We remain positive on India financials against a macro backdrop of rising rates and accelerating growth. All-round quality is likely to do better than lopsided deposit or loan franchises, with credit growth and falling NPL provisions being key earnings drivers. We reshuffle our ratings and our top picks are HDFC Bank/HDFC, Kotak and IndusInd. • Rising rates are not a worry, yet, because they are unlikely to affect growth. Rates are definitely rising, though, across all segments. Continuing tightness in short term liquidity should put upward pressure on deposit costs. Bond yields should also harden, given the fiscal weakness. Lending yields have gone up only in segments, but we expect a more general hardening with a lag. • Loan growth and provisions are key earnings drivers, against a backdrop of the improving economy. NIM expansion is largely done and the outlook is flat. Fee income is a challenge, as flow businesses are under pressure all round. This is different from the previous cycle where non-interest income played a strong role. • We reshuffle our ratings: a) upgrade HDFC to OW given the strong loan growth tailwinds, b) BOI to OW because of the asset quality turnaround, c) cut IDFC to UW on concerns around the flow business and c) SBI to UW because of high valuations and relative absence of positive triggers. • All-rounders in focus. At this phase of the cycle, balance between loan origination and deposits is important, given liquidity is neither excessive nor short. We recommend exiting the "origination" shops like IDFC. Our top picks are a) quality names like HDFC and HDFC Bank and b) Kotak and IndusInd which are addressing legacy weaknesses in funding franchises.Our least preferred is SBI, which we think is too richly valued. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
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NEW! ==== Check our LINKS and FILES sections for a world of information. REGULARLY UPDATED.
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http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
****************************************************************
NEW! ==== Check our LINKS and FILES sections for a world of information. REGULARLY UPDATED.
NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
****************************************************************
.
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