Market recap for 22 January 2021

Nifty50: 14,371 ▼ 218 (-1.5%)

   Sensex: 48,878 ▼ 746 (-1.5%)

The markets extended yesterday’s decline and fell with greater intensity today. Among the Nifty50 stocks, 41 ended the day in the red.

Among the sectoral indices, Nifty Auto (+1.4%) and Nifty IT (0.1%) rose whereas Nifty Metal (-3.8%) and Nifty Bank (-3.1%) were the top losers.

Here are the top stories of the day. 

Covid provisioning hurts Bandhan Bank’s Q3

• The private lender reported a net profit of ₹632 crore in Q3, a 13.5% YoY contraction. The bank stated that its ₹1,000 crore provision to safeguard against the impact of Covid-19 was the prime reason for the drop in profits.  
• On the upside, the net interest income grew by 34.5% to ₹2,071 crore, its gross NPA fell from 1.9% to 1.1% and its net NPA decreased from 0.8 to 0.2%. The stock fell 7.5% today and has lost over 21% this month.

Metal stocks lose their shine

• While the street is abuzz with the news of a commodity supercycle, metal prices are seeing a short-term correction. On the MCX, copper prices dropped 1.5% this week, after falling nearly 3% last week.  
• Demand from China is expected to dampen due to rising Covid cases, leading to further restrictions. Further, China would also enter a holiday period mid-February on account of the Lunar Holiday, when many factories close. Meanwhile, investors chose to book profits in domestic metal stocks such as SAIL (-10.0%), Jindal Steel (-6.2%), Hindustan Copper (-5.4%) and Hindalco (-3.7%).

Indian Bank shows steady profit growth

• The Chennai-based PSU bank posted a net profit of ₹514 crore in Q3 against a loss of ₹1,739 crore during the same period last year. It has shown steady growth in profits in FY21.
• The bank's net interest income (NII) rose by 31% YoY to ₹4,313 crore. The bank’s asset quality also improved with net NPA standing at 2.3% versus 4.2% last year. The stock rose 0.9% today and was the sole gainer in the Nifty PSU Bank index, which fell 3.0% today.

Indigo Paints IPO garners strong response 

• The ₹1,170 crore issue was subscribed 117 times overall. Indigo Paints is the fifth-largest player in the decorative paints category with a market share of 2%. Asian Paints (-4.2%) leads the segment with 42% market share. 
• The IPO of Home First Finance, which opened yesterday, was fully subscribed on Day 1 of bidding. You can apply with Upstox here. 

Closing bell

Today, the markets saw strong profit booking, snapping the 11-week gaining streak. Typically, that’s how markets behave when there is no fresh positive trigger in sight. However, there is a major event coming up—Union Budget 2021—scheduled on February 1. While the industry has high expectations and the indication from the government is that the budget will focus on boosting growth, the market seems to be losing hope.

Meanwhile, the US dollar index is showing signs of a pause after falling for the last six months. Most asset classes, including equities and commodities, generally move inversely to the dollar index. 

Good to know

What is a promoter pledge?

Pledging refers to using an asset (shares, house, etc) as collateral to secure loans. Generally, promoter’s pledge shares to raise money while retaining their ownership in the company, since most of their wealth is locked in their stake in the company. The funds raised are typically used to meet personal needs or to fund other ventures and acquisitions. 

When the value of the shares pledged with a lender falls below a certain level, it triggers ‘margin call’, requiring the promoters to make up for the shortfall in the value of the collateral. If the promoter fails to fill the margin shortfall, the lender may sell the shares in the open market leading to a sharp fall in the stock price.

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Investment in securities markets are subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by RKSV group. Investors should consult their investment advisor before making any investment decision.