India Morning Report: The rest of the week is bullish again

indiaGiven Pfizer and US Authorities continuing crackdown on drugs from India ( Pfizers fake drugs lab featured Ranbaxy on Bloomberg yesterday, 100M users (see ET)  did not vote for Ranbaxy and founder Dilip Sangvi definitely has an uphill task trying to convert his $4 B revenue acquisition of Ranbaxy into a paying deal. The price even at Rs 447 was probably a face saver for Indian Phartma as Indian pharma contitnues the quest for bigger stories in the $200 mln – $500 mln molecule categories and even more and the US generics story also relies on academia to cut the costs of innovationand drug delievry with and without Obamacare.

As of now however, prices of Sun Pharma continue their rally as Ranbaxy finally stabilises at 447 (offer price) and markets look to complete their pre poll rally with benefactor Modi piping up some hot Indian curry to Foreign investors around the world. Recovery in consumption is not converting to better Auto sales apparently and poll time spend also seems to be down witht he fortunes of the Congress known well in advance.

In Financial Services and Banks, the IDFC story has multiple positives even as the markets nurse a big bruised ego from RGR’s matter of fact disposition of other applications and the Infra Financing story for India inc seems to be back on track, the Indian welfare state a survivor of other political questions as BJP promises to bring back rural employment and education schemes.

Stories like Bharti and ITC are unlikely to lose because of the changes in Political fortunes while the Pharma and It story probably come under the scanner being at market peaks and the Rupee responding in the NDF market to more than inspired business inflows and remittances from labour abroad.

The movements in JP Power., JSW Power (Nasik and Maha areas arnd Jabalpur?)  and obviously Adani Power ( Amit Shah connection) are interesting and likely to be back int he limelight as news on the business channels remains on target for a big 7000 breakout and is safe for a 6800 score by far, markets continuing to test the levels after each 100 odd points of rise, studying the ramifications and choosing a select dozen every 100 pointswith shorts back in Kotak and Hero Motors. BHEL and SAIL seem to continue to be short favorites and their fortunes and that of IDBI Bank are unlikely to be affected by market direction now.

The best derivatives strategy remains to sell puts at this point for probably 6500 levels on the safe side, markets likely to signall enough if the breach below 6450 levels in 2014. Buying risk may seem tobe in, but new investors are likely to be priced out by the constant rain checks and risk buyers from early 2014 will continue to be rewarded till end 2014 if they stick around.

JP Associates is unlikely to move upop from 56 historically a support for the stock as it continues its tortuous strategy of deleveraging its listed stock

Bank credit growth remains steady at 12-13% and deposit growth continues to outpace, leaving the changing GDP target forlorn at new higher levels and the GDP performance for 2014 and Q1 2015 unlikely to hit above 5%

Market highs around 7000 levels are however already justified by continued double digit earnings growth by top performers.

 

 

India Morning Report: Markets listless orphaned by a Superbowl

Superbowl sold tickets for cheap in the snow

Asian Markets are closed today and lack of Foreign investor interest on Monday Morning leaves an India open totally listless at 6100 levels and falling again, struggling after a brief respite at 6050 last week. IDFC results were inconsequential along expected lines with no fresh disbursements in this financial year but the stock has only upside left at 93 levels where it closed last week post results as it remains the only empowered player not dependent on infra approvals and a fresh book of loans in the pipe likely. Loans continued to make a better ratio of all NII at the Bank as spreads showed up resilient despite a bad interest rate environment in the nine month period reported.  Retail interest aside, the stock will remain on Institutional buy lists for time to come. It’s large provisions also make it a great equity investment with the Provisions unlikely to be called and can always be reduced prudently. Non interest income remains slave to PE principal and proprietary trading business

The Rupee starts the weak on such rumors where the deciding NDF market actually feeding on the panic mindset in low trading volumes and the onshore markets trade down but only for the morning after as the Superbowl even that draws a 200 mln audience in the US and around the world has ended minutes ago and investors will be back to a market fairly under priced by the recent pitai (hustle-bustle/buffeting not to be confused with the sage of Omaha’s investing interest)  Bank Rate will remain higher for the majority of 2014 , the prospect of rate cuts being pushed back and there being no prospects of improved transmission of monetary policy with yields pushing for higher dollar depreciation despite the RBI efforts to clamp liquidity which has time and again proved more amenable to intuitive policy than a counter intuitive rate hike move to tackle measures outside Central Bank policy. However corporates borrowing in ECB might actually be able to break the ice in terms of getting older level low rates and break the impasse eventually with increased investments (starting to flow in consumption sectors) and RBI , maintaining a new inflation hawk stance would likely have to hike rats further after the 200 Marginal channel cation and announce a veritable change in stance on rates first.

REC had started up Friday and Powergrid should join in after mi d-day if the sentiment indeed looks up. The Equity rally in the Global Markets hit a big snag in January and that is holding markets back awaiting  a confirmation of investor interest with FDI having exited Emerging markets like Turkey, Mexico, Argentina and Indonesia in a hurry with Turkey coming in midweek last to raise rates by 4% to near 12%. Goldman Sachs is in trouble again having started their own EM investments in losses having chosen MINT’s obfuscated markets and a deep and dead in the water China over India’s liquidity given the cross winds. The Rand(South Africa)  also closed above 11 to the Dollar for the first time in January.

However Emerging markets sentiment is likely to get into it in a couple of quarters from here and India will remain one of the best performing destinations having been unaffected in the post taper trade in January if it maintains 6100 levels or at least stays above 6000 levels

PNB scored great results having come in counter cyclically on raising provisions in a known strategy and NPAs under control in a rapidly deteriorating market sentiment for Banks shoring up investors to its ferry/rafters and trades 10% higher at 550 levels still a strong buy. Banknifty starts the week near a low at 10150 and is good for the trade up but one should be watchful with ugly quotes (in both the 10000 and 10500 series) in the bid auction market still holding an initiating trader to ransom with option writers playing ultra safe.

IT stocks are still overbought and Infy should retrace 3600 levels and even TCS should come down to realistic levels (but already at 2200 levels) as the IT/Outsourcing axis is not coming out as the GDP’s saviour this time either. Volatility levels are hardly material at 16 in the current rally agains 14 in the previous segment in December ’13

Energy stocks should start the climb back as and when markets stabilise, GAIL having  started the year smartly. Glenmark and Cipla/Lupin lead the Pharma rally that continues despite an ugly breakdown in Ranbaxy and Sun Pharma. We still do not believe in a robust Arvind Ltd comeback on USPA and other new limited franchises inroduced by the team since 2011. Tata Global Beverages remains a hold but the magic is still in 100% go it alone investments in India ( which are still a far cry from the carte blanche leading to exchange rate breakdowns in LatAm and SE Asia in recent EM history) Aurobindo Pharma on results and Lupin on announcements today provide good portolio picks along with Glenmark which has only $500 mln in overseas debt and among companies tapping a continuing generic opportunity in 2014 with a new pipeline

Interest in the IPL in the meantime continues strong esp evincing interest from global players in the playing XI and a fresh re-auction for all the 8 franchises picking up steam soon after the spectrum auction closes. ING and OBC related good Q3 tales as were also employing covering strategies but have not started lending/stopped losing on NPAs. Yes Bank may not fall back to 280 levels and accumulation is advised at current 300 levels. The BOI /BOB story broke down in January itself as we foretold with both banks still addding NPAs in droves. ICICI Bank’s INR 45 Bln ( including INR 30 Bln pie in restructuring) included the bank can survive the pressures with relative ease having also been proactive on definitions than the PSU penchant for playing it by the ear and losing continuously losing investor confidence and investor money as far as its favorite proprietary traders are concerned who lose another constituency in an unplanned bull attack with construction stocks Dlf and unitech still in a free fall after the ill advised run

Energy Markets react positively Midday

Gas stocks reacted positively as Petronet LNG produce became free to sell to industrial users and IGL and other domestic distributors esp IGL getting commitments to cheaper Domestic LNG in the new pricing regime. This also means domestic CNG in all markets including Mumbai where already 100% domestic gas was supplied prices of CNG and PNG were reduced by 30% and 20% while increasing IGL margins. Petronet imports LNG and will no longer be getting custom from IGL which Delhi used upto 33% imported gas

The move was a n expected one with a new Minister coming back (Moily ) in a sensitive election year . Moily is also expected to facilitate large project clearances with changes at th e Ministry of Environment (EPA Act bottlenecks)

GAIL shares the good news as renewed pressures on its subsidy costs will likely subside as it supplies to city gas companies and others at new revised rates and the policy is deemed stable after LPG quotas to residences have increased to 12 cylinders per year and gas TX likely to increase volumes with good results reported Thursday

Bank Results season (India Earnings): ICICI Bank keeps showing long term tracking to objectives – Q2 FY2014

Your favourite bank did start showing  hidden wrinkles as it eagerly snapped up a 26 bp NIM increase to 3.26% this quarter an Net interest income grew in line with the bank’s voracious appetite to INR 38.88 Bln. The retail surge which slowed down to 20% and Deposit growth continues without buyouts of deposits  at the industry rate of 14%. That means the retail team is unlikely to prove other results without the earlier snafus with retail processes even as it opened 250 new branches, 150 in the unbanked regions. The chink in the armor is that the bank will smooth over its increasing gross NPAs as the continuing expansion in margins gets the bank to override and lay down the news of a jump in gross and net NPAs. Gross NPAs for a large bank as such are horribly disavowable at 3.23% and Net NPAs are also thrice the rate at equally sized HDFC Bank.

The stresses however may not be l

India decadal growth rate map en
India decadal growth rate map en (Photo credit: Wikipedia)

inked to its growth as one looks askance at the 15% plus ROE. At this moment however I am unable to more than cast a  doubt on the Capital Structure for such ROEs and the same however is not to be confused with the global banks which still have a entirely different Order of magnitude of liquidity and derivative profits/risk management. It might still have an audience requesting that they be treated as peers especially on the comments on Capital Structure while structured product profits would still seem unseemly. The results will probably bring the bank under fire from its Indian peers , starting here at the ROE growth which seems awkwardly as always one step ahead o f the coming high interest rate regime when it actually expands margins.

Profits are only up 25% less than the expected INR 24-25 Bln mark at INR 22.54 Bln

The Active CaSA strategy for the bank seems to have worked wonders again with another 1.95 increase quarter on quarter to more than 43%. From here CASA would go on reducing once it reaches 47-49% levels in three-four quarters(at this pace). Average CASA as been reported duly at 39% , ad the gap is showing , which may be a disconcerting note for investors as the surge in retail and commercial deposits continues to bank the margin till rates are hiked.

However to reiterate, The Bank thus now has been completely clean on the paper trail in terms of its profit, asset growth and retail loan growth objectives , also fulfilling its rural objectives , covering the unbanked and continuing to improve its show while the fissures in its wholesale international book and the growth in retail NPAs coming hither will well be masked in the current reporting as well, leaving it another show of increased transparency  The bank has however totally dominated its peer HDFC Bank in the banking sweepstakes for the two universal banks heralded in India at the first stage of bank reforms in 1995.

Bank Earnings India: YES Bank expected to grow to required size (Q3 FY2013)

Organic growth component of the bank’s strategy has shaped up well and even the despondent NIMs shaping up into a firm 3% mark this quarter as the bank ramps up on savings and Tier I Capital thru QIPs. The bank’s loan book probably increased Corporate exposure vis-a-vis its Agri book and the Provisions have thence grown by more than twice as required at INR 0.56 Bln but the bank has brought down Gross NPAs to 0.30% of the book and net NPAs even lower.

The bank states in the earnings conference that any rate cuts will accrue to NIMs CASA is nearly 20% growing from 17.3% to 18.3% and NII is well above average even for a mid sized companies at INR 5.63 Bln and Net income at INR 3.42 bln. for a book of a target possibly closer to INR 60 bln for the bank the growth in NIM is probably stating that the bank is about to hit the big league as is obvious from is well-rounded scores in management and corporate responsibility though its early single line focus still makes it an outsider in Corp loan syndicates.

Bajaj Auto results are on the wire.

India Morning Report: Imported Durham Wheat and the JP Morgan BPO

Canara Bank Near Town Hall
Canara Bank Near Town Hall (Photo credit: SumaVV)

What would your friendly neighbourhood snitch or hag have you see in India’s future now? BPOs recruiting for Voice processes and documentation work or captives claiming they are not BPO for the same work and a hoard of imported foods you buy now but will not afford on a salary six months after.

Unfortunately, our elites continue to get such side issues with  India education after being worse than a blind bat and halfway through their work life but one should not lose much sleep over such influences in your life as more and more recruiting shifts out of the magical BPO/IT abyss and returns to active traders, banking sales and i am sure a lot of non business administratives already pulled into quasi business development roles at one man MNCs having finally run their roost.

At least in the shadow banks and the foreign brokers we have been increasing recruiting breadth for the last 5-6 years despite shutdowns at Citi , RBS and UBS. Of course the recruiting profession itself and over the hill 50 something bankers remain unqualified in the new world so the global strategic direction is unlikely to be set anywhere nice soon so be careful what you wish for in a job or you might get performance linked appointments with fancy names and quickerr shutdowns than the Sasketchwan scare in North Canada

ICICI Bank is picking up the slack thankfully on a stronger day at the bourses and more thankful because that means market interest in SBI or PSU banks is increasingly turning merely technical in nature and ?india’s story of future consumption expansion in the hinterland is not making anyone secrete excessively rooting for SBI and the dud dudders from Union Bank to Canara and Syndicate, Dena, BOB and PNB hardly looking like having recovered or improved from their unholy business ethic of the last two decades which they were seemingly not a part of.

skyrise
skyrise (Photo credit: Brennan Mercado)

Etihad had another finger in India’s aviation pie though the reporting team got busted as a Bombay Tabloid by the last century’s sole network on Indian equities and is actuallya  scoop by Mirror  ( the city based TOI daily magazine of local specific mantra)

Bank Results Season (India Earnings) : Earnings surprise: ICICI Bank processes a few more growth triggers for Q2 2013

icici bank
icici bank (Photo credit: Wikipedia)

Net Profits have grown to a never before INR 19.60 B or $376.92M for the bank as Net Interest Income climbed to INR 33.71 B or $648.27 M with Treasury income of INR 1.72B helped other income to INR17.91 B  all growing at more than 30% over the year ago quarter. Q1 2013 growth was a little subdued in the middle of the near contraction in the Indian Economy on year but still a sequential improvement on March quarter to INR18.15B. The current Q2 2013 is therefore a sequential gain of 7.33% and even with a near 20% rate of growth in credit CAR including Tier II has inched up to less than 19% Deccan Chronicle ‘s INR 5B exposure was added to bad debt taking Net NPas up sharply to 0.78% from 0.71% in Q2

The bank is looking at bringing $1B in NII itself every quarter in less than 2 years and with Fee Income of INR 179 B year to date is likely going to manage a superior profitability with good NIMs on a loan book closing on to INR 3 Tln

The bank added a INR 5 B media industry account as NPA and i s otherwise unperturbed by the current sector massacre from bad loan provisioning PNB also proved results today and was able to grow credit and deposits by more than 17% on year Though public sector PNB has lost grip on profits, its cost of deposits at less than 7% might be a hearty target for a bank such as ICICI Bank not shy of wholesale deposits.

ICICI Bank has met competitive pressures from Private banks to grow its Deposits to INR 2.9 Tln which means total assets are over INR 3.3 Tln earning NIMs of 3% Savings rewards and social banking go a long way in improving its brand with retail depositors. Savings deposits have grown to INR 810B and 70% of that is retail (Chanda Kochar answers in analyst meet) Advances are INR 2.75 Tln, credit growing at 18%, retail at 14% (mortgages 14% and Cars 27%) with International starting regrowing credit portfolio at 6%

Kotak Bank in the meantime has grown CASA to a respectable 27% and YES Bank also ~20% with a 6/7% interest rate peg for retail depositors. NIMs are smaller at the smaller banks like Kotak and YES

 

 

Bank Results Season: India Earnings Surprise: HDFC Bank Runs Casa At High 46% And Manages 20%+ Corporate Growth

Despite slow/soft FX and Derivatives business in the quarter, 23% growth in the Corporate loan book exceeded the industry growth rate of 16% by nearly 50% Including the current Fee income the quoted Net interest Margin is a high 4.2% even as provisions dipped by almost 30% to INR 293.3 Crores or less than INR 3 B

Indusind Bank grew Q2 net to INR 250 Crs or INR 2.5 B at an almost 10% clip over Q1 2013 while HDFC Bank also grew profit sequentially from INR 14.77B to INR 15.6 B at nearly 6% on a much larger base

HDFC Bank has grown Net interest Income almost 10% sequentially from INR 34.8 B to INR 37.3B on the wires while Overall Operational Interest Income has grown to INR85.3 B or 30% on year from INR 67.2B. Year ago net profit was barely INR 12 B in the year ago quarter

 

Bank Results season: SBI highlights NPA to 2.2% and Provisions of INR 8.9B

 

Gross NPAs for Q1 FY 2013 increased to 4.99% instead of estimated 4.7% and Net NPAs rose almost 20% to 2.2% from June 2011 in the just announced results the bank increasing provisions. Gross NPAs amount to INR74.9B and Provision Coverage for the Giant despite increasing are still much lower than the competitionand smaller public banks at below 65%

NII is just 111B, 5-8 B less than the street estimate and total provisions this quarter are lower at INR 24.6 B taking the bank to below 1900 in trades after the ires ran the shock up the market spine. Broader markets may survive this loss of confidence in the public sector as the market demands of removal of subsidies as part of deep seated reform also subside without the indices rerating below a 5200 bottom

More details as the bank management releases further details of their private massacre when the street expected that the income and loan related pown rovisioning had been completed by the bank in a surgical action last March and June and profits are expected to increase 128% but will still manage to outgrow a INR 25 B mark satisfying the requirement of a viable net margin with interest spreads under pressure

Deposits have grown to INR 11 T while the bank claims a revised CAR of 13+% as of June 30 while Total Net Income is 14.6B or less than $3 B th no growth in fees advisory and other income

Q4 NPAs were best in class at 1.02% doublling sequentially ( Net NPAs)

 

Deposits have grown to INR 11 T while the bank claims a revised CAR of 13+% as of June 30 while Total Net Income is 14.6B or less than $3 B th no growth in fees advisory and other income

Q4 NPAs were best in class at 1.02% doublling sequentially ( Net NPAs) Net Margins have infact improved as the bank manages a PAT of INR 37.5 B but we have derated the stock as it has shown an inefficiency in shooting NPAs and continuing pressures in sectors like Aviationa nd textiles apart from the industry wide press ure from Power, infracos and construction & Telcos which private banks have tyurned to their advantage.

 

The 11AM Update – Results return ING to 3.3% NIM grade

 

ING Vysya remained the only bank to enjoy the margin upgrade from the sloth in the Fixed income markets even though its Amsterdam nerve centre remains otherwise occupied and hardly interested in the Sub continent retail banking pump up.

Net profits are up 38% Deposit growth slower as usual at 15% keeping CASA at 33% Th ebank seems to have eked out a large improvement in expenses , maybe not branch set up but other not sustainable savings and the bank was still able to bump up the provision cover to 90% Net NPAs have halved as it remains interested in select c orporates only Total income is still auniquely tiny INR 514 Crores (527 branches and 446 ATMs )

CDR has grown but gross advances are a total INR240 B, like indusind of the past failing to give confidence on scale or participation

YES is expected to grow NII to around a 28% annual rate Banknifty no available at 10250

 

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