Sensex Opens Marginally Higher; Tata Motors Gains 4%

Wed, 24 May 09:30 am

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Asian equity markets are lower today ahead of US Federal Reserve views on interest rate hike prospects and await an upcoming OPEC meeting. The Shanghai Composite is off 0.48%, while the Hang Seng is down 0.07%. The Nikkei 225 is trading higher by 0.48%. US stocks registered their 4^th straight session of gains on Tuesday as banks led the charge and following the White House's release of its 2018 budget proposal.

Meanwhile, share markets in India have opened the day marginally lower. The BSE Sensex is trading higher by 51 points while the NSE Nifty is trading higher by 18 points. The BSE Mid Cap index opened down by 0.2%. while BSE Small Cap index has opened the day flat.

Barring healthcare stocks, consumer durables stocks and FMCG stocks, all sectoral indices have opened the day in green with automobile stocks and capital goods stocks leading the gains. The rupee is trading at 64.78 to the US$.

Tata Motors share price jumped as much as 5% to Rs 473, the most since 8 November 2016. Tata Motors reported a 16.79% drop in consolidated profit at Rs 43.36 billion in the quarter ended 31 March 2017. The company had posted a net profit of Rs 51.76 billion during the same period last year.

For the quarter under review, Tata Motors posted consolidated revenues of Rs 772.72 billion, down from Rs 795.49 billion recorded in the corresponding quarter last year. Consolidated revenues during the quarter were lower by Rs 90.32 billion due to the translation impact of the GBP (British pound) to the Indian rupee.

Meanwhile, the company's luxury brand Jaguar Land Rover (JLR) posted an 18% increase in profit after tax to 557 million pounds (US$722.87 million) compared with the year-ago quarter.

Further, for the year 2017-18, JLR has an investment plan of 4 billion, which includes the investment at the under-construction plant in Slovakia, the reports noted.

To know more about the company's financial performance, subscribers can access to Tata Motor's latest result analysis and Tata Motors stock analysis on our website.

Moving on to the news from the stocks in bank sector. In the latest development, domestic rating agency ICRA Ltd downgraded various debt instruments of IDBI Bank due to sustained weakness in the bank's earnings over the last two years. The rating agency downgraded securities worth Rs 825.38 billion.

The downgrade comes on the back of weak profitability and deteriorating asset quality, which have resulted in the erosion of its capital. The agency has also kept the lender's ratings under watch with negative implications.

In addition to long term securities such as infrastructure bonds and additional tier-1 (AT-I) bonds, ICRA also downgraded IDBI Bank's fixed deposit programme. The rating agency has also downgraded the short-term rating on the bank's Rs 350 billion certificates of deposit programme.

In February 2017, ICRA had highlighted the pressures being faced by the bank in meeting the minimum regulatory CET-I (including capital conservation buffer) level of 6.75% required as on 31 March 2017.

Owing to the loss absorption features of the Basel III compliant Tier-I bonds, the rating agency has rated them four notches lower than Basel III compliant Tier-II bonds, at BBB-. This rating indicates moderate credit risk, according to the ICRA scale.

In the year ended 31 March 2017, the bank posted a net loss of Rs 51.58 billion as against a net loss Rs 36.65 billion in financial year 2016. The bank's gross NPAs almost doubled to 21.25% of the gross advances in the fourth quarter of the last financial year compared to 10.98% in the corresponding period of the previous financial year.

According to ICRA, with low provision cover and high net NPAs and an expectation of further weakening in asset quality, the bank's internal capital generation will remain weak over the medium term.

However, an important thing to consider is that the mid-level PSBs account for one-third of bank credit. And to meet the Basel III requirements, they need a massive capitalization of Rs 1.6 trillion over the next four financial years. This is certainly going to be a big challenge at a time when credit is not cheap and the economy is still sluggish.

Capitalisation Of Mid-level PSBs A Worry

The chart above shows the likely credit growth under different scenarios of capital infusion. Certainly, a matter of worry not only for the banks but for credit-starved sectors of the economy as well!

IDBI Bank share price opened the day down by 2.8%.

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