Banking stocks feel the heat

Wed, 24 Aug Closing

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Selling pressure turned from bad to worse during the closing hours of today's trading session and as a consequence, indices in the Indian stock market closed the day deep in the negative. BSE-Sensex edged lower to the tune of around 210 points while losses on the NSE-Nifty came in at 60 points. BSE-Midcap and BSE-Small cap indices also came under selling pressure and closed down by around 0.5% each. Only a couple of stocks on the Sensex managed to close the day in the positive.

The story with other Asian indices was no different as almost all of them closed the day in the red. Europe on the other hand is trading strong currently. The rupee was placed Rs 45.9 to the dollar at the time of writing.

Today's decline came after two consecutive days of gains for the markets this week. The fall seems to have been triggered by Moody's downgrade of Japan's credit rating on the back of the country's weak economic prospects. Banking heavyweights were the worst hit in India as concerns over rising NPAs continued to mount. However, this does not seem to be too much of a concern just yet as the banking system in India seems robust enough to withstand such shocks.

Passenger car major Maruti Suzuki bore the brunt of selling pressure as it tumbled close to 4% today. As per reports, the company is facing headwinds to its exports to Europe, especially the contract manufacturing that it does for rival Nissan. It should be noted that the latter sources the five-seater hatchback Maruti Suzuki A-Star under a contract to sell in Europe after renaming the same. However, on account of a downturn in the region and also the scrappage of certain incentives, the export orders for Maruti have fallen substantially. While the company is exploring other geographies, the results may not start trickling in immediately. The company has witnessed a 23% YoY decline in exports volumes so far this year.

It was yet another disappointing outing for real estate companies as majority of them closed in the red today. Heavyweights like Sobha Developers and HDIL were amongst the biggest losers. According to a leading daily, the debt load of 11 listed real estate companies in the country has grown 15% or to the tune of Rs 50 bn in the last 12 months. This translates roughly into Rs 140 m of debt added every single day. It should be noted that a huge chunk of the overall debt of Rs 385 bn can be seen on the books of India's largest realtor, DLF Ltd. The company had debt outstanding to the tune of Rs 215 bn as per its latest financials. Furthermore, with not enough cash flows being generated, interest payments have become even more difficult. Thus, if interest rates were to harden further, there is a possibility that some of them could even go down under.