B Selective - In Crazy Markets

09/05/2017 20:42:21
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Be Selective in the crazy bull market. The stock prices have skyrocketed in a short period. So, the investors must be cautious while buying shares. They have to buy the select shares and avoid risk. The two policy decisions that were announced very recently created an excellent opportunity to the investors. While people are treating the duck and the swan alike, the new banking legislation and the real estate regulations acts help genuine investors to buy the turnaround stocks of these two sectors at bargain prices.

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To bring down the percentage of the non-performing assets (NPAs) of the banks from the prevailing elevated levels, the central government has amended the banking act empowering it to direct the RBI, which is an autonomous institution. With this legislation, a clarity will come among the Government, RBI, consortiums of creditor banks, and the governing councils. It will lead to solving the issue of NPAs of Rs 6 lakh crore in a time-bound period. All these years, the banks have been dragging the NPAs issue without settling fearing of weakened balance sheets and the trouble of facing scrutinies and investigations by the CAG and CBI. In the meantime, these assets have been further losing their economic value and becoming more sticky. As a remedy to this problem, RBI can direct the banks’ governing councils and others to settle the issue without delay. It will drastically reduce the bad debts in the coming six months. Then the banks can increase lending. The shares of the banks that have huge NPAs are now available at dirt cheap rates. 

In the Q3 FY17, Indian Overseas Bank declared NPAs of 22.42%. Similarly, the other banks with significant Net NPAs are UCO Bank (17.18%), BOM(16.93%), United Bank of India (15.98%), IDBI Bank (13.7%), Dena Bank (14.79%), Central Bank (14.14%), OBC (13.8%), BOI (13.38%), All Bank (12.51%), Andhra Bank (11.88%), Union Bank (11.7%), BOB (11.4%), Corporation Bank (11.26), Canara Bank (9.97%), Syndicate Bank ((8.69%), Indian Bank (7.47%), and Vijaya Bank (6.98%). The stocks of these banks may appreciate in the coming six months.    


The Real Estate Regulation Act came into existence on May 1, 2017. Profits earned from affordable housing projects are 100% exempted from income tax. Similarly, the REITs that provide long-term funds get exempted from dividend distribution tax. The Floor Space Index (FSI) limit applied to the affordable housing sector increased from one to two in all cities. Since the incentives provided are very attractive, all the real estate companies will enter the affordable housing sector. They will start separate division for this purpose. All the adjustment entries of all accounts will be routed through the new division. However, only those firms that operate in the organised sector with transparency, accountability, and efficiency to complete the projects as per schedule with quality construction will flourish in the market. The stocks of the companies likeMahindra Life Space Developers, Godrej Properties, Eldeco Housing, Alembic Ltd, Arvind Infra, Marathon Nextgen, Arihant Superstructure, Ansal Housing, Ganesh Housing, Prozone Intu will be hot favourites and their prices rise significantly. 


The Morgan Stanely International Emerging Markets Index has been restructured. In its new composition, there will be more weightage for Grasim and ICICI Bank shares. The Index will include the shares of Indian Oil Corporation, Federal Bank, Rural Electrification Corporation, and Petronet LNG. Since the Index is a barometer for worldwide mutual funds, these stocks are expected to attract about Rs 4,000 crore. On the other hand, Divis Labs and Container Corporation companies get exited from the Index. These two shares may witness selling pressure. These changes come into effect from June 1, 2017.

HUDCO's Initial Public Offer has hit the primary market on Monday,  May 8, 2017. The stock may give listing profits. The Issue price of Rs 56-60 range is very tempting. This PSU is offering a total number of 20.4 crore shares. In the nine months ended December 31, 2017,  HUDCO earned a net profit of Rs 496 crore. Given the opportunities in the real estate sector, its profits will increase further.

While the markets are surging without logic, the stocks of Banking, Housing, and Housing Finance shares can appreciate with logic.



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