Markets find support in FMCG

Wed, 18 Aug 01:30 pm

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The Indian indices pared some of their opening gains on profit booking in heavy weights over the last 2 hours of trade. Stocks from the FMCG and auto space are among the top gainers while stocks from the realty and consumer durable space are the top losers.

The BSE-Sensex is trading up by 46 points while NSE-Nifty is trading 16 points above the dotted line. BSE-Midcap index is up by 0.4% while BSE-Smallcap index is trading 0.5% above yesterday's closing. The rupee is trading at 46.65 to the US dollar.

Food and tobacco stocks are trading mixed with Wadala Commodities and ITC trading firm while Tata Global Beverage and Golden Tobacco are trading weak. As per a leading financial daily, ITC's rural initiative of e-choupal is showing signs of faltering. Launched in 2000 with six e-choupals, the number grew to 6,500 in 2007. However, since then the number of choupals has stagnated at the same level. The reason for this has been the reversal or slow down of several ongoing policy reforms in the agriculture sector. Export bans, subsidies, stock controls, prohibition of futures and slow amendment to the Agriculture Produce Marketing Committee (APMC) Act, have further affected the scale, risk and profitability of e-choupal operations making ITC stop expansion altogether. In fact e-choupal has not been the only casualty of slow reforms. The e-choupal model was expected to benefit both farmers and ITC. While farmers were to benefit through enhanced farm productivity and higher farm gate prices, ITC was to benefit from the lower net cost of procurement.

Banking stocks are currently trading mixed with Bank of India and SBI trading weak, while HDFC Bank and Bank of Baroda are trading firm. A leading business daily has reported that India's largest bank SBI is aiming at growing its profits by 20% YoY during FY11. This optimism seems to be on the back of the strong 25% YoY increase in profits during 1QFY11. As compared to the previous fiscal FY10, this target seems like an ambitious task. During the previous year, profits rose by 0.5% YoY. The key factor that led to a strong performance during the quarter ended June 2010 was the 0.9% YoY expansion in net interest margins (NIMs). The same was on account of a strong increase in low cost deposits (CASA), which increased by 32% YoY and formed about 48% of deposits as compared to about 39% last year. It may be noted that SBI's balance sheet has been growing at a faster pace as compared to the industry. This is mainly due to its widespread rural and semi-urban presence.

The bank was also able to improve its NIMs on account of repricing of term and bulk deposits. It may be noted that the bank still has a big chunk of term deposits that are yet to be repriced over the next three quarters. With this happening, the possibility of the bank sustaining (if not improving) its NIMs still stays.