A day ahead of the Union Budget 2018, the core sector growth for December turned in at 4% as against 7% in the previous month. The November core sector had been a little elevated due to the base effect of demonetization. The core sector represents the infrastructure sector which accounts for nearly 40% of the overall IIP growth. The core sector growth is also representative of the potential of the revival in the capital cycle. This may not go down as very encouraging ahead of the budget as it includes critical sectors like cement, steel, oil, gas, refining, fertilizers and electricity.
ICICI Bank disappointed the streets with a sharp 32% fall in profits for the December quarter on the back of a sharp fall in treasury income. Standalone net profits fell from Rs.2442 crore in Q3 last year to Rs.1650 crore this year. The biggest casualty was the treasury income which fell sharply from Rs.893 crore last year to just Rs.66 crore in the Q3 this year. On a YOY basis, the Gross NPAs were up from 7.21% to 7.82%. In fact, even the total income of ICICI Bank fell by around 4% largely accounted for by the fall in treasury earnings. Of course, NPAs will be the big worry for the bank.
The good times for the metals space appears to continue as JSW Steel reported 148% growth in net profits to Rs.1774 crore for the third quarter. Even as JSW managed to produce record quantity of steel, the EBITDA of the company also improved by 37% for the quarter. Total revenues were also up by 17% at Rs.17,681 crore. The company also got an Rs.572 crore tax reversal due to the change in tax structure in the US. What is appreciable for JSW Steel is that it has managed to show this improvement in performance despite sharply higher input costs. JSW is also aggressively bidding for stressed assets.
L&T gave one more signal of the potential revival in the capital cycle with net profits higher by 53% at Rs.1500 crore even as total revenues were 9.4% higher at Rs.28700 crore. The net margins continues to be a major worry for L&T. The surge in profits was largely driven by growth in the infrastructure and the hydrocarbons business. The company received fresh orders worth Rs.48,100 crore while its overall order book position stood at Rs.271,000 crore. The fresh orders have shown a sharp increase largely on the back of revival in investments in the oil & gas sector, in which L&T is the biggest player.
ICICI PD is expecting the 10-year yields on the benchmark bond to touch 8% by next year, but for now there appears to be absolute panic in the bond markets. Traders are now looking to the RBI to intervene and sort out the huge sell-off in bonds. Most traders are of the view that this is the worst bond sell-off in the last 20 years and the RBI must step in and start buying bonds to stem the fall. The other option according to fund managers is to increase the limit available for FPIs substantially so that aggressive buying from foreign investors comes to the rescue. The fall in bond prices has been the longest since the year 2000 on the back of sharply higher global yields and rising oil prices. While bond yields are coming off the demonetization levels, further upsides could be bad news for banks.
As the government goes into another budget on February 01st, the big question is whether the FM would retain the reformist fervour or he would prefer to add a tinge of populism to it. The one big factor would be the way oil prices shape up in the coming year. Year 2019 is going to be an election and there are some critical state elections coming up in this year, so the budget could tilt a little more towards populism. However, if oil prices go beyond a point then the government may be constrained to push a part of the burden on the oil marketing companies and spare the retail customer.
