Indian Markets Trade Flat

Wed, 17 Feb 11:30 am

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After opening weak, the benchmark consumer durables stocks bearing maximum brunt.

The BSE Sensex is trading down by 39 points (0.2%) and the NSE Nifty is trading down by 13 points (0.2%). The BSE Mid Cap index and the BSE Small Cap index are trading in the red, down by 1% and 0.9% respectively. The rupee is trading at 68.61 to the US$.

Stocks in the Indian Overseas Bank and Central Bank leading the losses. As per a leading financial daily, Standard & Poor's (S&P) Ratings Services has warned that capital requirements of PSU banks for provisioning of bad loans are likely to shoot up, exposing them to possible downgrades. It said that Indian public sector banks may find it difficult to raise capital, given their currently weak operating performance, which makes it difficult for them to access the equity capital markets.

S&P stated that the PSU lenders are in a weaker position on the capitalisation front than their private sector peers and may find it difficult to raise capital given their weak performance. These banks will therefore have to rely more on government support for capital infusions. The ratings agency further said that it would see if the government infuses a large chunk of the Rs 450 billion earmarked for capital infusion in banks over fiscal 2017-19, in the current year itself.

The rating agency trimmed down its outlook on Bank of India (BoI) to 'negative' from 'stable'. Further, it had put Indian Overseas Bank on 'CreditWatch' with negative implications and also retained 'negative' outlook on Syndicate Bank. S&P expects BoI's asset quality to continue to weaken over the next 12-18 months which will further strain the bank's capitalisation and profitability. However, it also said that over the longer run, the tighter NPLs (non-performing loans) norms will improve transparency in the Indian banking system and bring them more in line with global practices. They will also pave the way for much-needed reforms in risk management and governance of banks.

It shall be noted that many leading state-owned banks, including BoI and IDBI Bank, reported their highest ever quarterly losses totaling over Rs 120 billion on the back of mounting bad loans. Moreover, banking majors like State Bank of India (SBI) and Punjab National Bank (PNB) witnessed sharp erosion in profits. This came in after the Reserve Bank of India (RBI) asked banks to recognise select weak loans as non-performing loans over the quarters ending December 2015 and March 2016, and shore up provisioning.

India has a bigger bad debt problem that is not in line with what is stated by the rather stable level of banks' official 'non-performing' loans. One of the articles from the Vivek Kaul's Diary has explained this in a detailed manner. You can read it HYPERLINK "https://www.equitymaster.com/diary/detail.asp?date=01/21/2016&story=1&title=When-It-Comes-to-Bad-Loans-of-Banks-Nothing-is-as-It-Seems&utm_source=TM&utm_medium=website&utm_campaign=MCOM&utm_content=market-commentary" here.

Telecom stocks are trading on a negative note with ADC India Communications and AGC Networks leading the losses. As per a leading economic daily, the overall GSM base reached 761.4 million during January 2016 with the addition of a total 5.8 million new subscribers. This was recorded as higher by 0.8% from previous month.

Bharti Airtel added 2.5 million users in January, 2016. Following this, the company's total customer base has increased to 245 million with a market share of 32.3%. This was followed by Idea Cellular with 1.2 million new customers, and Vodafone with 1.1 million new customers in the month. Following this, the total customer base of these companies has increased to 194 million and 173 million, respectively. Videocon lost 212,276 customers during the month. It now has 67,45,902 subscribers in the country.

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