Tag - economy

29 Oct

This Week in a nutshell (Oct 24th to Oct 28th)

Technical talks

This week was a truncated one on account of Diwali. NIFTY opened the week on 25th October at 17,794 and closed on 28th October at 17,786. The 50WMA of 17,061 may act as a key support level, while the recent weekly high of 17,838 may act as key resistance for the index.

Among the sectoral indices, PSU Bank (+5%), Auto (+4%) and PSE (+3.5%) were the top gainers while FMCG (-0.7%), Media (-0.4%) were the losers in the week.

Weekly highlights

  • The Monetary Policy Committee will meet again on November 3rd, according to the central bank. According to an RBI statement, the meeting would be held in accordance with RBI Act Section 45ZN, which describes the actions the central bank may take if it fails to achieve the inflation target.
  • California-based company, Apple Inc’s revenue and profit both topped analysts’ estimates despite sales of iPhones and services being softer than expected last quarter. High levels of inflation and a slowdown in consumer spending are expected to impact the growth prospects of the company in the near term.
  • Following a meeting with King Charles III, Rishi Sunak, the leader of the Conservative Party, was sworn in as prime minister of the United Kingdom on Tuesday, according to a statement sent by Downing Street late on Monday.
  • Oil’s weekly gain was curtailed as investors stayed away from risky investments due to the deteriorating outlook for China and the global economy as a whole. As a risk-off mood extended over larger markets on Friday, West Texas Intermediate fell to about $88 per barrel. Investors’ expectations that Beijing will prolong its time to abandon Covid Zero are dimming China’s economic development prospects, while the economies of France and Spain shrank in Europe.
  • The US markets bounced back after a series of bear market lows as tech shares rallied followed by Apple’s earnings release that topped analysts’ estimates. US’s economic data also contributed to positive investor sentiments as it revealed that the Federal Reserve’s fight against inflation is making some headway. The fourth consecutive rate increase of 75 basis points by the Fed is still anticipated by economists to take place next week.
  • FII (Foreign Institutional Investors) turned net buyers this week, selling shares worth Rs 39,860 mn. DII (Domestic Institutional Investors) were net sellers, buying shares worth Rs 12,400 mn.

Things to watch out for next week

  • We expect markets to continue volatile as a result of investor reactions to earnings releases and macroeconomic news such as supply-related constraints, interest rate hikes, and rising inflation.
  • The monthly auto volume data from companies like Bajaj Auto, Maruti Suzuki, and Tata Motors will be watched. Commentaries about festive demand, export business from auto companies are expected to give some idea about the domestic and international economic recovery.

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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27 Jan

 Expect NIMs to be in the range of 3.2-3.3% – Federal Bank

Update on the Indian Equity Market:

On Thursday, Nifty closed lower at 17,110 (-1%) in the highly volatile session after Federal Reserve in its policy outcome indicated interest rates hike soon.

PSU BANK (+5.1%), BANK (+0.7%), and MEDIA (+0.6%) were the top gainers and IT (-3.6%), CONSUMER DURABLES (-2.3%), and HEALTHCARE INDEX (-2.3%) were top losing sectors.

The top losers were HCLTECH (-3.9%), TECHM (-3.6%), and DRREDDY (-3.4%) while AXISBANK (+3.3%), SBIN (+2.8%) and CIPLA (+2.3%) were the top gainers.

 Expect NIMs to be in the range of 3.2-3.3% – Federal Bank

Edited excerpts of an interview with Mr. Shyam Srinivasan, Managing Director and Chief Executive Officer, Federal Bank with ETNow on 25th January 2022:

  • In 3QFY22, Federal Bank’s advances grew by 4.5% QoQ and 12% YoY. 3QFY22 showed all-around improvement. The performance was broad-based which is an encouraging sign. Some businesses were driven by economic activity and the bank’s gain in market share.
  • In 3QFY22:
    • Corporate business come back strongly, and
    • Retail, which has been trending well, gathered steam and kept its pace with the developments in the economy.
  • The overall numbers show credit growth and improvement in the quality of the book.
  • The credit quality of the Bank is normally in the top quartile and credit costs have been well managed across lengths of time because of disciplined lending.
  • In 3QFY22, Federal Bank recorded its best-ever net profit and ROA crossed 1%. It crossed the Rs 5,000 mn quarter mark in net profits. So, it has been a diversified, broad-based, and on-target performance.
  • Generally, Bank’s performance is ahead of the industry by a multiple. As the economy picked up pace in 3QFY22, Federal Bank saw a good pick up and its market share gain amplified. The bank is witnessing organic, structural, and holistic growth and it is not one-off bolstering performance.
  • The bank is confident of continuing its momentum in 4QFY22E provided the economy is moderately affected by Coronavirus third wave.
  • The bank believes that green shoots in the economy should play through and if it does, the bank’s market share gain will be even more pronounced.
  • Looking at the last two-three years of the incremental credit in the country, the bank’s share is higher than its normal market share.
  • The bank is gathering momentum across and believes as things improve in the economy, its market share gain should be visible across the spectrum.
  • The credit cost of the bank has reached its bottom at 22 bps and there is no scope for further improvement. Mr. Srinivasan thinks that a normalized credit cost on an annualized basis of around 50-60 bps in a steady state would be a good place to be in. The bank always tries to maintain a balance between the kind of business momentum, and credit cost.
  • Recovery upgrade for 3QFY22 was strong and close to Rs 3,000 mn. Slippages in 3QFY22 were Rs 3,300 mn and almost matched the slippages of the 2QFY22. The incremental recovery upgrades are doing well, and collection efficiency is strong.
  • The CEO expects to see a pick up in capex in 2HCY22 as capacities are getting built-in.
  • Bank’s share gain is visible as it doesn’t have the baggage of any adverse credit and companies are beginning to look at borrowing opportunities. For a greater part of CY21 corporates had other borrowing opportunities to meet their credit requirements but those are turning out to be a little more expensive. So, banking and bank credit are looking more attractive and as that happens, Federal Bank is well-positioned to gain share.
  • Sequentially, the corporate book grew ~7% in 3QFY22. The bank is confident that this will repeat as its strengths, reach out programs and appetite remains strong. Bank thinks as capex picks up, the corporate book will grow even faster.
  • The Bank has been giving NIMs guidance to be in the range of 3.2% to 3.3%. The bank is presently at 3.27% levels and sees room for improvement of another 5 odd basis points.
  • NIMs are impacted by the mix of the book, frequency of credit growth, the quantum of credit growth, and reversals in slippages. Bank has successfully controlled all these variables and demonstrated NIMs expansion. Typically, in a rising interest rate scenario, NIMs tend to expand for banks.

Asset Multiplier Comments

  • We think the Bank’s performance in terms of the advances growth, profitability, and asset quality has been strong.
  • We expect this momentum to continue considering the improving economic condition which will aid higher disbursements and better asset quality.

Consensus Estimate (Source: market screener website)

  •  The closing price of Federal Bank was ₹ 100/- as of 27-January-2022. It traded at 1.08x/0.98x/ 0.87x the consensus Book Value Per Share estimates of ₹ 88.4/ 98.1/ 110 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 118/- implies a PBVPS Multiple of 1.07x on FY24E BVPS estimate of ₹ 110/-.

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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18 Apr

The week in a nutshell (April 12th to 16th)

 

Technical talks

  • NIFTY opened the week on 12th April at 14,645 and closed on 16th April at 14,617. After beginning the week with major losses, the index rebounded to close flat for the week. The index is trading below its 20DMA of 14,661, which may act as resistance. The next level being 50DMA at 14,863. The Index breached its 100DMA at 14,316 during the week where it may find support.

Weekly highlights

  • The week began with major indices in red due to the rising Covid-19 cases and lockdown-like conditions imposed across major areas in the country.  Indices recovered during the week to end flat. Gains were seen in pharma, IT, metals, and auto stocks, while bank and realty indices ended in the red.
  • Due to the increasing number of COVID-19 cases in India, Foreign Institutional Investors (FII) turned net sellers this week,  at  Rs 10,590 mn. Domestic Institutional Investors (DII) were net buyers and pumped in Rs 6,080 mn.
  • Q4FY21 result earnings season started this week with the big 3 tech companies -TCS, Infosys, and  Wipro. All reported good revenue growth on the expected lines. Their comments for upcoming quarters suggest promising growth. On the back of a strong earnings show, Infosys has announced a buyback of Rs.92 bn, at an upper price limit of Rs. 1750/share.
  • The US Equity markets hit a record high during the week. The Dow Jones Industrial Average hit the historic milestone of 34,000 for the first time owing to economic recovery and stimulus package announced by President Joe Biden and reducing unemployment.
  • American banking major Citibank on Thursday announced that it will exit from the consumer banking business in India and 13 countries. This is a part of a global strategy of CEO Jane Fraser attributing the decision to an absence of scale to compete in these geographies. The bank has 35 branches in India and employs approximately 4,000 people in the consumer banking business. 
  • India’s retail inflation, measured by the Consumer Price Index (CPI), rose to 5.52 percent in March. Separately, the country’s factory output, measured in terms of the Index of Industrial Production (IIP), witnessed a contraction of 3.6 percent in February. The retail inflation during February was at 5.03 per cent.

Things to watch out 

  • Q4FY21 result season to continue with HDFC Bank and Nestle reporting their earnings. India’s COVID patient numbers will drive the sentiment of the market in the near term. Some economists are already reducing India’s GDP growth forecast for FY22 due to the second wave. We expect investors to focus back on cash flow creators – pharma, consumer, and software services. This is a holiday-shortened week due to a break on Wednesday. 
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