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After opening the day deep in the red, the Indian indices have not recovered. All sectoral indices are trading below the dotted line with realty, banking, and capital goods stocks witnessing maximum selling pressure.
The BSE Sensex is trading down 367 points (down 1.5%) and the NSE Nifty is trading down 115 points (down 1.5%). The BSE Mid Cap index is trading down by 1.7% and the BSE Small Cap index is trading down 1.5%. The rupee is trading at 67.98 to the US$.
Stocks in the banking space are trading on a dismal note with Allahabad Bank and Punjab National Bank bearing maximum brunt. Domestic ratings agency Crisil has stated that private sector lenders will witness an annual credit growth of 24% till financial year 2019. This will be recorded as twice that of their ailing and capital-starved state run banks.
Factors such as strong balance sheets, large presence in retail segment and strong low-cost liability franchise of these private sector banks will aid in this aggressive loan book growth. On the other hand, capital generation for state-run banks will be short given their muted profitability and struggle in diluting government stake on the back of poor valuations.
It was further stated that the banking system will end FY16 with a credit growth of 11%. In the short run, credit growth for the private sector banks will be driven by retail, agriculture, and small and medium enterprises segments.
The banking industry has witnessed a slowdown this year, impacted by the weakness in the economy. On one hand, the dampened credit offtake has reduced its interest rate income. At the same time increased loan defaults have led to increased provisioning and reduced earnings for banks. And not to forget, piling up of bad debts, particularly of public sector banks, have constrained their capital strength. Vivek Kaul had written an interesting article, explaining the mess in public sector banks. He points out the facts and provides a solution that can be handy for the government for the revival of PSUs. You can read it here.
Auto ancillary stocks are also trading in the red with Bharat Forge and Asahi India leading the losses. As per a leading economic daily, tyre production in India declined in the first two quarters of this fiscal. This was seen with products of all categories, except passenger cars. As per the data released by Automotive Tyre Manufacturers Association (ATMA), passenger car tyre production increased by 7% during the April-September period this year on a YoY basis.
The report stated that the production of medium and high commercial vehicles (M&HCV) tyres is down. This was despite the fact that M&HCV segment accounts for 55% of the tyre industry. Most of the brunt here has come from the de-growth in heavy commercial vehicle tyre segment that has hit the industry hard.
Further, light commercial vehicles (LCV) tyre production fell 14% YoY. Tractor front tyres saw a drop of 9% YoY while tractor rear tyres production fell by 11% YoY.
Exports of tyres have also seen contraction during the period across key categories. Exports of M&HCV tyres were down by 9% YoY. The brunt was majorly seen in passenger car tyres exports, which saw a much sharper drop of 22% YoY.
With production in this industry taking a hit, the manufacturing capacities are lying unutilized. Also, the concern is said to continue further as a significant part of demand especially for truck and bus tyres is being met by cheaper imports from China.
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