Smallcaps in favour today

Mon, 11 Jun 01:30 pm

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While the Indian stock markets shed a portion of their gain of the day, they continue to trade well above the dotted line during the post noon trading session. Barring stocks from the healthcare and FMCG spaces, buying activity is witnessed across the board with consumer durables, power and metal leading the pack.

The Sensex today is trading higher by about 70 points (up 0.4%), while the NSE-Nifty is trading higher by about 37 points (up 0.7%). The BSE Mid cap and BSE Small cap indices are however performing better than their larger peers with their respective indices trading higher by about 0.9% and 1.1% respectively. The rupee is trading at 55.34 to the US dollar.

Auto stocks are currently trading firm led by TVS Motor, Bajaj Auto, Escorts Ltd and Ashok Leyland. Considering the substantial gap between price of petrol and diesel, the demand for vehicles using the latter has increased substantially over the last year. With the same happening, auto companies focused more on such vehicles. A leading business daily has now reported that a now the demand for diesel cars has reduced given the relatively high base effect as well as higher taxes making cars more expensive. The overall pessimistic sentiments have also not helped maters. As compared to earlier, when the waiting periods for some of the popular models were high, vehicles now are believed to be available off the shelf. It is reported that eight of the twelve top selling diesel cars are now available off the shelf. In fact, car dealers are even now offering incentives to purchase such vehicles, which was not the case earlier. What will be more interesting to see is how the industry will perform after the increase in excise duty on diesel vehicles, which the government is mulling at the moment.

Banking stocks are trading higher with Andhra Bank and Allahabad Bank leading the gains. The current macro environment with slowing GDP growth and high interest rates put the pressure on most borrowers and led to increased defaults. All banks, including the public sector players have now moved to a system-generated NPA recognition regime. Thus there is very little scope for bad assets to be concealed. Gross non-performing assets (NPAs) of all public sector banks stood at 3.1% of their total advances in FY12, against 2.3% at the end of FY11. This was significantly higher than the NPAs of old and new private sector banks at 1.7% and 2.18% of advances in FY12, respectively. State Bank of India (SBI), saw its gross NPAs rising to 5.22% in FY12, followed by Central Bank of India at 3.93% and UCO Bank with 3.73%. Plus a number of accounts were restructured last year. If these fail to perform as rescheduled going forward it could lead to a further accretion of NPAs. The finance minister is now increasingly concerned over the rising bad loans and plans to meet the chiefs of the various financial institutions over the same. These banks are to turn down requests for fresh loans from willful defaulters and also bar promoters of these companies from getting institutional finance to float new ventures for five years. Banks and other financial institutions should also make formal complaints against auditors found negligent or deficient in auditing the books of accounts of borrowers with the accounting regulator.