INDIA  :   Business

A bad start to the year

Saturday , 06 February 2016

Chinese woes, falling commodity prices and below than expected corporate earnings hit markets hard

The markets had one of the worst openings of the year, this year. The issues started on January 4, with concerns over the Chinese economy, potential sell-off after expiry of lock-in period in Chinese stocks among other things. The Sensex shed 2.2 per cent on January 4. Over the next week or so, it shed another 1,100 points or approximately 5 per cent. Since then, the markets have witnessed a high intensity tug of war between bulls and bears. On its last trading day, the bulls gained a slightly upper hand, after the Bank of Japan announced a negative benchmark rate, which propped up markets globally and helped Sensex recoup some of its losses. In spite of this, the Sensex closed at 24,870.69, down 4.93 per cent, while Nifty closed at 7,563.55, down 5.02 per cent for the month.

FIIs continued to be negative, especially in Emerging Markets. They were net sellers to the tune of Rs 14,356 crore in January 2016. Comparatively in 2015, Rs 19,766 crore was attributed to net sellers. FIIs were net buyers for all days barring the first and last day of January 2016. DIIs on the other hand, were net buyers. They bought equities worth Rs 12,875 crore. They were net sellers only on the first two days of the month.

The rupee depreciated 2.52 per cent to close at 67.874 on January 29.

Within Nifty, there were 9 gainers and 41 losers, while within Sensex there were 4 gainers and 26 losers on a monthly basis. Metals, Auto, Telco and heavy industries saw all losers, while all other sectors were mixed.

Metals lost heavily on concerns related to slowdown of the Chinese economy and its impact on global metal prices. Vedanta shed 20.9 per cent, while Hindalco shed 16.7 per cent.

All banks except Yes Bank lost heavily during the month, with public sector banks bearing the brunt on concerns related to NPLs. In fact, analysts now speculate that unreported NPLs might be as high, if not higher than reported NPLs. Bank of Baroda shed 19.5 per cent. SBI shed 19.9 per cent, while Punjab National Bank shed 21.4 per cent. After this January’s severe fall in PSU Bank stocks, the market cap of HDFC Bank is more than the sum total of the top 15 PSU banks by market cap. These PSU banks are State Bank Of India, Bank Of Baroda, Punjab National Bank, Canara Bank, Bank Of India, Union Bank Of India, IDBI Bank Ltd, Syndicate Bank, Central Bank Of India, UCO Bank, Oriental Bank Of Commerce, Corporation Bank, Indian Bank, Indian Overseas Bank and Andhra Bank.

Yes Bank gained 2.9 per cent during the month, on back of stellar results that were announced on the last trading day. Their net profit grew 25 per cent YoY, to Rs 675.7 crore on back of strong net interest income, other income and operating profit growth. NII growth was aided by a jump in deposits of 23.1 per cent and an improvement in CASA (current account-saving account) to 26.6 per cent from 22.6 per cent YoY. Asset quality held its ground. Gross NPLs were marginally up to 0.66 per cent from 0.61 per cent in Q2 FY16. Net NPA increased to 0.22 per cent, from 0.20 per cent.

ICICI Bank surprised negatively on the earnings and asset quality front in Q3. Its profit increased by a mere 4.5 per cent YoY, to Rs 3,018 crore. Provisions for NPL rose 190 per cent YoY and 202 per cent QoQ to Rs 2,844 crore. Gross NPA rose to 4.72 per cent from 3.77 per cent, while Net NPA jumped 101 bps YoY, to 2.28 per cent in Q3. ICICI Bank shed 11.8 per cent as a result of continued weakness in sentiments and below than expected results.

Larsen and Toubro (L&T) shed 13.7 per cent, due to growing concerns over the economy and the resulting delay in order book execution. It announced the results on the last trading day of the month. Its Q3, profit grew by 19.4 per cent YoY to Rs 1,034.8 crore, aided by a lower finance cost and other income. Revenue rose by 8.3 per cent to Rs 25,829.3 crore, driven by infrastructure, power and hydrocarbon segments.

Maruti Suzuki reported a 27 per cent YoY jump in net profit for Q3, on back of a 15 per cent volume growth. Profit grew to Rs 1,019 crore, against Rs 802 crore in the corresponding quarter of the previous year. Maruti Suzuki sold 374,182 units in the Q3 FY16. Its shares fell by 11.3 per cent.

NTPC’s revenue declined 7.7 per cent QoQ to Rs 17,413.3 crore. Operating profit (earnings before interest, tax, depreciation and amortisation) slipped to Rs 4,624 crore, but margins expanded by 190 basis points to 26.6 percent. Its stock fell 2.1 per cent.

Idea Cellular dropped 28.1 per cent after its operational performance was below expectations. Its Q3 revenue increased by 3.7 per cent to Rs 9,009.7 crore, while consolidated net profit fell 5.6 per cent to Rs 764.2 crore, due to lower margin & other income and higher interest cost.

Uncertainty is at its highest with the current global scenario. On one end, the Bank of Japan has already cut its benchmark rates to minus 0.1 per cent, implying it will charge banks to keep money with it. Along with its aggressive money printing, the Japanese central bank has already indicated a ‘whatever it takes’ attitude, to prop up its economy. China is not far behind. On the other end, market participants feel that this is not enough, given the slowdown in their respective economies and global repercussions from these downturns. While the markets get tugged between these two forces, we advise our readers to stay on the side-lines and wait for a clear-cut trend to materialise.