SBI Margins Improve but Q1 net falls

SBI reported a net interest margin of 3.37 percent comparede with 3.14 percent a year earlier, adjusting for one-time income. The margins improved because of the decline in the cost of deposits to 4.47 from 4.82 a year earlier and its average yield on loans rose to 8.49 percent from 7.80 percent. The Net interest income fell 8.7 percent to Rs. 38.84 bill from 42.53 bill. This is mainly due to lower income from treasury operations. The central bank is aiming to keep inflation in a 5 to 5.5 percent range and raised the short-term interest rates by 25 basis points earlier this week to 6 percent.

The central bank is projecting a growth rate of 20 percent for the year to March 2007 so bankers see more rate increases ahead if loan growth shows no sign of slowing. The SBI is more bullish by aiming for 25% loan growth for the year. SBI holds more than third of its deposits in government bonds, suffered a 20 percent fall in the treasury revenue to 36.06 billion rupees form 45.24 billion a year earlier as bond yields rose 60 basis points in the April-June quarter. The shares of SBI valued at $8.4 billion dropped by almost 25 percent in April-June, underperforming a near 6 percent fall in Sensex.

M&M up by 7 %

Mahindra is the world's fourth largest tractor maker in the world. It was formed in 1945 to make Chrysler Jeeps in India. Now Mahindra has a joint venture with China's Jiangling Motors and is looking for lucrative acquisitions in Europe after bid for Romanaia's Tractorul Brasov failed. It also had a $80 million joint venture with Navistar Inc. International Truck and Engine Corp. to make 50,000 medium and heavy weight trucks. M&M believes that it could be the largest tractor company in the world in five years. They are also in a tieup with France's Renault to make Logan sedans form next year.

Mahindra sold 60,495 vehicles and tractors in April-June (15% rise). The passenger vehicle market in india is forecast to nearly double to 2 million units by 2010. The demand for trucks in India is $5 billion. Material costs are going up, but we have created a margin of safety through cost management and higher productivity and we look forward to the rest of the year with confidence. Mahindra shares are valued at $4.5 billion and fell nearly 1 % compared to 11 % drop on the auto sector and 6 % decline in the sensex.

The Net sales of the company rose vy 23 % to Rs. 22.36 billion from 18.12 billion a year earlier. The operating margins of the company rose to 12.1 % form 10.65% a year earlier. The shares closed on BSE at Rs. 563.10 up by 6.6%. When the Sensex climbed by nearly 200 points. The numbers of the company is really impressive but they have to sustain the high margins when input prices goes even higher. Higher crude oil prices and high interest rates could futher dampen the demand.

Lowest in 4 weeks

Markets today hit their lowesr in four weeks due to the concern that the falling rupee might slow down the FII investment. the indian rupee hit its three-year low of 47 per dollar. The higher crude oil prices due to the tentions in the middle east was also another reason for the fall. The index is down 21% from its may peak and the FII's have trimmed their net investments to $ 2.5 billion from nearly $ 5 billion in early May.

The BSE sensex lost 219 points or 2.15% to close at 10,007 after inta-day swing of 436 points. The biggest loosing sectors were Metals (3.95%), Auto (3.6%), IT (3.06%), Capital Goods (2.8%) ,Consumer Durable (2.3%) and FMCG (2%). The worst hit stocks were Wipro (5.5%), Satyam (5.3%), TCS (4.5%), ACC (4.5%) and Tata Motors (4.4%). ONGC (1.8%) and Ranbaxy (0.6%).

With the selling presure arround the market seems to be heading towards 9,800 - 9,900 levels. The markets have been falling constantly for two three days now and the buying had disappeared even for stocks like ACC. The net profit of ACC increased in last quarter but the stock price fell to Rs. 779.95 (4.5 %). Index heavyweight Reliance Ind. Ltd. fell 5.5% to Rs. 982.10 and Infosys by 1.5% to 1,605.9 points.

Still long term fundamentals for the Indian Economy and Business stay intact. Just recently JPMorgan Asset Management concluded that China, India, and Singapore offer Asia's best stock market investment oppurtunity. The expectaion is that a stong catalyst like change in the interest rate policy by the Federal Reserve. The valuations of the Indian stock markets have actually become more attractive after the selloff.

Markets to Rally

The positive corporate earnings are one of the main reasons for the main reasons which will pull the market up in this quarter. The major negatives for the markets are the increase in the global crude oil price. The crude oil prices have now touched $ 78 from close to $ 70 some time ago. If the crude oil touches $ 70 then we might see some type of rally taking place.

In this quarter also we blessed with strong corporate results. Infosys from the IT lot increased its earnings guidance. In the next few months we are going to see a restructuring of portfolios by the global fund managers. Another major change that took place in the global market was the hike in the interest rate by the bank of Japan by .25%. This ends the 0% interest rate policy that was adopted by the Japanese government. The Japanese investor would now withdraw their money and start investing in their local market. There would be significant appreciation of Yen due to change in the interest rates. We are already seeing a selling close to $ 200 billion by the Japanese investors so far this year.

US rates hike cycle seems to be nearing its end, this is another positive for the stock markets. But on the negative side the inflation just crossed 5% and a year end figure of 6% is very likely according to estimates. Still the long term fundamentals seem intact with the economy growing at close to 8%. India is amoung the top 2 destination for investment in the emerging markets. Let us hope that we won't see serious correction for the rest of the year with sensex closing for the year end arround 9,000 to 11,000.

Infosys Beats Expectations

Infosys on 12 th july posted yet another stellar quarter of growth well above the earning guidelines provided by the company. The revenues of the company grew by 14.9% and the profits grew by 18.9%. The only disappointment was the operating margin of below 30%. The hike in the salaries for employees and higher cost for visa were the main reasons for the decline of the operating margin by 4.6%. The depreciation of rupees helped improve the Operating margin by 2.2%.

Another main highlight of this quarter was the increase in the other incomes by 77.8% quarter over quarter. The gains from exchange rate stood at Rs. 530 millions compared against the loss of 10 million last quarter.

The future outlook of Infosys looks very good with expected revenues next year between Rs. 134-135 billion reflecting a year over year growth of 41%-42% and a EPS guidance of around Rs. 124 –Rs. 126 reflecting 38% to 40% growth.

Infosys has a EPS of Rs. 90.65 compared to Rs. 57.65 of Tata Consultancy Services. Also Infosys offers a dividend per share of around Rs. 45. vs. Rs. 13.5 of TCS. The book value of Infy around Rs. 250 is also higher compared to Rs. 140 of TCS (last year’s estimates). This makes Infosys a fundamentally strong company for long to medium term investment.