Tag - Bank moratorium

Update on the Indian Equity Market:

The market ended higher for the second day on expectations of a fresh stimulus package from the government to reduce the damage caused by the ongoing pandemic. IT (4.4%), Private Bank (+3.2%), and Banks (+2.9%) were the top gainers while the losers were FMCG (-1.4%) and PSU Bank (-0.4%). The gainers were led by Kotak Bank (+8.3%), TCS (+5.5%), and Infy (5.2%) while the top losers were Titan (-3.7%), Hindustan Unilever (-2.7%), and Power Grid (-2.5%).

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Excerpts of an interview with Sanjiv Bajaj, Chairman and Managing Director, Bajaj Finserv published in Business Standard on 22^nd April 2020:

• The timely lockdown to control the spread of the covid-19 pandemic helped prepare medical capacity. To kick-start investments, the gradual opening of economic activities in the non-hotspots needs to be done.
• The lockdown situation has resulted in both, the demand and supply being stopped, which we have never experienced. It is vital for the government and RBI to instill confidence, especially with small businesses, migrant workers, and individual consumers.
• The measures announced to provide food and some money to the poor section of the society are commendable. Now, working capital and term loans to restart enterprises are needed to kick-start the economy.
• Banks, though flush with liquidity are playing too safe by not lending funds to NBFCs, HFCs, and micro-finance institutions to avoid credit risk. It could help if the government covered initial losses.
• With a large domestic consumption base, our economy can restart faster than many other countries, provided the necessary help is provided. We will need to balance opening up the economy with the spread of the virus and any new information about its fatality. Hence, the government and RBI support will be required until a cure or vaccine is available.
• The measures announced by RBI are welcome though Mr. Bajaj would like to see a direct liquidity line extended by the RBI for larger NBFCs with assets over ₹ 10,000 crores.
• Public sector banks are not yet extending back-to-back moratorium to smaller NBFCs that are offering moratorium to their customers. Such anomalies, which will prevent the economy from recovering fast must be quickly removed.
• Smaller NBFCs must shore up their capital requirement, keep additional liquidity, and maintain conservatism in lending practices, to survive the lockdown.
• The finance and insurance companies of the group have adapted quickly and reasonably efficiently to the work-from-home regime. Productivity is understandably lower, which impacts response times.
• A reasonable amount of new insurance business is done, completely digitally. A number of processes will be reoriented to work from home even after the lockdown ends.
• Bajaj Finserv will be ready to offer the different kinds of loans customers might need, once the economy restarts. The loans and insurance products take care of a large number of essential requirements- loans to buy groceries, for medical procedures, to insuring car, factory, shop, and life.
• Due to the global economy being under stress, there could be some short-term reallocation of global capital towards developed markets. India, which has a large domestic consumption base and a young population, will end up growing faster and eventually attract global capital.
• In the past few years, our domestic capital has moved from being invest in non-productive assets to financial assets, which is expected to continue and provide an important and dependable source of money.
• India can emerge as a strong alternative to China and it is important to leverage this once-in-a-lifetime opportunity.

Consensus Estimate: (Source: market screener website)

• The closing price of Bajaj Finserv was ₹ 4,717/- as of 23-April-2020. It traded at 2.2x/ 2.2x/ 1.8x the consensus book value estimate of ₹ 2,111/ 2,173 / 2,583 for FY20E/ FY21E/ FY22E respectively.
• The consensus target price is ₹ 8,304/- which implies a PB multiple of 3.2x on FY22E BV of ₹ 2,583/-.

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.”