Realty, metals drag markets

Fri, 21 May 11:30 am

   Previous Close   

   Pre-Open   

   09:30 am   

   01:30 pm   

   Closing   

Indian markets languished in the red as heavy selling activity continued during the previous two hours of trade. The advance to decline ratio is 1:5 on the BSE 100. The biggest fall was seen in the metal and realty space as investors booked profits in stocks from these sectors.

BSE-Sensex is trading lower by 192 points while NSE-Nifty is trading 55 points below the dotted line. BSE-Midcap index is trading lower by 2% while the BSE-Smallcap index is trading 1.8% below yesterday's closing. The rupee is trading at 47.06 to the US dollar.

Stocks in the FMCG space are trading weak lead by Nestle and Tata Tea. As per a leading daily, FMCG companies are looking at better growth in the second half of this financial year. This would be the result of food inflation losing steam as monsoons are expected to be normal. It is reported that FMCG industry is currently growing at 9% YoY. In fact, as per the industry, FMCG companies saw average growth rates drop by 6% to 11% in the March quarter due to high food inflation and restrictive consumer buying.

However it is expected that FMCG companies would grow at 14% YoY in the second half of this year. This is because post June quarter, consumer purchasing power which was impacted as a result of food inflation is likely to bounce back. A good monsoon is expected to create higher demand for FMCG companies as consumers would have higher discretionary income in hand. This is a positive for companies like Godrej which suffered as a result of consumers cutting down on discretionary spending. This is also a positive for companies like Nestle and GSK Consumer which have been reeling under high commodity prices as drop in food inflation would ease margin pressure.

Banking stocks are currently trading weak led by ICICI Bank and Axis Bank. A leading business daily has reported that India's largest bank SBI is aiming to bring down its operating expenditure. During FY10, the bank's cost to income ratio rose to 53% from 47% during FY09. A key reason for the same was additional hiring. The bank has been expanding its branch network quite aggressively in recent times. During FY10, SBI had opened around 1,000 branches. This is quite an aggressive number considering that over the past four years, the bank had opened about 3,000 branches. As per the bank, it plans to scale down its branch expansion plan to about 500 from the earlier estimate of 1,000 for this year.

As per SBI, the returns of the aggressive expansion have not met expectations as well. The bank felt some pressure on account of the same during the fourth quarter of FY10, where operating expense grew by 40% YoY. This coupled with higher provisions and contingencies led to a 32% YoY decline in net profits for the quarter. It may be noted that while the overall aim is to lower costs, the bank will be continuing with recruiting new employees over the next two years. This is on the back of a large number of natural attrition (retirements) due over the next two years.