Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the healthcare sector and auto sector witnessing maximum buying interest. Oil & gas stocks are trading on a negative note.
The BSE Sensex is trading up 90 points (up 0.3%) and the NSE Nifty is trading up 24 points (up 0.2%). The BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading up by 0.1%.
The rupee is trading at 68.52 to the US$.
Dena Bank share price is in focus today. Shares of the lender witnessed buying interest after it sold a cumulative 60,50,000 shares in three entities. The move a part of the public-sector bank's strategy to hive off non-core assets.
In the news from the macroeconomic space, the government is set to announce new minimum support price (MSP) regime today.
The regime is said to provide farmers a profit margin of 50% over cost of production and is likely to be around Rs 335 billion.
In the news from the banking sector, as per a leading financial daily, the proposed 51% stake purchase by Life Insurance Corporation (LIC) in IDBI Bank may not require Parliament's approval as it does not require any changes in the LIC Act.
As per the news, since the deal is going to be a financial deal as per the LIC Act, the legislation would not require amendment. However, it would need cabinet approval if the proposed deal gets all regulatory approval.
The proposed acquisition by LIC would not bring any money to the government but IDBI Bank would get capital support between Rs 100 billion and 130 billion depending on the share price of the bank.
The bank intends to issue fresh shares so that LIC stake goes up to 51% and simultaneously, the government stake comes down from the existing 80.96%.
The above developments come as last week the Insurance Regulatory and Development Authority of India (IRDAI) permitted LIC to acquire up to 51% stake in state-owned IDBI Bank.
This attempt by LIC to bail out the troubled IDBI Bank is a classic case of the state insurer buying toxic assets. In fact, LIC has been acting like the government's ATM for years. It has bailed out public issues of scores of PSUs. This is evident from the chart below:
LIC - The Default Bad Bank?
As Tanushree Banerjee writes in a recent edition of The 5 Minute WrapUp...
- Given the high stakes that LIC owns in the most troubled banks, the government needn't even consider the proposal of setting up a 'Bad Bank'. It could just turn LIC into one. At least then the investors owning investments in LIC policies, would know the real risk they carry.
In the news from the commodity space, crude oil prices are witnessing buying interest today. Gains are seen as data from the American Petroleum Institute (API) showed larger-than-expected fall in US stockpiles.
Crude oil is also witnessing uptrend on the back of supply disruptions seen this week. As per the reports, Production at Syncrude Canada's 360,000 barrels per day (bpd) oil sands facility was hit by a power outage last month. The facility is said to remain offline through July and the development will help in draining US crude oil inventories.
Also, Libya's National Oil Corp (NOC) declared force majeure on loadings from Zueitina and Hariga ports on Monday, resulting in 850,000 bpd of supplies being disrupted.
The above developments meant a cut in crude oil supplies and led to a rise in crude oil prices.
Note that crude oil prices have been witnessing a rising trend lately. Rising crude oil prices not only affect fuel prices, but also have many other repercussions for the Indian economy.
They can be a big worry for the Modi government as well. This is because the Modi government has been a big beneficiary of lower crude oil prices.
Apart from that, what does rising crude oil prices mean for stock markets?
Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. She believes the rise in crude oil prices is a bearish sign for stock markets globally. At the same time, any market correction will throw up interesting buying opportunities in small-cap stocks.
How the government handles this situation of rising crude oil and fuel prices remains to be seen. Meanwhile, we will keep you posted on all the developments from this space. Stay tuned.
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