Indian Markets Trade Flat

Mon, 8 Feb 11:30 am

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After opening the day marginally lower, the Indian Markets witnessed some choppy trades and are trading near the dotted line. Sectoral indices are trading on a mixed note with stocks from the banking and capital goods sectors leading the gains. IT stocks are trading in the red.

The BSE Sensex is trading up by 2 points (up 0.01%) and the NSE Nifty is trading up by 1 point (up 0.02%). The BSE Mid Cap index and the BSE Small Cap index are trading positively, both up by 0.9%. The rupee is trading at 67.82 to the US$.

Stocks in the finance sector are trading mixed with Bajaj Finance and HDFC leading the losses. As per a report by India Ratings and Research (Ind-Ra), the overall non-performing loans (NPL) of NBFC (non-banking financial company) sector is likely to increase to 7.8% in financial year 2016-17. This would be as against an estimated 6.7% in the current fiscal. Of the 7.8% gross NPL, 1.5%-1.7% of the increase will be due to the shift to 120-day NPL recognition norm in financial year 2016-17 from 150-days in the current financial year. The norm states that NBFCs will have to classify an asset as non-performing asset if it stays overdue for 120 days.

Further, the report stated that moderation in incremental delinquencies in the sector will continue through 2016-17. This would be led by strengthening of risk management systems of lenders, an economic recovery and a portfolio mix shift to less volatile asset classes.

Further, NBFCs with a higher exposure to the rural economy are also likely to see increased stress, until there is a pick-up in the agricultural economy. The rating agency pointed out that NBFCs will continue to gain credit market share at the expense of banks. This is because banks struggle to raise capital for a successful transition to the Basel-III regime, which is forcing them to reduce credit growth.

Automobile stocks are trading on a mixed note with Maharashtra Scooters and Eicher Motor leading the gains. As per a leading financial daily, SsangYong, the South Korean automobile company of Mahindra & Mahindra (M&M) is planning to invest US$1 billion over the next three-four years. The investment will be towards the development of new products in order to grow sales and turn profitable. One must note that the company has been mired in losses for the past few years.

As per the management of M&M, the market share of SsangYong is improving and the brand is reviving. The company is now focusing on financials. For this, the company has two more brand new platforms in the pipeline and will be investing in products to grow its market share in South Korea and outside.

M&M had spent Rs 21 billion in 2010 to acquire a 70% stake in SsangYong. The stake was later raised to 73%. SsangYong reported sales revenue of Rs 134 billion in the nine months ended September 30, 2015. This was marginally down from the year-ago revenue of Rs 138 billion. Net loss, however, widened from Rs 1.8 billion to Rs 4.5 billion.

We believe that the above development can help M&M to expand its presence in global markets and aid its overall profitability. While the growth of UVs for M&M has been slow, the company expects the scenario to improve going forward backed by new product launches. While the LCV segment as a whole has been de-growing, growth in certain segments within the LCV segment could ramp up (especially the 3.5 to 7T) category. As far as tractors are concerned, the management expects growth to be better in the second half of the fiscal.

Presently the stock of the company is trading up by 0.8%.

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