Asset quality woes have evicted two major lenders — State Bank of India and ICICI Bank — out of the top ten most-valued companies in terms of market capitalisation.

While the two banks were ranked sixth and ninth, respectively, at the beginning of last year, they are now (as on June 10) in the 11th and 13th positions. The slide began this January as non-performing assets of banks hit new highs.

Gross non-performing assets of SBI and ICICI Bank stood at a multi-year high of 6.5 per cent and 5.8 per cent, respectively, as on March 31. The outlook continues to be worrisome, though to a lesser magnitude.

Global ratings agency Moody’s Investors Service recently said it sees public sector banks’ asset quality remaining under pressure over the next 12 months as they continue to recognise non-performing loans from some of the larger leveraged corporate groups, particularly in the steel and power sectors. SBI, the country’s largest bank, will obviously continue to feel the pain, though at a slower pace.

MB Mahesh, analyst with Kotak Institutional Equities, pointed out that FY16 was a watershed year for ICICI Bank’s corporate portfolio with non-performing loans at 10 per cent. The bank’s efforts to reduce exposure to the corporate sector and incrementally focus on retail will take 12-18 months, he added.

The spots vacated by the two banks have been taken over by Sun Pharmaceutical Industries and Hindustan Unilever, which were at the 11th and 12th positions at the beginning of 2015. As on June 10, HUL and Sun Pharma have made it to the top ten.

The two stocks were upgraded because of the weak outlook for stocks lower on the list, including Tata Motors, Bharti Airtel, Larsen and Toubro, Wipro and Axis Bank.

Also, Nifty FMCG and Nifty Pharma indices were out-performers in 2015 with gains of 0.6 per cent and 9.7 per cent, respectively, compared with a decline of 4 per cent and 9 per cent in the case of Nifty 50 and Bank Nifty, respectively.

Analysts have been upbeat about Sun Pharma due to its good financial performance, and better integration with Ranbaxy, among other things. But a disappointing performance in the March 2016 quarter and weak guidance in FY17 have eclipsed the company’s proposed decision on buyback of shares on June 23.

HUL has been witnessing subdued volume/sales growth in the last few quarters due to passing on benefits of lower raw material costs amid competition. However, the company has been able to expand margins by lowering input costs. A pick-up in consumption due to a hike in minimum support prices of some crops, the good monsoon outlook and the Seventh Pay Commission outlay are positives for the stock.

While Nifty FMCG index continues to outperform the benchmark index with a rise of 2.3 per cent, the pharma index has corrected sharply by 11 per cent in 2016 so far. The Bank Nifty has recouped some losses with a 3 per cent gain. Tata Consultancy Services continues to be India’s most valued company.

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