Financial services stocks on a downward spiral

A majority of stocks of financial services companies have been on a downward trend since May 2009

Out of the 12 financial services stocks from the Moneylife database, 11 stocks have been on an average downward trend of -18.5% from May 2009 till 26 February 2010. The only exception was Prime Securities Ltd, which gained 33% from Rs25 to Rs33.20 during the same period. Motilal Oswal Financial Services Ltd was somewhat resilient, which fell only 2% from Rs161.50 to Rs158.35, followed by H B Stockholdings Ltd, down 4% from Rs25 to Rs24.05 as on 26 February 2010.

Indiabulls Financial Services Ltd plunged 54% from Rs216.55 to Rs98.55; Geojit BNP Paribas Financial Services Ltd sank 26% from Rs47.05 to Rs34.95, India Infoline Ltd (dipped 25%) from Rs151.8 to Rs114. Both J M Financial Ltd and Religare Enterprises Ltd shed 24%.   

During the same period, the Sensex gained 12% from 14,625.25 and closed at 16,429.55. On the day of the Budget, five stocks inched up on an average of 3.4% while the remaining seven stocks in the Moneylife financial services database sank an average of 1.71%.

“Some of these companies are diversifying their business model. Indiabulls is into real estate. The retail focus is not as aggressive as it used to be six-seven years back. India Infoline, Motilal Oswal and Religare have sizeable client bases now. Religare is eyeing overseas acquisitions on the backing of Ranbaxy. It recently acquired Fortis,” said Chandrashekhar Layane, vice president, Fair Wealth Financial Services.

Fortis Healthworld Ltd, SRL Ranbaxy Ltd and Ran Air Services Ltd are now under the umbrella brand of Religare.

“Even the revenues of these companies were not strong, but post January, they have started improving. India Infoline had stopped its margin funding business (loans against shares) but it has now again started this business. It had stopped this business for seven-eight months. Post the Budget, sentiments are good in the market. Overall, stocks will go up due to a rally in the markets,” added Mr Layane.

Indiabulls Financial Services registered an operating profit of Rs85.15 crore in the December quarter of 2009 compared to Rs45.73 crore for the corresponding period last year. Edelweiss Capital Ltd posted 38% decline in its operating profit at Rs4.41 crore compared to Rs7.15 crore last year.

Geojit BNP Paribas Financial Services Ltd is trading at a price-earning (P/E) ratio of 15.72 as on 10 February from 184.49 in March 2009. India Infoline is trading at a P/E ratio of 15.64 as on 10 February from 92.88 during the same period while Religare Enterprises Ltd is at -269.30 P/E from 151.15. Religare posted a net loss of Rs4.41 crore in its December quarter results from a net profit of Rs5.82 crore for the corresponding period last year.

Religare Enterprises posted an operating profit of Rs8.58 crore (in the December quarter of 2009) from Rs5.92 crore in the same period last year, while India Infoline registered a 160% growth in operating profit at Rs88.73 crore in its December 2009 quarter from Rs34.15 crore in the same period last year. Similarly, JM Financial Ltd posted an operating profit of Rs9.63 crore in its December 2009 quarter results from Rs8.47 crore last year. JM’s P/E is at 626.77 from 187.82 in March 2009.
 

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