Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 1.1% while the Hang Seng is down 0.6%. The Shanghai Composite is trading down by 0.3%. While US markets were closed for a holiday.
Back home, India share markets opened the day on a flattish note. The BSE Sensex is trading down by 32 points while the NSE Nifty is trading down by 12 points. The BSE Mid Cap index opened down by 0.1% while BSE Small Cap index opened flat.
Sectoral indices have opened the day on a mixed note with capital goods' stocks and power stocks witnessing maximum buying interest. While metal stocks and healthcare stocks have opened the day in the red. The rupee is trading at 67.44 to the US$.
Engineering stocks opened the day on a mixed note with EMCO & Lakshmi Machine leading the gainers. Larsen & Toubro Ltd posted a nearly 5% rise in fourth-quarter net profit on Monday, on higher order intake during the period.
Net profit rose to Rs 31.7 billion (US$469.8 million) in the three months ended 31 March from Rs 30.3 billion a year earlier.
Revenue from operations jumped 10.5% to Rs 406.8 billion. L&T's order intake rose 5% to Rs 495.6 billion in the quarter.
In its outlook for the current financial year, L&T guided for a 10% to 12% growth in its order inflow compared to FY18, 12-15% growth in revenue, and a stable (with an upward bias of 25 basis points) operating profit margin. The management expects the government and public-sector driven orders to continue to be a major contributor.
Notably, diversification continues to help L&T negotiate and get better terms and margins for projects. Apparently, this is because it is less desperate to win orders as compared to a company which are present in only a couple of sectors. Its reputation, extensive technical prowess, and large skilled workforce have enabled L&T to command a certain premium from customers and vendors alike. As per the company, government reforms such as GST, RERA and the Insolvency & Bankruptcy Code (IBC) are among positive sentiments for the infrastructure space in the country and are likely to improve the overall investment climate in the country.
Whether further addition to these new projects provides a cushion to its profitability will be an interesting thing to watch out for going forward.
To know more about the company, you can access to L&T's latest result analysis and L&T stock analysis on our website.
L&T share price surged 2.8% in the opening trade.
Moving on to the news from the banking sector. Bank of India (BoI) on Monday reported a standalone net loss of Rs 39.7 billion for the March quarter, compared with a loss of Rs 10.5 billion in the same period last year as provisions rose 41% year-on-year (y-o-y) to Rs 66.7 billion.
Net interest income (NII) fell 26% y-o-y to Rs 25.6 billion, and the net interest margin (NIM), a key profitability ratio, stood at 1.7% in the fourth quarter, down 23 basis points (bps) on a sequential basis.
Asset quality at the bank showed an improvement, with the gross non-performing asset (NPA) ratio falling to 16.6% from 16.9% at the end of December, and the net NPA ratio declining to 8.3% from 10.3% a quarter ago. Provision coverage ratio improved to 65.9% from 57% at the end of December.
Further, the bank's gross advances fell 4.5% y-o-y to Rs 3.8 trillion, as the bank shrank its corporate book and rebalanced its international exposure.
Retail, agriculture and MSME advances grew over 10% y-o-y to Rs 1.5 trillion. BoI saw total deposits drop 3.6% on a y-o-y basis to Rs 5.2 trillion. Current account savings accounts (CASA) deposits grew 3.7% to Rs 1.7 trillion.
The share of CASA deposits in total domestic deposits rose to 41.4% at the end of March from 39.8% a year ago. Slippages fell 29% on a sequential basis to Rs 129.7 billion in Q4FY18, of which about Rs 57 billion slipped as a result of the Reserve Bank of India's (RBI) February 12 circular.
Recoveries during the quarter stood at Rs 114.2 billion, upgradations at Rs 15.4 billion and write-offs at Rs 19.4 billion.
The bank guided for an 8-10% growth in loans and deposits and BoI is trying to raise its credit-deposit (CD) ratio to 75% by the end of FY19 from 71% at present.
While we, at Equitymaster believe that the banking sector may see a turn around with the recent cleanup, we don't believe the PSUs are the right vehicle to ride that turnaround.
After the recent Reserve Bank of India new guidelines, both public and private sector banks have seen a significant rise in non-performing assets. That has resulted in a sharp decline in net profits.
In fact, most of the public-sector banks have reported losses in the last quarter of FY18. The RBI is considering barring lenders that have failed to maintain minimum capital as per RBI's guidelines.
Is the Banking Sector at Bottom of the Cycle?
We believe this is definitely a sign of a further consolidation in the banking sector. If one can pick a bank with a differentiated lending strategy and a strong management, it could be a good investment going ahead.
Bank of India share price plunged 4.4% in the opening session.
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