India Markets Wednesday Wrap-Up: Tepid Outing

by: Equitymaster

The Indian stock markets had a lackluster outing on the bourses today, post the central bank's 0.5% rate cut yesterday. After opening above the dotted line, markets remained above yesterday's close for most of today's session.

Towards the end of the session though, the indices remained close to the dotted line. While the BSE-Sensex closed higher by around 34 points (up 0.2%), the NSE-Nifty closed higher by around 10 points. The BSE Mid Cap and BSE Small Cap, fared slightly better. Both the smaller indices closed higher by 0.5%. Auto and healthcare stocks led the gains. Realty stocks continued to take a beating, despite the rate cut yesterday.

As regards global markets, major Asian indices had a positive outing today, with all the bourses closing in the green. European indices opened the day on a negative note. The rupee was trading at Rs 51.66 to the dollar at the time of writing.

HDFC Bank (NYSE:HDB) declared the results for the fourth quarter and full year 2011-12 (FY12). The bank has reported 16% YoY growth in net interest income and 32% YoY growth in net profits for the fourth quarter. The bank's net interest income grew by 19% YoY in 4QFY12 on the back of 22% YoY growth in advances. Net interest margins (NIMs) came in marginally higher at 4.2% at the end of FY12 (CASA at 48% of total deposits).

However, other income grew by a tepid 19% YoY, despite fees and commissions growing in excess of 23% YoY. Overall loan and deposit growth in FY12 were 22% and 18%, respectively. Net NPA to advances remained stable at 0.2% of advances in FY12. HDFC's provision coverage ratio at 82.4% at the end of March 2012 is amongst the highest in the sector. Moreover the restructured loans were just 0.4% of advances. The bank's capital adequacy ratio (CAR) is comfortable at 16.5% at the end of FY12. HDFC Bank has recommended dividend of Rs 4.3 per share (dividend yield 0.8%) for FY12.

Tata Steel, one of the world's leading steel producers, plans to tap the bond market with an innovative offering. The company will pay a low annual interest of 2% on the instrument and a redemption premium on maturity. It plans to raise Rs 5 bn through these 10-year bonds. The company has indicated that the redemption premium would work out to 10.5%.

However, post the 0.5% repo cut by the Reserve Bank of India, the steel producer may be able to negotiate an even more favourable rate. The company will be able to keep its interest payments low for the long term, and would be able to reward long investors who hold the paper till maturity, since it has a large redemption premium. This type of an instrument will have some takers among insurance and pension companies who hold bonds till maturity. However, banks and mutual funds who use such instruments to generate short-term returns may not find these bonds attractive.