Asian stocks are lower today as Japanese and Hong Kong shares show losses. The Nikkei 225 is down 0.3% while the Hang Seng is up 0.4%. The Shanghai Composite is trading down by 0.2%. Meanwhile, the Nasdaq fell for the third straight day as a sell-off in Chinese markets sparked concerns about slowing global economic growth, though the S&P 500 pared losses to end nearly flat.
Back home, India share markets opened in green today. The BSE Sensex is trading up by 160 points while the NSE Nifty is trading up by 51 points. The BSE Mid Cap index opened up by 1.6% while the BSE Small Cap index opened the day up by 1%.
Sectoral indices are trading on a positive note with automobile stocks and oil & gas stocks witnessing maximum buying interest.
The rupee is trading at Rs 74.23 against the US$.
In the news from the macroeconomic space, the Reserve Bank of India (RBI) has announced that it will inject Rs 120 billion liquidity into the financial system through purchase of government bonds on October 11. This is done to meet the festival season demand for funds.
The auction to purchase the above bonds is a part of the Open Market Operations (OMO) by the central bank to manage liquidity into the system which seems to be facing liquidity tightness.
OMOs are tools which can be used to either inject or drain liquidity from the financial system.
It is employed to adjust rupee liquidity conditions in the market on a durable basis. If there is excess liquidity, the RBI resorts to sale of securities and takes out the rupee liquidity. When the liquidity conditions are tight, it buys securities from the market, thereby releasing money into the market.
In other news, as per a leading financial daily, the Serious Fraud Investigation Office (SFIO) has zeroed in on five group firms of Infrastructure Leasing & Financial Services (IL&FS) for fund diversion and mismanagement.
The five firms are IL&FS Transportation Networks Ltd, IL&FS Financial Services, IL&FS Energy Development, IL&FS Tamil Nadu Power, and IL&FS Engineering and Construction. These five companies together account for more than 50% of the revenues of the entire IL&FS group that has more than 350 entities in its fold.
As per the news, there was some evidence that funds were diverted by these firms in projects worth Rs 300 billion, said two government officials aware of the initial investigations conducted by the probe agency.
The investigating agency is expected to submit a preliminary report by the month end and investigators are also looking to see if there are any political payoffs in certain projects.
Note that earlier this month the government moved the NCLT's Mumbai bench to sack the board and appoint a new one with immediate effect. It had then appointed a six-member board comprising Uday Kotak, Vineet Nayyar, GN Bajpai, GC Chaturvedi, Malini Shankar and Nand Kishore.
Also, last month IL&FS Financial Services defaulted on 7 fresh payment obligations worth Rs 4 billion. The company was unable to service its obligations in respect of bank loans (including interest), term deposit and short-term deposit.
These defaults were in respect of five bank loans (including interest) totaling Rs 2.4 billion, term deposit obligation of Rs 1 billion and short-term deposit worth Rs 0.5 billion.
In bank loan repayments, it defaulted on Rs 1 billion and Rs 0.5 billion obligations due for 24 September, while a Rs 0.6 billion loan due on 26 September could not be serviced.
It had also disclosed defaulting on interest payments on commercial papers. Following this, the company has been barred from accessing the commercial papers market for up to six months from the date of repayment of this obligation.
IL&FS group has an aggregate debt pile of Rs 910 billion and it has been downgraded to junk status by rating agencies following the default.
In such a scenario, finding a buyer for its debt instruments will be difficult.
Further, a look at the shareholding pattern of IL&FS underlines the scale of the problem.
IL&FS - Too Big to Fail?
Two of India's biggest entities comprise of the top 5 shareholders in IL&FS. LIC has a 25.3% stake. HDFC Ltd owns 9%. Along with Central bank of India (7.7%) and State Bank of India (6.4%), these entities own almost half of IL&FS.
That explains the determination of LIC to stop the situation from worsening further.
And, adding all these stakeholders signifies how much is at stake on the revival of IL&FS.
In the news from IPO space, Garden Reach Shipbuilders and Engineers is set to get listed on the bourses today.
The IPO of the company was subscribed 1.02 times and the IPO received bids for 2,97,58,920 shares against the total issue of 2,92,10,760.
Garden Reach Shipbuilders and engineers is a shipbuilding company under the administrative control of the ministry of defense (MoD). The company was incorporated in 1934 and was later acquired by the Government of India from Macneill & Barry Limited on 19th May 1960.
The company primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. It is also engaged in engineering and engine production activities.
To know more about the company, you can read our IPO analysis of Garden Reach Shipbuilders and Engineers(requires subscription).
Also, with so many IPOs set to hit the markets, we at Equitymaster believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.
Comments
Log in or sign up to join the conversation.