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Indian Indices Trade On A Positive Note; Realty Sector Up 2.3%

After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector, healthcare sector and capital goods sector witnessing maximum buying interest.

The BSE Sensex is trading up 200 points (up 0.6%) and the NSE Nifty is trading up 62 points (up 0.6%). The BSE Mid Cap index is trading up by 1.4%, while the BSE Small Cap index is trading up by 1.7%. The rupee is trading at 64.29 to the US$.

In the news from the IPO space, Aster DM Healthcare - one of the largest private healthcare service providers operating in multiple GCC states (Cooperation Council for the Arab States of the Gulf) based on numbers of hospitals and clinics - has opened its subscription offer from today.

The company has set the price band of Rs 180-190 per equity share for its IPO.

The company currently operates in all the GCC states, which comprises the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait, and Bahrain, in Jordan, India and the Philippines. The company's GCC operations are headquartered in Dubai, while the United Arab Emirates and Indian operations are headquartered in Kochi, Kerala.

The company operates in multiple segments of the healthcare industry, including Hospitals, Clinics, and Retail Pharmacies and provides healthcare services to patients across economic segments in several GCC states through their various brands 'Aster', 'Medcare' and 'Access'.

As of 30th September 2017, the company had 323 operating facilities, including 19 hospitals with a total of 4,754 installed beds.

To know our view on this IPO, you can read our IPO note on Aster DM Healthcare (requires subscription).

Also, if you want to know more about IPOs and whether they are right for you, you can download our free special report - How to Get Rich with IPOs.

In the news from the banking space, as per an article in the Economic Times, an audit by the Reserve Bank of India (RBI) showed about US$ 3.6 billion of bad loans in the books of the country's biggest bank - the State Bank of India (SBI).

The above-reported figure is higher than what SBI reported for the end of March 2017.

The above audit and underreporting further amplified questions about distress in the financial sector.

Owing to the above development, SBI share price is witnessing selling pressure and is presently trading down by 1.8%.

Presently the rule is that Indian banks must disclose such discrepancies if the gap between the reported numbers and the RBI's audit findings is more than 15%.

The underreporting of SBI is striking as the lender is often seen as a proxy for the nation's economy, where the ratio of bad loans has surged to be among the highest in the world.

Note that the problem of bad loans at Indian PSBs has grabbed many headlines lately. And to clean up the bad loan mess and revive lending, the government announced the recapitalization plan last year. Under the plan, it is set to inject Rs 2.11 trillion into public sector banks over a period of two years.

But if historical data is anything to go by, implementation of such initiatives take a long time, especially in India. Recovery takes the longest time here as compared to other developed nations. India takes an average of 4.3 years to resolve insolvencies as compared to one year in the US. Also, recovery rates in India are amongst the lowest at 26.4%, as can be seen from the chart below:

Loan Recovery Data of Major Economies

Although recapitalization will benefit PSBs, it appears to be a temporary cure for a recurring disease. The main problem is the lending and corporate governance processes these banks follow.

If there is improves in these operational processes, PSBs will continue to underperform in the long term.