Sensex, Nifty on a positive move: Thursday closing report

The market has to break past 5,640 for today’s up move to continue

The fresh steps taken to stabilize the currency and the measures to reassure investors by the new governor of Reserve Bank of India (RBI) Raghuram Rajan were welcomed by the market. In response to the measures, the Nifty surged on a higher volume of 75.55 crore shares making the highest percentage gain since 28 June 2013.


Sensex and Nifty immediately hit the day’s high and throughout the session moved in a narrow range. The Sensex opened at 18,858 and moved in the range of 18,847 and 19,118. The Sensex closed at 18,980 (up 412 points or 2.22%). The Nifty opened at 5,554 and moved in the range of 5,553 and 5,626. The Nifty closed at 5,593 (up 145 points or 2.66%).


Except for IT (down 2.97%) and Pharma (down 0.32%), all the other indices closed in the green. The top five gainers were Bank Nifty (9.46%), PSU Bank (8.66%), Finance (7.82%), Realty (5.90%) and PSE (3.06%).


Of the 50 stocks on the Nifty, 33 ended in the green. The top five gainers were Axis Bank (15.91%); Kotak Mahindra Bank (9.43%); State Bank of India (9.36%); ICICI Bank (8.84%) and Bank of Baroda (8.72%). The losers were Sesa Goa (6.77%); TCS (3.63%); Infosys (3.53%); Lupin (2.63%) and HCL Technologies (1.96%).


Global credit rating agency Moody's Investors Service said that India's inflation and fiscal metrics remain weaker than peers. The ratings agency, however, said the country's current reserves can finance the current account and external debt payment needs. Moody's has an investment grade rating on India with a stable outlook.


India is among five emerging market countries, which could face significant funding risks as the dollar strengthens against their home currencies according to a report from Morgan Stanley. The report dated 4th September noted that external funding remains crucial for many countries in the Asian and emerging market pack, and that a strengthening dollar can ‘can create a significant challenge, which is already weighing on both earnings power and multiples.’


The International Monetary Fund (IMF) has said scope of easing monetary stance in India is very limited and it might have to be tightened due to high inflation. Also, IMF said emerging market economies should allow exchange rates to adjust to the fundamentals of their economies, and should curb only volatility, a key advice, given the fall in the rupee in recent times.


Except for Shanghai Composite (down 0.24%), Jakarta Composite (down 0.55%), NZSE 50 (down 0.13%) all the other Asian indices ended in the green. Hang Seng, top gainer, up 1.22%.


It has become clear that the two missiles that landed in the Mediterranean region on Tuesday, 3 September 2013, weren't part of a US led military strike in Syria.


US indices closed in the positive on Wednesday. US auto sales pointed to robustness in the manufacturing sector. The report showed consumer spending and manufacturing has risen in most of the 12 regions in the US and said job creation was steady or improving. Federal Reserve data released overnight showed that the US economy grew at a "modest to moderate" pace in July and August, according to the central bank’s "beige book".


One top Federal Reserve official said on Wednesday he was open-minded about reducing stimulus this month, as investors largely expect the central bank to do, while another policymaker said the U.S. central bank should actually do more for the economy. The comments reflect the uncertainty that lingers over financial markets two weeks before the Fed's 19 policymakers meet to decide whether to adjust the $85-billion monthly bond-buying program.


European indices were trading in the positive while US Futures were trading in the negative.


NSEL says no discrepancy in e-series stock holdings in vaults

NSEL said it is in the process of providing an exit window for investor to liquidate the e-series units and realise cash payments

Crisis-ridden National Spot Exchange Ltd (NSEL) on Thursday said that its stock positions of gold, silver and platinum, for e-series contracts tallies with depository records and there are no discrepancies in e-series stock holdings in vaults.


"In order to facilitate the investors to liquidate the e-series units, NSEL is in the process of providing an exit window to sell their units and realize cash payments, subject to necessary approvals," the Exchange said in a release.


NSEL said it has also posted the relevant audit report by Sharp & Tannan Associates on its website.


Last month, NSEL sacked its chief executive Anjani Sinha, accusing him of having hushed up the fact that warehousing receipts (WRs) are not backed by physical stock of commodities.


According to a report from Business Standard, one crucial difference that everybody overlooked (in NSEL saga) was that these (forward) contracts should have been backed up by the goods in the warehouses. Nobody seemed to verify whether the goods actually existed or not. Brokers started giving out contract notes to hundreds of investors backed against just one warehouse receipt (you cannot split a receipt). The warehouse receipt acted as title to the stock. The broker was taking a risk on the warehouse receipt, the report said.


Since the middle of July 2013, trading in NSEL has been suspended. NSEL has failed to make payouts to investors and failed to recover money from those who were supposed to make pay-ins. It now appears that there is not enough stock of commodities in the warehouses of NSEL against which warehouse receipts were issues. In August 2013, trading in e-series was also suspended. This was of concern for large number of investors who had purchased e-series products like e-gold.


The Exchange owes its investors at least Rs5,600 crore against investments made in stocks warehoused by NSEL. As a precautionary measure, the government of India on 6th August directed the Exchange to suspend the e-series contracts from trading.


E-series contributed about 40% of NSEL’s Rs18,315-crore total turnover in June. E-series contracts is a unique market segment, which functions like the cash segment in equities, but offers commodities in the demat form in smaller denominations.


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LIC’s investment in Pipavav Defence down 43%

The RBI governor is expecting more insurance companies to invest in government securities to reduce the pre-emption of bank resources. But it may be a long time away given how LIC does its investments

Pipavav Defence and Offshore Engineering has been locked in the lower circuit for the past eight trading days. Life Insurance Corporation holds a 7.94% stake in the company amounting to nearly 5.85 lakh shares. Last year, in April and May, LIC bought nearly 2.30 crore shares when the stock was around Rs80. The stock has now fallen 43% to Rs44.95. Raghuram Rajan, after taking over as governor of the Reserve Bank of India, announced several measures to liberalise the banking system. One of his hopes is to reduce the pre-emption of bank resources for investment in government securities as he expects penetration of other financial institutions such as pension funds and insurance companies to increase their investment, thus reducing the need for banks to invest in government securities.

The new RBI governor mentioned that, “Finally, our banks have a number of obligations that pre-empt lending, and in fact, allow what Dr Rakesh Mohan, an illustrious former deputy-governor, called “lazy banking”. One of the mandates for the RBI in the Act is to ensure the flow of credit to the productive sectors of the economy. In this context, we need to reduce the requirement for banks to invest in government securities in a calibrated way, to what is strictly needed from a prudential perspective.”

“This cannot be done overnight, of course. As government finances improve, the scope for such reduction will increase. Furthermore, as the penetration of other financial institutions such as pension funds and insurance companies increases, we can reduce the need for regular commercial banks to invest in government securities,” he mentioned further.

Well, this may be a long way off given frequent stories of LIC’s bad investments. LIC’s equity portfolio consists of many blue-chip stocks but a host of public sector companies and dubious investments in beleaguered private companies in the aviation, power generation, infrastructure sectors, which are seeking restructuring of their loans even as their share prices have sagged. The exact details of LIC’s investments are hidden but given the way capital-intensive stocks that populate LIC’s portfolio have performed so far, LIC has not been doing too well with its equity investments. For a bunch of laidback public sectors officials whose jobs are rotated from PR to business to HR and so on and end with a peaceful retirement, to be able to invest smartly seems a bit far-fetched.




4 years ago

Proably also calculate the percentage these dud stocks make up in LIC's overall stock portfolio. Proably they are taking a convex bet that if these turn out to be a multibagger they have much to gain, likewise if they goto zero they have not much to lose.

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