Better IIP data fails to enthuse mkts

Thu, 12 Jan Closing

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The announcement of good results but weak guidance contributed to the sharp fall in the value of software bellwether Infosys today. This in turn dragged the BSE Sensex into the negative zone, as global troubles are far from over. Indian stock markets had a volatile trading session in the early half of the day, briefly reaching the breakeven zone. However, it could not sustain the momentum and continued to trade weak for the rest of the session. The BSE-Sensex closed lower by 139 points (0.9%) while the NSE-Nifty traded 30 points lower. The BSE Mid cap and BSE Small cap indices however bucked the trend and gained 0.3% and 0.2% respectively. Not surprisingly the IT index closed deep in the red while power and metal stocks performed well.

Most Asian indices closed in the red today with Europe trading higher currently. The rupee was trading at Rs 52.7 to the dollar at the time of writing.

Has the pessimism peaked and is it time for renewed optimism in the Indian economy? Well, leading indicators seem to be pointing in that direction. Food prices fell for the second consecutive week (ending December 31st) as food inflation remained in the negative zone at -2.9%. In the previous week, food inflation stood at -3.36%. This is a sharp contrast to the above 19% levels seen in the corresponding week of 2010. A fall in food inflation could be a major incentive for the central bank to look at rate cuts in its next monetary policy review.

With a recovery in manufacturing output, industrial production (IIP) grew by 5.9% in November, 2011. This was after seeing a 4.7% in October 2011, according to the revised figures. Output of the manufacturing sector, constituting over 75% of the index, went up by 6.6% in November, compared to a growth of 6.5% November 2010. Power generation grew by 14.6% in compared to 4.6% previously. Production of consumer goods increased 13.1%, as against a benign growth of 0.7% in November 2010. Better IIP numbers and rate cuts going forward may cut the negative sentiment in the country. However, with the situation still tense globally a complete reversal may be difficult.

Leading mortgage financier HDFC Ltd. announced its results for the third quarter (3QFY12) and 9 months of the financial year 2011-12 (9mFY12). Interest income grows 39% YoY in 9mFY12 on the back of 21% YoY growth in advances. However, net interest income could not see similar growth, rising only 18% in 9mFY12 on higher costs of funds. Net interest margin falls by 0.1% to 4.3% in 9mFY12 from 4.4% in 9mFY11. Other income however falls by 14% YoY in 9mFY12 on the back of lower gains booked on sale of investments. Net profit grows by 17% YoY for 9mFY12 which was in line with the increase in net interest income. For 3QFY12, profits grew by 10% YoY on lower other income and higher costs of funds. In 3QFY11, HDFC saw a large gain on the sale of its stake in IL&FS, however in this quarter it could not see a similar gain. Capital adequacy and gross NPAs stand at 13.9% and 0.8% respectively at the end of 3QFY12. The stock closed the day 0.9% higher.