Corporate credit stress is reflected by the Indian banking system’s gross non-performing assets (NPA) and restructured loans, according to India Ratings & Research
India Ratings & Research (Ind-Ra) expects corporate credit stress for FY14 to be at levels comparable to FY13, under its base-case. However, in a stress case scenario, the levels could be significantly higher and are likely to be driven by 22 corporates (in BSE 500), with outstanding adjusted debt (including guarantees) of around Rs1,267 billion. The levels could be even higher if the currency depreciates further. Corporate credit stress is reflected by the Indian banking system’s gross non-performing assets (NPA) and restructured loans.
As in the past, Ind-Ra’s sector-specific outlook has provided substantial early warnings with respect to corporate stress levels. The agency’s corporate sector ‘credit outlook for 2013’ covers 22 sectors, including infrastructure. For the purpose of this analysis, the sector-specific outlook is mapped to the outstanding industrial loans of the Indian banking system.
Around 30% of the industrial loans in Indian banking belong to the sectors which are on a negative or stable-to-negative outlook. The proportion of industrial loans in sectors with a negative outlook shot up in 2012 to 28% of outstanding credit (2011: 6%). Gross NPA rate increased to 2.8% in FY12 (FY11: 2.3%), subsequently rising to 3.7% in Q3FY13.
Apart from these 22 large corporates, the overall quality of industrial loan assets in FY14 will be driven by the current status of the industry and impact of the six ‘Risk Radar’ factors identified by Ind-Ra. The factors are: a) foreign exchange, b) investment in pre-election year, c) possible benefits of commodity price correction, d) domestic private consumption, e) interest rate transmission and f) export levels. The single most important factor limiting corporate stress level at the FY13 levels is the assumption that the rupee-dollar exchange rate will remain between Rs53 per dollar to Rs56 per dollar. If the rupee depreciates (for a sustained period) significantly above the Rs56 per dollar level, gross NPA levels may shoot increase significantly above the FY13 levels.
Global risk aversion may be creeping up, as signalled by a rise in sovereign credit default swaps spreads. A further rise in global risk aversion, driven by a possible curtailment of quantitative easing, may severely impact the rupee-dollar exchange rate. Enhanced risk aversion in the past has often resulted in a reduction of exposure to emerging market assets by global investors. Given the sovereign’s higher dependence on forex inflows to fund the current account deficit, any such scenario may potentially depreciate the rupee to unseen levels. In such a scenario and given the impending volatility which comes with it, corporate stress level may be significantly higher than the FY13 levels.
Mid-cap indices and funds have shown lower volatility and higher returns compared with large cap indices and funds says a study conducted by the ratings agency
Ratings agency CRISIL has said mid-cap equities not only provided higher returns compared with large-cap stocks over longer period, but shares in mid-caps were also less volatile.
The CNX Midcap Index returned 23% annualised returns over the 10-year period ending March 2013, while the CNX Nifty Index returned 19%. Volatility (risk) measured by standard deviation for the CNX Midcap Index was also lower at 25% compared to over 26% for the CNX Nifty Index. Even over other periods of analysis, viz., three, five and seven years, the mid-cap index was less volatile while it outperformed the CNX Nifty Index over a five year time-frame, CRISIL said.
CRISIL Research also looked at the past 10 calendar years to test the consistency of this hypothesis. Over this period, the CNX Midcap Index has outperformed the CNX Nifty Index in six out of 10 years. On the volatility front, the mid-cap index has been less volatile in 50% of the observed instances, especially from 2007 onwards. In other periods too, the difference in volatility between the two indices was marginal.
According to a study conducted by the ratings agency, mutual funds too displayed similar traits. Small and mid-cap equity funds were less volatile than large-cap funds across three, five and seven-year timeframes. The former also generated higher returns over multiple periods, the study said.
Another observation from the CRISIL study was that while the small and mid-cap category outperformed, not all individual funds gave higher returns. The difference in returns between the best and worst performing fund varied from 7% in the 10-year period to 19% in the three-year period, thus reiterating the need for investors to make well-researched investment decisions.
Mukesh Agarwal, president, CRISIL Research, said, “The study also evaluated the reasons behind this trend. Firstly, the CNX Midcap Index is more diversified vis-à-vis the CNX Nifty Index at both sector and stock levels. While the CNX Midcap Index has exposure to 29 industries, the CNX Nifty Index constitutes 17 industries. In terms of concentration, there are only four industries with more than 5% exposure in the mid-cap index compared to nine for the CNX Nifty Index. Greater diversification and lower concentration help lower the risk for the CNX Midcap Index. Secondly, the CNX Midcap Index has a 23% allocation to defensive sectors (which are less volatile) such as consumer staples and pharmaceuticals, while the CNX Nifty Index has 10% allocation to these sectors.”
The indices are making a valiant effort to rally. A close above 6,135 on the Nifty will be required for stronger upward momentum
Continuing its gains for the third straight day, the market closed higher on support from oil & gas, auto and PSU stocks. The indices are making a valiant effort to rally. A close above 6,135 on the Nifty will be required for stronger upward momentum. The National Stock Exchange (NSE) reported a volume of 49.07 crore shares and advance-decline ratio of 736:684.
The domestic market opened with marginal gains in the absence of any fresh triggers. In the Asian pack, the Nikkei 225 was up on a weakening yen, which boosted the outlook for exporters. Barring the Taiwan Weighted, all other indices in the region were seen marginally higher. Markets in the US and the UK were closed on Monday for a local holiday.
The Nifty resumed trade at 6,086, up three points over its previous close, and the Sensex rose 25 points to 20,056. Buying in PSU, oil & gas, metal, healthcare and technology stocks saw the indices gaining momentum in the first hour of trade. The gains were short-lived as selling pressure amid intense volatility led the benchmarks trending lower in subsequent trade.
The market touched its lows in the mid-morning session on selling pressure from auto, capital goods and banking stocks. The Nifty fell to 6,055 and the Sensex retracted to 19,963 at their respective lows.
The benchmarks were range-bound in the negative terrain in trade that followed in the absence of any domestic trigger. However, a positive opening of the key European markets boosted investor sentiment here, pushing the indices higher in noon trade.
The market hit its high at around 2.00pm on buying support from oil &gas, power, fast moving consumer goods and realty sectors. At this point the Nifty went up to 6,128 and the Sensex rose to 20,210.
Volatility continued till the end of the trading session with the benchmarks coming off the highs, but settling in the positive for the third consecutive day.
The Nifty closed 28 points (0.46%) higher at 6,111 and the Sensex ended trade at 20,161, a gain of 130 points (0.65%).
Among the broader indices, the BSE Mid-cap index gained 0.60% and the BSE Small-cap index advanced 0.48%.
Barring the BSE Healthcare (down 0.68%) and BSE Bankex (down 0.05%) all other sectoral indices settled higher. The top gainers were BSE Oil & Gas (up 1.65%); BSE Auto (up 1.33%); BSE PSU (up 1.23%); BSE Consumer Durables (up 1.15%) and BSE Power (up 1.12%).
Out of the 30 stocks on the Sensex, 19 settled higher. The major gainers were Hero MotoCorp (up 5.09%); BHEL (up 3.30%); Coal India (up 3.01%); Mahindra & Mahindra (up 2.22%) and ONGC (up 1.94%). The key losers were Sun Pharmaceutical Industries (down 1.90%); State Bank of India (down 1.45%); Sterlite Industries (down 1.40%); Cipla (down 1.18%) and HDFC (down 0.83%).
The top two A Group gainers on the BSE were—Financial Technologies India (up 6.24%) and Gujarat Minerals Development Corporation (up 5.88%).
The top two A Group losers on the BSE were—United Spirits (down 2.69%) and Wockhardt (down 2.43%).
The top two B Group gainers on the BSE were—Chaman Lal Setia Exports (up 20%) and Mudra Lifestyle (up 20%).
The top two B Group losers on the BSE were—Manjeera Constructions (down 19.92%) and Krypton Industries (down 18.99%).
Of the 50 stocks on the Nifty, 27 ended in the in the green. The main gainers were Hero MotoCorp (up 6.99%); Jaiprakash Associates (up 4.20%); BHEL (up 3.58%); Coal India (up 2.93%) and M&M (up 2.50%). The major losers were Ranbaxy Laboratories (down 2.67%); UltraTech Cement Company (down 1.96%); Kotak Mahindra Bank (down 1.79%); SBI (down 1.56%) and Sesa Goa (down 1.53%).
Markets in Asia, with the exception of the Taiwan Weighted, settled in the green on optimism as the weakening yen boosted the prospects for Japanese exporters. On the other hand, Chinese premier Li Keqiang cautioned that huge challenges would lead to slower economic growth.
The Shanghai Composite surged 1.23%; the Hang Seng advanced 1.05%; the Jakarta Composite climbed 1.79%; the KLSE Composite gained 0.51%; the Nikkei 225 advanced 1.20%; the Straits Times rose 0.44% and the Seoul Composite settled 0.32% higher. Bucking the trend, the Taiwan Weighted lost 1.21%.
At the time of writing, the key European indices were up between 1.13% and 1.63% and the US stock futures were in the green, indicating a positive opening for US stocks later in the day.
Back home, foreign institutional investors were net buyers of stocks totalling Rs406.03 crore on Monday. On the other hand, domestic institutional investors were net sellers of equities amounting to Rs516.39 crore.
Adani Power today said it has raised more than Rs2,500 crore through issue of shares on preferential basis to two promoter group entities. More than 478 million shares have been allotted to promoter group entities—Adani Enterprises and Vinod S Adani. Each scrip was priced at Rs 53.11, according to a regulatory filing. The stock declined 0.86% to close at Rs57.35 on the NSE.
HDFC Bank conducted a full-fledged Business Continuity Plan (BCP) drill during which it processed a record 1,61,373 instruments worth Rs 1,130 crore in a single day in Ahmedabad. The exercise was carried out recently under the guidance of the Reserve Bank of India (RBI) to check the readiness and manual processing capacity of its back-up centre, in case of any disruption in the electronic clearing system in the future, the bank said in a statement. The stock fell 0.40% to close at Rs712.20 on the NSE.
Electrical equipment maker Havells India today reported 19.84% increase in its net profit for the fourth quarter ended 31 March 2013 at Rs109.68 crore compared to Rs91.52 crore in the same period of the previous fiscal. Net income from operations stood at Rs1,169.6 crore during the period under review against Rs1,046.68 crore. The stock climbed 2.86% to close at Rs717.50 crore on the NSE.