by admin | May 25, 2021 | Opinions
By Taponeel Mukherjee,
Innovation in the Indian capital markets is needed to both boost growth and resolve the balance sheet issues of banks. Besides improving the corporate bond market and lending standards, work needs to be done to create a covered bond market to assist better lending standards.
Covered bonds are bonds backed by both a pool of assets and by recourse to the borrower – providing dual recourse for the lender. Covered bonds have been a tool for credit across the world for centuries, and the outstanding amount in Europe, according to the 12th edition of the European Covered Bond Fact Book, was 2.5 trillion euros at the end of 2016. India needs to establish a covered bond market to provide a useful additional tool for credit flow in the economy.
Given its dual recourse feature, the covered bond market encourages more risk-averse investors such as pension funds and insurance companies, with large pools of capital, to participate in the market. Having dual recourse also allows investors to lend for a longer duration and at a lower interest rate. This helps bring down the cost of credit and allows institutions issuing covered bonds to match asset liability for longer periods of time.
For instance, if a financial institution makes housing loans for a 10-year period, access to a covered bond market will allow it to borrow for longer as opposed to the short-dated bank deposits on its balance sheet. This is particularly applicable to the India, since most banks fund long-dated assets using short-dated liabilities such as fixed deposits. This creates refinancing risk for banks, causing instability in the financial system. A well-developed covered bond market helps create a more stable financial system.
India faces some challenges in the credit markets, and innovation is the key to improving lending standards. To start with, the covered bond market must be applicable only to a few sectors that need a push. Housing can be one, since the lower cost of credit can make the sector a lot more affordable in India. It is important to start with one sector, or a few sectors at most, to help develop the covered bond market.
There are three important points to be kept in mind to ensure the success of a covered bond market. Firstly, the demarcation of assets in the asset pool must be carefully defined legally and executed operationally. India needs to create an independent central agency that will monitor the segregation of the assets in the pool. It will be tasked with ensuring that assets in the pool are not used as collateral for any other purpose.
Secondly, the agency will have to ensure that the pool of assets maintains its value and assets are added or removed from the pool by the borrower when required to maintain the agreed asset value. There can be no two ways about this condition.
Thirdly, strict limits must be ensured in terms of how much a particular financial institution can issue as covered bonds as a percentage of its balance sheet. This will ensure that not all assets of a financial institution are encumbered through a covered bond pool.
In summary, it is important for India to learn from how the covered bond market developed in Europe and helped in developing a robust credit system. Without doubt, a covered bond market is one of many different solutions that must be used to create a more robust capital market in the country. That said, a successful covered bond market is contingent upon a well-defined legal framework and its effective implementation.
(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. He can be contacted at taponeel.mukherjee@development-tracks.com or @taponeel on Twitter)
—IANS
by admin | May 25, 2021 | Economy, Markets, News
By Porisma P. Gogoi,
Mumbai : Apart from developments on the domestic front, the Indian equity markets would seek direction from global markets during the coming week, said market analysts.
“With the results season almost over, all the focus will continue to remain on the global cues,” Arpit Jain, AVP at Arihant Capital Markets, told IANS.
“Last week, the Dow Jones increased by 4.5 per cent and recovered 50 per cent of its recent losses. Hence, once the domestic concerns settle, Indian indices are likely to take part in global rally,” he added.
In addition to global cues, the movement of funds and crude oil prices are expected to influence the market sentiment next week.
“It is expected that volatility of global stock markets, along with rupee-dollar movement, inflow of funds from both foreign and domestic market participants and crude oil prices are expected to influence the domestic market going forward,” D. K. Aggarwal, Chairman and Managing Director of SMC Investments and Advisors, told IANS.
Last week, the rupee strengthened by 18-19 paise to close at 64.21-22 against the US dollar.
Provisional figures from the stock exchanges showed that foreign institutional investors remained net sellers last week and sold off scrips worth Rs 2,849.1 crore.
However, domestic institutional investors purchased scrips worth Rs 2,368.01 crore.
With various developments taking place in the banking sector of the country, analysts were of the view that the NSE Nifty50 could be further dragged lower by the Bank Nifty index — which has a greater weightage — the following week.
“What we saw during the past week was a ‘time-wise’ correction. Next week, we will be proceeding towards the next leg of correction and may see markets drifting lower,” said Sacchitanand Uttekar, Assistant Vice-President, Research at Tradebulls.
According to Uttekar, banks were leading the downward rally because of domestic cues like the $1.8 billion Punjab National Bank (PNB) fraud and the state-run banks drifting lower.
“Since the last two sessions, the scenario has changed with the private banks also taking a hit. The Bank Nifty index was dragging the Nifty50 lower,” Uttekar told IANS.
A massive sell-off in the banking sector stocks was triggered last week after the Reserve Bank of India (RBI) announced new norms to deal with non-performing assets.
Besides, the multi-crore fraud detected at one of the Mumbai branches of PNB led to a drastic decline in the shares of the company, along with the PSU Bank Nifty index.
“Going forward, banks could see much deeper levels and magnitude of the fall could be higher for the Bank Nifty,” Uttekar added.
On technical levels, Deepak Jasani, Head, Retail Research, HDFC Securities, said: “With the Nifty continuing to correct the past week after breaking a trend line support a few weeks back, the underlying short-term trend remains down.”
“Further downsides are likely early next week once the immediate support of 10,434 is broken. Any pull-back rallies could find resistance at 10,618,” Jasani told IANS.
Last week, trade in the Indian equity markets was almost flat with a slew of domestic developments like the PNB fraud impacting the market mood.
On a weekly basis, the barometer 30-scrip Sensitive Index (Sensex) rose a tad by 5 points or 0.01 per cent to close at 34,010.76 points. The wider Nifty50 of the National Stock Exchange closed a bit lower by 2.65 points or 0.02 per cent at 10,452.30 points.
(Porisma P. Gogoi can be contacted at porisma.g@ians.in )
—IANS
by admin | May 25, 2021 | Banking, Economy, Markets, News
By Porisma P. Gogoi,
Mumbai : The weekly trade in the Indian equity markets was almost flat. However, a slew of domestic developments like a $1.8 billion fraud reported by the Punjab National Bank (PNB) and release of major macro-economic data impacted the movements of the two key equity indices, analysts said.
On a weekly basis, the barometer 30-scrip Sensitive Index (Sensex) rose a tad by 5 points or 0.01 per cent to close at 34,010.76 points.
The wider Nifty50 of the National Stock Exchange (NSE) closed trade at 10,452.30 points — bit lower by 2.65 points or 0.02 per cent from its previous week’s close.
“Local factors were more at work during this week. Globally, the markets — especially the US markets — have done very well over the last six sessions. But upper moves in the domestic markets have been limited because of local factors,” Deepak Jasani, Head, Retail Research, HDFC Securities, told IANS.
“The market sentiments kept facing new challenges one after the other. This caused some concern in terms of their financial impact and/or political repercussions,” he added.
According to Jasani, it was the third consecutive week of losses for the Nifty50 index.
During the week, a massive-sell off in the banking sector stocks was triggered after the Reserve Bank of India (RBI) announced new norms to deal with non-performing assets on Monday.
Besides RBI’s latest move, the massive $1.8 billion fraud detected at one of the Mumbai branches of PNB — the country’s second largest public sector bank — on February 14 also spooked investors.
The markets were closed on Tuesday for Mahashivratri.
“The truncated week began with a gap-up opening on Monday; however, bulls failed to keep the momentum and eventually ended the week on lower note as the sentiments got further dented by a $1.77 billion fraud reported by the PNB earlier this week,” D.K. Aggarwal, Chairman and Managing Director of SMC Investments and Advisors, told IANS.
PNB shares started to decline after the bank detected a multi-crore fraud case and authorities blamed billionaire diamond trader Nirav Modi for the fraud along with wife Ami, brother Nishal and maternal uncle and business partner Mehul Choksi.
The bank’s shares plunged drastically following the news — over 9 per cent — along with the stocks of Choksi-promoted jewellery company Gitanjali Gems, which plunged almost 20 per cent.
On the macro-front, Aggarwal said: “The CPI (Consumer Price Index) fell marginally to 5.07 per cent in January, while industrial activity has shown growth of 7.1 per cent in December.”
“The December growth showed not only a robust year-on-year growth but also a strong chronological improvement in the industrial activity,” he added.
On the currency front, the rupee strengthened by 18-19 paise to close at 64.21-22 against the US dollar from its last week’s close at 64.40.
Provisional figures from the stock exchanges showed that foreign institutional investors sold off scrips worth Rs 2,849.1 crore, while domestic institutional investors purchased scrips worth Rs 2,368.01 crore during the week.
Figures from the National Securities Depository (NSDL) revealed that foreign portfolio investors off-loaded equities worth Rs 3,006.58 crore, or $467.77 million, during February 12-16.
“The benchmark index Nifty closed below 10,500 levels as banking stocks dragged after the PNB fraud case,” Arpit Jain, AVP at Arihant Capital Markets, told IANS.
“On the domestic front the country’s exports increased by 9 per cent in January, while trade deficit touched a three-year high of $16.3 billion due to an increase in crude oil imports,” he added.
Sector-wise, banks, consumer durables and auto fell the most, while metals, FMCG, and oil and gas indices ended marginally in the positive.
The top weekly Sensex gainers were: Tata Steel (up 2.52 per cent at Rs 688.30); Reliance Industries (up 2 per cent at Rs 921.70); Asian Paints (up 1.75 per cent at Rs 1,143.70); Dr Reddy’s Lab (up 1.55 per cent at Rs 2,212.75); and Hindustan Unilever (up 1.51 per cent at Rs 1,352.45).
The losers were: State Bank of India (down 9.85 per cent at Rs 271.75); Yes Bank (down 6.91 per cent at Rs 311.90); Axis Bank (down 5.41 per cent at Rs 537.75); ICICI Bank (down 4.05 per cent at Rs 321); and ITC (down 2.67 per cent at Rs 266.35).
(Porisma P. Gogoi can be contacted at porisma.g@ians.in)
—IANS
by admin | May 25, 2021 | Economy, Markets, News
Mumbai : Paring most of the day’s gains, the key Indian equity indices on Thursday still closed in the green as positive global cues along with healthy buying in metals, banking and oil and gas stocks kept market sentiment upbeat.
According to market observers, healthy macro-economic data which showed easing inflation in the country added to the upward trajectory of the equity indices.
However, gains were trimmed as a sell-off was triggered in consumer durables, capital goods and healthcare stocks during the late afternoon trade session.
On a closing basis, the wider Nifty50 of the National Stock Exchange (NSE) edged higher by 44.60 points or 0.42 per cent to 10,545.50 points.
On the BSE, the barometer 30-scrip Sensitive Index (Sensex) closed at 34,297.47 points — up 141.52 points or 0.41 per cent from its previous close.
The BSE market breadth was, however, bearish as 1,923 stocks declined as against 908 advances.
In terms of the broader markets, the S&P BSE mid-cap index closed lower by 0.46 per cent and the small-cap index by 1.27 per cent.
“Markets ended with modest gains on Thursday. A sell-off from the highs in the afternoon session curbed the gains,” Deepak Jasani, Head – Retail Research, HDFC Securities, told IANS.
“Positive global sentiments aided the domestic markets. Major Asian markets have closed on a positive note, barring the Jakarta index, while European indices like FTSE 100, DAX and CAC 40 traded in the green,” he added.
Anand James, Chief Market Strategist, Geojit Financial Services, said: “WPI (Wholesale Price Index) added to positive macros that have streamed in, while the bounce in the Wall Street ensured that buying interest prevailed despite yesterday’s (Wednesday) volatility.”
Official data released during market hours revealed that a dip in food and fuel prices decelerated the rise in India’s annual rate of inflation based on wholesale prices to 2.84 per cent in January from 3.58 per cent in December 2017 and 4.26 per cent during the corresponding month of last year.
“However, market could not find much traction as investors rushed to gauge the impact of a banking fraud that looks to have affected multiple sectors,” James added.
Involved in a $1.8 billion fraud, shares of the Punjab National Bank (PNB) closed almost 12 per cent lower after the bank on Wednesday informed the stock exchanges about the fraudulent transactions that took place in one of its branches in Mumbai.
In the filing, PNB put the quantum of transactions at $1,771.69 million (around Rs 11,515 crore), which is equivalent to eight times the bank’s net income of about Rs 1,320 crore ($206 million).
The bank’s shares had plunged drastically even on Wednesday following the regulatory filing to close lower by 9.81 per cent at the BSE.
On the currency front, the Indian rupee on Thursday strengthened by 18 paise to close at 63.91 against the US dollar from its previous close at 64.09.
In terms of investments, provisional data with the exchanges showed that foreign institutional investors sold scrips worth Rs 240.29 crore while domestic institutional investors purchased stocks worth Rs 152.39 crore.
Sectorwise, the S&P BSE oil and gas index edged higher by 149.64 points, followed by banking index by 123.34 points and metal index by 110 points.
On the other hand, the S&P BSE consumer durables index declined by 183.63 points, capital goods index by 163.16 points and healthcare index by 67.42 points.
Major Sensex gainers on Thursday were: ICICI Bank, up 3.15 per cent at Rs 328.60; Infosys, up 1.47 per cent at Rs 1,114.15; Power Grid, up 1.46 per cent at Rs 198.30; ONGC, up 1.37 per cent at Rs 188.40; and Bajaj Auto, up 0.96 per cent at Rs 3,140.60.
Major Sensex losers were: Hero MotoCorp, down 1.85 per cent at Rs 3,533.15; Tata Steel, down 1.20 per cent at Rs 699.85; Bharti Airtel, down 1.15 per cent at Rs 429.20; Larsen and Toubro, down 0.78 per cent at Rs 1,347.10; and Wipro, down 0.49 per cent at Rs 291.55.
—IANS
by admin | May 25, 2021 | Banking, Economy, Markets, News
Mumbai : A massive sell-off in banking sector stocks pulled the key Indian equity indices — S&P BSE Sensex and NSE Nifty50 — lower on Wednesday.
According to market observers, heavy selling pressure was witnessed in banking, healthcare and automobile stocks.
On Wednesday, the barometer 30-scrip Sensitive Index (Sensex) of the BSE receded by 144.52 points or 0.42 per cent to 34,155.95 points from Monday’s close. The equity markets were closed on Tuesday.
Similarly, the wider Nifty50 of the National Stock Exchange declined by 38.85 points or 0.37 per cent to 10,500.90 points.
In terms of the broader markets, the S&P BSE mid-cap index inched up by 0.17 per cent and the small-cap index by 0.16 per cent.
The intra-day trade saw the barometer Sensex touch a high of 34,473.43 points on the back of positive cues from global markets and a low of 34,028.68 points which was led by a massive sell-off in the banking sector stocks.
The BSE market breadth was bullish as 1,368 stocks advanced as against 1,470
declines.
“Markets corrected on Wednesday thereby resuming the intermediate downtrend,” Deepak Jasani, Head – Retail Research, HDFC Securities, told IANS.
“Selling accelerated in the afternoon session led by a drop in PSU banking stocks on the back of news that Punjab National Bank (PNB) had detected a $ 1,771.69 million fraud at a single branch in Mumbai.”
“Major Asian markets have closed on a positive note, barring the Nikkei and Straits indices. European indices like FTSE 100, DAX and CAC 40 are trading in the green.”
The massive-sell off in the banking sector stocks was triggered after the Reserve Bank of India’s (RBI) announced new norms to deal with the NPAs on Monday.
“The PSU banks witnessed sell-off as RBI scrapped a number of loan-restructuring schemes which may lead to further jump in provisions impacting profitability of these banks,” said Vinod Nair, Head of Research, Geojit Financial Services.
Besides RBI’s latest moves, the massive $1.8 billion fraud detected at one of the Mumbai branches of PNB, the second largest public sector bank in India also spooked investors.
“PNB fell 9.8 per cent as investors wondered about the impact of the fraud on the
profits or book value of the bank even as they await data about the
possibility and extent of recovery that is possible,” Jasani told IANS.
“If no recovery is possible, the impact could be Rs.42-46 per share out of which the stock price has already fallen — Rs 16 today.”
On a closing basis, the scrip of PNB closed at Rs 145.80, down by Rs 15.85 or 9.81 per cent from its previous close of Rs 161.65.
Apart from PNB, stocks of other lenders like Yes Bank, State Bank of India, Axis Bank and ICICI Bank were also impacted.
On the currency front, the Indian rupee strengthened by 22 paise to close at
64.09 against the US dollar from its previous close at 64.31.
In terms of investments, provisional data with the exchanges showed that foreign institutional investors sold scrips worth Rs 728.71 crore while domestic institutional investors off-loaded stocks worth Rs 152.39 crore.
—IANS
