Markets close flat

Thu, 8 May Closing

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Sensing the positive global cues, the Indian equity markets bounced back in the last hour of trading session, closing the day on an optimistic note. Stocks from sectors such as consumer durables, automobiles and banks were leading the pack of gainers today. However, the BSE Mid Cap index lost steam and was down by 0.2%; whereas the BSE Small Cap index was up by 0.2%. The BSE Sensex closed higher by 20 points and the NSE-Nifty stood flat and was up by 7 points.

On the global front, most of the Asian indices have closed the day in green. The European indices, however, have opened the day on a mixed note. The rupee was trading at Rs 59.96 to the dollar at the time of writing.

Barring few such as Dhanlaxmi Bank, DCB bank and Karnataka Bank, all the other stocks from the private banking space have closed the day in green. Leading the pack of gainers were the stocks of City Union Bank and South Indian Bank.

A leading daily has reported that City Union Bank has sold around Rs 100 m loans to asset reconstruction companies (ARCs). The management has also confirmed about the healthy track record of loan recoveries. This is indeed a good sign for the bank; given the tough environment. The bank's net restructured loans accounted for 1.9% of advances in December 2013. The gross NPAs were at 1.7% of advances in 9mFY14.

The news reports also state that the bank has got the regulatory approval to raise the foreign institutional investor (FII) limit to 35% from the current 25%. However no FII will be permitted to hold more than 5% without specific approval. The stock is up 5% today.

Majority of the stocks of public sector banks have closed the day in red. Leading the pack of losers were Union Bank and Andhra Bank. SBI and Bank of Baroda led the pack of gainers today.

As per a leading financial daily, state-owned lender Union Bank of India has reported a 27% decline in profitability for 4QFY14. For the full year FY14, the net profits have declined by 21.4% YoY. Higher provisioning costs and weak interest income have dragged the profits for FY14. The net interest income (NII) has grown by mere 3.7% YoY in 4QFY14, on the back of 10.1% YoY growth in advances. Even FY14 has reported meager 4.5% YoY growth in net interest income. Also, the provisioning costs for the quarter have shot up by 40.4% YoY during 4QFY14. The asset quality concerns have marred the profitability for the bank. The Net NPAs have moved upwards from 1.6% in FY13 to 2.3% in FY14. Gross NPAs too have stood on the higher side at 4.1% levels. The capital adequacy ratio for the bank stood at 10.1% at the end of 31st March 2014 as per Basel III norms. The company has declared a dividend of Rs 4 per share (dividend yield: 2.9%). Post results, the stock has plunged and is down by 9% today.

Is asset quality a major concern for the banking system? Will bad loans continue to impact the profitability of the banks? Share your views in the Equitymaster Club.