Inflation drags indices lower

Thu, 27 Jan Closing

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Mixed set of results and higher food inflation added to the negative sentiments as selling pressure led the Indian indices deeper into the red by the end of the session today. The BSE-Sensex edged lower by around 285 points today whereas NSE-Nifty closed with a loss of around 83 points (down 1.5%). The BSE Midcap and BSE Small cap indices did not do well either and lost in the region of 1.9% and 1.3% respectively. Realty, auto and healthcare stocks were amongst the biggest losers.

The other Asian indices closed a mixed bag while European indices are trading higher. The rupee was trading at Rs 45.6 to the dollar at the time of writing.

HDFC Bank announced its third quarter and nine month ended December 2010 results later this day. On the back of a robust 33% YoY growth in advances, the bank managed to grow its net interest income by 25% YoY in 3QFY11. The net interest margins at 4.2% came in higher than that recorded by most of its pers. Fee income grew by 23% YoY for the quarter. The cost to income ratio improved to 47% from 48% in 3QFY10, while net profits grew by 33% YoY. The bank’s low cost deposit (CASA) base sustained at 51% primarily driven by 31% YoY growth in savings accounts. With capital adequacy ratio of 16.2% and net NPA ratio of 0.2% the bank is well geared to meet interest rate challenges. The NPA coverage ratio stood at 81% while the restructured assets were 0.3% of total loan book.

As per a business daily, PSU steel maker SAIL will set up a 3 m tonne per annum (MPTA) plant in Indonesia with an investment of around Rs 150 bn. SAIL had already inked a pact with the Indonesian government for setting up a steel plant and a mineral processing unit, besides the development of mineral deposits in Indonesia. Steel production requires substantial amounts of raw materials and energy, including iron ore, coking coal and coke, scrap and power, which are subject to significant price volatility. Therefore, having a reasonable level of raw material security is essential for long-term sustainability. The company’s private sector competitor Tata Steel has also invested in certain projects across the world in order to increase its raw material security.

At 15.6% in January 2011, India’s food inflation remained sticky on the back of higher onion and fruit prices. The RBI raised policy rates earlier this week for the seventh time since last March, and expects higher inflation and more rate hikes in the coming months. India's food inflation has remained in double digits for most of past one year and has been the key contributor to the headline inflation (WPI), which in December rose to 8.4% from 7.5% in November 2010.