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INVESTOR’S   GUIDE

Expect volatile share prices

Equity markets went through extreme volatility in the previous week with the benchmark indices slipping below their crucial support levels. Apart from the global factors, domestic developments too kept the market mood cautious during the week. Gains garnered after Fed’s monetary policy announcement was sold out amid intense profit taking. In the end Nifty closed down by nearly a percent and below the psychological mark of 8,600. The markets will remain volatile this week as traders roll over and unwind their positions due to derivative expiry of March contract scheduled on March 26. Stock prices are expected to remain subdued or weak until the end of the current financial year as traders and investors resort to year-end profit booking. The next major trigger for the Indian markets is fourth quarter results of companies expected during second week of April 2015. As Nifty has now reached near to its important support zone of 8,475 level, we may see some pause in the prevailing downtrend. Also, some of index heavyweights are still trading in oversold zone, which is strengthening the possibility of technical rebound in the coming sessions. However, midcap and small-cap stocks may continue to face selling pressure. Hence, traders are advised to keep very strict stop losses and avoid overleveraging. Jayant Manglik, Religare Securities

 

Banking-Priority sector lending

The RBI’s internal working group (IWG) has suggested revised guidelines for priority sector lending (PSL). While changes in PSL norms are positive the biggest challenge for banks will be to meet sub-targets under agriculture and other weaker sections.  Under the new norms, the focus has been shifted to ‘credit for agriculture’ rather than ‘credit in agriculture’. Agriculture credit target is retained at 18 per cent and a new sub-target of 8 per cent for small and marginal farmers is created.  Credit to manufacturing medium enterprises (service MEs with a credit limit up to ` 100 mn) will be included in priority sector – a key positive in our view. The IWG is recommended a sub-target of 7.5 per cent for MSMEs so that they are not crowded out.  While banks (especially private banks) have regularly defaulted in meeting sub-targets of weaker sections, they would now also find it difficult to meet the new sub-target of 8 per cent under agriculture for small/marginal farmers. Religare Securities

 

Back to form

Tata Steel’s fourth quarter 2014-15 performance is expected to mark a return to form as the mining headwinds subside. However growth is likely to be muted in the medium term given the weakness in steel prices and narrowing spreads. The start of Kalinganagar project in Odisha offers volume visibility but the plant’s margins are likely to be 25 per cent lower than the Jamshedpur plant due to a lack of captive coking coal and downstream facilities. The company faces sustained challenges on spreads as domestic iron ore prices are headed south. Performance of the EU business is been primarily led by internal efficiencies with hardly any support from steel markets. Being a converter model lower ore prices will actually help reduce working capital requirements. Also a maintenance shutdown at competitor ILVA’s plant could lend a temporary fillip to demand. While restart of captive iron ore mines will support a near-term bounce back, volume growth initiatives and non-core asset sales will play out only in the long term. Also, a sustained recovery looks unlikely given weak steel prices amid rising Chinese and Russian imports and steadily narrowing spreads. Religare Securities

 

Upward trend

Over the past three quarters, Yes Bank’s asset growth is picked up materially. The asset mix is improved and share of savings and branch deposits is increased. These trends are due to substantial investment in branch network. Improvement in network productivity, addition of new branches, recovery in corporate lending environment and benign wholesale funding rates are likely to drive a robust 27 per cent CAGR in advances until 2016-17. Yes Bank is well capitalised and can pursue brisk growth. Net interest margin (NIM) outlook is strong with bulk deposits rates heading south, persistent improvement in CASA ratio and expected increase in the share of retail (including MSME and business banking) loans which are better yielding and have longer duration.  Growth in non-interest income has been robust driven by impressive traction in financial advisory, branch banking and transaction banking fees and this trend is likely to continue. Additionally, declining interest rate should drive substantial gains on the corporate bond portfolio.  India Infoline

 

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