Indian Stock Market at new High's!
Indian Stock market overtakes France to become 6th most valuable stock market
This week Indian Share markets created history, by becoming the 6th Largest Stock Market, surpassing France. The US stock market is the world’s most valuable with a market cap of $51.3 trillion, followed by China $12.42 trillion, Japan $7.43 trillion, Hong Kong $6.52 trillion, and the UK $3.68 trillion. India now stands 6th on this list with a valuation of $3.4055 trillion!
The Indian equity market continued to show signs of being heavily bought, which is why it is largely expected to consolidate. The Nifty kept marking incremental lifetime highs for days of the week on a closing basis. The primary uptrend remains intact. However, Friday's action created a wide range for Nifty between 17,400 and 17,790.
Next week is going to be critical for the Indian market after a recent outperformance because there is some weakness in global markets where the outcome of the Federal Open Market Committee (FOMC) meeting will be a critical factor.
There is a possibility that the US Fed may talk about the timeline of bond tapering which could be as early as November and that may lead to a cautious move in the global equity markets. Signs of slow down in China are a cause of worry as well, especially for the metal sector.
Zee Entertainment lead the top gainers' chart with a whopping 39.59% change followed by Yes Bank (21%), Indusind Bank(13.06%), Kotak Mahindra Bank (10.46%), and ITC (8.70%). The top losers were lead by BPCL which dropped by 11.18%, followed by Tata Steel (4.22%), HUL (3.15%), Ultratech Cement (2.87%), and UPL (2.05%).
Bad Banks makes its debut in India!
The government has set up 'Bad Bank' to acquire stressed assets worth around 2 lakh crore in the form of National Asset Reconstruction Company Limited (NARCL). It was earlier proposed by the Finance Minister in the 2021 budget session of the parliament with an aim to ease the NPA Stress and Twin Balance Sheet problem of the banks.
Why do we need a 'Bad Bank'?
Usually, a bank accepts deposits from people which are its liabilities, and lends to people (which constitutes its assets) at a higher rate the difference of which makes the profit of the bank (after the operational and other costs). But let us say the bank is facing problems while recovering the loans (maybe because it gave loans irresponsibly to unqualified businesses or maybe because of some macroeconomic challenges like 2008 GFC or COWID related slowdown) in such a case if the NPAs are as high that the bank may not be able to honor its liabilities to the depositors it creates a problem for the bank. And if such a high prevalence of NPAs is systemic then it may even threaten the economy itself.
In such a situation banks may try to limit their lending maybe because they are risk-averse or due to regulatory restrictions. This will limit the credit flow in the economy and thus investments; which is critical for a country like India which is a developing economy and needs a high and sustained period of growth to achieve its goal of becoming a developed country. And growth can be achieved only through investments in infrastructure and capacity building.
So what is this new framework?
NARCL has applied to RBI for a license as an Asset Reconstruction Company. It has been set up by the banks to aggregate stressed assets for their resolution. Public Sector Banks will own 51% of this entity. NARCL is intended to resolve stressed assets above Rs 500 crore each. NARCL will acquire bad loans from banks with a mutually agreed-upon price. It will issue the banks Security Receipts for 85% of the value, which will have a sovereign guarantee. The assets thus acquired by NARCL will be sold by India Debt Resolution Company Limited (IDRCL) in the market. This distinction is purely for operational purposes. In case the bad bad bank was unable to sell or did it at a loss for such scenario government has made some provisioning of Rs 30,600 crore.
It will help in clearing up the balance sheets of the banks by recovering at least part of their value in the stressed assets and other funds which are required to be kept aside as part of RBI regulations for mitigating risks associated with lending. Banks can use these funds to provide new loans to comparatively well-performing businesses and invest in other infrastructure which will be beneficial for the economy in general. This framework will also free up personnel in banks to focus on increasing business activities rather than engaging in recovery-related activities. It will also enable banks to borrow at favorable terms.
Book of the Week
The Psychology of Money
Timeless lessons on wealth, greed, and happiness doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people. How to manage money, invest it, and make business decisions are typically considered to involve a lot of mathematical calculations, where data and formulae tell us exactly what to do. But in the real world, people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your unique view of the world, ego, pride, marketing, and odd incentives are scrambled together. In the psychology of money, the author shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important matters.
Tweet of the Week
Who doesn't know Naval Ravikant! He is an Indian American Entrepreneur and investor, famously known for his insightful tweets, podcasts, and articles. He is someone you can't miss on Twitter
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- The Smarter Indian team