Indian Share Market Opens Weak, Axis Bank Tanks 7%

Wed, 26 Oct 09:30 am

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Major Asian stock markets have opened the day on a negative note with stock markets in China and Hong Kong are trading lower by 0.5% and 0.8% respectively.

Stock markets in Europe and the US too ended their previous session in red.

The rupee is currently trading at 66.8 per US$.

Indian stock markets have opened the day on a negative note. The BSE Sensex is trading lower by 150 points (down 0.5%) and NSE Nifty is trading lower by 60 points (down 0.7%). Both, BSE Mid Cap and BSE Small Cap are trading lower by 0.3% and 0.2% respectively.

Major sectoral indices have opened the day in red with stocks from banking sector are witnessing selling pressure.

As per an article in Livemint, Axis Bank reported its results for the quarter ended September 2016. The company's net profits declined by a significant 83.1% to Rs 3.1 billion during the quarter. Net profits declined mainly on account of higher provisioning due to a massive increase in bad loans. Provisions jumped by five-fold to Rs 36 billion during the quarter as compared to a year ago.

During the quarter ended March 2016, the company had given a watchlist of corporate accounts amounting to Rs 226.2 billion which could have potentially turned bad.

About 10% of the corporate loans listed from this sum went bad in the June quarter. As of 30 September, nearly 40% of this watch list has turned bad. The bank previously estimated that bad loans will be limited to somewhere around 60% of this watch list. However, the bank now expects that the bad loans to exceed this 60% guidance they had given earlier.

The key concern now is that whether the entire watch list will turn out to be bad which could be a high probability as 97% of the watch list has now a rating below 'BBB'.

Fresh slippages stood at a massive Rs 87.7 billion in the September quarter and 89% were from this watch list. Around 11% slippages came from outside the list. The gross non performing assets (GNPAs) as a percentage to total loans stood at 4.17% during the quarter as compared to 2.54% in the preceding quarter.

The watchlist has exposure to sectors which are facing strong headwinds currently. Around 60% of the list is dominated by sectors such as power, construction and iron & steel. Hence, a close watch on the asset quality will be the key things to watch out for going forward. The <>share price of Axis Bank is trading lower by 7%.

In another news update, research conducted by CRISIL states that the credit profile of build-operate-transfer (BOT) road projects that are operational are looking better.

An analysis of 104 BOT projects with outstanding debt of Rs 469.5 billion showed that only 35% of the projects are at risk, which is lower than 45% last year.

However, recently road developers are increasingly shifting to bid for the Engineering Procurement Construction (EPC) contracts as compared to Build Operate Transfer (BOT) model.

Beneath EPC, a developer builds with the money provided by the government. While, under BOT- a developer builds with his own money, operates it for a specified duration to recover investments and make a profit and transfer it to the government.

EPC is an asset light approach model, while BOT is the opposite. Reportedly, a dozens of companies have shifted to an asset light model, as the sector tries to slough off heavy debt.

Increasing competition is being witnessed in the EPC space from small players, as this segment has low entry-barriers.

It will be interesting to see how the large players in this space tackle this competition from the emerging smaller players.

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