Daily Market News – Aug 11th

unnamed Daily Market News   Aug 11th

 

Even as the impact of COVID-19 on bank credit quality is yet to be assessed, a recent report by CRISIL has estimated that loans to the tune of Rs.300,000 crore may be under stress. These are specifically loans given to retail borrowers and to small businesses. However, CRISIL has pointed out that the loan restructuring package announced by the RBI for individual and small borrowers in the monetary policy would make a big difference to the solvency of these borrowers. The difference, as per CRISIL, is that these defaults could come from retail borrowers and small businesses rather than large corporates.

Shree Cements reported a 13.5% drop in net profits at Rs.350 crore for the Jun-20 quarter. Operations across the plants of Shree Cements got impacted by the pandemic driven lockdowns. Even total revenues were down 24% in the quarter at Rs.2480 crore. But the profit impact was lowered due to 25% fall in total expenses too. Shree Cements is the second largest and also the second most valuable cement company in India after Ultratech. However, the stock has rallied sharply and the latest quarter performance does raise some key questions of sustainability of valuations.

Trading on 10 August largely belonged to the pharma and the defence stocks. Most pharma stocks including Cipla were sharply up on Monday. After the stellar quarterly results reported by Cipla, most pharma companies joined the rally. Meanwhile, pharma index touched a 4-year high. COVID-19 opportunities are a major boost to these stocks. In addition, the pharma sector appeared to be the clear beneficiary after the government announced an embargo on 101 items of defence imports. Of course, this embargo will be implemented over 4 years, but it is surely a sentiment booster for Indian defence related stocks.

Mutual fund flows for the month of July 2020 saw net outflows from equity funds for the first time in over 4 years. Although the net outflow figure at Rs.2480 crore was not too big, this happened despite SIP inflows remaining robust at Rs.7830 crore. That hints at aggressive lump-sum outflows from equity funds. Debt funds were the flavour of the month with over Rs.93,000 crore coming in across all the debt categories. Of course, credit risk funds continued to see outflows, marginal though. Hybrid funds also saw aggressive outflows even as the Bharat Bond ETF collection saved the day for passive flows in July.

According to Standard & Poor, the spate of monetization done by Reliance Industries over the last 4 months could boost the credit quality of Reliance substantially as the primary focus of RIL has been to reduce its net debt to zero. Starting with Facebook and going all the way to Google, RIL has managed to monetize close to Rs.210,000 crore. Of course, this also includes the rights issue, the tower monetization and the BP monetization of the retail JV. However, this does not include the $15 billion proposed monetization of the oil to chemicals or O2C business to Saudi Aramco. If that deal goes through then it could add another $15 billion or Rs.110,000 crore to the RIL kitty. Its net debt is just about Rs.170,000 crore. However, S&P does not see any upgrade from its current rating of BBB+.

Cochin Shipyards reported 65% fall in net profits at Rs.43 crore for the Jun-20 quarter. CSL is India’s largest commercial ship builder. The sharp fall in profits was largely on account of the lockdown following the COVID-19 pandemic. Even its total income from operations fell by 55% to Rs.332 crore. CSL is currently engaged in the construction and repair of ships for domestic and international customers at Malpe, Karnataka. Cochin Shipyards has submitted a resolution plan for Tebma Shipyards under the NCLT and this will help to expand its shipbuilding franchise for clients.

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