Breather likely for bank stocks but sector to remain in sharp focus.
Differing with its peer, Moody’s, leading rating agency Standard & Poor’s (S&P) upgraded India’s banking industry on Thursday, terming the country’s domestic regulations in line with international standards.
S&P’s “Banking Industry Country Risk Assessment (BICRA) on India” score was upgraded to group five from group six. The agency also revised the economic score to five from six and assigned an industry risk score of five. Other countries in BICRA group ‘5’ include China, Portugal, Thailand and Turkey.
| CARNAGE ON ASIAN BOURSES | |||
| 9-Nov | 10-Nov | Change (%)* | |
| THE US (2350 IST) | |||
| Dow Jones Indus Avg | 11,780.94 | 11,960.90 | -1.53 |
| Nasdaq Composite | 2,621.65 | 2,639.06 | 0.66 |
| EUROPE (2350 IST) | |||
| FTSE 100 | 5,460.38 | 5,444.82 | -0.28 |
| CAC 40 | 3,075.16 | 3,064.84 | -0.34 |
| DAX | 5,829.54 | 5,867.81 | 0.66 |
| ASIA | |||
| Nikkei 225 | 8,755.44 | 8,500.80 | -2.91 |
| Hang Seng | 20,014.43 | 18,963.89 | -5.25 |
| Shanghai Se Composite | 2,524.92 | 2,479.54 | -1.8 |
| Taiwan Taiex | 7,561.86 | 7,308.68 | -3.35 |
| Kospi | 1,907.53 | 1,813.25 | -4.94 |
| FTSE Straits Times | 2,858.66 | 2,786.90 | -2.51 |
| Thailand Stock Exchange | 967.84 | 968.3 | 0.05 |
| *Over prev close Compiled by BS Research Bureau Source: Bloomberg | |||
Yesterday, Moody’s downgraded Indian banks to negative from stable, citing profitability, asset quality and capital concerns. State Bank of India, ICICI Bank, HDFC and Axis Bank shares had fallen sharply thereafter. “In our view, while loan growth has been high, banks have a limited share of high-risk lending and a negligible presence of complex and innovative products. Banks have a track record of stable profits but returns are lower than Indian corporates’,” S&P said in a statement.
Interestingly, though S&P had assigned the rating yesterday, the statement was issued on Thursday. An S&P spokesperson said the revision was also due to a change in methodology, updated to provide greater transparency and enhance the global comparability of S&P’s bank ratings at a time the global landscape was changing.
S&P said it had ‘classified’ the Indian government as ‘highly supportive’ and expected it to provide timely financial support to banks, thus ruling out pressure on capital. According to the agency, the Indian banking system has a high level of stable, core customer deposits, which limit dependence on external borrowings.
“Its deposit base is supported by the Indian banking system’s good franchise, extensive branch networks, and large, yet growing, domestic savings. However, the banks have limited ability to borrow from the domestic debt capital markets, which are active for high investment grade debt but lacking in depth,” it said.
Market experts, while admitting the latest re-rating could provide some cushion to banking stocks, said the focus would continue to be on them. “There could be some more sell-off in banking stocks due to concerns over non-performing assets. S&P upgrading the Indian banking industry's risk score could provide some cushion,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services.
While the Indian markets were closed on Thursday, in Asia, Hong Kong's Hang Seng index crashed 5.2 per cent. Japan's Nikkei and China's Shanghai Composite were also down 2.9 per cent and 1.8 per cent, respectively.
The ECB announced it would buy Italian bonds to manage the crisis from spreading. S&P 500, the leading US equity index, rose over one per cent in futures trading. Before that, European indices saw a rebound from the day's lows. The STOXX 50 was up 0.91 per cent and the DAX gained 0.89 per cent. Only the UK's FTSE fell marginally, by 0.16 per cent.
