Sensex & Nifty Open Flat; Yes Bank Slips 3.5% Post Q4 Results

Thu, 20 Apr 09:30 am

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Stock markets in Asia are higher today following key earnings on Wall Street and as oil prices came off two-week lows set earlier in the session. The Shanghai Composite is up 0.13%, while the Hang Seng is up 0.35%. The Nikkei 225 is trading higher by 0.31%. The US equities closed mostly lower on Wednesday, with IBM and oil prices pushing down the Dow Jones industrial average.

Meanwhile, share markets in India have opened the day on a flat note with a positive bias. The BSE Sensex is trading up by 60 points while the NSE Nifty is trading up by 5 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.4% & 0.5% respectively.

Barring bank stocks, all sectoral indices have opened the day in green with stocks from metal sector and information technology sector leading the gains. The rupee is trading at 64.54 to the US$.

Bank stocks opened the day on a mixed note with DCB Bank and Karnataka Bank witnessing maximum buying interest. In the latest development, Yes Bank Ltd and IndusInd Bank Ltd have reported a sharp rise in their quarterly bad loan provisioning, eroding profits, after the Reserve Bank of India (RBI) advised lenders to follow stricter standard asset provisioning and disclosure rules.

The additional provisioning pertains to their exposure to the Jaiprakash Associates Ltd cement assets that are being purchased by UltraTech Cement Ltd. Exposure to a single cement company made a Rs 3.5 billion dent in the net profits of both the banks, private lenders otherwise known to have better control on asset quality.

IndusInd Bank and YES Bank had to make provisions of Rs 1.22 billion and Rs 2.28 billion, respectively, for their exposure to this account, in compliance with a Reserve Bank notification.

One must note that, the Indian banking system reported the worst NPA levels among Asian economies in 2015. Vivek Kaul has written extensively about the mess in public sector banks in his Diaries.

Asset Quality of PSBs Still Below Par

While most corporates blame the economic slowdown for the poor asset quality of banks, Vivek offers an alternative perspective. As per him, the real story behind the bad loans of Indian banks is about the diversion of funds and willful defaults...

• "As on December 31, 2014, the top 30 defaulters accounted for nearly one third of the bad loans of close to $47.3 billion, which is clearly worrying. Also, many high value loans have gone bad. And they keep piling up. In fact, in a survey carried out by the EY Fraud Investigation & Dispute Services found that 87% of the respondents that included bankers stated that diversion of funds to unrelated business through fraudulent means is one of the root causes for the NPA crisis"

.

However, given the scale of the bad loan problem, the bankers may remain cautious in granting new loans and approving new projects. This may delay India's investment cycle.

In the meanwhile, Yes bank and Indusind bank that announced their March quarter numbers on Wednesday have recently touched a record high. In the March quarter, while IndusInd reported 28% YoY growth in its loan book, Yes Bank clocked in a 35% increase in advances.

Both banks continued to grow their footprint in the corporate loan segment which grew at a faster clip (31% for IndusInd and 40% for Yes Bank) than their respective retail portfolios (25% and 18%, respectively).

Yes Bank share price began trading down by 2.5%, while Indusind bank share price opened flat.

Moving on to the news from stocks in paints sector. As per an article in a leading financial daily, Berger Paints India is planning to foray into new product categories, especially in the industrial segment. The company is aiming an entry into auto refinish and marine paints through joint ventures that are likely to be finalised by the end of this fiscal.

The company will formalise joint ventures with Japanese majors Rock Paints and Chugoku for entry into the Rs 20 billion auto refinish and the Rs 2.5 billion marine paints and coatings markets, respectively.

The company is also exploring opportunities to set up a facility for making insulation coating for constructing temperature-controlled buildings. This would be through its subsidiary Bolix, S A, Poland. These JVs are likely to be formed before 2017-18, the reports noted.

Meanwhile, according to Indian Paint Association, the paint industry is expected to grow at 12.4% over FY16-20E to reach the mark of Rs 708.75 billion. The uptick in demand of automobile and industrial sector is expected to contribute majorly in the growth of industrial paints, which is expected to grow at 7.4% over FY16-20E to reach Rs 177.19 billion.

Speaking of the paint industry, the sector has been under pressure due to demonetisation and rising input prices. However, Sarvajeet Bodas, our Research Analyst is of the opinion that It will be interesting to see how paint companies react in the near future (subscription required). If crude and TIO2 prices remain elevated, companies would be forced to pass on the increase in raw material prices to customers.

Also, how quickly demonetisation settles down and consumption recovers to normal levels remains to be seen. Ultimately, a good correction in the stock prices of paint companies could offer long-term opportunity.

Berger Paints share price opened the day up by 1.4%

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