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Sensex, Nifty End Higher as Banking & Finance Stocks Outperform; Bajaj Finserv Rallies 9%

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Indian share markets witnessed buying interest during closing hours and ended today’s volatile session higher, amid positive global equities.

The BSE Sensex, that hit a low of 43,454 on the back of sell-off in IndusInd Bank, Axis Bank, SBI, and Reliance Industries, bounced back nearly 500 points and ended around 43,950 levels.

At the closing bell, the BSE Sensex stood higher by 282 points (up 0.7%).

The NSE Nifty closed higher by 87 points (up 0.7%).

Bajaj Finserv and Titan were among the top gainers today. Shares of Bajaj Finserv share price jumped more than 9% today. In the past 20 days, shares of Bajaj Finserv have gained more than 55%.

The SGX Nifty was trading at 12,880, up by 86 points, at the time of writing.

The BSE MidCap index ended up by 1.2%. The BSE SmallCap index ended up by 0.8%.

On the sectoral front, gains were largely seen in the telecom sector and consumer durables sector.

Energy stocks, on the other hand, witnessed selling pressure.

Asian stock markets ended on a mixed note. As of the most recent closing prices, the Hang Seng ended up by 0.4% while the Nikkei ended down by 0.4%.

US stock futures are trading on a negative note after Treasury Secretary Steven Mnuchin pulled the plug on some of the Federal Reserve’ pandemic emergency lending programs.

Mnuchin asked the central bank to return money earmarked under the March pandemic relief act for emergency lending to businesses, nonprofits and local governments, marking an end on December 31 to most of the crisis-response programs the Federal Reserve has deemed vital to keeping the economy stable.

Nasdaq Futures are trading down by 17 points (down 0.1%), while Dow Futures are trading down by 62 points (down 0.2%).

The rupee is trading at 74.10 against the US$.

Gold prices are trading up by 0.2% at Rs 50,090 per 10 grams.

To know more about gold, you can check out our detailed article on investing in gold here: How to Invest in Gold?

Speaking of the stock markets, in his latest video, Co-head of Research at Equitymaster, Rahul Shah discusses why he preferred a little known stock over Nestle and how he was proven right.

Tune in here to find out more.

In news from the defence sector, Bharat Electronics was among the top buzzing stocks today.

Shares of the company surged 5% today, rallying as much as 12% in the past two trading days on strong management commentary.

The company has guided for double-digit growth, sustainable margins and better order inflows suggest strong performance in the medium-term.

The stock of state-owned defence company hit a 52-week high of Rs 118.45 on August 14, 2020.

In its virtual analyst meet, Bharat Electronics highlighted that it expects double digit (10-15%) topline growth over the medium-term and is likely to be able to maintain EBITDA (earnings before interest, taxes, depreciation, and amortization) margins in the range of 20-21% during this period.

The company’s management stated it sees quick reaction surface-to-air missile as a big bet for the next decade and is open to exports if the government permits. The company said it expects a minimum of Rs 300 billion worth of opportunities over the next decade from this segment.

For April-September period (H1FY21), Bharat Electronics had reported 18% year-on-year (YoY) decline in its consolidated net profit at Rs 4.4 billion, while total revenue from operations remained flat at Rs 48.7 billion over the previous year quarter.

The company’s order book stood at Rs 521.5 billion as on October 1, 2020. The company is aiming at order inflows of around Rs 150 billion for FY21.

Bharat Electronics share price ended the day up by 4.8%.

Speaking of the defence sector, have a look at the chart below which shows the top 5 military spending countries in the world as of 2019:

top 5 military spending countries in the world

According to a SIPRI (Stockholm International Peace Research Institute) report, India was the third largest military in the world in 2019.

Here’s what Girish Shetty wrote about it in one of the editions of Profit Hunter:

If you look at the chart closely, you will realise it is likely to remain among the top spenders in the coming years.

It’s because of the second largest spender shown in the chart, China.

With rising tensions between the two countries, the incentive is strong for India to keep up with China.

It all makes sense for the government to focus on this sector in a big way in the near future.

The government’s ‘Atmanirbhar’ push will get a massive boost through local defence manufacturing. This will create profitable opportunities in defence stocks for astute investors.

Co-head of Research at Equitymaster, Tanushree Banerjee keeps a close watch on stocks in the defence space. As per Tanushree, defence will be a big wealth-creating opportunity.

Back in June, she recorded a video about India’s best defence stocks. Tune in here to watch the video.

Moving on to news from the banking sector, shares of Lakshmi Vilas Bank slumped further and fell 10% to hit a new 52-week low value in early trade today as investor sentiment remained cautious.

This is the fourth consecutive session of decline for the Lakshmi Vilas Bank (LVB) as investor sentiment was spooked after the government placed the lender under a one-month moratorium and superseded its board.

On Tuesday, the government placed LVB under a one-month moratorium, superseded its board and capped withdrawals at Rs 25,000 per depositor.

The step was taken by the government, on the advice of the Reserve Bank, in view of the declining financial health of the private sector lender.

T N Manoharan, former non-executive chairman of Canara Bank, has been appointed as the administrator of the bank.

Note that LVB is the third bank to be placed under moratorium since September last year after the cooperative bank PMC in 2019 and private sector lender Yes Bank this March.

LVB is set to be merged into Singapore-based DBS Bank’s Indian unit, DBS Bank India, under an RBI-approved plan.

Reports state that DBS Bank India will bring in additional capital of Rs 25 billion upfront, to support credit growth of the merged entity.

One of the promotors of LVB said that DBS Bank, in 2018, wanted to acquire 50% stake in LVB for above Rs 100 per share but the RBI did not agree.

Speaking of Lakshmi Vilas Bank, if there is any private sector bank that has severely underperformed in the last two years, it has to be Lakshmi Vilas Bank.

Back in May 2019, we wrote an article around how we avoided a 60% loss in Lakshmi Vilas Bank.

Here’s an excerpt from the article:

LVB had an interesting story.

The bank had a new management team in place. The bank was shedding its old image to bring out a new look.

The new management had a clear vision and set several goals. These included deposit and loan growth targets, CASA (current account saving account) ratio targets, a focus on retail loans, and the reduction in cost-to-income ratio.

So far so good.

But the bank had its own legacy issues. These were rising bad loans, a weak balance sheet with a poor capital adequacy ratio (CAR).

The falling CAR was a concern.

The CAR is the ratio of a bank’s capital in relation to its risk-weighted assets and current liabilities. The RBI has set the minimum CAR at 9% for all banks.

A ratio below 9% indicates the bank does not have enough capital to expand its operations. It ensures that banks don’t expand their business without having adequate capital.

On one hand, LVB had bad loan issues and on the other, it badly needed capital to shore up its CAR.

If you look at the shareholding pattern of LVB during the 2-year time frame between May 2017 to May 2019, retail investors have increased by 15%. The number of shares owned by them increased by 24%.

A typical example of retail investors catching a falling knife!

You can also read out latest Profit Hunter issue on the above fiasco here: Lesson for Investors from the Lakshmi Vilas Bank Fiasco.

To know what’s moving the Indian stock markets today, check out the most recent share market updates here.

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