One noteworthy aspect as far as the financials go is that there is an increased provision fordepreciation in the second quarter. HDFC Bank is said to be cleaning up its balance sheet and is making substantial provisions for its major NPAs, which will tend to hit the bottomline growth.

As a prudent measure, the bank has obviously decided to lend incremental funds largely through commercial paper (CP). These instruments have a larger degree of safety since the profile of companies borrowing are at least AA rated, but the lower risk is compensated through lower returns. The lower potential returns are being partly offset by the fact that the bank has had a huge growth in low-cost savings bank deposits in the last six months. Yet spreads have been narrowing.

The HDFC Bank results are the first from the banking sector (second in the financial sector following that of parent company HDFC) for the first half and is an indicator of what can be expected. On a year-on-year basis, domestic banks will show good growth as the stock market has been expecting, but on a quarter-to-quarter basis, the growth, ifany, will be mediocre. The slowdown in growth rates will be accentuated in the second half. This is being widely anticipated even for the large banks such as SBI and Bank of Baroda. Consequently, most bank stocks have been beaten down (especially banks such as Nedungadi Bank, Dena Bank and Karur Vysya Bank), and most are trading at all-time lows. Except a couple of stocks including HDFC Bank, most are trading below the issue price. At a price of Rs 51, HDFC Bank is trading at a 17-month low and has already seen a steep fall of 28 per cent in the last three weeks.

TVS Electronics

The exceptional rate of growth TVS Electronics witnessed in the recent past has come to a complete halt, with its major business divisions reporting a fall in volume sales and revenues. The uninterrupted power packs business reported a fall in volume sales by 19.5 per cent, while in the previous year, it was the cause for a rally in its stock price. The computer peripherals business reported a marginal fall of 8 per cent involumes, though revenues were marginally higher. A major culprit was the fall in exports of its products, and export revenues were lower by 21 per cent.

The only allure in the company earlier was the prospect of faster growth and the discounting reflected that fact. In the absence of growth, the company has little to offer shareholders, despite the profit growth (a result of lower raw-material costs). It is unable to generate free cash and has had to rely on borrowings to cover its ballooning working-capital needs. Even in a good year the company was unable to beat its cost of capital and it reported a very poor return on equity. For the last financial year, the return on equity was just 9 per cent and the return on capital employed was just 8.6 per cent.

The TVSE stock has also come a full circle and most of the gains that it enjoyed as a result of its volume growth in the previous year have been wiped out. In the last three weeks, the stock has fallen by 20 per cent to Rs 24.