Banks’ NPAs set to fall, JSW Steel loses lustre & more

Nifty50: 16,719 ▲ 114 (+0.6%)
Sensex: 56,072 ▲ 390 (+0.7%)

Hello people,

The weekend is here. Have you made any travel plans? Chances are you’re heading to the nearest hill station or beach. But ISRO is working on something that could allow you to take short trips into space. Now, that’s literally out of this world!

• Benchmark indices rose for the sixth straight day and closed at their highest levels in over two months.  
• In all, 27 of the Nifty50 stocks closed in the green.
• European markets traded higher after the European Central Bank raised interest rates on Thursday.

Among the Nifty sectoral indices, Financial Services (+1.5%) and Bank (+1.4%) saw the most gains, whereas IT (-0.6%) and Pharma (-0.2%) were top losers

What’s trending

⭐ Banks’ bad loans set to fall 🏦

HDFCBANK (NSE): 1,394 ▲ 33 (+2.4%), AXISBANK (NSE): 731 ▲ 15 (+2.1%)

The asset quality of Indian banks is expected to improve going ahead, according to a leading rating agency. The gross non-performing assets (GNPA) of Indian banks are likely to fall to 5-5.5% by 31 March 2024. The GNPA of Indian lenders is already at a six-year low of 5.9% as of March 2022, according to an RBI report.

⭐ JSW Steel loses lustre ⚙️

JSWSTEEL (NSE): 582 ▼ 4.6 (-0.7%)

Steel producer JSW Steel posted an 86% year-on-year (YoY) decline in its Q1 net profit to ₹838 crore. Meanwhile, the company's revenues were up 32% YoY to ₹38,086 crore. The company's profitability was impacted by rising costs of raw materials and fuel. The company also said that the domestic steel industry was impacted by falling global prices of steel and the 15% duty on certain steel exports imposed in May 2022.

⭐ Sell-off fears for Zomato? 🛵

ZOMATO (NSE): 53 ▼ 0.1 (-0.2%)

Zomato is trading near its 52-week low, and experts believe that it may trend lower next week. The one-year lock-in period on the pre-issue capital held by shareholders before the IPO is set to expire next week. Thus, about ₹613 crore worth of Zomato shares, or 78% of the company's equity capital, will open up to be sold in the secondary market. This, investors fear, could lead to selling pressure, as the pre-IPO investors had bought the company’s shares at as low as ₹1.16 per share.

⭐ Can Fin Homes posts strong Q1 🏠

CANFINHOME (NSE): 535 ▼ 6.2 (-1.1%)

Shares of Can Fin Homes rose 9% in early trade on Friday, following a strong jump in the company's Q1 earnings. The housing finance company reported a 49% year-on-year jump in net profit to ₹162 crore. The rise in profit was driven by a write-back in provisions and a 38% growth in net interest income to ₹250 crore. Gross non-performing assets (GNPA) improved to 0.65% from 0.9% in the year-ago period.

⭐ US markets get tech boost 💪
US markets were upbeat as investors remain optimistic about the June quarter earnings of tech companies. Netflix jumped 7% after the company reported that second-quarter subscriber losses were 50% lower than forecasted. Meanwhile, Apple, Amazon, Microsoft, Alphabet (Google) and Meta Platforms rose between 0.3% and 4%.

In Focus

It's raining bonuses!

Despite this week’s optimism, the markets on the whole have disappointed investors this year. The Nifty is down 5% since January and many stocks have hit their 52-week lows. So, in such a situation, what do companies do to keep shareholders happy? Dole out bonus shares!  

So far this year, 73 companies have announced bonus issues to reward their shareholders. The number is very close to the 2018 figure, when 78 firms gave away bonus shares. 

But how were companies able to afford giving out bonus shares? In FY22, the post-pandemic economic recovery has driven a 48% rise in corporate profits across sectors, led by banking and financial services, IT, energy, and metals. Not just that, even the ratio of corporate profits to GDP bounced back to a decade high of 4.3% in FY22. 

Another key factor is the change in tax rules. During this year's budget, the government announced a measure to curb bonus stripping. Bonus stripping is a common method used by promoters or investors to save capital gains tax. An investor or promoter of companies sells shares after a bonus issue when the share price falls. 

Since the original shares are sold at a lower price, investors pay lower capital gains. However, under the new tax rule, which is going to be applicable from 1 April 2023, original shares have to be held for a certain minimum period to claim tax benefits from bonus shares. Thus, companies may want to issue bonus shares before this rule becomes applicable.

All in all, it’s a bonus bonanza, and investors are loving it!

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Good to know

What is a bonus issue?

A bonus issue is a corporate action in which the company’s existing shareholders get additional shares at no extra cost. However, this depends on the number of shares a shareholder owns. For instance, if a company offers a 1:1 bonus issue, it means that the shareholders will get one share for each share held by them. But this increase in the number of shares doesn’t affect the value of the company or the total value of shares held by the shareholder. This is because after a bonus issue, the stock price generally falls in the same proportion as the bonus issue. For example, after a 1:1 bonus issue, the stock price will be reduced to half.

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