Goldman scam rocks Indian markets

Mon, 19 Apr Closing

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The impact of the crisis surrounding the US financial giant Goldman Sachs spilled onto the Indian markets today. It was not only the benchmark indices that traded weak. Even the overall market breadth was sluggish. On the broader BSE, more than two stocks lost ground today for every one that closed in the positive. Indian markets were though not the worst performer within Asia. China (down 4.8%) and Japan (down 1.7%) performed even worse. European markets have also opened in the red.

The BSE Sensex and NSE Nifty closed with losses of around 190 points (1.1%) and 61 points (1.2%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed down by 1% and 1.5% respectively.

Metal stocks were the worst hit today, as stocks like Tata Steel, SAIL, and JSW Steel fell sharply. Selling in these stocks was on the back of reports that the government is looking to put pressure on steel companies to limit price hikes. In fact, the steel ministry has called a meeting of all the major steel producers this week to advice them against raising the price of the metal that is a key input of many industries. The government’s intention behind this is to control inflation that has already gotten out of shape. The wholesale price index based inflation was almost into double digits in March (at around 9.9%). The government fears high inflation to continue in the coming months on the back of rising commodity and fuel prices.

Realty stocks also closed deep in the red today. Ansal Housing and DLF closed with big losses. With the monetary policy meeting scheduled for tomorrow, there are fears that the RBI will raise interest rates on property loans. This will have a negative impact on realty demand given that customers are yet to come out of the slowdown blues. Small realty companies will be worst hit as consolidation intensifies within the sector. The sector is reeling under oversupply, especially in the commercial real estate space. Now if interest rates were to rise from here on, which they are most likely to, this will act as nail in the coffin for players that still have stretched balance sheets.

Energy stocks also closed weak. Key losers here included Cairn India, ONGC, and Castrol. Selling in Castrol was despite reports that the company is looking to double its volumes from the premium segment of the auto lubricant market. This move must not be seen as just a way to improve margins, but also as a reaction to competition that is fast catching up pace. As reported, Castrol is looking at sprucing up its marketing and promotions to meet its growth target. The company had recently announced results for the first quarter ended March 2010. Therein, it had reported sales and net profit growth of 29% and 54% YoY respectively. The company saw its operating margins rise to 27.4% on the back of lower raw material costs.

Banking stocks somewhat bucked the trend today, and closed mixed. Gains were seen in Yes Bank and Axis Bank. However, selling pressure marked trading in HDFC Bank and ICICI Bank. As per a leading business daily, HDFC Bank, India’s second largest private sector bank, has edged its bigger rival ICICI Bank to the top spot in retail loans in March 2010. The former lent out Rs 13 bn in auto loans, Rs 12 bn in home loans, and Rs 4 bn in commercial vehicle loans during March. As compared to this, the lending for ICICI Bank stood at Rs 3 bn, Rs 7 bn, and Rs 2 bn respectively.

This is the clear impact of ICICI Bank going slow in lending after a maddening past 3-4 years where it emerged as the most aggressive lender in India, and paid for this aggressiveness in the form of sharp rise in NPAs. HDFC Bank, on the other hand, did not follow its larger peer in terms of aggressiveness but kept a tight lid on bad loans.