Stocks
Nifty, Sensex continue to be weak – Thursday closing report
Nifty may put in a small rally on Friday but the trend is down
 
We had mentioned in Wednesday’s closing report that Nifty, Sensex are weak and that Nifty may bounce back a bit but the trend is lower. Negative global cues from US and Asia led the major indices in the Indian stock markets to a downward trend. The trend in the major indices during the day’s trading is given in the table below:
 
 
The US Federal Reserve decided to leave the interest rates unchanged in its monetary policy meeting for its country. The Fed warned that it may raise interest rates in its December 2015 meeting. This warning adversely affected investor sentiments in Asia and India. The price of the OPEC basket of twelve crudes stood at $43.20 a barrel on Wednesday, compared to $42.40 on Tuesday, up 1.89%. Gold prices fell 1% on Wednesday, in the metal's weakest session in a month, as the market turned lower after the US Federal Reserve left the door open to a possible interest rate hike in December and the dollar hit a 2-1/2-month high. If the US Federal Reserve sticks to its warning in December 2015, the rupee is likely to come under pressure. 
 
City Union Bank on Thursday said it closed the quarter ended 30 September 2015 with higher profit and income. In a regulatory filing with the BSE, the bank said it has posted a net profit of Rs107.84 crore for the second quarter of the current fiscal, up from Rs93.74 crore posted during the quarter ended 30 September 2014. The bank's total income during the period under review stood at Rs.829.44 crore, up from Rs.772.99 crore earned during the quarter ended 30 September 2014. The bank's gross non-performing asset (GNPA) and the net NPA went up marginally at the end of 30 September 2015, to Rs.398.29 crore and Rs.255.93 crore respectively. Its share price closed at Rs86.50, down 1.42% on the NSE.
 
State-run Syndicate Bank on Wednesday reported a net profit of Rs332 crore for the second quarter (July-September) of this fiscal 2015-16 as against Rs316 crore in like period last year, posting only 5% growth. Sequentially, however, net profit rose 9.9% from Rs302 crore in first quarter (April-June) of this fiscal. Operating profit for quarter under review (Q2) increased 28% year-on-year (YoY) to Rs1,225 crore from Rs954 crore in the same period a year ago. Its share price closed at Rs94.70, down 0.94% on the NSE on Thursday.
 
Dabur India on Wednesday announced 18.7% increase in its net consolidated profit at Rs341.1 crore for the quarter ended 30 September 2015 as against Rs287.5 crore in the year-ago period. The company's consolidated net sales for the second quarter of the current fiscal year marked an 8.7%  growth at Rs.2,092.1 crore - up from Rs.1,924.1 crore in the same quarter a year earlier. The Board of Directors of Dabur India has declared an interim dividend of 125%, aggregating to a total payout of Rs.264.65 crore for 2015-16. Its share price closed at Rs272, up 0.02% on the NSE on Thursday.
 
On the BSE, good buying was observed in consumer durables sector, while selling pressure was seen in power and fast moving consumer goods (FMCG) sectors.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major indices in Asia are given in the table below:
 

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Mudra Bank is not a game changer, says report, based on experience of SKS Microfinance
With 10% cap on spread, large NBFCs and MFIs like SKS will not see any improvement in margins or profitability and a cheaper loan from Mudra Bank may not make it into a game changer, says Religare 
 
SKS Microfinance Ltd (SKSM) on Wednesday said the Micro Units Development & Refinance Agency (MUDRA) has sanctioned a refinance line of Rs100 crore to the lender at an interest rate of 10%. However, since there is a 10% cap on spread for all large non-banking financial companies (NBFCs) and micro-finance institutions (MFIs), lower funding cost does not improve margins or profitability, says Religare Capital Markets Ltd in a report.
 
At present, the average funding cost of SKSM is about 11.9%, while incremental funding cost is around 11.2%.
 
Religare, in its previous report has said that Mudra Bank's micro unit refinance scheme has turned out to be a non-starter due to the strict caps on onward lending spreads. As against a current corpus of Rs5,000 crore, Mudra Bank has disbursed just Rs150 crore to banks and MFIs since April 2015. 
 
The RBI has fixed the rates at which Mudra Bank can lend funds under its refinance scheme for unsecured micro loans. For banks, this will be at cost of funds (COF) + 0.75%, for co-operative or regional rural banks at COF + 3.5%, and NBFCs or MFIs at COF + 4 to 6%. The central bank has also capped the spreads that banks, NBFCs and MFIs (Fig2) can charge borrowers if they avail of refinancing from Mudra. While banks have to lend at base rates, NBFCs and MFIs cannot earn spreads over 6% and 10% respectively, implying lending rates of 16-18% for NBFCs and 20-22% for MFIs. This renders Mudra refinancing unattractive due to the high operating and credit costs involved in unsecured microfinance lending.
 
This also means, small finance banks (SFB) can avail loans from MUDRA at much lower rate than MFIs. "Mudra is lending at 6.75% to universal banks. However, borrowing rate for SFB is not decided, in our view it will be lower than MFIs and marginally higher than rates charged to universal bank i.e. between 6.75-10%. One of the main objectives for Mudra is to enable banks to fund low-income people at much reduced cost. Small finance banks will be better off as compared to MFIs, if they get funding at a cheaper cost by about 100-200bps," Religare said in its latest report.
 
Religare feels MFIs who got the small finance bank license will see rating upgrades and in turn reduced cost. "We believe SFBs will see rating upgrades by at least 2-3 notches which will result in lower cost of funds. In our view, their ability to tap wholesale market has already improved (recently few MFIs who got the license have done CP issuance at 10.5%). Post conversion into a bank, SFBs will have similar or lower cost of funds compared to MFIs resulting in immense competition," it concluded.
 
SKS Microfinance closed Wednesday 6.4% up at Rs425.70 on the BSE, while the 30-share benchmark ended the day marginally down at 27,039.

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COMMENTS

Raghavendra

2 years ago

Religare is spreading lies about SKS Microfinance. Even in the face of spectacular results and revised guidance it is trying to beat the stock hook and crook. Shame on Parag Jariwala

Raghavendra

2 years ago

Religare is spreading lies about SKS Microfinance. Even in the face of spectacular results and revised guidance it is trying to beat the stock hook and crook. Shame on Parag Jariwalas

Why 10-year G-sec yields are still holding up
Sustained selling pressure from banks and corporates and net supply are the reasons as to why G-sec yields are not coming down despite a 50 bps rate cut, says a State Bank report
 
Even after the 50 basis points (bps) cut in repo rate by the Reserve Bank of India (RBI) last month, the 10-year G-sec yield is still adamant at 7.60% primarily on sustained selling pressure from banks and corporates. However, going forward, the yields will gradually soften says State Bank of India (SBI) in its Ecowrap report.
 
It said, "This (yields still at 7.60%) is perplexing, as trends suggest that the spread between repo rate and 10-year yield has been at around 50 bps in the last couple of months on an average. Hence by this logic, 10-year yield should drop to 7.25%, or at least should have breached 7.5%." 
 
Net supply is one of the reasons why G-sec yields are not coming down, the Ecowrap report says, adding, "In October 2015, there is a net supply of Rs75,000 crore of Government securities, highest among the second half. Even after adjusting for redemptions and investments from foreign institutional investor (FII) during October, the net supply will still be around at Rs4,000 crore. This net supply is one of the reasons why G-sec yields are not coming down."
 
 
According to the Government borrowing calendar, it will raise only Rs2.34 lakh crore through market borrowings, excluding Rs15,000 crore via sovereign gold bonds, in the second half of current fiscal year. The Government, as per the Budget 2015-16, plans to borrow a total of Rs6.01 lakh crore from the market this fiscal. It had borrowed about Rs3.5 lakh crore during the first half of FY2016, which is over 50% of the annual target.
 
"We however believe that going forward, the yields will gradually soften on many accounts. Firstly, the G-sec auctions till March will now be at an interval of every fortnight, instead of customary weekly auctions. Secondly, CPI inflation will breach the RBI’s target at least by 50 bps on January 2016. Thirdly, the ECB quantitative easing with US Fed uncertainty on rate hike will impact G-sec yields on lower side. Consequently, we expect that 10-year G-sec yield would be around 7.25-7.30% (old) and 7.10-7.15% (new) by March 2016. And fourthly, cumulative net buying position by market players indicates further softening of yields," the report added.

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