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00:00 Good morning and thanks so much for tuning in.
00:02 You are watching Trade Talk on BQ Prime.
00:04 My name is Alex Mathew and with me is Agam Vakil.
00:07 Agam, good morning.
00:08 Good morning, Alex.
00:09 Well, it has been a little bit of a puzzling start to the week.
00:14 Of course, it has been a truncated one.
00:15 We are actually more than halfway through the week.
00:19 But well, a lot of news flow and data coming through as well.
00:23 And of course, we had that global event where we did not really see too much change in the
00:27 interest rates, but a lot more coming from the Federal Reserve too.
00:30 Absolutely.
00:31 And in fact, more than anything else, I think globally they are resetting expectations in
00:36 terms of where the terminal rate is, because now there is an expectation of one more hike
00:41 and you saw the two-year Treasury yield spike.
00:45 So when you see yield spike on the short end of the spectrum, there is generally a resetting
00:49 of expectations of what will happen to rates in the near term.
00:53 But turning attention back here to India, you saw one name in trade yesterday that dramatically
01:02 changed the fortune for the benchmark index.
01:05 We ended lower by over 200 points and that was an account of HDFC Bank.
01:08 Yeah, absolutely.
01:09 And Alex, so actually two names stand out because I know that we did speak about HDFC
01:15 Bank and surprisingly, a lot of brokerages are still very positive with, in fact, a lot
01:20 of them see an upside of a minimum 15% if not more.
01:25 And yet we saw that 4% crack on HDFC.
01:27 And when you see HDFC Bank decline by 4%, it's not every day something like that happens.
01:33 Naturally, you're going to see a lot of pressure as far as the indices are concerned.
01:36 But Reliance Industries is also the other one.
01:39 And that's where we also saw a little bit of a correction.
01:43 Again, a 2% correction is not huge, but when it comes to stock like Reliance Industries,
01:49 naturally, we're going to see that pressure as far as the indices go.
01:52 As well.
01:53 So speaking about the broader markets, of course, you saw selling across the board and
01:57 the breadth was favoring the declines.
02:00 You also saw quite a lot of pressure across the board in the sectoral indices.
02:04 Of course, the banking pack and the financial pack was the worst hit and metals also underperformed.
02:10 And what is interesting, I think, to watch out for today will be whether or not there
02:15 is any relief in the stocks that took a battering yesterday, and as a result of which, whether
02:20 or not we see a positive uptake.
02:22 The Nifty, of course, broke past the 20,000 mark on the downside.
02:26 Yeah.
02:27 And this actually is becoming a crucial point, at least a 20,000 mark, because until yesterday,
02:34 we were seeing the 20,000 mark as a firm base for the Nifty.
02:40 But since it has moved up and closed below that, now we're looking at levels lower.
02:46 And if I can actually, you know, very quickly address the F&O as well.
02:51 Because today is expiring.
02:53 Because today is the Nifty weekly options expiry as well.
02:57 So a lot of these points are going to be very crucial.
03:00 But let me just start off with what's happened in the futures.
03:03 Massive massive unwinding in the bank Nifty futures as well as the Nifty futures coming
03:08 through, OI shedding, and we're a week away from your monthly expiries, your monthly futures
03:14 expiries as well.
03:15 So a lot of unwinding coming through as well.
03:17 Naturally, a lot of rollovers coming as far as shorts building into the system go.
03:23 And based on that, we are seeing a little bit more weakness, at least anticipated weakness
03:27 from the trader's point of view.
03:29 Moving on to today's day of trade and today's expiry, the range is very narrow.
03:34 But as I suggested, 20,000 mark on the higher end.
03:38 And we are also looking at a lot of writing around the puts around the 19,900 mark.
03:42 And you know, those are the same options where we also seen a lot more activity yesterday.
03:49 In fact, the 20,000 call has seen an addition of 1.6 crore shares.
03:56 So it's actually become a very, very firm resistance, at least in today's day of trade.
04:02 There is a higher probability of the Nifty ending lower and closing below the 20,000
04:08 mark today as well.
04:10 And of course, coming down the Bank Nifty range, moving into the next week's expiry.
04:14 And remember that this time, the expiry will be on Thursday, both the Bank Nifty as well
04:18 as the Nifty.
04:19 We're looking at a 500-point range between 46,000 and 45,500.
04:22 Finally, two stocks to keep an eye on, of course, the CHGFC Bank.
04:27 We saw a lot of longs and windings there, and Reliance Industries seeing fresh shorts.
04:31 All right.
04:32 So that's the perspective, and that's the picture on the F&O side as well.
04:35 But let's focus in on the banking pack, because I think with the action that you've seen,
04:40 not just yesterday on HDFC Bank, but also in the recent past on the PSU Banking Pack,
04:45 on Friday, you saw quite a few of the smaller banks rally very strongly in trade.
04:51 And something like an IOB gaining about 15%, 16%, becoming the third largest public sector
04:57 bank by market capitalization, not something that you see every day.
05:00 So we thought, let's get you a check on the banking pack.
05:03 And we've got Jay Prakash Mundra, who's an analyst at ICICI Securities, joining in.
05:09 Jay, thank you so much for taking the time, and good morning to you.
05:13 I know that you have specific coverage on State Bank of India, but first, a comment
05:18 on the PSU Banking space.
05:19 What can you tell us about the factors to bear in mind, the ones that you're watching
05:24 out for, and then also your view on State Bank of India?
05:28 Hi, good morning, Alex.
05:31 Good morning.
05:32 Thanks for having me on the show.
05:35 So yeah, so specific to PSU Banks, as I said, we have coverage on State Bank of India, and
05:41 we do not have coverage on some of the names that you mentioned.
05:46 So I would not be specific.
05:48 But broadly, the things, I mean, the fortunes for PSU Banks have clearly changed.
05:55 The structural issues that they had, maybe we can categorize into three categories.
06:01 One was a large corporate NPA.
06:03 The retail NPA is still manageable.
06:06 But corporate NPA was a very big dent, which led to a dent in the profitability.
06:12 That cycle is clearly, clearly over, at least for the next 12 to 24 months, we should not
06:17 see any material corporate slippages.
06:20 In fact, corporate slippages are running negative.
06:23 I mean, the net slippages on corporate side, based on the data that we have, looks like
06:29 that they are negative.
06:30 So that structural gap has already been fulfilled.
06:34 Actually, it has turned for a positive.
06:37 The number two issues for PSU Banks have been the book dilutive capital rates.
06:43 At this point of time, almost all PSU Banks are very well capitalized.
06:48 And they are trading closer to trailing a book.
06:51 So in a way, any future capital raise, either for growth purpose or otherwise, will not
06:57 be a book dilutive exercise.
07:00 And third, the market share loss that PSU Banks had perpetually had since the beginning
07:08 of asset quality cycle, if not earlier, that also seems to be, let's say, stopping in a
07:15 way.
07:16 And last year, FY22, based on our understanding, it looks like PSU Banks were neck to neck
07:23 with private banks as a whole.
07:26 Part of that benefit had come from very strong overseas growth.
07:30 But in a way, they have also ramped up on retail businesses.
07:34 While they seem to be losing out on commercial, wherein private banks have actually become
07:41 more competitive, more aggressive.
07:43 But overall, it looks like they are giving a close fight to private banks as a whole.
07:49 So these things have renewed investors' interest.
07:52 At the same time, there have been a lot of focus on governance and management, both internally,
08:01 externally, RBI, and governance.
08:04 If you see, in terms of corporate asset quality, there have been a lot of institutional mechanisms
08:15 wherein which gives a lot of comfort that corporate slippage cycle that we saw in 2016
08:23 to 2020 will not be repeated.
08:25 There is an RBI monitoring on every fortnight basis for SMA 1, 2 loans, which are above
08:33 5 crores.
08:34 So any corporate which is delayed, any corporate payment which is delayed gets flagged off
08:41 at the system level.
08:43 That gives very early red flags indicated to almost all lenders.
08:50 There have been a lot of other mechanisms which ensures that corporate asset quality
08:57 is likely to remain benign.
08:58 And as I said, the capital fear.
09:00 Right, no, actually, Jay, I just wanted to extend that point very quickly.
09:04 You know, keeping just the PSUs in mind, the PSU banks in mind, and I'm going to exclude
09:10 SBI for this particular question, at least for now.
09:14 We've seen a massive rally in a lot of these banks off late.
09:19 Very quickly, if you just keep their asset qualities in mind, the loan book and the quality
09:25 of their loans, a loan book in mind, how do you see their valuations at the moment?
09:30 Yeah, so the valuations earlier, most of the people, including us, I think they were valuing
09:38 on adjusted book.
09:39 Now that has also, you know, the investors are also discussing that should we value on
09:45 adjusted book or should we value on nominal book?
09:48 Because asset quality seems to be very, very much under control.
09:53 Most of these banks, I think broadly, SBI, Indian Bank, Bank of Baroda would be trading
09:59 or if you leave aside SBI, Bank of Baroda, Indian Bank would be trading closer to their
10:06 book value, let's say FY25 book value and others would be slightly lower.
10:14 That also varies based on their ROA structure, capital adequacy and asset quality, you know,
10:22 difference in the asset quality and liability franchise.
10:25 But most of them have seen a massive re-rating.
10:29 Yeah.
10:30 Now, speaking of that re-rating then, Jai, because, you know, we were playing out the
10:34 one year price performance of the PSU banking pack.
10:38 And it's evident that all of the banks apart from State Bank of India have seen stellar
10:42 gains.
10:43 In fact, State Bank of India has just about 5% change on a one year basis.
10:48 So therefore, what would you say about the potential, the price potential of State Bank
10:53 of India as things stand right now?
10:55 Is it undervalued?
10:57 And should, what is your recommendation?
10:59 So, we are very positive on State Bank of India.
11:04 Yes, the stock may have underperformed in the last 12 months.
11:07 But if you see from a slightly 2 to 3 years view, it has done really well.
11:14 The narrative at this point of time earlier, you know, the 1% ROA was a bit of a question
11:20 mark for SBI, let's say, in the last four, five years.
11:25 For the last two quarters, they have delivered around 1.2% ROA and the management internally,
11:31 I think they are speaking of maintaining this current run rate.
11:37 Even on corporate slippages or corporate asset quality or the overall asset quality, I think
11:43 corporate asset quality remains very pristine for them, retail remains pristine.
11:49 The agri has now become a frontier.
11:53 So they want to curb or reduce the agri NPA, which I believe, suggests that corporate and
12:00 retail anyway, are likely to remain benign.
12:04 State Bank of India has been growing in line with the broader market.
12:09 So it is the only PSU banks which have not lost a market share in the last, let's say,
12:16 decade or so.
12:17 Going forward also, it will clearly grow in line with system.
12:22 So we are very positive on State Bank of India.
12:25 We believe, you know, the bank should be delivering 15% plus ROA with sector, with loan growth
12:35 in line with the sector without any, let's say, risk on the asset quality.
12:40 Is a buy rating on the stock?
12:42 You have a buy rating on the stock?
12:43 Yes.
12:44 What's the target?
12:45 Yeah, so we have a target of around 700 rupees, which is roughly, let's say, plus 15% upside
12:52 minimum.
12:53 Okay.
12:54 I want to specifically, and this is my last question, HDFC Bank, I think a lot has been
12:59 said yesterday as well.
13:01 But I'm very curious whether you think that there's value to be had, especially considering
13:06 yesterday's price correction.
13:09 And you have, what is your rating on the stock?
13:10 Did you change it after the developments earlier in the week?
13:14 What the bank has said or the management has said in terms of asset quality and in terms
13:18 of compression of NIMS?
13:20 Yeah, so no, the rating remains buy.
13:24 We also, the target price is 2000 rupees.
13:27 Yes, there was a negative development in terms of network adjustments and margins commentary.
13:35 But honestly, that was the unknown, unknown in the entire run up to merger.
13:41 HDFC Limited was on NDS and Bank was on Indian Gap.
13:46 So there has to be, there had to be some adjustments pertaining to dividend and the way accounting
13:52 was there in terms of fee and cost.
13:56 So that was, I mean, that was anticipated there would be some adjustment.
14:01 But yes, the adjustment that they had was slightly higher than expected and our expectations
14:07 also.
14:08 So there is 3-4% let's say, decline in the adjusted book value or net worth of the merged
14:14 entity.
14:15 A part of that you can say was known or could have been anticipated, but it was slightly
14:21 higher than I think street expectations.
14:24 The commentary on the NIMS, I think that is what again, that disappointed a little bit
14:31 because the slide from 2.7% merged entity, 2.7% margin for HDFC Limited going to 2% on
14:41 the day one was steep, much steeper than what street would have anticipated.
14:48 So yeah, so that we had seen the reaction yesterday.
14:52 I would believe the margins would bottom out in second quarter.
14:58 That is, and then it should stabilize as liquidity gets utilized and the incremental ICRR impact
15:06 recedes.
15:08 From then onwards, then it will be the discussions on growth and margin trajectory.
15:13 Fantastic.
15:14 So yeah, so we.
15:15 No, fantastic.
15:16 Thank you so much for summing that up for us.
15:19 Jay, a pleasure speaking with you and thanks so much for taking the time and speaking to
15:22 BQ Prime.
15:23 Thank you.
15:24 Thank you so much.
15:25 All right, viewers, there you have it.
15:28 A holistic view on the PSU Banking Pack, specific view on State Bank of India as well as an
15:34 update on HDFC Bank.
15:35 Corrected 4% yesterday, but like Agam said earlier on the show and like my guest said,
15:42 they're still positive.
15:43 A lot of people are still positive on HDFC Bank.
15:46 A lot of them have maintained their buy rating on the stock.
15:49 Let's see how it reacts in trade today.
15:51 Now, there are several other stocks that are in the news and we've got Varsha at the start
15:56 now to tell you about some of those.
15:58 Morning, Varsha, what's on your list today?
15:59 So few pharma stocks that would be in focus today.
16:02 So we will see starting off with Zipla, which on Wednesday said that USFDA recently carried
16:08 out an inspection at the manufacturing facility of InvaGen Pharmaceuticals, a wholly owned
16:13 subsidiary of the company in New York.
16:15 Now, inspection took place from September 11 to September 19, and the inspection encompassed
16:21 two aspects.
16:22 One is your current good manufacturing practices and pre-approval inspection.
16:27 Now this aimed at evaluating a site transfer product with InvaGen's portfolio.
16:32 Upon the completion of the inspection, InvaGen received a total of five inspectional observations
16:37 in Form 483.
16:38 Importantly, there were no instances of repeat observations or concerns regarding data integrity.
16:45 Now, out of the total approved ANDAs and NDAs, 37% is held by InvaGen.
16:51 Now what is ANDA?
16:52 It's an abbreviated new drug application which contains data which is submitted to the FDA
16:58 for the approval of generic drug product.
17:00 Next we have Zydus Life Sciences, which said it has achieved a final approval from USFDA
17:06 for its clindamycin phosphate gel USB.
17:09 Now this is used to treat acne and company will manufacture this product at its manufacturing
17:14 facility in Chandogarh, Ahmedabad.
17:16 Now the annual sales of this product is US$37 million in the United States as of July 2023.
17:24 The group has now 381 approvals had so far filed and 444 ANDAs since the commencement
17:30 of filing process in FY23 and 24.
17:33 Lastly, we have Biocon.
17:35 So Biocon Biologics subsidiary of Biocon Limited announced the granting of marketing authorization
17:40 by the European Commission for Yesafli, a biosimilar of AfliBersef.
17:46 Now this is designed to address a range of critical eye conditions.
17:50 The approval comes as this product achieved EU brand sales of approximately US$1.8 billion
17:56 during the 12 months ending December 2022.
17:59 Okay, significant.
18:00 That last one in particular, that approval is significant.
18:03 Thank you Varsha for joining in.
18:05 And once again, you're hearing about approvals from Indian pharmaceutical companies.
18:10 Let's get you an update on a few more stocks that you need to watch and Hemansh is joining
18:16 in with his list of stocks.
18:17 Hemansh, morning.
18:18 Hi, good morning, Alex.
18:19 So I've been tracking some cues from the broader market and some of them are WPIL.
18:25 So this company that manufactures pumps has received an order from the Ministry of Defense
18:30 of worth of 14.3 crore rupees and the contract comprises of the supply of centrifugal pumps
18:36 and spares for naval ships.
18:38 Now the project is expected to be executed over 24 months and their order book, which
18:44 as of quarter one FY24, stood at 3,794 crores.
18:50 So it's a relatively small amount, but let's see if the market rewards the company for
18:53 it.
18:54 Apollo Tires.
18:55 So the company has informed exchanges of a production halt at the Limda Gujarat factory
19:01 due to certain concerns regarding the shop floor employees.
19:05 Now they have raised concerns relating to the renewal of a long-term settlement agreement
19:10 and the company is in discussion with trade union representatives to sort the issue.
19:16 It's important to note that this Limda factory in Gujarat is the second biggest factory at
19:21 Apollo Tires, although the company has clarified that there are no financial impact as of yet.
19:27 It will be, one should monitor the situation closely as it could have an impact later down
19:33 the line.
19:34 SJV and the Power Ministry of India has offered 2.46% stake on 9.6 crore shares via an offer
19:42 for sale, setting the price at 69 per share.
19:45 The offer for sale opens at September 21 for non-retail investors and September 22 for
19:50 retail investors.
19:51 It also has a green shoe or an over-subscription option for an additional 2.46% stake.
19:57 The Government of India and Government of Himachal Pradesh collectively hold as much
20:01 as 86% in the company.
20:04 Also the company yesterday signed an MOU with PFC for financial assistance for a diversified
20:10 portfolio, particularly focusing on renewable energy and setting up a thermal generation
20:15 project for a total cost of almost 1.19 lakh crores.
20:20 Then we have Kalpatru Projects International where the board of directors have approved
20:23 a proposal to raise funds through issuance of non-convertible debentures on a private
20:29 placement basis.
20:30 And then lastly we have Godavari Power where the credit rating for the company has been
20:35 improved by Crystal and it has been upgraded to Crystal AA- or stable.
20:40 And the short-term bank facility has also been upgraded to Crystal A1+.
20:44 Now this is important to note because this makes it easier for the company to raise borrowings
20:48 at attractive rates down the line to fund its growth and expansion plans.
20:52 Fantastic.
20:53 Thank you so much Himansh for bringing us those updates.
20:56 Let's focus in on the primary markets as well.
20:58 A lot of action there.
21:00 And we've got Rishi joining in to give us the latest updates.
21:04 Rishi, what can you tell us?
21:05 What's on the cards today?
21:07 So firstly today there's EMS IPO that's listing today.
21:11 It was subscribed by over 75 times and the IPO size was 320 crores and the price band
21:17 was about 94 to 99.
21:19 Now EMS specializes in providing comprehensive infrastructure solutions which includes sewage,
21:26 water treatment and waste treatment facilities.
21:29 This is the primary business of the company.
21:31 Apart from this it is also into electrical transmission and roadworks for government
21:35 bodies.
21:36 If you have a quick snapshot of its financials, its revenue grew by over 27.5% compounded
21:45 average growth rate over the past three years and the net profit CAGR was at 23%.
21:51 And if you compare its revenue which was at about 540 crores with its peer, there's only
21:56 one listed peer for EMS, which is VA Tech Wabag Limited.
22:05 Its revenue stood at about 3000 crores.
22:07 And if you look at the valuations, EMS is trading much lower and at a cheaper rate compared
22:13 to its peer.
22:14 So EMS is trading at 2.7 compared to VA Tech Wabag which is currently trading at 13.9.
22:21 Now if when EMS does get listed, its market cap would be around 630 crores compared to
22:28 its peer which is about again 2,800 crores.
22:32 Now a couple of other offerings that are currently going on, their signature global which got
22:39 subscribed at 0.54 times yesterday which was the day one and the issue closes on September
22:46 22nd.
22:47 The total offer size is 730 crores and the IPO price band is 366 to 385.
22:53 Similarly, we also have Saisilks which was subscribed at 0.07 times on day one and this
22:59 IPO is also open up to September 22nd.
23:03 The offer size is about 1,200 crores and the price band is 210 to 222.
23:07 Alright, those are the updates in the primary markets.
23:10 Thanks Rishi for bringing us those updates.
23:13 That brings us to the end of this edition of Trade Talks.
23:15 It has been an absolute pleasure bringing it to you.
23:17 Lots to talk about over the course of the day starting with the market open in just
23:21 a few minutes.
23:22 Do stay tuned.
23:23 This is BQ Prime.
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