Sensex, Nifty overbought for the short-term: Wednesday Closing Report

Buy the dips; the medium-term uptrend is intact. Nifty may reach 5,450

Most Asian markets opened higher on expectations that central banks from the US to China to Europe may ease monetary policies to spur economic growth. Reflecting the trend, the domestic market opened in the positive as well. The Sensex opened at 17,473 and the Nifty opened at 5,310. We had mentioned that uptrend will continue to the level of 5,500 subject to dips. We are reducing the target to 5,450. The National Stock Exchange (NSE) saw a marginally lower volume of 73.83 crore shares.

China's services firms grew at their slowest rate in 10 months in June, easing back from May's 19-month peak, as new order growth cooled. The China HSBC services purchasing managers index (PMI) stood at 52.3 in June, down from 54.7 in May, indicating a marginal expansion of activity that capped job creation at a three-month low and bolstering expectations that Beijing will deliver further policy measures to boost growth.

On the other hand, India's services sector expanded for the eighth straight month in June although at a slower pace, but new orders picked up and firms hired workers at the fastest pace in a year. HSBC's services purchasing managers' index dropped to 54.3 in June from 54.7 in May. However, it has kept above the 50 mark that signifies growth since November. The survey showed order books filled at their strongest pace in four months, riding high on domestic consumption.

With the positive news, the Sensex and the Nifty hit their day's high at 17,524 and 5,318 in initial trade.

The benchmarks went into the negative after the European market opened. The indices, after being in the green all through the morning session, hit their intraday low in the noon session at 17,372 and 5,273, respectively. European stocks were trading in the red after Germany's services industries unexpectedly shrank last month.

The indices made a strong recovery in the post-noon session and ended in the positive. The Sensex closed at 17,463 (37 points up, 0.21%) while Nifty settled at 5,303 (15 points up or 0.28%)

The advance-decline ratio on the NSE was positive at 1179:637.

The broader indices outperformed the Sensex today as the BSE Mid-cap index advanced 0.87% and the BSE Small-cap index climbed 0.88%.

The sectoral indices were led by BSE Metal (up 2.12%); BSE Realty (up 1.91%); BSE Consumer Durables (up 0.68%); BSE Capital Goods (up 0.63%) and BSE Power (up 0.61%). The sectoral losers were BSE Oil & Gas (down 0.56%); BSE Fast Moving Consumer Goods (down 0.47%); BSE IT (down 0.38%) and BSE Healthcare (down 0.08%).

The top Sensex gainers were Sterlite industries (up 5.27%); Jindal Steel (up 3.37%); Maruti Suzuki (up 2.56%); Bharti Airtel (up 2.19%) and SBI (up 1.85%). The key losers were ONGC (down 1.68%); Dr. Reddy's (down 1.57%); Wipro (down 1.47%); Hindustan Unilever (down 0.98%); Coal India (down 0.79%).

Top two A Group gainers on the BSE were-Voltas (up 7.32%) and Dish TV (up 6.01%).
Top two A Group losers on the BSE were-Sun TV Network (down 2.81%) and IPCA Laboratories (down 2.31%).

Top two B Group gainers on the BSE were-Birla Ericsson (up 20%) and Vindhya Telelinks (up 20%).
Top two B Group losers on the BSE were-Gennex Laboratories (down 11.76%) and Ontrack Systems (down 11.23%).

The Nifty leaders were Sterlite Industries (up 5.45%); Sesa Goa (up 3.92%); Jindal Steel (up 3.69%); Jaiprakash Associates (up 3.27%) and Bharti Airtel (up 2.59%). The top laggards were ONGC (down 2.24%); Asian Paints (down 1.86%); Dr. Reddy's (down 1.71%); Kotak Mahindra Bank (down 1.37%) and Wipro (down 1.35%).

Australian retail sales climbed 0.5% in May, the Australian Bureau of Statistics (ABS) reported on Wednesday. Sales were up 0.1% in April. The ABS said that most industries recorded higher retail sales in May, with cafes, restaurants and takeaway food, along with household goods the main drivers of the growth.

Except for the Shanghai Composite and Hang Seng, all other Asian indices closed in the positive. The US market will remain closed today, 4 July 2012, for the Independence Day holiday.

Back home, foreign institutional investors were net buyers of shares totaling Rs589.71 crore on Tuesday while domestic institutional investors were net sellers of equities amounting to Rs543.97 crore.

Deepak Fertilisers and Petrochemicals Corporation has put on hold a planned $350 million ammonium nitrate manufacturing project in Australia on account of  environmental, technical and economic factors. The project, announced last year, had faced local opposition on concerns over possible harm to nearby cuttlefish populations and did not get past the planning stage. The stock rose 1.36% to close at Rs138.10 on the BSE.

Delayed monsoon has added to the woes of state-run NHPC as the company witnessed 5%-10% drop in generation in the past 10 days, due to scarce rainfall in the northern parts of India. NHPC generated 6,000 million units of electricity in the first three months (April-June) of the current financial year, which is 3% lower than the same period last fiscal. The stock rose 1.88% to close at Rs18.95 on the BSE.


Have banks misled investors by inaccurate reporting of NPAs?

Banks have come a long way from the days of deliberate acts of concealing the true state of affairs. “System generated” NPA is a necessary step in cleaning up the financials of banks which the RBI rightly directed

Last week Dr KC Chakrabarty, deputy governor of the Reserve Bank of India (RBI) made a sweeping charge in the Banking Technology Summit organised by CII that the banks, by attributing the increase in NPAs (non-performing assets) during 2011-2012 to the adoption of system-based capturing of NPA data, have misled the investors by reporting inaccurate figures of NPAs for the past five years. Continuing his lambaste, he incited SEBI (Securities and Exchange Board of India), the capital market regulator, to take action against the publicly-listed banks which include all of the Public Sector banks (PSBs). He missed exhorting  the public shareholders, who now hold substantial chunk of shares in PSBs, to question the banks, their auditors, indeed the board of directors (in which the RBI has a nominee and the government has quite a few part-time nominee directors), for approving  accounts which did not reflect "True and Fair" view of the financials. By extension, the RBI which conducts Annual Financial Inspection (AFI) needs to be asked the same question. The public shareholders need to gain courage from TCI, which with just 2% shareholding  challenged Coal India  on  its pricing policy as guided by the government on the ground that, "If they (government) choose to list a company, they have to treat minority shareholders with respect. They were committed to running the business in a professional manner".

Dr Chakrabarty could not have been unaware of the practices of reporting of NPAs in PSBs as he was the CMD of two public sector banks- Indian bank, one time a weak PSB, and Punjab National bank-prior to his becoming the deputy governor. Generally speaking, banks in the past endevoured to show diminished figure of NPAs, in such of those loans where the departure from the strict criteria of identification of NPA, was 'minor' which the statutory auditor accepted as reasonable. For example it is possible that when interest or repayment installment was received only a few days after it fell due, the loan was treated as a performing asset. It is also possible that some branches, with or without the backing of the controlling office, might have resorted to "ever greening" a loan account prone to default, by granting an additional/ fresh loan to recover interest, or installment to avoid the loan becoming a NPA. Most of such cases, anecdotally speaking, took place in priority sector portfolio spread over thousands of bank branches manned by managers of varying dexterity, and where the decision on treating a loan as NPA or not, tended to be accommodative.

Yet another device adopted by banks and erstwhile long-term financial institutions was to restructure loans to avoid a loan being classified as non-standard. This was resorted to in the case of some large loans; such restructuring on paper seemed fairly well justified. In fact in the wake of financial turmoil experienced globally since 2008, the RBI itself suggested restructuring of loans with some well laid down conditions. To quote, "As one time measure and for a limited period, prudential regulations for restricted accounts were modified for applications received upto March 31, 2009. The modification in regulations for restructuring was effected to preserve economic and productive value of assets which were otherwise viable. The modifications permitted restructured accounts to be treated as standard assets---even if they turned non-performing at the time of restructuring'. [Emphasis added]. Given that India could not remain unaffected by the global affliction, the RBI cannot be faulted for not following its own norms. It was justly being pragmatic.

To add to the above stated factors, there might have been interpretational issues of the instructions on NPAs, though such cases perhaps were not common. To cover such rare cases as well, the RBI requires banks to provide in the following year for any loan account, which its Annual Financial Inspection qualifies as NPA, contrary to the treatment accorded by the bank concerned while finalizing accounts at the year end.  In passing, a curious case is worth mentioning. Following the assurance from the central government in a meeting which was attended by the Maharashtra government representative, the RBI nominee and lender banks, to Rathnagiri Gas &Power Pvt Ltd (Erstwhile Enron, India), all banks treated the exposure amounting to over Rs9,000 crore as standard asset but statutory auditors of one or two banks with relatively small exposure treated them as substandard loans as the government/ RBI's decision was not received in writing. RBI's AFI auditors of these banks upheld the decision of treating the exposure as non-standard but RBI AFI teams elsewhere did not dispute the classification of the same loan as standard asset in other banks in the consortium!

 It is in context to recall the 1980s in which banks were tacitly encouraged to fudge their financials (for reasons of political expediency) to somehow show profit; this manipulation of accounts of banks was over in early 1990s as the banks adopted prudential norms following Basel I recommendations. It is worthwhile recalling the findings of the report of the working group on "Restructuring Weak Public sector Banks" (Indian Bank, Uco Bank, United Bank) {better known as Verma Committee Report}. To quote, "Till the adoption of the prudential norms, 26 out of 27 public sector banks were reporting profits. In the post-reform year, i.e. 1992-93, the profitability of the PSBs as a group turned negative with as many as 12 natinalised banks reporting net losses". The RBI, it must be said to its credit, knowing the circumstances was pragmatic in allowing 4/5 years for a graduated nursing of banks to health. Had it panicked, some banks could have collapsed.

Banks have come a long way from the days of deliberate acts of concealing true state of affairs under political pressure. The banking system, without wishing away the problem of NPAs, is basically sound. More important issue to be examined ought to be the seriously worrying aspects of the working of BIFR, DRTs, on the one hand, and CDR mechanism on the other. In actuality the first two entities are dysfunctional, or weary of their statutory objectives. The CDR mechanism is allegedly in the grip of Asset Reconstruction Companies (ARCs) and the original intention seemed to have yielded place to profiteering at the cost of banking system. We will revert to this topic soon.

As of now, all that can be stated is that the system generated NPA is a necessary step in cleaning up the financials of banks which the RBI rightly directed. System-based identification does not permit any latitude to banks and hence, the rise in NPAs last year became inevitable. We need to view the issue with contemporaneous perspective, without undue alarm. Dr Chakrabarty, with the insider knowledge of heading the two commercial banks and having been a part of the some pragmatic policy initiatives of the RBI in the face of global financial meltdown, could have been less preachy instead of showing off his mantle as savior of banking system.

 (A Banker is the pseudonym for a very senior banker who retired at the highest level in the profession.)



Dayananda Kamath k

4 years ago

i have brought these things to the notice of governor reserve bank of india in 2005 and also to sebi but sebi says it does not pertain to them and sebi and i have crss sent the replies to both but none have taken notice then i forwarded a complaint against the auditors of the bank to institute of chartered accountants of india which is still pending. then matter was brought to the notice of company law board and minister/ministry of corporate affairs and one of the illitereate(?) secretery in the department interpretated it as refund from invester fund even though my subject caption is satyam in banks. even he has the audacity to send the same reply with defferent date and reference to my clarificatory letter. the matter was referred to speaker of the loka sabha, primeminister of india and president of india who hold the shares on behalf of the public. but no action in the last 6 years and the today one of the deputy governor asks sebi to initiate action. it is nothing but planned loot of the public money by every authority in this country who functionin the name of democracy and constitution. even my letters enclsoing copies of these to the cheif justice of india is not acted just allow this country to be looted in the name of democracy/ constituion.unless public opinion is created this will not eradicated. and unfortunately even moneylife has not found it suitable to act on my open appeal to cheif justice of india.

Kamal Shah

4 years ago

The facts :
Around Rs 47 lakh crore.
Approximate Interest expenses on FD : Around Rs 4.5 lakh crore per annum
.Approximate Recovery amount pending through DRT's :
Rs 6 lakh plus crore .
Approximate possible defaults and CDR's :
Rs 4 plus lakh crore .
So if Rs 10 lakh crore of BANKS is stuck up in pending recoveries , how can bank pay interests without actual realisation of income . It clearly means that banks are paying interests from the deposit amount only and seems to have suppressed a huge scam .Just by begging from govt of capital infusion and maybe some non verified sources , banks are largely manipulating the balance sheets .It would be a big surprise to find if we can, the TOP 2500 BORROWERS all across India and top 2500 defaulters .
The amount could be more than 30 percnt of total deposits .
Everything requires indepth investigation before we fall by say 2017


4 years ago

This a well known fact known to Branch Managers and Officers at administrative offices. this became more rampant ever since CMD's and ED's were rewarded started given bonus on achievement of various parameters as a part of MOU signed with Govt. Zonal heads forced Branch heads to report less MPA's as reporting was not a system generated one.

Ashok Chavan, 12 others chargesheeted in Adarsh scam

The CBI alleged that records were manipulated and fabricated to get the land allotted in favour of the housing society in an illegal manner and also got various clearances

Mumbai: Maharashtra's former Chief Minister Ashok Chavan was among 13 people chargesheeted by Central Bureau of Investigation (CBI) in the Adarsh scam on Wednesday with the Congress leader being accused of granting some approvals to the upscale Housing society here as a quid pro quo for allotment of two flats for his kin, reports PTI.

Describing as unfortunate and unexpected the 10,000-page chargesheet in connection with alleged irregularities in the scam, Chavan, who was forced to quit as Chief Minister in November 2010 after the scam surfaced, accused his political rivals of trying to implicate him.

"This (CBI chargesheet) is unfortunate and unexpected. The Adarsh housing is only an administrative matter. However, there is a conspiracy by my rivals to malign me. The Adarsh issue has been blown out of proportion," he told reporters after the chargesheet was filed in the Sessions court.

The central probe agency had registered a case in the scam in the housing society in Colaba on January 29 last year under IPC sections including criminal conspiracy, cheating, forgery and showing forged documents as genuine, besides sections pertaining to Prevention of Corruption Act.

In its chargesheet, CBI charged Chavan with approving additional floor space index (FSI) for the housing society during his tenure as the Chief Minister and alleged that he gave these approvals as a quid pro quo for getting flats alloted for his mother-in-law and brother-in-law.

CBI also accused Chavan of illegally approving allotment of 40% of flats for civilians in the housing society, which was said to be meant for Kargil widows and war heroes, during his tenure as Revenue Minister in 2001-03. He had dealt with files pertaining to the ownership of land.

The chargesheet also named retired Army officers -- Brig (retd) MM Wanchoo, Major Generals TK Kaul and AR Kumar, Colonels TK Sinha and R Bakshi, ex-Congress MLC KL Gidwani, IAS officer Jairaj Phatak and former CIC Ramanand Tiwari.

Besides them, society members RC Thakur, PV Deshmukh, Subhash Lala and Pradeep Vyas have also been named by the CBI

The chargesheet came notwithstanding the claims made by Maharashtra Government before the Bombay High Court that the agency had no jurisdiction in probing the case.

CBI informed the Bombay High Court that it was going to file a chargesheet in the case after which the agency submitted the document in the Sessions Court.

The statements of union ministers and former chief ministers Vilasrao Deshmukh and Sushil Kumar Shinde, who are under the scanner in the Adarsh scam, have not been incorporated in the chargesheet.

"Neither was I associated with allotment of land to the Adarsh society nor did I have anything to do with the list of its members," Chavan said.

"I have full faith in the judiciary and am confident that I will will be proved innocent and emerge out unscathed," the former Chief Minister said, adding that he would be consulting his legal team and decide further course of action on the issue.

The CBI informed the court that though the names of Pradeep Vyas and Jairaj Phatak have been included in the chargesheet, the agency was still awaiting their sanction for prosecution from Department of Personnel.

It has dropped two names among the 14 people against whom an FIR was filed in January 29 last year. They are retired Brigadiers P K Rampal and Romesh Chandra Sharma.

However, the CBI included the name of retired Col R Bakshi who allegedly gave a letter certifying that the land did not belong to the Army.

CBI also said in its chargesheet that benami transactions were still under investigations and the agency might file a supplementary chargesheet in the case.

The CBI has cited 150 witnesses in the case.

The allegations in the chargesheet broadly are that Thakur along with Wanchoo conspired with the members of Defence services officers, officials and functionaries of Maharashtra Government with the intention to illegally get the land allotted in favour of Adarsh cooperative housing society in which they were the members.

The CBI alleged that records were manipulated and fabricated to get the land allotted in favour of the housing society in an illegal manner and also got various clearances from the Municipal authorities and the state government.

According to the chargesheet, former Deputy General officer in Command Maj Gen Kumar allegedly abused his position and dishonestly and fraudulently issued a purported NOC to the collector Mumbai for the development of the plot.

The CBI alleged that former Congress MLA Kaniyalal Gidwani joined the conspiracy with the motive to exercise his personal influence with the public servants in the state Government and offer them membership for showing favour to the society.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)