Tag - RBI

This week in a nutshell (31st May – 4th June)

Technical talks

NIFTY opened the week on 31st May at 15,438 and closed on 4th June at 15,670. It made a weekly gain of 2%. The index is trading at its all-time high level. Indicators like RSI (14) 70 and downward turning MACD suggest a downward correction. The index might take support of its 10DMA of 15,458 before making a strong move on either side.

Weekly highlights

  • The Ministry of Defence (MoD) announced a list of 108 items of defence equipment that must be compulsorily procured from indigenous sources. The list includes items that will be banned for import in a staggered manner from December 2021 to December 2025. There is a special focus on weapons/systems which are currently under development/trials (in India). This embargo is expected to benefit Bharat Electronics Ltd, Solar Industries India Ltd, and other PSU which have a presence in the defence sector.
  • Automobile companies reported the monthly sales volume for May-21. The lockdowns in states such as Maharashtra, Haryana, Karnataka, and Tamil Nadu (key automotive hubs) forced carmakers to halt production. The impact of lockdowns was visible with companies reporting high double-digit month-on-month (MoM) decline across segments (Source- Business Standard). While a pickup in vaccination is expected to be a positive development for the sector, the semiconductor shortage remains a key issue to meeting the pent-up demand.
  • The Monetary Policy Committee (MPC) of RBI decided to keep the repo rate unchanged at 4 percent. The stance remains accommodative for as long as necessary to revive and sustain growth on a durable basis. The Committee lowered the GDP projection for FY22 from 10.5% (April-21) to 9.5%. The RBI also announced government securities acquisition programme worth Rs 1.2 tn in second quarter. The 10-year bond yield closed at 6.03% vs 5.99% on Friday.
  • The RBI has announced a Rs. 150 bn package for contact intensive sectors like hotels, restaurants, tourism, aviation, and ancillary services. These industries which have been hit hard due to the virus outbreak, have been provided a much-needed liquidity dose.
  • Foreign Institutional Investors (FII) continued to be net buyers of Indian equities of Rs 54,618mn, an increase from the previous week’s Rs 20,400mn purchase. Domestic Institutional Investors (DII) continued their selling spree, with a net outflow of Rs 2,442 mn which is lower compared to last week’s selling of Rs 3,240 mn.

Things to watch out for next week

  • With the result season almost over, companies have started publishing annual reports. Management commentary on the future outlook and strategy to mitigate the impact of 2nd wave is something to watch for. Vaccination progress and unlock process across India may be the catalysts for the market movement.

It will be a long road to recovery from Covid-19 – Axis Bank

Update on the Indian Equity Market:
On Friday, Nifty ended 0.8%, higher than the previous close at 11,655. The top gainers for Nifty 50 were Indusind Bank (+12.1%), Axis Bank (+7.9%), and UPL (+4.7%) while the losing stocks were JSW Steel (-3.0%), Hero MotoCorp (-2.6%) and Dr Reddy (-1.6%). The sectoral gainers for the day were PSU Bank (+5.2%), PVT Bank (+4.7%), and Bank (+4.2%) while the losers were Auto (-0.8%), Metal (-0.4%), and FMCG (-0.2%).

Edited excerpts of an interview with Mr Amitabh Chaudhry, MD, Axis Bank; dated 26th August 2020 from Economic Times:

The macro situation has improved quite a bit, but the economy is nowhere out of the woods.
The economy today is operating at 70-75% levels. The recovery remains uneven with a faster rise in supply than demand. The RBI annual report published also suggests that they remain extremely worried about consumer demand and that it would take some time to recover.

India is in a long haul before the economy recovers to pre-COVID levels partly driven by the fact that consumption patterns have been debilitated in many ways. People are conserving cash, and localised lockdowns continue. All this hurts demand and the notion that things are coming back to normal.
Increasingly corporates are saying that things should get better by the third quarter. But, he thinks that the improvement is spotty where recovery is visible in some sectors while some other sectors continue to get hurt quite badly.

Once the customer is assured that they are the fag end of the crisis, things will change dramatically and the economy should revive much faster.

The RBI Governor has been warning banks to be careful with their money, and to raise capital.
The banks have learnt their lesson after the last crisis, they are not going to be out there lending in a hurry. This applies to public sector banks as well.

Government has indicated that once the unlock process continues, they will come back with more support for the economy. The government has to play a very important role.

To revive and support the economy, the Government has categorised into 3 buckets. For the people who need it they are doing the cash hand-outs, the second is supporting MSMEs for incremental lending, and the third category is about long-term reforms. These long-term reforms include working with the RBI to towards refinance schemes, moratorium, and restructuring to support the other sectors of the economy.

Axis Bank will continue to adopt a conservative approach; they will do an intense credit screening before allowing any restructuring and will be much more prudent in provisioning for such loans.

There is a disproportionate restructuring share coming from sectors which are severely impacted due to COVID like airlines, tourism, and real estate. But, there is no sector that would be able to escape this severe economic shock and the vulnerable ones in every sector will need help.
For restructuring in Axis Bank portfolio, one will find loans from practically every sector because there will be some corporates who were in vulnerable state and COVID pushed them into a state where they may need restructuring help.

Lose of job & salary cut will have a bigger impact on the retail portfolio, followed by MSMEs and then wholesale.
Axis Bank is planning several schemes for the festive season and working with various manufacturers to see what they can offer to customers so that they start consuming again.
Max Life deal will add a lot of value on both sides.

Consensus Estimate: (Source: market screener & investing.com websites)
The closing price of Axis Bank Ltd was ₹ 510/- as of 28-August-2020. It traded at 1.6x/1.4x/1.3x the consensus Book Value estimates of ₹ 325/359/408 for FY21E/FY22E/23E respectively.

The consensus target price of ₹ 541/- implies a PB multiple of 1.3x on FY23E Book Value of ₹ 408/-.

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.”

COVID-19 impact: Have requested RBI that moratorium sought by consumers should be given, says M&M Fin Services

Update on the Indian Equity Market:

On Thursday, NIFTY continued gains for the 3rd day and ended at 8,641 (+3.9%). Among the sectoral indices, Pvt Bank gained the most while no sector index ended negatively. Pvt bank (+8.3%), Realty (+7.3%) and BANK (+6.4%) were the top gainers. Out of the NIFTY50 stocks, IndusInd bank (+46.0%), L&T (+10.0%) and Bajaj Finance (+9.3%) rallied the most, while GAIL (-3.3%), HCL Tech (-2.6%) and Sun Pharma (-2.5%) were the worst performers for the day.

Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman & Managing Director of Mahindra & Mahindra Financial Services Ltd; dated 25th March 2020. The interview aired on CNBC-TV18.

  • Original equipment manufacturers (OEMs) have shut down production due to COVID-19, which obviously have an impact on vehicle financiers.
  • For OEMs at the beginning of 4Q FY20, the volumes started to shrink because everybody was preparing for BS-VI transition and therefore the inventory levels started to come down. Now with the COVID-19 scare – even the little possible sales that were likely to happen have come to an end, according to him.
  • He added the month of January-February was average; March has been absolute no-number kind of a month, so he thinks that it would be a low single-digit growth in loan book or for some it may not even be that.
  • The Company has told the RBI about consumers asking them for a moratorium and has requested RBI to provide the same.
  • They have also told RBI that these are the times where maybe the non-performing assets (NPAs) norms itself will have to be rewritten to say it is not 90-days delinquent but 180-days kind of a delinquent and it is more to protect the good customers who have been paying so far.
  • There is uncertainty about tomorrow. So people had started becoming cautious but even more important is that the overall activities have started to reduce and therefore people’s earnings will start to reduce but these are times where instead of worrying about what is going to happen to the growth and things like that – the Company will be looking at ‘how do they help out the consumers’.
  • The current situation is still not as impactful in the rural market as seen in urban according to him. People will have to figure out after things get normal. They will start relooking at what else to do, how else to do. So the real impact will be known only three months down the line.
  • If consumers need some kind of temporary short-term loan after things get to some normal then the Company will look at what could be that short-term small-ticket loans to the existing consumers whom they may want to support and partner them to come out of this situation as things start to improve.

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

  • The closing price of M&M Financial Services Ltd was Rs 169/- as of 26-March-2020. It traded at 0.9x / 0.8x/ 0.7x the consensus book value estimate of Rs 190/ 211/ 238 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of Rs 394/- implies a PB multiple of 1.7x on the FY22E book value of Rs 238/-

RBL Bank financially strong, well-capitalized & profitable: Vishwavir Ahuja, MD & CEO

Update on the Indian Equity Market:

The sell-off continued on Wednesday and Nifty fell from 8,967 levels on Tuesday to end at 8,469. All sectoral indices closed in the red except Media (+0.4%). Private Bank (-6.9%), Financial Services (-6.7%), and Realty (-6.2%) bore the brunt of the sell-off. The top gainers for the day were Zee Entertainment (+26.2%), Yes Bank (+4.2%), and ITC (+1.5%) while the losers were IndusInd Bank (-24.6%), Infratel (-22.5%), and Kotak Bank (-11.2%).

RBL Bank financially strong, well-capitalized & profitable: Vishwavir Ahuja, MD & CEO

Excerpts from an interview with Mr. Vishwavir Ahuja, MD & CEO, RBL Bank published in Mint dated 18th March 2020:

  • Although the moratorium announcement on Yes Bank has raised concerns around certain private sector banks’ stability, RBL bank has been maintaining a very significant liquidity surplus position. The bank had previously announced they were running a very high level of liquidity coverage ratio (LCR). Even other liquidity buffers are in place in terms of cheap refinance lines, other lines of credit.
  • In the last few days, one- two state government organizations have been pulling out some money and that’s across all private sector banks. That’s perhaps why the RBI formally reached out to them and said they should not be doing that. The RBI governor has emphasized that the private sector banks should be the recipients of government deposits and that is required for the development and stability of the entire financial system.
  • He further said that they did not see any withdrawals on March 16, 2020. Their retail deposit base has been very stable over the past few days. He feels that the 3 % reduction in the previous one week is not material as they enjoyed extreme liquidity comfort.
  • Liquidity is not flowing into the system for many reasons but they have not seen any account closures. According to him, institutions are trying to play safe and they take the money out for one or two days and then it comes back to the bank.
  • The overall impact has been insignificant. On the retail side, there is significant stability and in the last week, the proportion of retail to total deposits has improved.
  • RBL Bank is a technology and digitally focused bank and very active in the fintech and cash management space. As a result, they have been able to pick up many mandates in the corporate cash management and digital payment space.
  • Without naming the clients, he said that as many as six very high-profile marquee names, on the national side have moved their corporate cash management accounts to the bank. There is a big opportunity in the corporate sector for the bank.
  • In terms of financial parameters such as capital adequacy, asset quality, business engines of the bank, all are intact.
  • The total percentage of state government deposits in the overall deposit number is in single digits, and not very significant.
  • He added that Covid-19 will certainly vitiate the economic activity in the country and will also need a response at all levels, including the government and central bank.

Consensus Estimate: (Source: market screener website)

  • The closing price of RBL Bank was ₹ 167/- as of 18-March-2020. It traded at 0.8x/ 0.7x/ 0.6x the consensus book value estimate of ₹ 207/ 232/ 266 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for RBL Bank is ₹ 387/- which implies a PB multiple of 1.5x on FY22E BV of ₹ 266/-.