Nifty, Sensex still in a short-term uptrend – Thursday closing report-The Total Investment & Insurance Solutions

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8 September 2016

I had mentioned in Wednesday’s closing report that Nifty, Sensex were still bullish. The major indices of the Indian stock markets made a minor rally on Thursday and closed with small gains of a little less than 0.50% over Wednesday’s close. The trends of the major indices in the course of Thursday’s gains are given in the table below: The Total Investment & Insurance Solutions

 

Major Indices (The Total Investment & Insurance Solutions)

Healthy quarterly results, consistent buying by foreign funds and a rise in global crude oil prices buoyed the Indian equity markets on Thursday. The key indices closed the day's trade in the green as healthy buying was witnessed in stocks of healthcare, automobile and consumer durables. However, gains were capped due to profit booking at higher levels and caution ahead of a key global financial event. The BSE market breadth was tilted in favour of the bulls -- with 1,608 advances and 1,151 declines. On the NSE, on Thursday, there were 905 advances, 552 declines and 68 unchanged. The Total Investment & Insurance Solutions

ICICI Bank on Thursday became the first bank in India to deploy ‘software robots that emulate human action, in its over 200 business processes thereby reducing the response time to customers by up to 60%. "The bank is the first in the country and among few, globally, to deploy ‘software robotics' that emulates human actions to automate and perform repetitive, high volume and time consuming business tasks cutting across multiple applications," ICICI Bank said. "We have re-engineered over 200 business processes which are powered by software robots across various functions of the bank. We plan to more than double the software robots to over 500 by end of this fiscal," Chanda Kochhar, MD and CEO, ICICI Bank, said. This initiative marks a milestone in the banking innovation in the Indian banking industry as it joins a select group of overseas organisations which have deployed this unique state-of-the-art robotic technology in such a large way, Kochhar said. The innovation is likely to increase the lead of hi-tech private banks over public sector banks. The Bank Nifty rose 0.05% in Thursday’s trading.

US stocks closed mixed with the Nasdaq Composite Index refreshing previous day's closing record, as Wall Street digested the Federal Reserve's Beige Book. The Dow Jones Industrial Average on Wednesday fell 11.98 points, or 0.06%, to 18,526.14. The S&P 500 edged down 0.33 point, or 0.02%, to 2,186.15. The Nasdaq increased 8.02 points, or 0.15%, to 5,283.93. According to the Beige Book released in the afternoon, reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest pace on balance during the reporting period of July through late August. "Labour market conditions remained tight in most districts, with moderate payroll growth noted in general. Price increases remained slight overall," said the Beige Book. The Fed has been in focus recently, with investors pondering over when the US central bank will decide to raise interest rates. The Federal Open Market Committee, the Fed's monetary policy arm, is set to meet on September 20-21. On the economic front, the number of job openings increased to 5.9 million on the last business day of July, the US Labour Department reported on Wednesday.

State-run gas utility GAIL India (GAIL) on Wednesday posted 244 per cent jump in its net profit for the first quarter which ended in June at Rs 1,335 crore on the back of a turnaround in its petrochemical business and the stake sale in Mahanagar Gas. The company's net profit in the April-June quarter of 2015 was at Rs 388 crore, it said in a statement.  "GAIL's PAT excluding gain from stake sale in Mahanagar Gas Ltd is Rs 846 crore, signifying an increase by 118%," it said. Moreover, during the quarter, production and sales of GAIL's petrochemical business jumped 149% and 121% respectively, resulting in a revenue increase of 95% to Rs 1,133 crore. The profit in this segment stood at Rs 9 crore as against a loss of Rs 397 crore in the corresponding period of last year. Gail India shares closed at Rs388.90, down 1.92% on the BSE.

State-run explorer Oil and Natural Gas Corp (ONGC) on Wednesday posted a 21.14 per cent fall in net profit for the first quarter ended June at Rs 4,232 crore, as compared to Rs 5,386 crore in the same quarter a year ago caused by lower crude prices. The company's gross revenue for the quarter in consideration also fell by a similar 21.4% to Rs 17,784 crore, as compared to Rs 22,628 crore in the first quarter of the last fiscal. Operating income or EBITDA (earnings before interest, taxes, depreciation and amortization) during the quarter in question also fell, coming in at Rs 8,484 crore, as against Rs 10,636 crore in the same quarter last year. The shares of the company closed at Rs246.25, up 0.47% on the BSE. Among the index stocks, TCS fell sharply after it announced that business outlook of some of its major customers was muted. There was all-round buying of pharma stocks. The Total Investment & Insurance Solutions

The top gainers and top losers of the major indices are given in the table below:

Top Gainer (The Total Investment & Insurance Solutions)

The closing values of the major Asian indices are given in the table below:The Total Investment & Insurance Solutions

Asian Indices (The Total Investment & Insurance Solutions)

Nifty, Sensex still bullish – Wednesday closing report-The Total Investment & Insurance Solutions

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7^Th September 2016

I had mentioned in Tuesday’s closing report that Nifty, Sensex were in a strong upward momentum. The major indices of the Indian stock markets were range-bound on Wednesday and closed with small losses over Tuesday’s close. The trends of the major indices in the course of Wednesday’s trading are given in the table below: The Total Investment & Insurance Solutions

Profit booking subdued the Indian equity markets on Wednesday, as the key indices closed the day's trade on a flat note. Selling pressure was witnessed in consumer durables, oil and gas, and finance stocks. The BSE market breadth was tilted in favour of the bulls -- with 1,404 advances and 1,356 declines. On the NSE, there were 801 advances, 807 declines and 68 unchanged.

State-run power equipment manufacturer Bharat Heavy Electricals (BHEL) on Wednesday reported a rise of 54.21% in its standalone net profit for the first quarter of 2016-17. The company's Q1 net profit stood at Rs77.77 crore from Rs50.43 crore reported in the corresponding quarter of 2015-16. The company posted a net profit after three consecutive quarters of losses. BHEL’s total income from operations for the quarter under review increased by 28.72% to Rs5,622.46 crore from Rs4,367.70 crore for the corresponding period of last fiscal. Its net sales edged up by 29.03% to Rs5,522.76 crore from Rs4,280.02 crore during the first quarter of 2015-16. According to the company, it has an outstanding order book position of Rs108,000 crore at the end of Q1 2016-17. The company’s shares closed at Rs159.80, up 15.50% on the BSE. The Total Investment & Insurance Solutions

Global software major Wipro Ltd on Wednesday announced bagging a three-year IT contract from Norway's largest transportation firm NSB Group. "As part of the deal, we will implement NSB's boundary-less data centre and Live workspace solutions and utilise its next-generation delivery framework ServiceNXT to deliver services, which will help variablise their IT operations," said the city-based IT outsourcing major in a statement. The Oslo-based NSB operates rail and bus services and carries freight by rail and maintains trains. "As the proposed state reforms in the Norwegian railway are expected to provide a fillip to its efficiency, our backbone of IT infrastructure services will enable NSB to achieve greater flexibility, scalability, cost efficiency and offer an enhanced end-user experience," asserted the statement. The reforms will also help NSB become future-ready and competitive, in keeping with the spirit of the reforms. "Our partnership and engagement with NSB will have a positive impact on the Nordic transportation sector and the customer experience of its passengers," said Srini Pallia, Wipro's consumer business president. Wipro shares closed at Rs482.15, down 0.13% on the BSE.

The State Bank of India (SBI) may relocate some branches after the merger of its associate banks into its fold, but none of them will be shut down, Chairperson Arundhati Bhattacharya has said in a bid to put rumours to rest and assuage the staff. "I don't believe we will be closing down any branches. This is one area that is getting a lot of adverse publicity. We will be working with the synergies," Bhattacharya told IANS, referring to the plans to merge five associates and Bharatiya Mahila Bank. "Obviously, if the same building has branches of three associate banks, it doesn't make sense to keep them open. If that branch is moved away 60 km, it will have a better reach. We will be relocating a few of them," the Chairperson told IANS over the phone. The merged entity, which will have a network of more than 24,000 branches, will continue to have the same number of branches. The idea is to leverage the synergies, she added. "Not only the productivity can improve, with the same number of people, we can also ensure better footprints. We can move apart branches, send out sales teams. The customer will also have access to a lot of cutting-edge products," she said. The country's largest lender is looking to add $120 billion (Rs8 lakh crore) in assets after the merger of State Bank of Bikaner and Jaipur, State bank of Travancore, State Bank of Patiala, State Bank of Hyderabad and State Bank of Maharashtra, besides the Bharatiya Mahila Bank. SBI’s shares closed at Rs266.55, up 2.74% on the BSE.

The top gainers and top losers of the major indices are given in the table below:

The closing values of the major Asian indices are given in the table below:The Total Investment & Insurance Solutions

Why the new RBI guidelines for sale of stressed assets are unrealistic -The Total Investment & Insurance Solutions

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7^Th September 2016

RBI (The Total Investment & Insurance Solutions) 

The Reserve Bank of India (RBI) on 1 September 2016 issued Guidelines on Sale of Stressed Assets by banks. The Guidelines are an attempt to improve the framework for sale of stressed accounts by banks. The essence of the Guidelines is urging banks to create mechanism for timely identification of stressed accounts and take appropriate actions to ensure there is low vintage and better price realisation for banks.

The guidelines view the world with rose-tinted glasses. Currently the non-performing asset (NPA) levels in the financial system are extremely high and are causing sleepless nights to the Boards of banks and financial institutions. In such times where there is a dire need for quick resolution, the Guidelines are optimistic about finding takers for bad assets and creating dynamic market for the same outside of ARCs as well. While this is the core area for ARCs and special situation funds (which the guidelines do not make a mention of at all), there may be very little or no motivation for other non-banking financial companies (NBFCs) or banks to acquire bad loans.

The Guidelines also seem to suggest that the sale of junk should be undertaken by an open auction process, which will result in price discovery. The existing Framework for Revitalising Distressed Assets in the Economy as applicable to banks and issued on 26 February 2014 mentioned that there were practically challenges in sale of assets through auction process. The bidding process is quite costly and the due diligence takes long. The framework urged for creating transparency in the auction process and required prescription of sufficient disclosures for seamless auction process. Unfortunately, none of these issues from the 2014 Framework are addressed in the new Guidelines. We highlight the prescriptions of the recently issued Guidelines in this article. The Total Investment & Insurance Solutions

Process of identification of stressed assets 

The Guidelines mandate the banks to do the following:

1. Early identify stressed assets and special mention accounts and make them available for sale.
 

2. Identify and list internally, once a year (preferably at the beginning of the year), specific financial assets available for sale to other institutions.
 

3. Doubtful assets above a threshold should be identified and reviewed by the board or its committee to make them available for sale.
 

4. The sale should be undertaken through e-auction process, so as to attract wide variety of buyers and enable larger participation from prospective buyers.
 

5. At the time of sale, specifications should be provided for acceptance of internal or external valuations. In case of exposure beyond Rs50 crores, take 2 external valuation reports.
 

6. Banks should provide adequate time for due diligence with a floor of 2 weeks’ time.
 

7. Cost of valuation to be borne by banks

Eligible buyers of banks’ junk

Banks can sell the stressed assets to:

a. Asset reconstruction companies; 

b. Other banks; 

c. Non-banking financial companies; 

d. Financial institutions.

Preference will be given to asset reconstruction companies as buyers. 

Swiss Challenge Method

This is the prime focus of the Guidelines. As in case of government tenders and bidding, Swiss Challenge Method is envisaged to be introduced for sale of stressed assets as well. The mechanism is as follows:

1. Prospective buyer gives a bid to the bank for acquisition of assets;

2. Where a prospective buyer offers more than the minimum percentage specified in the bank’s policy in the form of cash, the bank shall be required to publicly call for counter bids from other prospective buyers, on comparable terms; 

3. Once bids are received, the bank shall first invite the securitisation companies (SCs) and reconstruction companies (RCs), if any, which has already acquired highest significant stake to match the highest bid. Asset Reconstruction Companies (ARCs) acquiring majority stake and bidding highest will be given a right of first refusal for acquiring the assets 

4. The order of preference to sell the asset shall be as follows:
 

a. The SC or RC, which has already acquired highest significant stake;

b. The original bidder and 

c. The highest bidder during the counter bidding process.
 

5. In any event, preference will be given to asset reconstruction companies to acquire the assets
 

6. Bank may sell to the winning bidder otherwise make provision which would be higher of the two:
 

a. The discount on the book value quoted by the highest bidder; and

b. The provisioning required as per extant asset classification and provisioning norms

Investment in security receipts (SRs)

Banks typically sell the stressed assets to the ARCs and then hold them in the form of security receipts. This is a way of creating a façade whereby the banks continuing to hold the bad assets as investment. The guidelines state that where banks continue to hold 50% or more of security receipts with the underlying of the assets it sold to the ARCs, then higher of the below mentioned provisioning norms shall apply
 

a. Provisioning rate required in terms of net asset value declared by ARCs

b. Provisioning rates as applicable to banks

The above provisions will become applicable from 1 April 2017. The threshold of 50% investment in SRs will be reduced to 10% from 1 April 2018. 

In addition, banks will be required to do disclosure of SRs acquired and the disclosure goes 8 years backward. The Total Investment & Insurance Solutions

Buy-back of refurbished junk

The Guidelines state that the Banks should have a board approved policy to buy-back financial assets from asset reconstruction companies once the asset has become standard after successful implementation of the restructuring program by the ARCs and after satisfactory performance of the asset during the specified period. The Total Investment & Insurance Solutions

However, banks cannot buy-back the assets they sold to the ARCs. This means banks can buy someone else’s refurbished junk but cannot buy-back its own. 

Banks to formulate policies 

In light of the Guidelines issued, banks will be required make changes in their policies dealing with stressed assets. The following are the changes or policies required:

1. Banks to lay down board approved policies and guidelines for sale of stressed assets, which would include
 

a. Types of financial assets to be sold

b. Norms and procedures for sale 

c. Valuation procedure to be adopted and policy for valuation either to be taken internally or externally.

d. Delegation of powers for undertaking the sale of financial assets 

e. Discount rates used for valuations will be provided for in the policy

f. Minimum percentage/ floor of cash expected in case of sale
 

2. Banks will require a board approved policy for buy-back of financial assets. The policy should provide for facets such as type of assets that may be taken over, due diligence requirements, viability criteria, performance requirement of asset, etc. The Total Investment & Insurance Solutions
 

3. The existing NPA policies should be reviewed and revised in lines with the Guidelines. 

Selling of bad loans is not a thriving business where price discovery is the primary agenda, neither is broadbasing investors in junk the agenda. However, the Guidelines do focus on sensitising the banks by saying a stitch in time will save nine.The Total Investment & Insurance Solutions

No closures, only branch relocations after SBI merger: SBI Chairperson -The Total Investment & Insurance Solutions

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7^Th September 2016

The State Bank of India (SBI) may relocate some branches after the merger of its associate banks into its fold, but none of them will be shut down, Chairperson Arundhati Bhattacharya has said in a bid to put rumours to rest and assuage the staff. The Total Investment & Insurance Solutions

"I don't believe we will be closing down any branches. This is one area that is getting a lot of adverse publicity. We will be working with the synergies," Bhattacharya told IANS, referring to the plans to merge five associates and Bharatiya Mahila Bank.

"Obviously, if the same building has branches of three associate banks, it doesn't make sense to keep them open. If that branch is moved away 60 km, it will have a better reach. We will be relocating a few of them," the Chairperson told IANS over the phone.

The merged entity, which will have a network of more than 24,000 branches, will continue to have the same number of branches. The idea is to leverage the synergies, she added.

"Not only the productivity can improve, with the same number of people, we can also ensure better footprints. We can move apart branches, send out sales teams. The customer will also have access to a lot of cutting-edge products," she said. The Total Investment & Insurance Solutions

The country's largest lender is looking to add $120 billion (Rs 8 lakh crore) in assets after the merger of State Bank of Bikaner and Jaipur, State bank of Travancore, State Bank of Patiala, State Bank of Hyderabad and State Bank of Maharashtra, besides the Bharatiya Mahila Bank.

This will catapult SBI into the top 50 banks globally, Bhattacharya said, expecting the process to get completed by March 2017. "There are some timelines and processes to follow. We'll make a good effort that it gets completed by March 2017. As of now, it is a realistic enough deadline."

The bank is already a 'Fortune 500' company.

As an outcome of the merger, the size of NPAs (non-performing assets) will obviously swell up, she said, adding that she did not have the numbers ready on that account.

"There are six entities involved. The issues need to be resolved, which cannot happen with the snap of the finger. The balance sheet is just the first thing. There's a lot of work eventually that needs to be done."

Bhattacharya is due to retire in October, much before the completion of the merger. The government is said to be considering a year-long extension so that she can oversee the entire process.

"I haven't heard anything from the government on my extension yet. But there will be changes and we need to be prepared for it. We have a team in all of these areas. They'll continue to do so."The Total Investment & Insurance Solutions

Tsunami drill begins in India, other Indian Ocean nations-The Total Investment & Insurance Solutions

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7^Th September 2016

A major Indian Ocean-wide tsunami mock drill involving India and 23 other Indian Ocean countries began on Wednesday to test warning and detection systems.

A tsunami warning was simulated with an earthquake of magnitude 9.2 south of Sumatra, Indonesia in the eastern Indian Ocean at 8.30 a.m. The Total Investment & Insurance Solutions

The exercise involves evacuation of around 35,000 people from the coastal regions of India. The evacuation is being taken up in Andaman and Nicobar Islands, Odisha, Andhra Pradesh, Tamil Nadu, West Bengal, Kerala, Gujarat and Goa.

Authorities in Andhra Pradesh have selected a village each in nine coastal districts for evacuation as part of the exercise to check the preparedness.

The end-to-end warning systems -- from tsunami detection and forecast, threat evaluation and alert formulation, dissemination to public and their awareness and responses -- would be put to test during the mock drill, officials said. The Total Investment & Insurance Solutions

Named 'IOWave16', the two-day mock drill is being organised by the Intergovernmental Oceanographic Commission (IOC) of the UNESCO, which coordinated the setting up of Indian Ocean Tsunami Warning and Mitigation System (IOTWMS) in the aftermath of the December 26, 2004 tsunami. The Total Investment & Insurance Solutions

The major objectives of IOWave16 include testing the efficiency of communication links, disaster management offices and local communities at risk.

The Indian Tsunami Early Warning Centre (ITEWC), based out of the Indian National Centre for Ocean Information Services (INCOIS) here is capable of detecting tsunamigenic earthquakes within 10 minutes of their occurrence and issue timely advisories to disaster management officials as well as to the vulnerable communities.

On the second day of the two-day exercise on Thursday, agencies involved will simulate a magnitude 9.0 earthquake in the Makran Trench, south of Iran and Pakistan, in the northwestern Indian Ocean. The Total Investment & Insurance Solutions

More than 2,00,000 people were killed in Dec 26, 2004 tsunami, which was triggered by an undersea earthquake off Sumatra, Indonesia.The Total Investment & Insurance Solutions