Interest rate worries spook financials

Mon, 1 Feb 11:30 am

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Despite a good attempt to make inroads into the positive territory, the benchmark indices continue to languish in the red during the previous two hours of trade. This time albeit closer to the dotted line than at the start of the session today. Profit booking in key heavyweights from the software, banking and commodity sectors have been instrumental for the pressure on the indices.

The BSE Sensex and NSE Nifty are trading in the red, down by 53 points and 4 points respectively. The BSE-Midcap and BSE-Smallcap are also trading down by 1.2% and 2.2% respectively. The rupee is trading at 46.34 to the dollar.

The government's nodal agency for financing power projects in the country, Power Finance Corporation (PFC), announced its December quarter results during last weekend. PFC managed to grow its advances by nearly 20% YoY so far in FY10 despite lower average credit growth in the banking sector. The 9% YoY growth in PFC's disbursements were despite 10% YoY fall in sanctions. Being the nodal agency designated by the Government of India for financing power projects in the country PFC managed to grow its asset book in 9mFY10 despite the slowdown in infrastructure sector in the past 9 to 12 months. The difference in sanctions and disbursements is because PFC is a project driven organization. The overall growth in loan book is well in line with our estimates. Also due to better pricing power, the net interest margins improved from 3.8% in 9mFY09 to 4.2% in 9mFY10. PFC's gross NPAs also remained negligible at 0.02% while net NPAs are 0.01% of advances in 9mFY10.

Ashok Leyland, India's second largest manufacturer of CVs is trading strong on the bourses today. The optimism in the counter seems to be a result of the company's robust 3QFY10 performance. The company has managed to grow its bottomline by more than five-fold during the quarter. This has come on the back of a 81% YoY growth in topline. Strong expansion in operating margins, to the tune of nearly 3% and lower interest and benign depreciation charges have ensured that the growth in bottomline has come in a lot higher than the topline growth. During the quarter, company's volumes more than doubled as not only did the economy rebound and industrial activity picked up but they were also coming off a low base as demand had virtually collapsed during same quarter last year. Thus, the quarter in a way, reflects a return to normalcy for the company and hence going forward, the kind of improvement we have seen in the company's performance may be difficult for it to replicate.