INDIA  :   Business

February continues to pull down the markets

Saturday , 05 March 2016

Markets continue climbing the wall of worries, on the back of China, sluggish growth rates and poor quarterly results

In our February market review, we had said that uncertainty is at its highest, on account of the current global scenario. On the one hand, Bank of Japan has already cut its benchmark rates to minus 0.1 per cent, implying that it will charge banks to keep money with it. Along with its aggressive money printing, the Japanese Central Bank, has already indicated ‘whatever it takes’ attitude, to prop up the Japanese economy.

On the other hand, China is not far behind. Market participants feel that this is not enough, given the slowdown in their respective economies and the global repercussions of these actions. In this tug of war, bears prevailed. Indian markets continued their downward spiral, on the back of further concerns over China, questions over growth, especially Q3 results, PSU Bank results, and concerns over Modi’s comment on subsidies to the corporates.

Sensex fell by 6.9 per cent to 23,154.30, while Nifty shed 7.1 per cent to 7,029.75 on February 26th. YTD Sensex has shed 11.35 per cent, while Nifty has fallen by 11.53%.

FIIs continued to be negative, especially when it comes to the Emerging Markets. They were net sellers to the tune of Rs. 10,495 crore in February 2016. YTD FIIs sold over Rs. 24,851 crores vs. Rs 19,766 crore of net sell, in 2015. FIIs were the net sellers on all days, barring two. DIIs again provided support to the markets and were the net buyers during February. They bought equities worth Rs. 9,046 crore.

Rupee depreciated 1.33 per cent to close at 68.781 on February 26th.

While within the Nifty there were 8 gainers and 42 losers, in the Sensex, there were 5 gainers and 25 losers, on a monthly basis. Metals, Banks, Auto and Heavy Industries accounted for most of the losers, while Telecom had all the winners. There is yet another development. Nifty index will now exclude 3 and include 4 stocks. Cairn, Vedanta and Punjab National Bank were removed from the index, while Aurobindo Pharma, Bharti Infratel, Eicher Motors and Tata Motors DVR were added to it.

PSU Banks were one of the biggest losers, because of their significantly poor results. RBI mandated all banks to aggressively recognize their NPLs and clean up the books by FY17. However, barring Bank of Baroda, none of the banks have claimed to clean their books fully. In fact, SBI’s chief clearly stated that more clean-ups are yet to come, indicating that more pain is still left within the system.

Bank of Baroda gained 5.4 per cent after it announced that it does not expect any further slippages. SBI, on the other hand, shed 13.2 per cent, while Punjab National Bank lost as much as 20.5 per cent. ICICI Bank in the private sector too, shed 19.7 per cent, while HDFC Bank fell by 8.5 per cent.

BHEL lost 31.5 per cent after 9 per cent de-growth in order inflows and because of poor results. It reported EBITDA loss of Rs16.4bn, as a result of revenue de-growth of 14 per cent YoY; higher material costs (65 per cent of sales vs. 54 per cent YoY); and higher provisions for slow moving projects, from the domestic private sector.

ITC fell 8.9 per cent on back of expectations of higher excise duty and because of rumours that the Government may auction its entire stake of 11.19% worth Rs 25,000 crores, as its official policy is to discourage tobacco consumption. Stake sale also seems to be necessitated, on accounts of the government’s motivation to curtail fiscal deficit. It is further rumoured that government insurance companies may follow the suit, in due course of time.

Oil and Gas stocks were down, as a result of the pressure on global oil prices. BPCL dropped 14.3 per cent, while Gail shed 17.3 per cent, during the month.

Power stocks remained under pressure, due to the economic slowdown and lower utilisations. NTPC lost 14.7 per cent, while Power Grid shed 9.6 per cent.

All auto stocks were impacted by the economic slowdown, especially based on concerns, related to the rural sector slowdown. Maruti fell 16.8 per cent, while Tata Motors dropped by 10.2 per cent.

We expect the markets to be fairly volatile with an upward bias, on the back of the budget goodies. That said, downside risks remain high due to global factors; highly leveraged corporate balance sheets; and further pull-out of FIIs from the market. As a result, we advice our readers to selectively buy quality stocks only, in small tranches and avoid any trading impulses.