Update on the Indian Equity Market:
On Monday, Nifty ended 1.6% higher at 11,228 on the back of positive global cues and domestic factors like possible stimulus package from the government and capital support to some PSU banks. The top gainers for Nifty 50 were IndusInd bank (+8.0%), Bajaj Finance (+6.4%), and Axis Bank (+5.5%) while the losing stocks for the day Wipro (-0.8%), HUL (-0.5%), and Nestle India (-0.1%). All the sectors were in the green zone. Top gaining sectors were Media (+4.8%), Pvt Bank (+3.6%) and PSU Bank (+3.3%).
Edited excerpts of an interview with Mr Dinesh Kumar Khara, MB, State Bank of India Ltd; dated 27th September 2020 from Economic Times:
• There are certain sectors in the economy seeing some positive traction. The way things have emerged in terms of the health and hygiene issues, it has led to a situation where there was a fear psychosis in the mind of everybody and also a buzz where people started conserving cash. But in some of the sectors like FMCG, steel sectors having demand-led growth opportunities, are seeing very good traction.
• In the auto sector, small cars are something which is on the upside as far as demand is concerned.
• People are willing to come out and contribute to the economic activity, but at the same time, they have got some fear psychosis in terms of health and hygiene.
• The credit growth according to him is around 7%. Slicing it further, Consumer credit is actually on the growth cycle. But the corporate credit has a tendency to deleverage. This is because they are in a bit of uncertainty. They are not yet into the investment cycle. But there is some kind of traction when it comes to certain sectors like the road sector where improvement is seen.
• People are looking for the right signals or some bit of positivity and once it is seen, they will go all out to support the economic activity. That is how he reads the situation.
• When the pandemic kicked in, people had not visualised how they would be in a position to carry out their business continuity plans (BCPs) and reinvented their BCPs. In about six months from then, it has come to a situation where the new realities in terms of working from home have come in, leading to a situation where there could be challenges in lease rentals. Thus, he expects some kind of consolidation to happen.
• In terms of the lease rentals for offices, the high-quality buildings are not facing any challenge whereas the ones which were not of as good quality are facing some challenges. The new cost norms are emerging as social distancing will require even more space in the office and that is also a reality.
• Towards the end of this financial year, when things start improving, they will improve at a very fast pace. It is not likely to be a normal secular trend which has been witnessed in the past.
• If the unlock of activities continues and the Country is in a position to address the health and hygiene issues more effectively in terms of living with the pandemic, there is a possibility that India may get to see better performance as compared to what is being seen now. This is because the most important component here is the confidence of the consumers and that is a function of how people are in a position to navigate this particular problem relating to corona.
• RBI is keeping the liquidity in a fairly easy position and that is something which is ensuring that all these instruments which are there should remain liquid and there should not be any setback to the economy.
• SME funding has been envisaged through the GCL kind of a concept wherein the government is giving the guarantee to financiers and is ensuring that there is no unduly strain on the capital of the banks.
• There is a very clear effort on the part of the government to ensure that there is an amicable resolution of the problem related to GST dues.
Consensus Estimate: (Source: market screener website)
• The closing price of State Bank India was ₹ 187/- as of 28-September-2020. It traded at 0.7x/ 0.7x/0.6x the consensus book value estimate of ₹ 258/279/307 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.9x on FY23E Book Value of ₹ 307/-.
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