Indian share markets ended the day on a strong note today. The Sensex today broke through 37,000 and the Nifty was also driven to a record high on expectations that companies would turn in better numbers during this results season. At the closing bell, the BSE Sensex finished higher by 126 points and the NSE Nifty finished higher by 35 points. Meanwhile, the S&P BSE Midcap Index ended up by 0.8% while S&P BSE Small Cap Index ended up by 0.3%.
Sectoral indices ended the day on a mixed note with PSU stocks and Power stocks leading the pack of gainers. While metal stocks and IT stocks ended the day in the red.
Irrespective of the market sentiment, the BSE Sensex is scaling new highs. But look around you.
How many investors do you still see getting richer every day? Fewer than what you saw at the start of the year? Very few?
Well, the Sensex has gained Rs 60 trillion in market cap since 2004. That's a huge number. Nearly a third of the country's GDP. But how many investors have really benefitted from this rally? Very very few.
Mainly because most never joined. Even today less than 20% of Indian households invest directly or indirectly in stocks.
Also, because most of those who joined burnt their fingers with bad quality stocks. So, every time there was a sharp correction, these investors were the worst affected.
In the three big crashes since 2004, the Sensex lost about 31 trillion of market cap. And most of the investors who were scarred never bothered returning.
Sensex Gained Rs 60 Trillion and Lost Rs 31 Trillion of Market Cap Since 2004
Globally, Asian stock markets finished lower today with shares in China leading the region. The Shanghai Composite is down 0.7% while Hong Kong's Hang Seng is off 0.5% and Japan's Nikkei 225 is lower by 0.1%. European markets are mixed today. The DAX is up 1.5% while the CAC 40 gains 0.8%. The FTSE 100 is off 0.04%.
The rupee was trading at Rs 68.70 against the US$ in the afternoon session.
In the news from the automobiles sector. In the latest development, India's largest-selling car maker, Maruti Suzuki India Ltd, posted a rise of nearly 27% in first-quarter profit, boosted by higher sales volumes, but missed Street estimates.
The company, majority-owned by Japan's Suzuki Motor Corp, reported a profit of Rs 19.8 billion (US$287.4 million) for the quarter ended 30 June versus Rs 15.6 billion a year earlier.
Total revenue from operations rose 13.6% to Rs 224.6 billion.
Maruti's operations are key for Suzuki as it provides the bulk of the Japanese automaker's revenues, and has a market value of more than US$43 billion, around 1-1/2 times that of its parent.
Maruti sold 490,479 vehicles during the quarter, up 24.3% from a year earlier. Sales of compact vehicles, which include the Swift and Baleno, rose 49.8%, while sales of utility vehicles, including the Ertiga and Vitara Brezza, climbed 15.1%.
Further, Suzuki, this year announced an agreement with Toyota Motor Corp for the Indian market, by which Suzuki will supply its Baleno hatchback and Vitara Brezza to Toyota, while Toyota will produce the Corolla sedan for Suzuki.
Maruti Suzuki share price fell over 3.7% today.
Moving on to the news from the economy. Global credit rating agency, Moody's Investors Services in its latest report has said that the government's decision to infuse Rs 113.4 billion in public sector banks (PSBs) including fraud-hit Punjab National Bank (PNB), is credit positive and will help these lenders meet the regulatory capital requirements.
It mentioned that PNB will get the maximum amount at Rs 28.2 billion, followed by Corporation Bank, which will see an infusion of about Rs 25.6 billion. The others are Indian Overseas Bank (Rs 21.6 billion), Andhra Bank (Rs 20.2 billion) and Allahabad Bank (Rs 17.9 billion). The infusion is part of the Rs 650 billion that the government proposes to infuse into 21 PSBs this financial year.
According to the report, these banks' common equity tier 1 (CET1) ratios were the weakest among all PSBs as of March-end and were at the risk of breaching the minimum regulatory capital requirement of 5.5% under the Basel III norms.
It expects these lenders' CET1 ratios to be above 5.5% after the new capital infusion. It also said that the additional capital will also lower the risk of Andhra Bank and PNB breaching the write-down trigger on outstanding Basel III-compliant additional tier 1 (AT1) securities.
It indicated that as of FY18, Andhra Bank disclosed Rs 22 billion of Basel III-compliant AT1 securities and PNB Rs 53 billion.
Rating agency further said that based on the contractual terms of the Basel III AT1 securities, the value of the security will be automatically written down should the bank's CET1 ratio fall below 5.5% before 31 March 2019.
Post that date, the trigger value steps up to 6.125%. It expects the five banks to have losses in FY19, albeit somewhat smaller than their losses for FY18.
It pointed out that the losses are due to the elevated credit costs as the banks continue to provide for their large stock of non-performing loans. As such, depending on their financial performance during the rest of the year, it said that these banks may require additional capital support from the government to meet the minimum regulatory thresholds.
In October last year, the government had announced a Rs 2.11 trillion recapitalization plan. The two-year recapitalization programme was aimed at helping state-run banks to deal with rising bad debts and spur credit growth.
Using recapitalization bonds can only act as a short-term measure to the crisis afflicting Indian public sector banks today. Such a measure will not address the structural issue in the banking system, i.e. the poor standard of lending and poor governance system.
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