IT and banking stocks lose favour

Thu, 7 Oct 11:30 am

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After starting today’s session on a positive note, Indian indices have slumped into the red. Other key Asian markets are also trading weak with Hang Seng, Nikkei and Singapore trading weak. Currently, heavyweights in the Sensex are trading weak with stocks from the IT and banking space losing favour while and consumer durables and healthcare stocks found some buying interest.

Currently, the BSE-Sensex is trading down by around 56 points, while the NSE-Nifty is down by about 9 points. Some buying interest is being witnessed amongst mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading up by 0.5% and 0.6% respectively. The rupee is trading at 44.33 to the US dollar.

Banking stocks are trading weak with Oriental Bank and Canara Bank leading the losses. SBI plans to scale up its operations in rural India. This is for the purpose of increasing financial inclusion in the country. The bank plans to increase its rural lending book by 25% and its deposit base by about 28%. At the end of FY10 the bank had lent around Rs 1.4 trillion in rural centers and it plans to increase its loan book by Rs 364.7 bn by the end of FY11. The bank's deposit base in rural areas at the end of March 2010 stood at Rs 2.5 trillion and it plans to add about Rs 732.8 bn to its deposit base.

The bank is looking at augmenting its rural outreach though its branch network, use of technology and various business correspondents (BCs). SBI plans to add around 1,500 branches in rural and semi urban areas in the next three years. At present, the bank has 12,647 BCs. It plans to add another 12,000 BCs by the end of FY11.

IT stocks are trading firm led by Mphasis Ltd and NIIT. As a part of an initiative to compete better against MNC rivals, HCL technologies plans to have new ideas such as cloud computing become major revenue contributors over the next five years. The company has formed a new unit called ‘ecosystem and business incubation organization’ to identify new business ideas over the next few years. Right now the company has identified five new ideas which have potential to become US$ 100 m businesses in three years, and almost US$ 300 m over the next five years. The company is making organizational changes to ensure that it prioritizes on new ideas to succeed against rivals. Cloud computing is one of such ideas.

It should be noted that in light of intense competition, Indian IT vendors are looking for new avenues like cloud computing as next big opportunity. Since cloud computing model requires customers to pay subscription fee it ensures a more predictable revenue stream benefitting companies during downturn.