Banking, mainly public sector undertakings (PSUs), and metal shares have recorded their worst performance in past four years during the calendar year 2015 (CY15) in terms of stock price appreciation.
The National Stock Exchange (NSE) PSU Bank and Metal indices have tumbled 33% and 31% respectively in CY15, posted their sharpest fall since 2011 as compared to 4% decline in Nifty 50 index.
In CY11, metal index had dipped 48%, while PSU bank index slipped 42% against 25% dropped recorded by the benchmark index.
The deterioration in the asset quality of banks in general, and public sector banks (PSBs) in particular, continued during the year have led the downfall in PSU banking shares. The uncertainty regarding growth in China, which accounting for more than 40% of global demand for most key base metals, was the main reasons for the fall in metal stocks.
Metal companies had posted 47% year-on-year (YoY) declined in their aggregate net profit, while ex-State Bank of India, the combined net profit of 11 PSBs from Nifty PSU Bank index nearly halved during the first half of current financial year 2015-16 (FY16).
“The performance of the Indian banking sector remained subdued as it experienced a slowdown in balance sheet growth in 2014-15. While the PSBs registered deceleration in credit growth, the private sector banks (PVBs) and foreign banks (FBs) showed higher credit growth,” said the Financial Stability Report released by the Reserve Bank of India.
Bank of India, Oriental Bank of Commerce, Indian Overseas Bank, Canara Bank and Punjab National Bank (PNB) from the PSU banks have fallen by more than 45% each. Vedanta, Steel Authority of India (SAIL), Jindal Steel & Power, Tata Steel and Hindalco Industries declined by over 30% each during the year. Canara Bank and PNB have touched their respective 52-week lows today.
As regards the metal sector, slowing growth rates in China and Brazil, continued sluggishness in Europe, and a weak recovery in the US will contribute to a more muted demand picture and, importantly, less optimism about the pace of future growth, cautioned Moody's Investors Service in recent report.
Despite the dismal performance, analysts expect both the banking and the metal sectors to do well in the second-half of CY16 on the back of an uptick in the economic growth.
"During the first half of 2016, it would be once again quality midcap stocks which would do well, thanks to the continued benefit of margin expansions on account of cheap oil. However, we believe that in the second half of large-cap stocks would start performing well – especially the banking, infra and metal sectors would be on the forefront," said G.Chokkalingam, founder & managing director, Equinomics Research & Advisory.
Analysts at Religare Institutional Research, however, maintain a cautious view on the metal sector.
"The sector outlook remains dull despite the emergence of supply discipline and widening of the safeguard for downstream products. Scope for net debt reduction is low given committed capex levels and soft metal prices. We remain cautious on the sector and expect another EBITDA decline in Q3," said Pritesh Jani, an analyst tracking the sector with Religare Institutional Research.
"Post the recent results, we have downgraded Tata Steel to 'sell' and upgraded NMDC to 'hold', while maintaining our cautious view on the rest of our coverage," he adds.
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