India Morning Report: Bank Deals, 6350 targets, Decisive Earnings and No Taper but Overdone IT?

NSE building at BKC, Mumbai
NSE building at BKC, Mumbai (Photo credit: Wikipedia)

 

The markets are of course steadying themselves as data shows (Analyst speak on ET) that cross currency hedges for FIIs also induced a short hedge on equity to prop rupee positions and that unwinding thus has emptied the rally by 6200. However as noted by a few others, this point is no longer the ‘death of the rally’ and the markets are enthused by the better earnings this quarter. Also as noted Nomura has bought a stake in Karnataka Bank and the offshoot of that is the trade in Federal Bank another correctly sized target for Foreign banks and institutions buying out Indian Banks with Federal Bank rising another 16% today , making it 5 sessions in a row. The higher US rates have already started a correction in Indian equities and could provide the fuel for a cascade correction at these levels but the Taper has shifted out. Rupee remains weak on th way down because of an almost closed market for the currency with a big hole for those wanting to make money while its gains are limited when the Dollar index goes even lower from current levels the Rupee starting the week at below 61.50 levels on robable profit taking showing this weakness, though Economically it is far superior to Turkey and the South African Rand

 

The Dollar will be moving south and as currency and equities both share the spoils and incite EM flows India will return to consumption and infracos in equities as well with banks holding and then leading the ensuing rally. Airlines have reported heady seat volume growth in both August and September and the Festive season months would absorb the high increase in seat pricing if not produce positive growth

 

However some stocks may see changing eigenvalues as investors come in with a different charter of preferences and the 6100 levels may still be maintained. PNB has started off in the Banknifty components as HDFC Bank watches on the sidelines. ICICI Bank has also responded at the right time while Axis Bank produced a great show, 25% higher on bottomline and an equally bg jump on topline based on growth in retail and cards, while its corporate book also outperformed bigger competitors

 

In size terms Axis is overvalued compared to its less than NII Of INR30Bln this quarter and profits of INR 13.62 Bln which though compare well with HDFC Bank of 4 quarters ago, meaning it has made some inroads only on the gross profit share among banks Gross and Net NPAs grew in size compared to its portfolio at 1.1% and 0.33% for the half year

 

IT will also be back in the second surge of the rally as we mentioned on Friday. The Forbes list of 50 most powerful women saw Chanda Kochchar(ICICI Bank) and Chitra Ramakrishna(NSE) counting fo rthe highest Indian contributions

 

Markets will remain careful at these levels esp throughout today for a big sharp exit from select investors to restart the upline trade but the scenario likely is of markets staying above 6080 /6150 levels in this leg Bajaj Auto and ITC are still gaining investors at current levels and a Bharti correction may lead the  switch trade if a mild correction decides to extend the rally at current levels

 

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India Morning Report: Bank Deals, 6350 targets, Decisive Earnings and No Taper

 

logo
logo (Photo credit: Wikipedia)

 

The markets are of course steadying themselves as data shows (Analyst speak on ET) that cross currency hedges for FIIS also induced a short hedge on equity to prop rupee positions and that unwinding thus has emptied the rally by 6200. However as noted by a few others, this point is no longer the ‘death of the rally’ and the markets are enthused by the better earnings this quarter. Also as noted Nomura has bought a stake in Karnataka Bank and the offshoot of that is the trade in Federal Bank another correctly sized target for Foreign banks and institutions buying out Indian Banks with Federal Bank rising another 16% today , making it 5 sessions in a row.

 

The Dollar will be moving south and as currency and equities both share the spoils and incite EM flows India will return to consumption and infracos in equities as well with banks holding and then leading the ensuing rally. Airlines have reported heady seat volume growth in both August and September and the Festive season months would absorb the high increase in seat pricing if not produce positive growth

 

However some stocks may see changing eigenvalues as investors come in with a different charter of preferences and the 6100 levels may still be maintained. PNB has started off in the Banknifty components as HDFC Bank watches on the sidelines. ICICI Bank has also responded at the right time while Axis Bank produced a great show, 25% higher on bottomline and an equally bg jump on topline based on growth in retail and cards, while its corporate book also outperformed bigger competitors

 

In size terms Axis is overvalued compared to its less than NII Of INR30Bln this quarter and profits of INR 13.62 Bln which

 

HDFC Bank
HDFC Bank (Photo credit: [s e l v i n])

though compare well with HDFC Bank of 4 quarters ago, meaning it has made some inroads only on the gross profit share among banks Gross and Net NPAs grew in size compared to its portfolio at 1.1% and 0.33% for the half year

 

IT will also be back in the second surge of the rally as we mentioned on Friday. The Forbes list of 50 most powerful women saw Chanda Kochchar(ICICI Bank) and Chitra Ramakrishna(NSE) counting fo rthe highest Indian contributions

 

Markets will remain careful at these levels esp throughout today for a big sharp exit from select investors to restart the upline trade but the scenario likely is of markets staying above 6080 /6150 levels in this leg Bajaj Auto and ITC are still gaining investors at current levels and a Bharti correction may lead the  switch trade if a mild correction decides to extend the rally at current levels

 

 

 

India Morning Report: Sharp cuts ensure quick bottom in India around 5650

Bombay High, South Field. Undersea pipelines c...
Bombay High, South Field. Undersea pipelines carry oil and gas to Uran, near Mumbai, some 120 NM away. (Photo credit: Wikipedia)

A more than expected negative reaction in  the Indian markets yesterday may have subdued analysts into a negative whirl as they were waiting for the same, but post the subdued slightly positive open in global markets, it increasingly looks like today’s move in the Indian markets is more a positive search for value than just a reaction to yesterday’s sharp negative move.

Though your favorite superanalysts may be recommending shorts at 5650-5700 levels on the markets , I would invite you to use this rare opportunity to further sign in to Indian markets in scrips of value except that though banks refer the most value potential they are not ready for a move up yet. ONGC and Tata Motors are good shorts too, and apart from the index shorts one can see the visible analyst reaction actually picking out rare weaknesses for shorts as Ashwini Gujral recommended in Option spreads shorting Tata Motors and ONGC . Telcos haev nearly recovered the positive sentiment almost immediately and exporters are mobing in the positive zone including Bajaj Auto and Sun Pharma

The heavily discounted PER multiples in the Indian indices also ensure further ETF outflows do not negatively impact Indian allocations and one expects debt market outflows to stabilise soon as well as the yields in the Fixed Income Market spiked n small volumes itself yesterday and there are only higher opportunity losses for further exits The Rupee can obviously not last at these levels having failed to establish any zones in the three breaches in last two weeks but as the “correlation backward catch up play has lasted almost all week, the rest of the markets are unlikely to oblige Rupee’s bottom making move in the next few weeks and is likely to be ignored in equity and debt///government bond markets

Shorts on UCO, Karnataka Bank  and Vijaya Bank will work singly and can be tried as pair with buy in Banknifty once BOB and SBI bottom out as the big movers in this move. A Direct air with pvt sector ICICI bank and HDFC Bank would be riskier. Nifty short strangles with the Nifty bottom at 5600 is recommended y IiFL which would be their first positive trade in the quarter (joking!) but a great one Short 1 put at 5600 and use to buy puts/sell calls at 5800 . Selling 5500 put would not be bullish for this market nor very remunerative.

 

Bank Results Season: A critical look at PSU Bank results >> Dena, Karnataka, PNB and BOB

 

The sector reported in unison on Friday and bad debts rose to an average of 3-4% at most banks that reported. However, first the two profitable ones that improved results, then prioritising the big ones BOB and PNB that have sizable profitability and asset advantages and then the rash of CBI, UBI and others. Global Capex slowdown will continue to affect the INR 6T in Power sector Loans (2010) which have already come to INR 4Tln in 2011 and are likely going downanother 25%

Uma Maheshwari and Nutan of CRISIL/S&P had a ok denoument of their cry wolf and as MOS suggested this could well be the last reported increases in NPLs but then I don’t know what MOS is saying right now.

Dena Bank

Dena Bank reported an NII of INR 612.24 Crs or INR 6.12 B, comparable to some of our food majors like Jubilant Foods (QSR) who reported INR 3.14 B selling pies in the same. Other income was characteristically subdued even at this profitable Mumbai based regional PSE at INR 1.41B

Jubilant’s net Profit margin was just 10% as Dunkin’ Donuts weighed in though the Pizza brand has 489 stores of its own. Dena’s operating profits of INR 4.57B or 60% and Net of INR 2.39 B or 31% underline the stable underlying growth in even public sector units though the preponderence of these inefficient beachheads of government donated welfare and 60s nationalisation dominating the Bank Nifty may still not be defensible

This bank counts 1% Net NPAs and 1.8% Gross NPAs. It counts 80% of its income from Treasury and Corporate thoughin this case Treasury independently contributes 28% of that combined income and a slightly better proportion in profits

The Bank has 0.91 Tln or 45% the size of an ICICI Bank. EPS 6.82 down yoy

Karnataka Bank

KTKBANK reported just INR2.26 B in Net Interest income and INR 0.91 B Other Income and a Net Profit of INR 0.83 Bln or 83 Crores on an asset book of 317B (FY2011)   Net NPAs even at the profitable unit are already 2% and Gross NPAs 3.31%

Treasury and Corporate (Lending and Bills) equally split the non retail business of 67%

EPS of 4.43 up sequentially from 4.42 and up 67% yoy

The Bank counts deposits of INR275B and Advances of 175 B last available for March 2011 The bank’s private sector advances do not count agricultural loans. Total Assets of INR 317B would be assumed to have grown only in single digits

Punjab National Bank

Gross NPAs are just INR 99.72B and Net NPAs INR 49B but 3.38% of gross and 1.68% of Net respectively. The bank has guided final NIMs of 3.5% so does not expect mrore than the mandated increase in provisions from here and recovery income is honeycoating the pot

Profits grew hardly in double digits below 15% for the megalith with INR 2.66Tln in non food loan assets that beats ICICI in loan assets by 20% and INR 6.7T in  “business mix” or balance sheet assets with Deposits of INR3.85 T and Loan assets of INR 4.59T, Credit and assets having grown 20%

NII is up a shade under 20% at INR3.7B and Other Income stable at INR1.2B, Net Profits growing 12% to INR1.25B Provisions grew from INR566Crs to INR900 Crores or INR16B incl Tax assets

Fee based Income is INR 549 Crores or 5.49 B and Net Interest margin despite a dip continues at 3.7%  ahead of all others the drop in NIMs having hit the third consequent quarter, still supersized from other competitors , the best NIMs being near 3.5% The Cost of funds for the bank is below 6% and Credit Deposit Ratio 77% to 76.4% in the current quarter. CASA is non standard at 35%

The banks retail assets are barely 10% of its loan portfolio, Power and Telco 8 and 2.6% an dthe bank holds INR 1.2T in investments This quarter’s restructured assets are just 5% of its total INR255B

The bank should hurt those going short at current levels

Bank of Baroda

Reported results today NIMs are don from 2.96% to 2.73% Restructured assets have however added only INR573 Crs or INR5.73B NII of INR27.98 B reasserts it is the top of the heap with PNB

BOB restruured assets have added INR7.5 B not in power and telco but in Textiles

 

IOB NPAs are up to 2.97% at the fag end of the results day. Allahabad Bank NII has gone up 12% to INR 13.7B.  IOB NII is 13.28B but provisions of INR5.2B may still be low with Gross NPAs half that of Canara and Union Bank at 44 Bln Allahabad Bank PaT is INR5.27 B and OBC at INR 3.94 Bln among others today

 

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