Banking stocks pull markets lower

Tue, 9 Nov 01:30 pm

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Strong selling activity led the Indian markets to shed their morning gains during the previous two hours of trade. Currently stocks from the banking, oil & gas and capital goods spaces are amongst the top losers, while those from the IT and realty spaces are finding some favour.

The BSE-Sensex is trading down by around 40 points (down 0.2%), while the NSE-Nifty is down by about 15 points (down 0.3%). Stocks from the small and midcap spaces have managed to find some favour as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.1% and 0.7% respectively. The rupee is trading at 44.39 to the US dollar.

IDFC has announced its 2QFY11 results. The institution grew its interest income and profits by 19% and 16% YoY respectively. Due to a robust pick-up in demand for funding for infrastructure development and banks' reluctance to fund long term assets with their short term liabilities, IDFC saw its sanctions grow by 231% YoY. The growth in disbursements and loan book was a robust 254% and 58% YoY respectively. Flat growth in interest expense helped IDFC keep its NIMs constant at 3.5%. The company increased borrowings by 40% YoY in 1HFY11 mainly through the long term funding route. The share of non-interest income to IDFC's total income increased by 20% in 1HFY11. Investment banking and broking saw a 12% increase, with buoyant capital markets. Fee income (on loans and others) increased by 102%. However growth in asset management fees and income from principal investments was flat.

The institution is currently more than adequately capitalised with CAR (capital adequacy ratio) of 24.7% in 1HFY11. It needs to maintain minimum CAR of only 15% by March 2011 as per the RBI norms, as well as its new IFC status. The company recently completed one round of equity raising, with Rs 26.5 bn raised from its QIP and Rs 8.4 bn raised from preferential issue of compulsorily convertible cumulative preference shares (CCCPS).

Banking stocks are currently trading weak led by SBI, Bank of Baroda, Axis Bank and PNB. Bank of Baroda announced its results for the quarter ended September 2010 recently. The bank reported a 47% YoY increase net interest income during the quarter. While interest income increased by 25% YoY, interest expenses increased at a slower pace of 14% YoY. Profit after tax during the quarter increased by 61% YoY as other expenses increased at a slower pace as compared to the net interest income. The profit growth would have been higher had it not been for the 60% YoY increase in provisions and contingencies during the quarter.

As for the performance during the first half of the current fiscal, net interest income increased by 50% YoY on the back of 30% YoY growth in advances. Profit after taxes increased by 42% YoY, a slower increase as compared to the increase in net interest income. The reason for the same was a 464% YoY increase in provision and contingencies. The bank's global net interest margins (NIMs) increased to 3.0% in 1HFY11 from 2.6% in 1HFY10. Net NPAs move up from 0.3% in 1HFY10 to 0.4% in 1HFY11. At the end of the quarter, the bank's capital adequacy ratio stood at a comfortable rate of 13.2%.