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Capital goods weigh heavy on indices
Thu, 28 Jan 01:30 pm

The previous two hours of trade saw the Indian markets lose all of their gains from the earlier part of the day. At the forefront of the selling activity are the consumer durable, FMCG and capital goods stocks. However, select stocks from the realty and pharma sectors are leading the gainers currently.

The BSE Sensex and NSE Nifty are trading almost flat currently. The BSE-Midcap and BSE-Smallcap indices are trading up by 0.4% and 0.1% respectively. The rupee is trading at 46.33 to the dollar

Union Bank of India (UBI) announced its results yesterday. The bank’s interest income grew by 13% YoY in 9mFY10 on the back of 15% YoY growth in advances. Its other income grew by 68% YoY on the back of 32% YoY growth in fees. Net interest margin, on the other hand, dropped from 3.3% in 9mFY09 to 2.4% in 9mFY10 due to pricing pressure. It capital adequacy ratio was at 13.5% as per Basel II at the end of 9mFY10. Further its net NPA ratio was higher at 0.6% in 9mFY10 from 0.3% in 9mFY09. Despite sustenance of a healthy current and savings account mix, the deterioration in margins and asset quality, albeit temporary, are our prime concerns about the bank. Going forward, with technological upgradation although the growth prospects of the bank appear enthusing, excessive reliance on treasury income may prove to be risky.

Hotel sector major Indian Hotels also announced its 3QFY10 results. Its net sales for 3QFY10 fell by 4% YoY. However, the fall has been less than that seen in 2QFY10. This arrest in fall has been due to improved occupancy across key markets. Operating profit dropped by 9% YoY during the quarter. This drop is due to higher raw material costs and higher other expenditure both as a percentage of sales. Net profit dropped by 23% YoY during the quarter. The fall in profits is due to lower operating profits, lower other income and higher interest expense during the quarter. The bottom line for 9mFY10 was lower by 52% YoY again due to lower operating income coupled with lower other income.

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