Sensex Ends Lower; IT Stocks Drag

Thu, 14 Jun Closing

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Indian share markets ended lower after the US Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year. At the closing bell, the BSE Sensex finished lower by 139 points. While, the NSE Nifty finished down by 49 points. Meanwhile, the S&P BSE Midcap Index ended down by 0.1% while S&P BSE Small Cap Index ended up by 0.1%.

Barring healthcare stocks & automobile stocks, all sectoral indices ended the day in red. The Nifty IT index ended 1.5% lower led by a fall in shares of MindTree, Tech Mahindra and Tata Consultancy Services.

Globally, Asian stock markets finished lower today with shares in Japan leading the region. The Nikkei 225 is down 1% while Hong Kong's Hang Seng is off 0.9% and China's Shanghai Composite is lower by 0.2%. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.6% while Germany's DAX is off 0.3% and France's CAC 40 is lower by 0.2%.

The rupee was trading at Rs 67.69 against the US$ in the afternoon session.

In the news from the economy. Credit rating agency, ICRA in its latest research update on Housing Finance Companies has said that the housing credit growth is likely to rise 17-19% in the financial year 2019.

It stated that primary home purchases, especially in the affordable housing segment may rise due to growing affordability for the first-time home buyer supported by government's incentives such as the Pradhan Mantri Awas Yojana (PMAY).

It noted that with steady housing credit growth of 16% in FY18, the mortgage penetration (housing credit as a percentage of GDP) touched the double-digit mark of 10% for the first time in FY18, up from 9.5% in FY17.

The rating agency expects mortgage penetration levels to go up by another 300-500 bps over the next five years. Besides, it said that overall asset quality indicators for all housing finance firms (HFCs) remained stable with Gross NPAs of 1.1% for FY18, better than the 1.2% in December 2017 but worse than the 0.8% NPAs in FY17.

Further, it expects overall gross NPAs for HFCs to remain range-bound between 1.2 to 1.5% this year. It added that the retail home loan asset quality of HFCs is likely to be benefited by the recent Cabinet decision to treat home buyers as financial creditors.

However, the report said that gross NPAs in the sub-segment deteriorated from 3.3% in FY17 to 4.1% in FY18, driven by greater portfolio seasoning, entity-specific factors in some cases and external events such as note-ban and GST rollout, which have impacted cash flows of borrowers.

On the funding side, it said that HFCs would need to tie-up for Rs 4 trillion of incremental funds to meet the growth plans as well as replacing the maturing liabilities in FY19.

Meanwhile, as per the report, a majority of the slippages have taken place in the affordable home loan slab of upto Rs 0.2 million. The bad loan ratio in this segment shot up by 0.6% in FY17 to 10.4%. Further, HFCs bore the major brunt with the bad loan ratio jumping by 2.5% to 8.6% by the end of FY17. Surprisingly, state-run banks witnessed an improvement in asset quality with the bad loan ratio falling below 12%.

Asset Quality Pitfalls in Affordable Housing

According to India Rating and Research, affordable housing finance is estimated to be a Rs 6 trillion business opportunity by 2022 and will be the principal growth driver for home loans. Though banks with a share of more than 60% are the biggest players in the home loan market, it's the HFCs that have established their presence in niche markets, such as small ticket-size loans, and the non-salaried or self-employed segment in small towns and cities.

Therefore, HFCs are likely to be the major beneficiary of the affordable housing boom. In the long run, the ones that can balance growth with asset quality through stringent risk management will be wealth creators.

Meanwhile, in a bigger shock, Inflation based on wholesale prices shot up to a 14-month high of 4.43% in May on increasing prices of petrol and diesel as well as vegetables.

The Wholesale Price Index (WPI) based inflation stood at 3.18% in April and 2.26% in May last year.

According to government data released today, inflation in food articles was at 1.6% in May 2018, as against 0.87% in the preceding month.

Inflation in vegetables climbed to 2.51% in May, while in the previous month it was -0.89%.

Inflation in 'fuel and power' basket rose sharply to 11.22% in May from 7.85% in April as prices of domestic fuel increased in line with rising global crude oil rates.

Potato inflation was at a peak of 81.9%, against 67.9% in April. Price rise in fruits was in double digits at 15.4%, while pulses saw a deflation of 21.1%.

The WPI inflation for March was revised upwards to 2.7% from the provisional estimate of 2.5%.

May inflation at 4.43% was a 14-month peak. The previous high was in March 2017, when the WPI inflation stood at 5.11%.

In its second monetary policy review for the fiscal, the Reserve Bank earlier this month hiked interest rate by 0.25% -- the first hike in more than four years -- due to growing concerns about inflation stoked by rising global crude oil prices as well as domestic price increases.

The price of Indian basket of crude surged from US$66 a barrel in April to around US$74 currently.

Data released earlier this week showed retail inflation jumped to a 4-month high of 4.87% in May on costlier food items such as fruits, vegetables and fuel. RBI mainly takes into account retail inflation data while formulating monetary policy.

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