Maharashtra government policy: Rob captive power plants to pay SMEs and win kudos
That is the mantra of the Maharashtra government. Several small and medium enterprises (SMEs) in the state are in dire straits and closing their units due to unaffordable electricity tariffs of about Rs7 to Rs10 per unit. However, the government does not want such units to be closed due to high power tariffs. So, how can it reduce their power tariff? By subsidising the SMEs. But it does not have the money to pay such subsidies. So, it is about to increase cess on all captive power plants, say informed sources. 
 
Says an industrialist privy to this: "They (govt) want the power tariff for SMEs to be fixed at around Rs5.50 by providing a subsidy of Rs2 per unit. The total subsidy amount comes to about Rs1,100 crore. The government does not have this money. So they (govt) want to increase cess on captive power plants to Rs1.50 from 30 paise at present. This will help them garner around Rs950 crore. Rest they will manage from other sources and give subsidy of Rs1,100 crore to SMEs for electricity." 
 
This atrocious move comes at a time when the demand from industry bodies is for providing incentives to captive power plants and for the removal of the cess altogether. Instead of imposing the cess on the generation of captive power, the government should focus on reducing transmission and distribution (T&D) losses that are hampering power sector, the industry bodies had said.
 
Subdued economic activity has led to lower power demand from industrial consumers, which has led the state electricity boards (SEBs) to shed load to the residential and agricultural consumers. However, this has not brought down the tariffs because a large part of the input costs is fixed in nature. Besides, there is enormous padding and corruption involved in capital costs of power plants, which has kept power tariffs really high. Costs of fuel like coal too are not going down. 
 
The power sector in India has always been a highly-regulated sector. While the state-run units are run in an operationally inefficient manner, all kinds of dubious entities in the private sector have been allowed to start power projects. This has created a huge mess of high cost plants, unfinished projects and large bad debts for banks – eventually keeping tariff high and demand low. The state-run generator NTPC on Monday posted a 7.73% drop in its standalone net profit for the fourth quarter ended March at Rs2,716.41 crore owing to low demand from state distribution companies (discoms). NTPC had posted a net profit of Rs2,944.03 crore in the corresponding quarter of last year, the company said in a stock exchange filing. "The standalone net profit saw a dip this quarter due to lower demand from discoms," a senior company official told reporters. Many discoms' power purchase abilities are under stress from huge accumulated debts. In this scenario, the Maharashtra government is making things even messier by Robbing Peter to Pay Paul strategy.
 

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COMMENTS

suneel kumar gupta

9 months ago

I fully agree with the fact maximum efficiency improvement is needed in distribution. Power theft is majorly done by political parties who steal power in all their rallies. I ve often seen them picking power directly frm poles. But will bell the cat. Then state govt. buys power, sells cash & doesn't pay power companies. Things will not change just by fire fighting.

Ganesh Iyer

9 months ago

In Maharashtra at several inner villages there is open power tapping and misuse. Even in cities like mumbai big corporates were caught tampering electricity meters. Whilst electricity theft is a clear No Bail case of registering offence there is no vigilance oversuch thefts. With political connections no action is also initiated. It is ttherefore best to improve electricity in mahatashtra the power sector should be handed over to another state to manage independently and judiciously and make people pay for what they use, make electricity economical, give 365-24x7 electricity supply if not possible then send officials to gujarat to learn some examples. Even Navi Mumbai is electricity deficit huge developments but no power. Make vigilance register power thefts be it road side romeo festivals or political shows theft is theft.

PSU banks credit profile under risk due to heavy losses: Fitch
The credit profiles of India's public sector banks are under pressure as heavy losses have been reported in the last two consecutive quarters, weakening their core capital adequacy, says Fitch Ratings. 
 
In a report, the ratings agency says, "Core capital ratios for many public-sector banks are close to or below the Basel III financial year 2019 (FY19) minimum regulatory requirement of 8%, and the sector is unlikely to build capital through internal capital generation in light of the dim earnings outlook - at least over the next two years due to the ongoing provisioning pressure. The cumulative second half of FY16 losses at Indian public-sector banks were more than double the government's capital injection in FY16, and had eroded nearly 15% of capital as of FYE15. This has heightened the sector's need for additional external capital." 
 
Fitch says since long it has assessed India's banking system on a stressed-asset basis - rather than narrowly defined non-performing loans (NPLs) - to factor in the risks of significant under-provisioning and weak capital and the recent losses at public-sector banks support this approach.
 
The ratings agency is likely to reassess its $140 billion estimated capital need for the system under Basel III, of which public-sector banks will continue to account for the dominant share. The recent steps by Reserve Bank of India (RBI) to allow part of the revaluation reserves into core equity has helped counter some of the pressure, but is not enough - keeping in mind the higher capital requirements, it added.
 
According to Fitch, there are a few options for private-sector capital for now. "Public-sector banks' access to capital markets is likely to remain weak. There is little additional Tier 1 capital issuance either (around $500 million since January). The government remains the most important source of new capital for the sector. The sector's requirement for new capital needs to be addressed to meaningfully kick-start credit growth to lend support to the economy," it said.
 
The central bank's asset-quality review is a positive, as it has compelled banks to reclassify standard or performing restructured loans as NPLs, leading to higher loan provisioning, which triggered losses at many public banks. Small- and mid-sized public-sector banks were always the most at risk, but these results indicate that the standalone ratings of certain large banks may also be vulnerable, Fitch added.
 
The RBI review also highlights higher capital risks for government banks with an average net NPL to equity ratio at around 70% versus 8% at private banks. The impact on private-sector banks was relatively limited, as hidden problem loans were lesser from the start - while better credit growth and diversified income streams also helped offset the decline in profit from higher loan provisions.
 
"India's new Insolvency and Bankruptcy Code may significantly improve resolution timeframes if implementation is both timely and effective. The government's intention is encouraging, according to recent press reports, but it will take time to see whether the new code can help resolve the current NPL stock, especially since the broader economy remains relatively uncertain. The Reserve Bank of India's recent discussion paper on limiting banking sector exposure to individual corporate borrowers, when implemented, could further reduce systemic risk by limiting concentration risk to large corporates," the ratings agency concluded.
 

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