Nifty bounce literally surprised all

On a day of negative global cues, the Nifty bounce literally surprised all. Nifty showed tremendous resilience to jump by 221 points on Monday. The bounce was largely led by ICICI Bank which announced better than expected quarterly results. The government commitment to infuse Rs.40,000 crore via OMOs also helped sentiments in banking stocks. The A/D ratio was a healthy 5:1. ICICI Bank reported a net profit of Rs.909 crore for the second quarter on the back of lower provisioning for bad loans. This was an impressive turnaround from the loss in the previous quarter and that propped up markets.

There could finally be some respite for the Indian rupee as India and Japan sign $75 billion currency swap agreement. An interesting sidelight of the meeting between Modi and Abe was the signing of this bilateral swap arrangement which will be the capital that the Japanese government will make available for India in the hour of need. India has been facing a mini crisis due to its overt reliance on the US dollar. This will help stabilize the rupee value in India. In the last two months, the INR had weakened from 64/$ to 74/$; which can be avoided with a more diversified currency base.

As liquidity dries up for NBFCs, it is realty projects worth $63 billion that may be in limbo due to NBFC crisis. Builders who were relying on NBFCs to fund their projects after banking funds dried up, are now in a limbo with most of the NBFCs themselves in deep trouble due to asset liability mismatch. In fact NBFC lending to realty sector grew by 45% against 4.7% for bank advances. According to realty consultants, the small and medium sized builders may be the worst hit by the NBFC crisis. The most popular CP is unlikely to find customers and that could really hit the realty sector.

In the midst of the NBFC and HFC turmoil, LIC Housing Finance reported a 12% growth in net profits to Rs.573 crore in Q2. The growth in net profits came as a positive surprise at a time when housing finance companies have been battered in the market due to concerns over asset liability mismatch. Total income was also up by 15% at Rs.4203 crore. The company has managed to keep its gross NPAs at extremely comfortable levels of 1.20%, of which the individual segment has done still better. The asset liability mismatch problem is much lower for companies like LIC Housing.

The world of Cloud business may be undergoing a major change. IBM could give Amazon a run for the Cloud with purchase of Red Hat. Amazon is not just the second most valuable company globally but also a pioneer and the largest player in the cloud space. With IBM buying Red Hat for $33 billion, it could be a serious contender to take on Amazon on the Cloud turf. IBM has been striving to get out of traditional hardware businesses. Out of the $180 billion global cloud business, nearly $80 billion is cornered almost equally by the big four; Amazon, Microsoft, Google and IBM. With the Red Hat acquisition, IBM is right in the top of the league. Cloud is one of the major growth areas and Gartner expects this to be one of the fastest growing businesses in the technology space globally.

IL&FS may be gradually spreading its tentacles further. Companies with exposure to IL&FS feel the heat of price correction. Banks like Yes Bank and IndusInd Bank as well as L&T Finance have been punished by the markets for their exposure to IL&FS. With IL&FS continuing to default on its repayment commitments, these affected companies have lost thousands of crores in market cap. IL&FS has missed nearly Rs.400 crore in debt repayments since the beginning of the month of October. Unless there is a halt to these defaults, IL&FS will continue to spook all the exposures.

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