Weekly Recap

customNIFTY 50.2012-03-19.2012-03-23

The NIFTY ended on a negative tone, drifting down -0.61% for the week.

Biggest losers were RPOWER(-6.84%), JINDALSTEL(-6.82%) and TATAPOWER(-6.04%). And the biggest winners were SUNPHARMA(6.89%), CAIRN(4.41%) and HINDUNILVR(3.09%)
Decliners eclipsed advancers 32 vs 18

Gold: 1.29%, Infrastructure: -1.04% and Banks: -1.13%

Stocks in the news this week

Satyam, Tech Mahindra merger 
RBI guidelines on gold lending
Coal scam
Daily news summaries are here.

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Gold glitters, gives India the jitters

Too much of anything is bad. India’s unending appetite for gold is also proving to be its nemesis.

clip_image001Trade deficit for 2011-12 (April-January) at $ 148.7 billion was 40.4 per cent higher than $ 105.9 billion in 2010-11 (April- January). While higher oil import bill is largely a known factor, the sharp increase in import of gold and silver has intensified pressure on trade deficit (exports minus imports).

From April to December during the current fiscal (2011-12), imports of gold and silver surged by 53.8% to $45.5 billion. Higher gold imports increases the country’s external financing needs as it would require more foreign exchange to foot the import bill. The share of gold and silver in import basket has risen from 9.3% in 2000-01 to 13.3% in the first half of 2011-12.

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Despite record high prices, India was largest consumer of gold in 2011 with total demand of 933.4 tonnes, according to the World Gold Council, down only moderately from 1,000 tonnes in 2010. Apart from traditional factors, high inflation has prompted many investors to switch to gold from financial savings.

clip_image001[17]The fallout of this buying binge by bullion buffs has forced Finance minister Pranab Mukherjee to double the basic customs duty on gold bars to 4%, revising the cost upwards by up to Rs 1,040 per 10 grams. This is the second increase in the last two months to moderate demand. Blaming the sharp surge in imports of gold and other precious metals during the first three quarters of the year for driving the current account deficit (CAD), Mukherjee also intends to charge 2% on jewellery purchases of more than Rs 200,000 along with an excise of 1% on non-branded jewellery. CAD stood at 2.9 per cent in 2010-11 and is expected to be around 3.6 per cent this year.

Fearing more pressure in the country’s CAD, the Prime Minister’s Economic Advisory Council (PMEAC)’s economic report called for discouraging unproductive imports like gold by making other financial assets like mutual funds and insurance attractive.

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But will Indians go beyond gold? In these times of downgrades, defaults and debt crisis, ‘yellow fever’ is only likely to spread further.

 
 
 
 
 
 
 
 
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[stockquote]GOLDBEES[/stockquote]

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Race for savings amidst rise in bad loans

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.

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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.

clip_image001Even 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]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.

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