Fund managers are, therefore, of the view that despite a rapid accretion to assets, profits are not growing organically but through accounting adjustments. And, this is not viewed as a very good sign. This phenomenon has been noticed in a number of bank stocks. The negative view also stems from the fact that in a period of corporate instability, cutting back on provisioning could be unhealthy. The year-on-year fall in total provisions by 32 per cent (which also includes taxation, investment depreciation and bad debts) is alarming. Themanagement's argument that its exposure to recession-hit industries has reduced has not been accepted nor factored in.

The market view does seem to be extreme as far as Corporation Bank goes as it has consistently managed to reduce NPAs. For example, in the first-half of 1997-98, the NPA level had risen to 4.93 per cent. Since then, with each reporting period, the level of NPAs have fallen. In the third quarter of 1998-99. the net NPA level stood at 2.63 per cent.

Further, the bank has one of the highest gross NPA coverage ratios in the industry at 62 per cent. Besides, expectations of a favourable year-end YTM will lead to a credit in the provisions and contigencies account in excess of the debits made in the course of the year for depreciation in investments. In Corporation Bank's case that write back will be worth at least Rs 5 crore. This will provide a cushion for additional provisioning against non-performing loans.

The bank has decided that its incremental assets will largely consist ofblue-chip companies.

In the current year, 40 per cent of incremental assets are blue-chip accounts (rated AAA by the bank) and 25 per cent of its total assets are in the PLR category. The demerit is that with the fast growth in deposits, spreads will continue to be under pressure. However, incremental NPAs will decline. In addition, loan recoveries are gathering momentum and, in the current year, total recoveries will equal Rs 50 crore. The 35 per cent fall in Corporation Bank stock has more than factored in the apprehensions regarding the quality of growth in profits and worries over falling provisioning. Potential increases in wage costs to the extent of Rs 10 crore per annum has also been factored in. A higher settlement could, however, affect the stock temporarily. The beginings of a recovery came on Wednesday itself after the stock hit a new low at Rs 65. The recovery was in line with other leading bank stocks such as HDFC Bank, and SBI.

Amara Raja Batteries recovers

Another stock which hasrecovered after a steep fall is Amara Raja Batteries. UTI was reportedly a consistently big seller in the stock and, until the offloaded shares were not absorbed in the market, the fall in price continued and finally culminated in a circuit breaker on Monday. As the selling has been absorbed quite comfortably, leading to a recovery the very next day. The stock fell without much support from Rs 271 to Rs 208, a fall of 23 per cent, before recovering 40 per cent to trade higher at Rs 235.The selling from the fund initially took place on the back of fears over the company's expressed inability to maintain its present high operating margins over a long-run. Operating margins are expected to stabilise at around 25 per cent from last year's level of 42 per cent. Selling from speculators occured after the management refuted any plans of a buyback for atleast the next three years.