Banking stocks lead the gains

Mon, 24 Jan 09:30 am

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Asian markets are giving mixed signals at the start of the week. On one hand, markets in Singapore (up 0.5%), Japan (up 0.4%) and Korea (up 0.1%) are trading in the green. On the other hand, markets in Indonesia (down 0.8%), China (down 0.5%) and Hong Kong (down 0.2%) are trading in the red. Indian markets have opened the day in the day on a positive note. Banking and realty stocks are leading the gains.

The BSE-Sensex is trading higher by around 10 points (0.1%), while the Nse-Nifty is up by 10 points (0.2%). Mid and small cap stocks are trading in the positive as well, with the BSE Midcap and BSE Small cap indices up by about 0.4% and 0.5% respectively. The rupee is trading at 45.56 to the US dollar.

Except for the off and on gains, like what is seen today, banking stocks have been mostly volatile for the past few days. Continuous news flows from banks announcing their December 2010 quarter results has been one of the reasons for the volatility. But the bigger issue has been the fear of higher interest rates given that inflation is showing no sign of easing. All eyes are now set on the RBI that meets tomorrow to decide on its interest rate stance. Economists are expecting the central bank to raise its base interest rate by 0.5%, which will the fastest one-time rise since the hikes started last year. While many are blaming the current inflation on supply side factors (like weak food grain output), the fear within the RBI is that if it does not do anything now, it might just aggravate the situation. Higher interest rates will be bad for banks in two ways. First, higher rates will lower the prices of the bonds banks hold in their books. And two, banks might see demand for new credit dry up on borrowers' unwillingness to ask for money at higher rates. Meanwhile, banking stocks are witnessing buying interest with SBI, Axis Bank and Bank of India trading in the green.

IT stocks have opened the day on a mixed note. Heavyweights like Infosys, TCS and Wipro are the main losers. On the other hand, HCL Tech and NIIT are witnessing buying interest. NIIT announced its third quarter results late last week. The company's sales grew by 6% YoY on the back of a strong growth in volumes both in its individual learnings business (ILS) as well as in its corporate learnings business (CLS). Net profits grew by 36% YoY. ERP training and SAP drove the volumes in the ILS business which witnessed a growth of 12% YoY. The CLS business grew by 8% YoY on the back of a 13% growth in the volumes. This was driven by the growth in training outsourcing as well as by the online learning products of the company. The schools learning solutions (SLS) witnessed a decline of 18% YoY during the quarter. This was mainly due to the lower off-take from the government schools. Going forward the company plans to concentrate on the private schools to drive growth in this segment. The operating margins of the company improved by 1.3% YoY. This was mainly on account of lower operating expenses which in turn was a result of an improved business mix during the quarter. Higher operating income as well as a larger share of associates led to a 36% YoY increase in the net income for the company.