Indian Markets ended flat

The markets struggled to gather pace and witnessed selling pressures during the course of the day. And they eventually closed the day on a flat note. Sectors such as consumer durables, auto, and oil and gas have faced the maximum selling pressures while power and Capital goods' stocks have fared well. Mid-cap and small cap stocks continued to gather momentum during the day. The BSE-Sensex closed lower by 29 points while the NSE-Nifty was seen down too by 2 points. That said, the BSE Small Cap and BSE Mid Cap indices closed today on a positive note and were up by 1.0% and 0.7% respectively.

The global markets, including both Asian as well as European markets, have fared on a mixed note today. The rupee was trading at Rs 61.6 to the dollar at the time of writing.

Except few, most of the PSU banks stocks closed the day on a firm note with Andhra Bank and Punjab and Sind Bank turning out to be major gainers.

As per the Finance Ministry sources, public sector banks are up for a capital infusion from the government today. The government has earmarked Rs 140 bn for capital infusion in the public sector banks during the current fiscal. All 26 banks are expected to get capital infusion from the government. In cases where in the government holding is already exceeding 58%, such banks would be asked to raise capital via QIPs. While most of the PSU banks are fulfilling the BASEL III requirements for capitalization, few such as Indian Overseas Bank, IDBI Bank, Bank of Maharashtra and Dena Bank are falling short of 8% Tier I target. In order to stand fully BASEL III compliant, government will ensure that these banks have the required Tier I. Others such as State Bank of India, Punjab National Bank and Canara Bank have already sought for funding from the government amounting to Rs 40 bn, Rs 15 bn and Rs 10 bn respectively. The government had infused about Rs 120 bn in 2011-12 and Rs 201 bn in 2010-11 in public sector banks. This much required step from the government will go a long way in ensuring enhancement of core equity for these banks.

Few Private sector banking stocks have been in favor today with Yes bank and Development Credit Bank turning out to be the major gainers for the day.

In its second quarter earnings for FY14 reported today, the private sector lender, YES bank has registered healthy profitability that grew at 21.2% YoY on the back of strong core income and other income performance. The Net interest income (NII) rose 28.2% to Rs 6.7 bn during 2Q from Rs 5.2 bn a year ago. Steady growth in advances and investments coupled with stable net interest margins (NIMs) boosted the core income performance for the bank. The other income grew by whopping 61.6% YoY to Rs 4.5 bn owing to surge in financial advisory, financial markets, transaction banking, and retail banking fees. The provisions were reported higher for the quarter and the provisions coverage ratio stood at 85.3% as at the end of 2QFY14. The asset quality has deteriorated marginally with gross NPAs moving up to 0.28% in 2QFY14 from 0.24% a year ago. The loan book reported 13.6% YoY growth while the deposits grew by healthy 29.2% YoY. The capital adequacy for the quarter stood at 13.8% during the quarter.

Despite the tough market conditions, YES bank has done well, both in terms of profitability and business growth for the quarter gone by.

Small cap and Mid cap in favour
01:30 pm

Indian markets continued to trade weak during the post noon trading session. Sectoral indices are trading mixed. Stocks from oil and gas and consumer durables are witnessing maximum selling pressure, while stocks from power and IT sectors are leading the pack of gainers.

BSE-Sensex is down by 50 points and NSE-Nifty is trading down by 12 points. While BSE Mid Cap is trading up by 0.63%, BSE Mid Cap index is trading up by 0.97%.The rupee is trading at 61.67 to the US dollar.

As per a leading financial daily, majority of the states have opposed the inclusion of petroleum products and liquor in the framework of Goods and Services Tax (GST) regime. Recently, the empowered committee of State Finance Ministers had introduced the revised draft of Constitutional Amendment Bill for the introduction of the GST bill. Some states have also expressed their disapproval for the inclusion of the entry tax in the GST fold. Consequently the Empowered Committee could not complete its discussion on the revised bill that has been deferred till the next meeting. The implementation of the new indirect tax has been delayed for quite some time now as a result of disagreements between the Centre and States over the tax structure.

Indian pharma stocks are trading mixed. Indoco Remedies and JB chemicals are among the leading gainers, while Wockhardt Ltd and Natco pharma are top losers. Lupin Ltd, announced that the company has received approval for its new drug application for Antara capsules with strength 30mg and 90mg from the US regulator, USFDA. The company would commence the marketing of this drug shortly. Lupin is already selling Antara brand of 43mg and 130mg strength. The said drug, generically known as fenofibrate is prescribed for adjunct treatment of hypercholesterolemia (high blood cholesterol), mixed dyslipidemia and hyper-triglyceridemia (high triglycerides). In our view as various generics of fenofibrate are already available, this launch will not fetch material upside to the company. Lupin was trading up by 0.6% at the time of writing.

Indian mkts. continue to trade weak
11:30 am

After a negative start, the Indian stock markets continued the downward trend in the last two hours of trade. Indices such as oil and gas and FMCG are leading the losses.

The BSE-Sensex is trading flat; up by just 9 points and the NSE-Nifty is also trading flat. However, the BSE Mid Cap index is trading up by 0.8% and BSE Mid Cap index is trading up by 0.9%. The Rupee is trading at 61.7 to the US Dollar.

Media stocks are trading mixed today. SAREGAMA and ZEE Media Corp are leading the gainers, while Next Mediawroks and Prime Focus are leading the losers. ZEE Entertainment Ltd. delivered good performance in the second quarter of FY14. The sales of the company grew by 15.5% YoY in 2QFY14. The growth in sales was driven by 16% YoY growth in subscriptions; while advertising revenues grew by just 10.5% YoY. Operating profit of the company increased by 42.7% YoY; which resulted in 5.4% increase in EBITDA margin from 22.8% to 28.2% in 2QFY14. Other income for 2QFY14 increased by 111% YoY. Profit after tax increased by 26% YoY during the quarter. Commenting upon the performance, ZEE's chairman Subhash Chandra stated that while overall business environment has stayed weak, ZEE continued to grow its business at a healthy pace. Also despite apprehension about the downward trend in advertising spends; the television media industry has continued to grow in double digits during the second quarter. ZEE is trading down 0.8% today.

Most of the IT stocks are trading higher today. HCL Tech and Wipro are among the stocks leading the gains. India's largest software firm, Tata Consultancy Services (TCS) has informed the exchanges that it has signed a multi-million dollar deal with Bombardier Transportation, a global leader in rail transportation technology, to manage IT infrastructure for its newly commissioned data centers in Germany. As part of this offshore deal, TCS will provide remote infrastructure management (RIM) services for the new data centers through the introduction of private cloud-based services. TCS will also provide SAP based service support to Bombardier. TCS did not disclose the financial details of the deal.This is the first deal that TCS has won in the rail transportation sector. TCS will execute the contract through its offshore center in Germany. The transportation sector contributed 16.6% of revenues for TCS in 2QFY14 while revenues from Europe contributed 31.9%. TCS is trading up 0.5% today.

Indian stock markets open on a negative note
09:30 am

The major Asian stock markets have opened the day on a mixed note with China (down 0.7%) and Indonesia (down 1.0%) leading the losses. However, the stock markets in Singapore (up 0.4%) and Japan (up 0.1%) have opened on a positive note. The Indian stock markets have opened the day in the red. The sectoral indices have opened on a mixed note with stocks in the banking and realty, oil and gas leading the losses. However, stocks in the capital goods and software sector were witnessing gains.

The Sensex today is down by around 34 points (0.2%), while the NSE-Nifty is down by around 10 points (0.2%). The midcap and smallcap stocks have however opened in the green with the BSE Mid Cap index and the BSE Mid Cap index up by around 0.3% each. The rupee is trading at 61.78 to the US Dollar.

Investment and Finance stocks have opened the day on a mixed note with Cholamandalam Investment and Finance Company Ltd and Housing Development Finance Corporation Ltd (HDFC) leading the losses. However, Prime Securities Ltd and Indiabulls Financial Services Ltd are leading the gains. Mahindra Finance has announced its results for the second quarter of the financial year 2013-14 (2QFY14). The income from operations was up by 33% year on year (YoY) during the quarter. The net interest income for the quarter witnessed a growth of 30% YoY. At the end of the quarter, the loan book stood at Rs 280.9 bn. The net non performing assets (NPAs) to total advances stood at 1.9% at the end of the quarter versus 1.5% in the corresponding quarter last year. The net interest margins stood at 7.4%. The net profits for the quarter witnessed a growth of around 21% YoY, supported by a drop in the cost to income ratio to 34% (versus 35% in 2QFY13).

Paint stocks have opened the day mainly in green with Jenson & Nicholson Ltd and Asahi Songwon Ltd leading the gains. Asian Paints Ltd has announced results for the second quarter of the financial year 2013-14 (2QFY14). The company has reported a revenue growth of 18% year on year (YoY) for the quarter. This was supported by increase in realizations as well as a double digit growth in the volumes on the back of better growth in tier-2 and tier-3 cities, lower base year impact and stocking ahead of Diwali. The raw material costs for the quarter (57% of the revenues) grew at a lesser rate of 12% YoY. As such, despite higher employee costs and other expenses, the operating margin for the quarter witnessed an expansion of 195 basis points (1.95%) and stood at 16.5%. The consolidated net profit for the quarter was up by around 36.7% YoY. As per the management, the margins in the second half of the year are likely to come under pressure with a weak rupee increasing raw material costs.

Can banks achieve financial inclusion?

In simple words, financial inclusion means providing financial services to the least advantaged section of the society. Most people in rural India are aloof to banking services. The goal of financial inclusion is to provide such people with affordable financial services. And till now banks were the only financial institutions that were entrusted to fulfill this job. However, they have not fared well.

This can be said from the fact that roughly 50% of the Indian households still do not have access to any kind of banking service. This comes as a surprise considering that co-operative banking system is numerically stronger and much more penetrative into rural hinterland than commercial banking system. This means that banking penetration should have effectively increased in rural areas. But this has not happened. In short, banks have not been able to bring in financial inclusion.

Thus, there is a strong need to look for other financial intermediaries. If private sector intermediaries are allowed to accept deposits it would be a huge step towards financial inclusion. However, the banking regulator is apprehensive of allowing such intermediaries to raise uncollateralized deposits. It possibly fears that this may destabilize the financial system by allowing unprecedented credit expansion with no proper risk management systems in place.

However, the exposure of non-bank credit to low income households or small businesses has been very low. In fact, it is less than 1%. This means that non-bank credit is not expanding rampantly in rural areas to destabilize the financial lending or borrowing market. On the other hand, allowing such institutions to lend to low income households may result in credit expansion. This would help small businesses and households who are in need of credit but have no access to it.

The regulator (RBI) is worried that allowing non bank intermediaries to accept deposits and offer loans will destabilize the financial markets due to inappropriate controls. Hence appropriate regulations need to be put into place. This would mean that credit is available to the weaker sections of the society and there is no compromise on the risk management front. In short, non bank financial intermediaries are the need of the hour if regulator is seriously considering tackling the challenge of financial inclusion.