Wednesday, 9 November 2011

Bank stocks slide as Moody's cuts outlook on India's banking sector

A bout of volatility was witnessed in morning trade as key benchmark indices recovered after slipping into the red to hit fresh intraday lows in morning trade. The BSE Sensex was currently almost unchanged for the day at 17569.39, up close to 30 points from the day's low and off about 90 points from the day's high. The market breadth was strong. Index heavyweight Reliance Industries (RIL) trimmed initial gains. Bank stocks fell after global rating agency Moody's downgraded its outlook for India's banking system to negative from stable, as it warned of slowing growth at home and overseas hitting asset quality, capitalization and profitability. FMCG stocks rose. Metal stocks were mixed as China's inflation eased in October.
The market edged higher amid initial volatility. Volatility continued as key benchmark indices recovered after slipping into the red to hit fresh intraday lows in morning trade.
At 10:20 IST, the BSE Sensex was almost unchanged for the day at 17,569.39. The index gained 88.81 points at the day's high of 17,658.34 in early trade, its highest level since 4 November 2011. The index fell 29.67 points at the day's low of 17,539.86 in morning trade.
The S&P CNX Nifty was down 2.95 points or 0.06% to 5,286.40. The Nifty hit a high of 5,317.50 in intraday trade, its highest level since 4 November 2011. The Nifty hit a low of 5,274 in intraday trade.
The market breadth, indicating the overall health of the market, was strong. On BSE, 1,183 shares rose and 774 fell. A total of 84 shares were unchanged.
From the 30-share Sensex pack, 16 fell and the rest of them rose. Wipro, Hero MotoCorp and TCS rose by between 0.65% to 0.81%. Sun Pharmaceutical Industries, DLF and L&T fell by between 0.94% to 1.09%.
Index heavyweight Reliance Industries (RIL) rose 0.08% to Rs. 882.55, off the day's high ofRs. 892.50. RIL on Tuesday said its unit Infotel Broadband Services has acquired a 38.5% stake in privately held digital learning firm Extramarks Education. It did not disclose the financial details of the investment. The deal will help Extramarks develop its digital distribution services and expand market penetration, RIL said. Last year, Reliance acquired Infotel Broadband, the only company to win a nationwide licence for broadband wireless spectrum in a government auction, for $1 billion, marking its return to the telecom business.
RIL recently refuted speculation that it is considering acquiring Valero Energy, Inc. Valero Energy is a Fortune 50 company based in San Antonio, and through its subsidiaries is the world's largest independent petroleum refiner and marketer.
RIL, last month, neither confirmed nor denied media reports of a likely suspension of oil and gas drilling operations. RIL said on 17 October 2011 that it has always communicated any material event to the stock exchanges first before disseminating to the media. Media reports had suggested recently that RIL may suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy.
Metal stocks were mixed as China's inflation eased in October. China is the world's largest consumer of copper and aluminum. Nalco, Jindal Saw, Jindal Steel & Power, Tata Steel, and Sterlite Industries gained by between 0.01% to 1.2%. JSW Steel, Hindalco Industries, Sail, Hindustan Zinc and NMDC fell by between 0.08% to 0.57%.
LMEX, a gauge of six metals traded on the London Metal Exchange, rose 0.07% on Tuesday, 8 November 2011.
FMCG stocks gained on defensive buying. United Spirits, Dabur India, ITC, Hindustan Unilever and Nestle India rose by between 0.12% to 1.06%.
Bank stocks fell after global rating agency Moody's downgraded its outlook for India's banking system to negative from stable, as it warned of slowing growth at home and overseas hitting asset quality, capitalization and profitability.
India's largest private sector bank by net profit ICICI Bank declined 0.32%. ICICI Bank's consolidated net profit rose 43% to Rs. 1992 crore in Q2 September 2011 over Q2 September 2010. Standalone profit after tax increased 22% to Rs. 1503 crore in Q2 September 2011 over Q2 September 2010. Net interest income increased 14% to Rs.2506 crore in Q2 September 2011 over Q2 September 2010. Fee income increased 7% to Rs. 1700 crore in Q2 September 2011 over Q2 September 2010. Provisions decreased 50% to Rs. 319 crore in Q2 September 2011 over Q2 September 2010. The result was announced during trading hours on Monday, 31 October 2011.
ICICI Bank's current and savings account (CASA) ratio stood at 42.1% as on 30 September 2011. Net non-performing asset ratio decreased to 0.8% as at 30 September 2011 from 1.37% as at 30 September 2010 and 0.91% as at 30 June 2011.
India's second largest private sector bank by net profit HDFC Bank fell 1,38%. The bank's net profit rose 31.48% to Rs. 1199.35 on 37.4% rise in total income to Rs. 7929.38 crore in Q2 September 2011 over Q2 September 2010. The result was announced during market hours on 19 October 2011.
India's largest bank by branch network State Bank of India (SBI) fell 1.27%, reversing initial gains. The bank announces Q2 results today, 9 November 2011. The bank said during market hours on Tuesday that the All India State Bank Officers' Federation (AISBOF) has deferred its earlier call of a two-day country-wide strike on 8 and 9 November 2011.
A curbing of economic growth and increased borrowing by the government will drain funds from the private credit market, Moody's said. With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY 2012 and FY 2013, Vineet Gupta, Moody's vice-president and senior analyst, was quoted as saying in the statement. Moody's defines a negative outlook as one characterized by volatility and uncertain conditions.
The rating agency said monetary tightening and a slowdown in the economy would cut bank loan growth, while a recent liberalization of savings deposit rates by the central bank would pressurize lenders' profitability. For those banks with weaker capital ratios on average and higher asset quality pressures relative to their individual rating levels, their standalone ratings are likely to come under pressure, the Moody's statement added.
Incidentally, Reserve Bank of India deputy governor Subir Gokarn had said at a televised event on Tuesday that bad loans are not threatening the entire banking system in India.
Orissa Minerals Development Company rose 1.47% ahead of today's board meeting to consider a stock split proposal.
Foreign institutional investors (FIIs) bought shares worth Rs. 456.28 crore on Tuesday, 8 November 2011 as per provisional figures on the stock exchanges. FII inflow totaled Rs.600.35 crore in three trading sessions from 3 November 2011 to 8 November 2011 as per data from the stock exchanges.
The current week is a truncated trading week. The stock market remains closed tomorrow, 10 November 2011 on account of Gurunanak Jayanti.
Stock-specific activity may dominate trade in the near-term with the earnings season as its peak. Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook.
DLF, Tata Steel, Hindalco, Pantaloon Retail (India), Mahindra Satyam, Rural Electrification Corporation and CEAT unveil quarterly results on Thursday, 10 November 2011. Jet Airways (India), GE Shipping, Reliance Capital, Housing Development & Infrastructure and Tata Chemicals unveil Q2 results on Friday, 11 November 2011. Coal India, National Aluminium Company and Shipping Corporation of India report Q2 results on Saturday, 12 November 2011.
Sun Pharma unveils Q2 results on Sunday, 13 November 2011. Tata Motors, Mahindra & Mahindra, Tata Power, Bhel, Jaiprakash Associates, Bhushan Steel, JSW Steel and India Cements unveil Q2 results on 14 November 2011. Tech Mahindra unveils Q2 results on 15 November 2011.
Trinamool Congress chief and West Bengal Chief Minister Mamata Banerjee has issued a fresh threat to the government, saying her party will withdraw support if the government hikes diesel and LPG prices. This is a climbdown of sorts for Mamata, after she failed to have her way on the petrol hike issue, when Prime Minister Manmohan Singh refused to commit to a rollback in the petrol price hike during a meeting with the Trinamool MPs. Mamata has reportedly asked the Centre to compensate her state for years of Left rule that she claims stripped the state treasury bare. Mamata also reportedly said that the issues of the West Bengal financial package and petrol price rise are separate and should not be mixed up.
PSU OMCs last week raised petrol prices by between Rs. 1.80 per litre to Rs. 1.91 per litre. That was the 13th increase in petrol prices since the fuel was decontrolled in June last year, and second since the middle of last month when prices were raised by more thanRs. 3 a litre.
India's October exports rose an annual 10.8% to $19.9 billion, while imports for the month rose 21.7 percent to $39.5 billion, the trade secretary said on Tuesday, citing provisional data. India's trade deficit in October is seen at $19.6 billion, the highest in four years, Rahul Khullar said. At this rate, the trade deficit for the year could breach the $150 billion mark, he added.
India's service sector contracted for a second straight month in October, as new business grew at its weakest pace since May 2009, dragged by sagging global demand and tight monetary policy, a survey showed on Thursday, 3 November 2011. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of around 400 firms, slumped to 49.1 in October, its lowest reading in two-and-a-half years and below the 50-mark which separates growth from contraction. It was at 49.8 in September.
India's manufacturing activity in October expanded--though modestly--indicating an improvement in business conditions from a month ago as growth in new orders accelerated, a survey showed Tuesday, 1 November 2011. The seasonally adjusted HSBC Purchasing Managers' Index, prepared by Markit, rose to 52 in October from 50.4 in September. A figure above 50 indicates expansion.
The food price index rose 12.21%, its highest in 9 months, and the fuel price index climbed 14.50% in the year to October 22, government data on Thursday, 3 November 2011, showed. In the previous week, annual food and fuel inflation stood at 11.43% and 14.70% respectively. The primary articles price index was up 12.08% compared with an annual rise of 11.75% a week earlier.
India needs to guard against imported inflationary pressure as the euro-zone continues to reel under the debt crisis, Prime Minister Manmohan Singh said on Wednesday, 2 November 2011. In an increasingly interdependent world, we have to be wary of contagion effects, Mr. Singh said in a statement before his departure to attend a conference of the Group of 20 industrial and developing economies in Cannes, France.
Bad loans are not threatening the entire banking system and the policy guidance given so far would hold until further notice, a deputy governor of the Reserve Bank of India, Subir Gokarn, said at a televised event on Tuesday, 8 November 2011.
RBI announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on 25 October 2011. The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. RBI said the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably.
Mr. Sudipto Mundle, a member of the Reserve Bank of India's technical advisory committee on monetary policy, on Thursday, 3 November 2011, said he expects inflation to ease in the January-March quarter as global commodity prices will begin to cool by then, helped by a favorable base. However, it will still overshoot the RBI's March-end projection of 7%, possibly ending the fiscal year at as high as 8%, he added. Mr. Mundle expects the economy to grow 7%-7.5% this fiscal year, below the RBI's 7.6% forecast.
Most Asian shares reversed initial gains on Wednesday, 9 November 2011. Key benchmark indices in China, South Korea, Taiwan and Singapore fell by between 0.09% to 0.35%. Key benchmark indices in Hong Kong, Indonesia, and Japan rose by between 0.56% to 1.58%.
Chinese consumer inflation eased in October for the third month in a row, as food and energy price gains softened, while wholesale prices saw an even sharper cooling, potentially giving monetary-policy makers more room for selective easing. The consumer price index rose 5.5% from a year earlier, while the producer price inflation was up 5%. The closely watched results compared to September's data, which showed a year-on year rise of 6.1% year-on-year rise in the CPI and a 6.5% gain in the PPI.
Italian Prime Minister Silvio Berlusconi on Tuesday said he would step down after parliament approves a budget law that includes austerity reforms to cut the country's debt and bring borrowing costs under control. Votes on the budget measures and his resignation could come this month. Berlusconi won a vote on the ratification of the budget, but he failed to obtain an absolute majority in the Chamber of Deputies, leading to calls for him to step down.
Meanwhile, Greece remained undecided on its next leader. Party leaders were locked in talks on a unity coalition, with the European Union seeking an immediate deal to save the country's finances. European Union finance ministers also failed to make progress on Tuesday on ways to shore up sagging banks and avert a credit squeeze, as rising borrowing costs for Italy make it more difficult for European banks to borrow as they are increasingly reluctant to lend to one another.
Trading in US index futures indicated that the Dow could fall 22 points at the opening bell on Wednesday, 9 November 2011.
US stocks closed higher on Tuesday for a second day in a row as late-day news about Europe sparked an afternoon rally that erased early weakness.

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