Now that the National Stock Exchange’s Nifty index has fallen 40% from its highs, it’s time to go back and check how this crash compares with the last one. Was the drop in 2000-01 bigger than the one we’re seeing now?
(FALLING FASTER) Well, actually the two episodes are different. The 40% drop in the Nifty since 8 January this year is much sharper than the market crash soon after the tech bubble went bust in 2000. Back then, it had taken as many as 292 trading sessions spread over 14 months for the index to correct by 40%.
This time around, the markets have corrected by 40% in just a little over six months, or 129 trading sessions.
Back in 2000-2001, the correction was prolonged and eventually the index more than halved by September 2001. But that was owing to the twin-tower attacks in the US and the market’s reaction to the event. One feature of the bear run in that period was a strong bear-market rally of about 25% between October 2000 and February 2001. Will the very sharp fall this time lead to an equally sharp bounce back? At the moment, there seem to be few triggers to suggest that a recovery or a strong bear-market rally will follow soon. The credit crisis is getting worse and crude oil prices continue to hover around $140 (Rs6,048) a barrel. The markets will be looking for good news on these fronts, before there’s any substantial improvement in Indian stock prices.
A deteriorating environment takes its toll on HDFC
The shares of Housing Development Finance Corp. Ltd, or HDFC, fell 4.5% in a flat market on Wednesday, underlining investors’ disappointment with its June quarter results. Net interest income is up a respectable 35%, but investors are probably comparing that growth rate with the 70% growth in net interest income notched up in the March quarter. Hence the disappointment. The pressure on margins too is evident—in the June quarter, the interest spread fell to 2.26% from 2.32% in the previous quarter, as the full impact of the reduction in interest rates was felt in the loan portfolio. Growth in profit before tax and exceptionals, at 28.7% for the June quarter, was also lower than the 31.5% year-on-year growth in the March quarter. Outstanding loans showed a 26.5% growth from the year-ago level at the end of the June quarter, but at the end of March 2008, outstanding loans were 29% higher than the same quarter in 2007.
Nevertheless, loan approvals rose 30% year-on-year and disbursements went up 28%, the same rates of growth as seen in the December 2007 quarter and higher than the growth rates in the March 2008 quarter.
Perhaps most importantly, delinquencies are rising. Gross non-performing loans amounted to 1.09% of the portfolio, compared with 0.84% at the end of March. Its low loan-to-value ratio of 65% does provide a lot of comfort on asset quality, but the deterioration in the proportion of non-performing assets is a warning signal.
At its closing share price of Rs1,718 on the National Stock Exchange, HDFC trades at 3.9 times its book value. Analysts estimate that its subsidiaries contribute 30-40% to its price, which values the mortgage business at around 2.4 times book value. With loan growth being sustained at the 20-25% level, the company will be gaining market share from banks in a difficult environment and the valuation is not expensive. But there’s little doubt that the deteriorating environment is taking its toll on HDFC.