Invest Without Emotions
The NIFTY ended on a negative tone, drifting down -0.84% for the week. The budget turned out to be a damp squib.
Biggest losers were CAIRN(-8.36%), KOTAKBANK(-5.58%) and SUNPHARMA(-5.54%). And the biggest winners were GAIL(3.27%), HINDALCO(2.81%) and ITC(2.73%)
Decliners eclipsed advancers 39 vs 11
Gold: -1.26%, Infrastructure: 0.38% and Banks: -2.58%
Daily news summaries are here.
While banks have always been aggressive in shoring up their CASA (current account/savings account) ratio, the chase for less expensive deposits has picked up post savings rate deregulation.
For biggies like State Bank of India [stockquote]SBIN[/stockquote], Punjab National Bank [stockquote]PNB[/stockquote], HDFC Bank [stockquote]HDFCBANK[/stockquote], and ICICI Bank [stockquote]ICICIBANK[/stockquote], savings accounts make up 30-35% of their total deposits. For relatively smaller banks like Corporation Bank and Oriental Bank of Commerce, it is lower at 15-20%. Although retail deposits are the cheapest form of funding for banks, it comes with the millstone of having to operate a vast retail presence – a network of branches across the country.
While new entrants like Yes Bank [stockquote]YESBANK[/stockquote] and Kotak Mahindra Bank [stockquote]KOTAKBANK[/stockquote] raised their savings account deposit rates in a flash to 6%, big boys like SBI and ICICI played the waiting game. Late last year, SBI launched an innovative FD scheme, ‘unfixed’ deposit product, through which it has garnered over Rs 30,000 crore till March. The lender lured savers by offering 8.5% interest rate along with the flexibility to withdraw without penalties.
Even though many banks are yet to tinker with their savings rate, it is unlikely to significantly impact their net interest margin (NIM).
While banks have aggressively wooed depositors, borrowers have given them a tough time. The Gross Non-Performing Assets (NPAs) of nationalized banks rose to 2.4% of advances as on December 31, 2011 from 1.9% as on March 31, 2011. However, private banks saw their NPAs moderating to 2.1% in Q3 against 2.3% in the same period last fiscal.
Bad loans have risen as credit to sectors like aviation, telecom, power ![clip_image001[6]](http://stockviz.biz/wp-content/uploads/2012/03/clip_image0016.png)
and agriculture have gone sour. Market leader SBI’s gross NPAs for agriculture during the December quarter surged to 9.45% as against overall bad loans of 4.61%.
The gross NPA ratio for all banks in respect to the agriculture segment rose to 3.3% in March 2011 as against 2.4% in March 2010.
Despite pressure on margins due to higher deposit rates and concerns over asset quality, the banking sector as a whole will continue to display resilience, says a report by Care Rating based on the performance of 39 banks during the first nine months of this fiscal (FY 12).
With the Reserve Bank of India getting an assurance from top bankers in February that all is well on NPAs and there is no systemic threat, I guess, we can take it easy just like Big Brother.
The NIFTY ended on a bearish note, melting down -1.88% for the week.
Biggest losers were HINDALCO(-7.87%), TATAPOWER(-6.34%) and SAIL(-6.32%). And the biggest winners were JPASSOCIAT(6.39%), HCLTECH(6.22%) and IDFC(5.31%)
Decliners eclipsed advancers 27 vs 23
Gold: -0.64%, Infrastructure: -0.01% and Banks: 0.37%
Daily news summaries are here.
A developing India needs proper supply of electricity to meet the growing demand from households and other sectors and sustain its economic growth. But there is a yawning gap between what is planned and what the power sector has delivered.
The government had earlier set a goal for adding 78,577 MW of electricity capacity during the 11th Five-Year Plan, which was scaled down to 62,000 MW by the Planning Commission in its mid-term review, citing environmental and land acquisition hurdles.
Other issues that have plagued the power sector include shortage of fuel, distorted prices of electricity, worsening health of power distribution companies, higher transmission and distribution (T&D) losses among others.
According to the Association of Power Producers (APP), a grouping of over 20 private power companies in the country, an estimated 52 power projects having total capacity of 68,563 megawatts are facing default risks at present.
Coal-fired plants, which account for 55.9% of the country’s total power-generating capacity, are facing a severe scarcity of the fuel. The demand-supply gap for coal, which stood at 84 million tonnes (MT) last fiscal, is likely to touch 142 MT in the current financial year.
Coal India [stockquote]COALINDIA[/stockquote], which accounts for 80% of the country’s output, aims to produce 464 million tonnes in 2012/13, and has already scaled down output target to 440 million tonnes in 2011/12.
Coal India’s inability to ramp up output forced the PMO to intervene and direct the state run energy major to sign compulsory supply pacts with power companies.
Starved of fuel, power firms have been importing coal from Australia and Indonesia. Last month, a Bloomberg report noted that India is poised to surpass China as the world’s top importer of thermal coal with purchases exceeding 118 million tonnes this year in India compared with China’s 102 million tonnes. Domestic fuel shortage has led to increased reliance on imported coal for fuelling the additional power capacity.
Even as coal supply has run dry, other sources like gas have failed to bridge the supply gap.
With each passing day, gas production from RIL’s prized KG~D6 basin has been hitting new lows. Output stood at 41mmscmd in Q3 FY2012 compared to 45mmscmd in Q2 FY2012. Due to lack of gas from RIL’s block, several gas-based power projects by Reliance Power[stockquote]RPOWER[/stockquote], Lanco [stockquote]LITL[/stockquote] and GMR [stockquote]GMRINFRA[/stockquote] in Andhra Pradesh are sitting idle.
The Power Ministry’s pet project, Ultra Mega Power Projects (UMPPs), each of which is 4000 MW, face an additional problem of financing as lenders are unwilling to bear the risks associated with the execution of such large projects.
The fallout of these multiple set of problems has been an increase in impairments and restructuring of loans to the power sector.
Since the power sector is considered as a catalyst for economic growth, hard-core reforms are needed to make the sector more efficient and meet the heavy demand for electricity.
Policies must be evolved to ensure completion of on-going projects quickly and add new capacity in an efficient, least cost manner, greater reliance on renewable energy like wind and solar power, easy access to long-term finance, assured supply of coal and gas and an efficient distribution system.
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The government tried to auction off 5% of ONGC [stockquote]ONGC[/stockquote] on Thursday in what was supposed to be the door opener for its Rs 40,000 crore divestment target. The ONGC offer made up a big chunk (Rs 12,400 crore) of this target. It was so poorly managed that it required LIC to step in with Rs. 12,000 crores, almost half the amount, at the last minute to salvage the situation. Here are some real-world lessons that the common man can derive from this:
Is there anything that this government can do right?
