The robust pace of growth in the services sector witnessed in January could not be sustained in February as there was a decline in new business orders
India’s services sector witnessed “continued but slower” pace of expansion in February amid a decline in new business orders, an HSBC survey showed today.
The growth in the services sector, which makes up for nearly 60% of the country’s economic output, stood at 54.2 in February (down significantly from 57.5 in January), indicating a continued but slower, expansion of service sector activity in India.
A reading above 50 points indicates expansion, while a reading below 50 shows contraction.
The robust pace of growth in the services sector witnessed in January could not be sustained in February as there was a decline in new business orders.
“Activity in the services sector grew at a slower pace led by a deceleration in new business, but backlogs of work still increased,” HSBC chief economist (India and ASEAN) Leif Eskesen said.
Growth in service sector activity has now been sustained for 16 straight months and service providers are optimistic about the 12-month outlook for the sector.
Meanwhile, private sector companies continued to pass on higher costs to clients through increased output prices.
With the rate of inflation accelerating in both manufacturing and services firms, the overall pace of price rise was sharp, and the fastest in seven months.
“Input price inflation picked up notably, which was passed on to prices charged. The numbers underscore that the room for monetary policy easing is very limited,” Eskesen said.
Can PSBs withstand the storm of slow growth and higher bad debts? Or will they need government support?
The balance sheets of Indian public sector banks (PSBs) have been deteriorating for the past few years and the quantum of bad debt seemed to have got worse in the last few months, even if the rate of deterioration has slowed down. This has worried policy makers and market watchers. However, Espirito Santo Securities (ESS) believes that PSBs might have some breathing room for the next six to eight quarters, based on policy ‘reforms’ undertaken by the government, right from state electricity board (SEB) restructuring to diesel price hike, as well as initiatives from select private companies to restructure their businesses—from Suzlon to Hotel Leela to GMR, and so on. The report said, “(reforms) are a step in the right direction and we expect them to have a positive impact on the banking system in the next six to eight quarters”.
One of the key things that market watchers were expecting from the budget was the question of how the government would handle public sector banks (PSBs) as they have been deteriorating over the last few years and their solvency has been a concern, especially because PSBs have to be essentially capitalized by taxpayers’ money. According to ESS, gross slippage ratio (as a percent of advances) in the third quarter of the 2013 fiscal was as high as 2.6% for Tier-1 PSBs and 2.9% for Tier-2 PSBs (it runs into several thousands of crores if translated to actual figure). This is a high figure and a cause for concern.
What about recovery of bad debts? The ESS report said, “Our analysis of asset quality in the past eight quarters shows that asset quality has been volatile and one quarter of improved asset quality cannot be termed a recovery, as there has been minimal macro-economic improvement on the ground.”
Market watchers and bankers were hoping that the Union Budget 2013 would address some of their concerns. Alas, nothing major was announced though there were some measures to address PSBs’ solvency. One such measure is the Rs14,000 crore which is to be used towards re-capitalization of public sector banks for FY14, which is just marginally higher than the Rs12,500 crore budgeted last year. While it does not dramatically improve the balance sheet, it is something. Despite this, ESS expects slippages to be ‘volatile’, unless economic conditions improve. The report said, “We expect incremental slippages to remain volatile as the economic recovery is protracted.”
Another minor measure announced at the Union Budget 2013 was to remove the arbitrage between liquid funds and bank deposits. Most savers, earlier, were putting money in liquid funds to take advantage of taxation on distributed income on non-equity oriented mutual funds, which has now been doubled to 25%. This would mean, banks will expect more funds to come to savings accounts now. This is a positive for banks, including PSBs.
However, one of the bigger concerns for PSBs, according to ESS, is the issue of higher provision requirement, which will severely reduce the return on equity (ROE is one of the key measures used by Moneylife for its value pick section in the magazine). ESS said, “RBI has already increased the provisioning requirements on restructured advances. Given that most PSU banks have low provisioning coverage ratios (PCR), any incremental regulatory changes increasing the provisioning requirements are likely to exert more pressure on the RoEs of PSBs”.
Below shows the table and ratings of various PSBs according to ESS:
To summarise, it will be a wait-and-watch game for PSBs as economy is still moderating and no one knows for sure how global economy will affect domestic economy. There’s also a risk of inflation run-off, which means there could be a risk of RBI hiking interest rates (though most pundits expect inflation to moderate and rates to be cut towards end of the year), which could kill off PSBs’ momentum in recovery. ESS believes State Bank of India and Oriental Bank of Commerce are top buys while Punjab National Bank is a sell.
Nifty strengthened above yesterday’s low and closed, up 1.50%, the maximum one-day percentage gain since 29 November 2012. The index may move up to 5,900, subject to dips
The market, which was in the positive since the opening bell, settled near its highs on supportive global cues. The Nifty strengthened above yesterday’s low and closed up 1.50%, the maximum one-day percentage gain since 29 November 2012. The index may move up to 5,900, subject to dips.
The market opened on a firm note on supportive global cues. The US markets closed in the positive overnight on buying in late trade. Markets in Asia were higher in morning trade as Chinese officials reiterated the need to enhance fiscal spending to in order to boost economic growth to 7.5% this year.
The Nifty opened 23 points up at 5,722 and the Sensex resumed trade at 18,944, a rise of 66 points over its previous close. The opening figures on the Nifty and the Sensex were also their intraday lows.
Buying in realty, metal, auto and banking sectors kept the momentum steady till mid-morning trade. However, the benchmarks pared a small part of their gains on selling pressure. But the market overcame the minor hiccup and continued its northward journey in noon trade.
A positive opening of the key European bourses saw the local benchmarks strengthening further in post-noon trade. The gains resulted in all sectoral indices trading higher.
The market hit their intraday highs towards the end of the trading session with the Nifty almost touching the 5,800-mark at 5,790 and the Sensex climbing to 19,164.
The market settled near the highs of the day with the Nifty gaining 86 points (1.50%) at 5,784 and the Sensex jumped 265 points (1.40%) to finish the session at 19,143.
Among the broader indices, the BSE Mid-cap index surged 1.66% and the BSE Small-cap index climbed 1.11%.
All sectoral indices closed in the positive. The top gainers were BSE Realty (up 3.13%); BSE Metal (up 2.65%); BSE Bankex (up 1.89%); BSE Auto (up 1.78%) and BSE Oil & Gas (up 1.54%).
Twenty six of the 30 stocks on the Sensex closed in the positive. The main gainers were Sterlite Industries (up 4.47%); Hindalco Industries (up 4.29%); Tata Motors (up 3.73%); ICICI Bank (up3.36%) and Wipro (up 3.30%). Bajaj Auto (down 0.64%); BHEL (down 0.63%); ITC (down 0.26%) and NTPC (down 0.10%) emerged as losers on the benchmark.
The top two A Group gainers on the BSE were—Essar Oil (up 20.96%) and Adani Ports & Special Economic Zone (up 7.13%).
The top two A Group losers on the BSE were—MMTC (down 8.07%) and AstraZeneca Pharma India (down 3.38%).
The top two B Group gainers on the BSE were—Wheels India (up 20%) and La Opala RG (up 19.99%).
The top two B Group losers on the BSE were—Readymade Steel India (down 19.96%) and Ashika Credit Capital (down 19.96%).
Of the 50 stocks on the Nifty, 43 ended in the green. The key gainers were Sesa Goa (up 5.27%); Hindalco Ind (up 4.72%); HCL Technologies (up 4.28%); Ambuja Cements (up 4.25%) and Tata Motors (up 4.09%). The main losers were Bajaj Auto (down 1.22%); BHEL (down 0.67%); NTPC (down 0.23%); HDFC (down 0.05%) and Kotak Mahindra Bank (down 0.01%).
Markets in Asia, barring the Jakarta Composite index, closed higher on reports that the Chinese policymakers would maintain its GDP growth target of 7.5% as the government would initiate measures to spur consumer spending. News that the US Federal Reserve would continue with its bond buying programme also supported the gains.
The Shanghai Composite jumped 2.33%; the Hang Seng added 0.10%; the KLSE Composite gained 0.37%; the Nikkei 225 advanced 0.27%; the Straits Times climbed 0.26%; the Seoul Composite rose 0.17% and the Taiwan Weighted settled 0.835 up. Bucking the trend, the Jakarta Composite lost 0.20%.
At the time of writing, the key European markets were trading with gains of 0.77% to 1.66% and the US stock futures were in the green.
Back home, institutional investors, both foreign and domestic, were net sellers in the equities segment on Monday. While foreign institutional investors withdrew Rs30.10 crore, domestic institutional investors pulled out Rs111.08 crore from stocks.
Cairn India is ready to begin natural gas production from its prolific Rajasthan block and has sought government approvals to begin sale to consumers by the month end. The explorer currently produces small volumes of natural gas along with crude oil from the fields in the Barmer basin block. The gas produced in used for power generation for internal consumption. It, however, sees the resource base supporting commercial production of about 1 million standard cubic metres per day. The stock gained 1.35% to close at Rs292.35 on the NSE.
Vadodara-based pharma company, Alembic Pharmaceuticals has received the approval from the US Food and Drug Administration (USFDA) for a bioequivalent version of Pristiq by Pfizer. The product, which is indicated for the treatment of major depressive disorder, h as a market size of nearly $538 million (around Rs2,900 crore). The stock surged 14.84% to close at Rs92.10 on the NSE.
Ramco Systems today said it has bagged a new order from aviation charter service provider Hevilift Group through which the cloud solutions provider will provide its web-based solution to the group across 15 countries. The stock climbed 10.11% to settle at Rs92 on the NSE.