A 99% fall in net clouds outlook for stock indices.
State Bank of India (SBI), the country’s largest, declared its worst quarterly result in over a decade on Tuesday, dragging down the stock markets. The bank’s fourth quarter net profit fell 99 per cent to Rs 20.88 crore as against Rs 1,866 crore in the corresponding quarter of 2009-10.
With financial sector stocks having a big weight in the stock indices, the Bombay Stock Exchange (BSE) Sensitive Index, Sensex, fell 351 points from the day’s high after SBI announced its results. It recovered from there to close at 18,137.35, down 208 points. The National Stock Exchange (NSE) Nifty fell 60.05 points to 5,438.95, after touching an intra-day low of 5,421.05.
“SBI’s results, coupled with sustained weakness in heavyweights such as ONGC, Reliance Industries and ICICI Bank, added fuel to the fire. Mixed cues from international markets didn’t help matters either,” said Amar Ambani, head of research (India private clients), India Infoline.
| UNDER STRESS Prices of bank stocks in Rs on BSE | |||
| Top 10 losers in Bankex | 31-Mar | 17-May | % Change |
| Bank of India | 478.10 | 401.50 | -16.02 |
| Canara Bank | 626.15 | 542.25 | -13.40 |
| PNB | 1220.15 | 1058.15 | -13.28 |
| Axis Bank | 1403.65 | 1217.75 | -13.24 |
| SBI | 2767.90 | 2413.60 | -12.80 |
| Bank Of Baroda | 963.15 | 861.15 | -10.59 |
| Kotak Mahindra Bank | 456.85 | 410.50 | -10.15 |
| IndusInd Bank | 263.70 | 240.90 | -8.65 |
| Union Bank Of India | 347.45 | 318.65 | -8.29 |
| IDBI Bank | 142.45 | 132.50 | -6.98 |
| Source: BSE; data compiled by BS Research Bureau | |||
The SBI stock fell 7.78 per cent, the most among Sensex stocks, and closed at Rs 2,413.60. ONGC lost 6.71 per cent amid reports the government is likely to increase the share of subsidy burden (estimated at Rs 77,922 crore for 2011-12) to be borne by upstream oil companies from 33 per cent to 38.5 per cent.
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Rakesh Arora, managing director & head of research, Macquarie Capital Securities, said, “SBI results clearly reflect that even the next quarter is likely to be stressful for the banking sector because of margin pressures.” Deregulation of the savings rate, if implemented, would add to the margin pressure, he said.
Since January, the Bank Nifty has shown a high correlation with the Nifty. The correlation coefficient is almost 0.88, which means the two move in the same direction most of the time. This is partly explained by the fact that nine out of 50 Nifty stocks are from the financial sector. They account for a little over 26 per cent of Nifty’s weight. In fact, four out of top 10 Nifty stocks by weight are from the financial sector. They are SBI, ICICI, HDFC and HDFC Bank. They together enjoy a weight of 21.26 per cent.
No wonder experts are not very upbeat about the near-term outlook of the markets. It will be difficult for the markets to rise without support from the Bank Nifty, they say.
One big reason for SBI’s poor results is higher provisioning for bad loans and teaser loans. Out of provisioning of Rs 6,059 crore (up 82 per cent year-on-year), loan-loss provisioning was Rs 3,264 crore, up 50 per cent, while standard asset provisioning was Rs 631 crore as compared to Rs 80 crore in the same period last year.
The latter included Rs 500 crore additional provisioning for teaser loans mandated by the Reserve Bank of India.
Market experts said SBI’s results were a signal that there was likely to be a re-rating of the banking sector, at least for the near term. “The extraordinary provisioning is worrying. This, added to rising fuel prices that will stoke inflation and lead to further increases in interest rates, will not ease matters for the sector. Some private sector banks, which command a higher valuation on Tuesday, will be hit,” said an analyst.
The international situation is also not very favourable. “China is continuing its tightening. Other global factors are also not very comforting. So, I feel the markets aren’t likely to go anywhere for at least a quarter,” said the head of a fund house, adding that there could be occasional spikes due to short-covering. But the overall sentiment, and consequently the market direction, was likely to stay negative for at least another quarter, he said.