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Weak results could affect industry credit ratings, banks

Bankers say the economy will continue to remain under pressure, which means industry profits will remain under pressure as well.

Suprotip Ghosh | May 30, 2013 | Updated 21:30 IST

India's frontline companies, with the possible exclusion of Reliance Industries Ltd (RIL), continue to perform below par in the quarter ending March 2013.

Large cap members of the Sensex including State Bank of India, Oil and Natural Gas Corporation (ONGC), Tata Steel and Tata Motors showed either large losses, or slowing growth.

State Bank of India posted a net profit of Rs 3,299 crore in the January-March quarter, compared with Rs 4,050 crore in the same period a year ago, a drop of 18.5 per cent. Net interest income, the major pointer to a bank's income, also fell 4.4 per cent to Rs 1,108 crore.

ONGC, India's second-biggest company by market value, reported a net profit of Rs 3,387 crore for the quarter, down 40 per cent from Rs 5,644 crore a year earlier. Analysts say it is due to wells that are drying up, and higher operating costs.

Tata Motors, part of the Tata group, said net profit for the January-March quarter was Rs 3945 crore, down 36.7 per cent from Rs 6,234 crore posted in last year's March quarter. Sales however, went up 10 per cent to Rs 56,002 crore. A major reason for this was its slow growth in the domestic market.

Banks are watching the results and their impact on their margins warily. Bankers say the economy will continue to remain under pressure, which means industry profits will remain under pressure as well. When core industries are not doing well banks cannot do so either.

Ratings agencies, which provide risk assessment for industry whenever they need to raise funds, say the situation was difficult last year, but things might not be as bad going forward.

"If the GDP growth rate doesn't go up, it will be difficult for companies to perform better, which will affect their ratings. Having said that, some things are looking up in some sectors," says Milind Gadkari, General Manager, CARE Ratings.

Despite the tepid results, the BSE Sensex is still doing well, and is way ahead of its six-month closing low of 18226.48. Tata Motors closed 4.31 per cent higher at close of trade, on Thursday. The ONGC stock is close to its six-month closing high at Rs 333.70.

It is just a bout of hiccups for Indian industry, perhaps.

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