Realty, banks drag indices lower

Wed, 19 May 11:30 am

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Although slightly above their day’s lows so far, the Indian markets continued to languish in the red during the previous two hours of trade The overall advance to decline ratio on the BSE is skewed in favour of the latter at present. Stocks across sectors are trading weak led by those in realty, banking and metal space. However, those forming part of the IT and consumer durables sectors are trading marginally lower.

BSE-Sensex is trading lower by 190 points (down 1.1%), while the NSE-Nifty is trading down by 60 points (down 1.3%). BSE-Midcap index is trading lower by 0.2% while the BSE-Smallcap index is trading marginally lower. The rupee is trading at 45.91 to the US dollar.

Banking stocks are currently trading weak led by ICICI Bank, Axis Bank and HDFC Bank. The stock of ICICI Bank is currently the top loser amongst stocks forming part of the BSE-Sensex. Losses in the stock are seemingly on the back of its plans to acquire Bank of Rajasthan (BoR). The latter’s stock has however, been on a tear as it is trading higher by 20% today. Under the agreement ICICI Bank will offer 25 shares for every 118 shares of BoR held by the promoters of Bank of Rajasthan.

It may be noted that ICICI Bank is nearly 25 times the size (in terms of assets) of BoR. However, the latter has only one-fourth the numbers of branches as that of ICICI Bank, which has about 2,000 branches across the country. BoR on the other hand has good presence in the northern region of the country. As such, from this it is quite evident that ICICI is aiming at expanding its retail franchise. However, this may not have a significant impact on ICICI Bank’s books (considering BoR size as compared to itself). Nonetheless, we are not thrilled about the valuations at which the ICICI Bank is acquiring the BoR. The move could have a small impact on ICICI’s NPA levels in the medium term as well. It must be noted that BoR is not really known for its financial stability in the past. The bank had reported a loss at the bottomline level during the 9mFY10 period.

Auto stocks are currently trading weak led by Tata Motors, TVS Motor and Bajaj Auto. A leading business daily recently reported that India’s largest commercial vehicle manufacturer Tata Motors is looking at manufacturing cars in Mexico. The company is believed to be in talks with a Mexican firm to make its cars there. If these talks do go through, Mexico's Metalsa SA de CV will be manufacturing the Indian company’s models such as the Indica Vista, Indigo Manza and the Nano. This development will be done with the help of a contract manufacturing arrangement and will enable Tata Motors to establish a presence in and around the country. This will be a positive development for the company as this would enable it to diversify its presence geographically thereby catering to various kinds of markets. These include the emerging markets and the developed nations such as the US. While there has been no official statement from the company itself, its management has not denied this development.