Daily Market Update – Nov 26th 2020

unnamed Daily Market Update   Nov 26th 2020

In the last few months, the big outperformer in the markets has been Tanla Platforms, which gained 99% in the last one month to Rs.556. Even on a day like Wednesday, the stock showed strength. Recently, when Banyan sold 15 million shares in Tanla platforms, it was lapped up by American Funds Insurance, Amansa and by the endowment of a large Ivy League University. The stock was also included in the MSCI India Domestic Small Cap index. Tanla offers Communication Platform as a Service (CPaas) and reported 20% growth in revenues and turnaround to profits in the Sep-20 quarter with 16.7% OPM.

Too much liquidity in the system is creating a different type of problem. The recent RBI intervention in currency markets and other liquidity infusion measures have induced some banks to extend long-term loans to corporates below the repo rates. SBI has warned that the practice was unsustainable. SBI has observed in a research note that 15-year bank loans were given at negative spread of 70 bps over similar rated corporate bonds. Most banks are saddled with excess liquidity and have no avenues to lend. Hence banks are outbidding each other to lend below bond market rates. SBI has warned in its latest report that this practice could hit bank profits and worsen asset liability mismatches. The anomaly was that AA rated borrowers were getting loans at lower interest than blue chip AAA rated borrowers.

The NSE announced that shares of LVB would be suspended from 26 November and depositors of LVB will be migrated as depositors of DBS India Bank and can access their monies. RBI has clarified that the amalgamation of LVB into DBS Bank will come into effect from 27 November. As a result, the moratorium on LVB will cease from 27 November. On 17 November, RBI superseded LVB’s board and placed it under moratorium with withdrawal limit of Rs.25,000 per account. That will not be applicable from 27 November. DBS, the new parent of LVB, is based in Singapore with presence across 18 markets.

According to the latest RBI data, bank credit growth decelerated to 5.8% in the Sep-20 quarter from 8.9% last year, due to the COVID effect. Aggregate deposits for Sep-20 quarter rose 11% yoy compared to 10.1% growth a year ago. The slowdown in bank credit was seen across rural, semi-urban, urban and metropolitan clusters. The share of current and savings account or CASA increased by 110 bps to 42.3%. As a result, the credit-deposit or C/D ratio fell by 110 bps to 72% in the Sep-20 quarter. The C/D ratio was higher for metropolitan branches at 88.4%. TN, AP and Chandigarh had C/D ratio above 100%.

After rallying above 13,000, Nifty faced its first major resistance on Wednesday due to profit booking. Nifty fell 1.5% to 12,858 as Sensex tumbled almost 700 points to 43,828. Nearly Rs.220,000 crore was wiped out in the crash. The sell-off appeared like routine profit taking after the frenetic rally as traders opted to cut down positions ahead of F&O expiry on 26 November. The only worry was the sharp spike in India VIX to 23.15 levels. A total of 11 out of 12 sectoral indices on the NSE ended in the negative with pharma, realty and IT correcting around 1.6% to 2.0%. Only PSU banks held up on a tough trading day.

Government is going aggressive on revamping the retail space. It has identified 5 areas in its proposed National Retail Policy or NRP and a discussion paper has been launched on the subject. The five areas that will be addressed in the NRP include ease of doing business, rationalisation of licensing, digitisation of retail, reforms focus and an open digital commerce network. Today setting up a store requires between 25 and 57 licenses, which is not workable. Remember that retail is India’s third-largest sector and has grown at 10-11% in last few years. Within retail, ecommerce has been consistently growing at above 28% annually. The retail sector employs close to 5 crore people. Government is keen to grow this sector as it has the potential to create another 3 million jobs and will also address the concerns of SMEs.

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