Author - Tanmay Gadre

26 Jun

This week in a nutshell (June 21st to June 25th)

Technical talks

NIFTY opened the week on 21st June at 15,526 and closed on 25th June at 15,860. The index made a gain of 2% this week. The index has taken support of its 10DMA of 15,768 which might act as a support. RSI (65) and MACD trending upwards suggests an up move from hereon.

Weekly highlights

  • The state of Gujarat has announced a new Electric Vehicle Policy 2021, which will provide a subsidy worth Rs 8,700mn for electric vehicles and for setting up charging infrastructure in the State. EV buyers will get a subsidy up to Rs 20,000 for electric two-wheelers, up to Rs 50,000 for electric three-wheelers and up to Rs 150,000 for 4- wheelers.
  • NBFCs are facing a sudden increase in loan recast, about a tenth of their loan book could be recast due to the pandemic stress. Many NBFCs are seeing recast in the June quarter, which will be implemented in the next few months. The recasts are also to be seen across the June and September quarters. (Source: The Economic Times)
  • On 23 June, banks recovered Rs 58 Bn by selling Vijay Mallya’s shares in United Breweries to Heineken international, which was a 15% stake in the company. So far, banks have recovered Rs 71.8 bn through the share sales, which is a little over 70 percent of the amount that Vijay Mallya owes to the lenders.
  • Reliance Industries Limited (RIL) in its AGM, has announced a Rs 750 Bn capital investment plan towards a clean energy push. RIL’s deal with Aramco is expected to conclude this year, where the latter will buy a 20% stake in RIL’s oil-to-chemical (O2C) unit. The Retail business is expected to create 1 Mn new jobs and add 10 Mn new vendors in next 3 years to the business.
  • FII (Foreign Institutional Investors) selling and DII (Domestic Institutional Investors) buying trend continued this week as well. There was a net outflow of Rs 44571mn from the FII kitty while DII invested Rs 52833 mn.

 

Things to watch out for next week

  • As the country gradually recovers from the 2nd wave of covid 19 supplemented by a strong vaccine drive, the stock market will be driven by these and global factors.
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08 Jun

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.   

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

  • On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.
  • Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
  • As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
  • The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
  • During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
  • PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
  • PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

  • With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E. 

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of PNB was ₹ 42/- as of 8-June-2021.  It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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