Another Day of Gains for the Indices

Fri, 27 May Closing

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After witnessing buying interest in the post-noon trading session, the Indian equity markets continued their momentum and closed the day on a firm note. Stocks from sectors such as energy, healthcare, realty and banking were leading the gains.

The BSE Sensex closed higher by about 287 points (up 1.1%). The NSE-Nifty ended higher by about 87 points (up 1.1%). The BSE Mid Cap ended higher by 1.4%, while the BSE Small Cap ended higher by 0.6%.

On the global front, most of the Asian indices closed their day on a positive note. The Hong Kong's Hang Seng ended higher by 0.88%, while Japan's Nikkei 225 ended higher by 0.37%. The European indices also witnessed buying interest. The FTSE 100 is up 0.05%, France's CAC 40 is up 0.06% and Germany's DAX is up 0.9%. The rupee was trading at Rs 66.97 to the dollar at the time of writing.

SBI reported its results for the quarter ended March 2016. The net profits declined by 66% YoY to Rs 12.6 billion during the quarter. The decline was mainly because of higher provisioning on account of bad loans.

The gross non-performing assets (NPAs) increased to 6.5%, higher than 5.1% as reported in the preceding quarter. As an absolute number the gross NPAs increased by 35% to Rs 981.7 billion on a sequential basis.

Further, provisions increased by 65% to Rs 131.7 billion on a sequential basis. The provisions increased as the company set aside more money to provide for the bad loans. Net interest income (NII), the difference between the interest earned on loans and that spend on deposits, increased by 4% YoY to Rs 152.9 billion during the quarter.

SBI's earnings have been hit in the March 2016 quarter on account of the clean-up exercise undertaken in line with RBI's Asset Quality Review (AQR).

While the fallout of the same has resulted in higher provisions that have curtailed earnings, but it will also enable banks to quickly tide over the NPA crisis. A check on the asset quality will be the key things to watch out for going forward.

One shall note that the bank is going to merge its five associate banks, along with Bharatiya Mahila Bank, with itself. The bank recently announced that its board has given in-principle approval for the bank to discuss the possibility of acquiring its associate banks.

The stock of SBI closed higher by 9.4%

Moving on to the news from steel sector. As per an article in Economic Times, Moody's Investors Service today said that greenfield expansion of Tata Steel operations in India and expected restructuring of UK operations can improve earnings. However, the global ratings agency kept its ratings for the company unchanged to Ba3 that it downgraded in February from Ba1 earlier.

Tata Steel recently reported its results for the fourth quarter ending March 31, 2016 (4QFY16). The company posted a year on year (YoY) decline of 12.4% in its consolidated revenues. Consolidated net loss of the company stood at Rs 33 billion as against Rs 57 billion in the corresponding quarter last year. Operating profits, however, remained strong. The company's EBITDA (earnings before interest, tax, depreciation and amortization) came in at 23 billion, up by 44% on a YoY basis.

For the overall business, the company recorded steel deliveries of 6.94 million tonne (MT) during the quarter, down 1.6% YoY.

One shall note that the company has decided to sell its UK operations, called Tata Steel Europe Ltd as it failed to turn around the business that it bought as part of the takeover of Corus at the height of the commodity boom in 2007 for US$12.1 billion. The business suffered almost a decade of losses amid poor demand and cheap Chinese imports.

Radhika Pandit, Managing Editor,ValueProwrote an interesting piece on this in one of the editions ofThe 5 Minute WrapUp titled 'The Perils of Big Acquisitions Spare No One...Not Even the Tatas'.

Stock of Tata Steel closed the trading day up by 1.7%.

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