Public sector banks’ corporate loans decline in Q1 as Covid, competition hurt, BFSI News, ET BFSI

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Lending to the corporate sector by public sector banks declined significantly in the first quarter as Covid kept the demand depressed and competition from private sector banks and the bond market rose.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the fi rst quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to

Rs 3,28,350 crore a year ago.

Up to May, the gross loans to large industries declined by 1.7 per cent year­-on­year, according to RBI data.

Ceding ground of private-sector rivals

The market share of public sector banks in loans declined to around 59 per cent (of all scheduled commercial banks’ outstanding credit) in December 2020 against around 65 per cent in December 2017.

However, during this period, PvSBs market share rose to around 36 per cent from around 30 per cent, going by Reserve Bank of India data.

Falling industrial credit

The share of banks in loans to the industrial sector dropped massively during 2014-2021 even as credit to the retail sector, including home loans, saw a boom.

As per the data, industrial credit fell to 28.9% by March 2021 from 42.7% at the end of March 2014.

“Over recent years, the share of the industrial sector in total bank credit has declined whereas that of personal loans has grown,” the Reserve Bank of India said in its Financial Stability Report.

The environment for bank credit remains lacklustre in the midst of the pandemic, with credit supply muted by persisting risk aversion and subdued loan demand and within this overall setting, underlying shifts are becoming more evident than before, it said.

Loans to the private corporate sector declined from 37.6% in 2014 to 27.7% at the end of March 2021. During the same period, personal loans grew from 16.2 to 26.3%, in which housing loans grew from 8.5% to 13.8%.

Fiscal 2021

Bank credit growth to the industrial sector decelerated 0.8% year-to-date as of May 21, 2021, due to poor loan offtake from the corporate sector.

Growth in credit to the private corporate sector, however, declined for the sixth successive quarter in the fourth quarter of the last fiscal and its share in total credit stood at 28.3 per cent. RBI said the weighted average lending rate (WALR) on outstanding credit has moderated by 91 basis points during 2020-21, including a decline of 21 basis points in Q4.

Overall credit growth in India slowed down in FY21 to 5.6 per cent from 6.4 per cent in FY20 as the economy was hit hard by Covid. and subsequent lockdowns.

Credit growth to the industrial sector remained in the negative territory during 2020-21, mainly due to the COVID-19 pandemic and resultant lockdowns. Industrial loan growth, on the other hand, remained negative during all quarters of 2020-21.”

The RBI further said working capital loans in the form of cash credit, overdraft and demand loans, which accounted for a third of total credit, contracted during 2020-21, indicating the impact of the coronavirus pandemic.

Shift to bonds

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

Corporates raised Rs 2.1 lakh crore in December quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.



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Why do gold prices rise and fall?

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Impact of demand and supply on gold price

Increased demand for gold is invariably accompanied by a rise in the yellow metal price. The economic rise of China and India over the last decade has fueled demand for gold, driving up prices. This demand has slowed in recent years, as the country’s economy has stabilized.

Religious practices have an impact on a variety of aspects of Indian culture, including gold pricing and demand. During significant festivals such as Dhanteras, Diwali, Ganesh Chaturthi, and Akshaya Tritiya, gold demand spikes across the country. Religious people consider these major festivals to be auspicious, and they spend these days buying gold jewelry or coins which increases the prices to some extent. When demand for gold increases, so does the price, and vice versa. Gold is a commodity that is always in high demand. Gold pricing is heavily influenced by demand and supply.

Impact of inflation on gold price

Impact of inflation on gold price

Indians prefer to invest in gold because gold prices react to inflation. When inflation rises, the value of a currency falls. As a result, many choose to save their money in the form of gold. Gold functions as a hedging measure against inflationary conditions when it remains high for an extended length of time. Gold’s value is regarded as constant in the long run because the value of the currency fluctuates.

Gold has long been regarded as a store of value. Because it is a tangible commodity, it cannot be printed like money, and its value is unaffected by government interest rate decisions. Because gold has historically held its value, it can be used as a type of insurance against economic downturns.

As a result, growing inflation might hypothetically be said to drive increased demand for gold, which in turn drives higher gold prices.

Impact of stocks on gold price

Impact of stocks on gold price

Between the Sensex and gold prices, there is an inverse link. When investors sense a bullish trend in the stock market, they prefer to invest more in stocks in order to gain from future higher stock prices. The demand for gold diminishes as a result of this shift in preference, lowering gold prices. When the stock market falls and investors believe the bearish trend will continue for some time, they choose to invest their excess funds in safe haven assets such as gold, causing gold demand to rise and gold prices to rise. It means that gold prices and the Sensex have an inverse connection.

Impact of currency on gold price

Impact of currency on gold price

The price of a country’s currency in terms of another currency is called an exchange rate. To put it another way, it’s the rate at which one currency can be converted into another. However, that value can change over time, and it can be quite volatile at times. When the dollar’s value rises in relation to other currencies throughout the world, the price of gold tends to decline in US dollar terms. The reason for this is that gold gets more expensive in other currencies. Gold, on the other hand, tends to rise as the value of the US dollar falls, as it becomes cheaper in other currencies.

The price of gold tends to be inversely proportional to the value of the US dollar. Gold prices tend to fall as the US dollar’s strength grows. This is why many gold investors keep an eye on the US dollar and currency exchange rates.

Impact of Crude oil prices on gold

Impact of Crude oil prices on gold

Because the two have such a close direct relationship, crude oil prices can be utilized as a trustworthy proxy for gold price changes. Gold prices tend to rise and fall in lockstep with crude oil prices throughout time. This is due to the fact that gold, like oil, is extracted from the earth and is standardized and interchangeable. 15 Because energy is the primary cost of production for gold, changes in long-term oil prices have a direct correlation with gold price swings. Furthermore, rising crude oil prices result in inflation, which is a sign of an expanding economy.

Impact of import duty on gold price

Impact of import duty on gold price

Due to the fact that gold is not produced in India, it is imported from other nations, and import tariff plays a significant impact in price variations. Because of the large number of transactions, the central bank’s choice to buy or sell gold can have an impact on the price.

Conclusion

Other factors that influence gold prices in India include geopolitical considerations, government reserves, favorable monsoon rains, and the jewellery market. The price of gold in India is influenced by a variety of internal and external variables. It’s also impossible to ignore the role of India’s growing population in driving up gold demand.

Consider the above principles and make sure your investments are in line with your investing strategy and risk tolerance. While gold is a smart investment during these times, it comes with its own set of concerns. Before you invest, be sure you have a complete understanding of the situation.



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Banks set for higher provisioning hit as Vodafone Idea totters, BFSI News, ET BFSI

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Banks are going for higher provisioning for the Vodafone Idea account even as the future of the company hangs by a thread.

IDFC First Bank has marked the account of VIL as stressed and has made provisions of 15 per cent (Rs 487 crore) against the outstanding exposure of Rs 3,244 crore (funded and non-funded).

“This provision translates to 24 per cent of the funded exposure on this account. The said account is current and has no overdues as of June 30, 2021,” the lender said in its Q1 FY’22 investor presentation, referring to the account as “one large telecom account”.

According to official data, VIL had an adjusted gross revenue (AGR) liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore and Rs 50,399.63 crore is outstanding.

The company’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021. The amount included deferred spectrum payment obligations of Rs 96,270 crore and debt from banks and financial institutions of Rs 23,080 crore apart from the AGR liability.

More banks may go for provisioning in the next couple of quarters for the account as troubles mount for the company.

Discussions with banks

The Department of Telecommunications (DoT) has initiated discussions with banks to address financial stress in the telecom sector, particularly Vodafone Idea Ltd (VIL) that urgently requires fund infusion to stay afloat.

There was a meeting of DOT officials and senior bankers on Friday on the issue of Vodafone, sources said, adding that banks have been asked to look for a solution within the prudential guidelines.

According to sources, senior officials from the country’s biggest lenders State Bank of India and Bank of Baroda were also present among others in the meeting.

More such meetings are expected to take place in the coming days, they said.

Meanwhile, the finance ministry has asked public sector banks to collate and submit data related to their debt exposure to the telecom sector in general and VIL in particular.

Lenders, both public and private, stare at a loss of Rs 1.8 lakh crore in case VIL collapses. A large part of the loans to the lender is in the form of guarantees with public sector banks having a lion’s share of the debt. Among the private-sector lenders, Yes Bank and IDFC First Bank may be impacted the most. As a precursor, some private lenders with a funded exposure have already started making provisions.

Promoters in bind

In a backdrop of such large liabilities, both the promoter Vodafone Plc (45 per cent stake) and Aditya Birla Group (27 per cent stake) expressed their inability to bring in additional capital.

Writing a letter to Cabinet Secretary Rajiv Gauba in June, Aditya Birla Group Chairman Kumar Mangalam Birla said investors are not willing to invest in the company in the absence of clarity on AGR liability, adequate moratorium on spectrum payments and most importantly floor pricing regime being above the cost of service.

“It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity-public sector/government /domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in the letter.

Birla has quit the post of non-executive chairman post of the floundering telecom giant last week.

Giving relief to Vodafone on one front, the government has proposed to withdraw all back tax demands on companies with passage of ‘The Taxation Laws (Amendment) Bill, 2021’.



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Exempt public sector and commercial banks from Deposit Insurance Scheme: AIBEA

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Ahead of the Lok Sabha taking up the Deposit Insurance Bill for passage, the All India Bank Employees’ Association (AIBEA) has urged Finance Minister Nirmala Sitharaman to exempt from its purview public sector banks and/or commercial banks, which are covered under Section 45 of the Banking Regulation Act.

Commercial banks pay about ₹12,000 crore of premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an unwarranted expenditure as it would otherwise have gone to the banks’ profit, CH Venkatachalam, general secretary, AIBEA, said in a letter to the Finance Minister on Sunday.

Recast deposit insurance

Venkatachalam pointed out that Section 45 empowered the government and the RBI to amalgamate any bank with another bank to avert closure and loss of customers’ deposits.

“That is why, while hundreds of banks were getting closed prior to 1960, with this amendment to Banking Regulation Act, not a single commercial bank has been liquidated or closed,” he pointed out, adding there was thus no question of any commercial bank getting closed down. The AIBEA strongly felt that the deposits of commercial banks and, importantly, public sector banks, need not be covered by the deposit insurance scheme, he said.

Leg-up for depositors

He highlighted that, year after year, public sector banks and all commercial banks were required to pay a huge premium to DICGC, yet the claim ratio was nil since there was no likelihood of liquidation. The AIBEA letter highlighted that the claim settled so far, since 1962, was only ₹5,200 crore, and that too for cooperative banks.

The AIBEA’s missive comes at a time when the government is looking to increase the deposit insurance coverage to ₹5 lakh from ₹1 lakh at present. The Lok Sabha is expected to take up the Bill for passage on Monday.

The AIBEA letter also highlighted the fact that of the 2,067 banks covered by the DICGC, the 1,923 cooperative banks were the only ones facing threats of closure and their deposits need protection. Even in their case, the premium should be charged only to the extent of deposits covered by insurance, rather than the total assessable deposits, which is much higher, the association said.

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Buy These 2 Stocks For 24% Gains, Says Motilal Oswal

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Orient Electric

Current Stock price Rs 317
Target price Rs 395
Upside potential 24.00%

The brokerage sees an upside target of 24% on the stock of Orient Electric from the current levels. According to the brokerage the annual report highlights improving product reach of existing categories, increasing adoption of digitization, and focus on cost saving programs were among the key focus areas in FY21.

“The cost saving initiative titled Sanchay’ – has been repositioned into an entity-wide overarching ideation and cost consciousness platform, with the program enabled by a Cloud hosted digitized platform,” Motilal Oswal Institutional Equities has said.

Orient Electric: Buy with a target price of Rs 395

Orient Electric: Buy with a target price of Rs 395

According to the brokerage there is a focus on innovative new launches. “The pandemic presented an opportunity to Orient Electric to leverage its innovation capability and stay agile. It launched ‘UV Sanitech’- a UV-C light-based sanitization chamber that can sanitize all inanimate and daily use objects in four minutes from viruses and bacteria, including coronavirus,” the brokerage has said.

“We believe Orient Electric is best placed to capture pent-up demand, with its strong manufacturing and distribution capabilities. We forecast a revenue/EBITDA /adjusted net profit of Compounded Annual Growth Rate of 17%/19%/23% over FY21-24E. We value Orient Electric at 45 times FY23E EPS, with a target price of Rs 395. At the current market price, the stock trades at a FY22E/FY23E P/E of 49 times and 37 times.

Our longer term thesis indicates a reduction in the margin differential between Orient Electric and leading FMEG peers (refer to our initiation report). On a FY23E P/E multiple basis, Orient Electric is trading at a discount of 33%/9% v/s Havells and Crompton, while on an EV/EBITDA basis, the discount stands at 43%/32%. We maintain our Buy rating on the stock,” the brokerage has said.

Divis Labs: Buy the stock for a price target of Rs 5,750

Divis Labs: Buy the stock for a price target of Rs 5,750

Current stock price Rs 4,850
Target price Rs 5,750
Upside potential 18.00%

According to Motilal Oswal Institutional Equities, the backward integration efforts over the past 2-3 years have fructified at a time when peers are facing issues in terms of raw material and logistics cost increases. In fact, this has led to better profitability for the quarter. Divis Labs remains well poised in terms of both product development and manufacturing capacity to sustain superior return ratios over the next 4-5 years.

“We raise our EPS estimate by 5% and 4% for FY22/FY23 factoring in operational efficiency, higher business opportunities in the Sartans portfolio, and enhanced growth prospects in the CS segment.

We continue to value Divis Labs at 36 times 12 month forward earnings to arrive at target Price of Rs 5,750 on the stock. We remain positive on Divis Labs on the back of its strong chemistry skill sets driving opportunities in the CS/Generics segment and continued cost reduction in production driving market share and profitability. Reiterate Buy,” the brokerage has said.

Disclaimer

Disclaimer

Investors should not take any trading and investment decision based only on information discussed on GoodReturns.in We are not a qualified financial advisor and any information herein is not investment advice. It is informational in nature. All readers and investors should note that neither Greynium nor the author of the articles, would be responsible for any decision taken based on these articles. Please do consult a professional advisor.



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Indian bankers in talks as court rulings threaten over $6 billion in loans

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Informal talks are taking place to deal with the fall-out from two rulings by the Supreme Court that threaten the repayment of loans totalling nearly ₹500 billion ($6.73 billion) to some of India’s largest banks, bankers close to the matter say.

Any failure to recoup the money adds to stress in the banking sector, which is already dealing with an increased level of bad loans and reduced profits because of the impact of the Covid-19 pandemic.

Biyani-Ambani deal in trouble as Supreme Court rules in favour of Amazon

Last week, the Supreme Court effectively blocked Future Group’s $3.4-billion sale of retail assets to Reliance Industries, jeopardising nearly $2.69 billion the retail conglomerate owes to Indian banks.

That ruling was delivered days after the Supreme Court rejected a petition to allow telecom companies to approach the Department of Telecommunications to renegotiate outstanding dues in a long-running dispute with Indian telecom players.

Following SC ruling, NCLT to pause hearing on Future-Reliance deal

That raises concerns, bankers say, over whether Vodafone Idea will repay some ₹300 billion ($4.04 billion) it owes to Indian banks and billions of dollars more in long-term dues to the government.

Future of Future?

Two bankers, speaking on condition of anonymity, said negotiations were taking place to try to limit potentially severe consequences.

Loans to Future worth nearly ₹200 billion were restructured earlier this year, giving it more time to come up with repayments due over the next two years, but that was on the premise that Reliance would bail it out, the bankers said.

Future group did not immediately respond to a request for comment.

Should Future be taken to a bankruptcy court, bankers say they are concerned they will have to take haircuts on the loans of more than 75 per cent.

“The immediate apprehension is that the restructuring deal will fall through for banks by December,” said a banker at a public sector bank that has lent money to Future.

Future’s leading financial creditors include India’s largest lender State Bank of India, along with smaller rivals Bank of Baroda and Bank of India.

Bank of India, the lead bank in the consortium lending to Future, did not immediately respond to an emailed request for comment.

Vodafone Idea

Banks have also started discussing Vodafone’s debt to lenders of nearly ₹300 billion. Top lenders to Vodafone include YES Bank, IDFC First Bank and IndusInd Bank, as well as other private and state-owned lenders.

Vodafone, YES Bank, IDFC First Bank and IndusInd did not immediately respond to a request seeking comment.

“Even though banks have the option of restructuring loans in case the company defaults, it will only make sense if there is clear cash flow visibility, which is not the case right now,” a senior banker at a public sector bank said on condition of anonymity.

Already, at the end of March, Indian banks had total non-performing assets of ₹8.34 trillion ($112.48 billion), the government has said. It has yet to provide more updated figures.

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Bankers in talks as court rulings threaten over $6 billion in loans, BFSI News, ET BFSI

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Informal talks are taking place to deal with the fall-out from two rulings by Supreme Court that threaten the repayment of loans totalling nearly 500 billion rupees ($6.73 billion) to some of India’s largest banks, bankers close to the matter say.

Any failure to recoup the money adds to stress in the banking sector, which is already dealing with an increased level of bad loans and reduced profits because of the impact of the pandemic.

Last week, Supreme Court effectively blocked Future Group’s $3.4 billion sale of retail assets to Reliance Industries, jeopardising nearly $2.69 billion the retail conglomerate owes to Indian banks.

That ruling was delivered days after the Supreme Court rejected a petition to allow telecom companies to approach the Department of Telecommunications to renegotiate outstanding dues in a long-runinng dispute with Indian telecom players.

That raises concerns, bankers say, over whether Vodafone Idea will repay some 300 billion rupees ($4.04 billion) it owes to Indian banks and billions of dollars more in long-term dues to the government.

FUTURE OF FUTURE?

Two bankers, speaking on condition of anonymity said negotiations were taking place to try to limit potentially severe consequences.

Loans to Future worth nearly 200 billion rupees were restructured earlier this year, giving it more time to come up with repayments due over the next two years, but that was on the premise that Reliance would bail it out, the bankers said.

Future group did not immediately respond to a request for comment.

Should Future be taken to a bankruptcy court, bankers say they are concerned they will have to take haircuts on the loans of more than 75%.

“The immediate apprehension is that the restructuring deal will fall through for banks by December,” said a banker at a public sector bank that has lent money to Future.

Future’s leading financial creditors include India’s largest lender State Bank of India, along with smaller rivals Bank of Baroda and Bank of India.

Bank of India, the lead bank in consortium lending to Future, did not immediately respond to an emailed request for comment.

VODAFONE IDEA

Banks have also started discussing Vodafone’s debt to lenders of nearly 300 billion rupees. Top lenders to Vodafone include Yes Bank, IDFC First Bank and IndusInd Bank, as well as other private and state-owned lenders.

Vodafone, Yes Bank, IDFC First Bank and IndusInd did not immediately respond to a request seeking comment.

“Even though banks have the option of restructuring loans in case the company defaults, it will only make sense if there is clear cash flow visibility, which is not the case right now,” a senior banker at a public sector bank said on condition of anonymity.

Already, at the end of March, Indian banks had total non-performing assets of 8.34 trillion rupees ($112.48 billion), the government has said. It has yet to provide more updated figures.



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Sebi probed 94 new cases for flouting securities law in FY21, BFSI News, ET BFSI

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New Delhi: As many as 94 fresh cases pertaining to flouting of securities norms were taken up for investigation by Sebi in 2020-21, marking a decline of 42 per cent from the preceding financial year, as per the regulator’s latest annual report. The cases were related to alleged violation of securities law including market manipulation and price rigging.

“During 2020-21, 94 new cases were taken up for investigation and 140 cases completed in comparison to 161 new cases taken up and 170 cases completed in 2019-20,” the report noted.

Sebi said 43.6 per cent of the total cases taken up for investigation during 2020-21 were related to market manipulation and price rigging.

Besides, insider trading and takeover violations accounted for 31 per cent and over 3 per cent of the total cases, respectively. Over 21 per cent were related to other violations of securities laws.

The Securities and Exchange Board of India (Sebi) initiates investigation based on reference received from sources such as its integrated surveillance department, other operational departments and external government agencies.

“The purpose of the investigation is to gather evidence and to identify persons/ entities behind irregularities and violations so that appropriate and suitable regulatory action can be taken, wherever required,” the regulator noted in its annual report for 2020-21.

The steps involved during investigation process include an analysis of market data like order and trade log, transaction statements and exchange report.

Among others, Sebi also analysed bank records like account statements and KYC details, information about a firm, call data records and information obtained from market intermediaries during the investigation process.

After completion of an investigation, the watchdog said, penal action was initiated wherever violations of securities laws and obligations relating to securities market were observed.

During 2020-21, the regulator initiated enforcement action in 225 cases, while it disposed of 125 cases. At the end of March 2021, 476 cases were pending for action.



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ICICI Securities Is betting On These 3 Pharma Stocks For Over 16% Return

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Buy Ipca Laboratories for a target of Rs 2,560 on the stock

According to ICICI Securities, Ipca is a fully integrated pharmaceutical firm that produces approximately 350 formulations, with exports accounting for 48 percent of total revenue. Pain management, cardiovascular and anti-diabetics, and anti-malarial are the most profitable therapeutic categories, accounting for 75% of total income.

Current Market Price Rs 2177
Target Price Rs 2560
Potential upside 18%

“Apart from Ipca, we prefer Ajanta in our healthcare coverage because it focuses on launching a large number of first-time launches both domestically and internationally. BUY with a target price of Rs 2695”, the brokerage has said.

Why ICICI Securities is bullish on Ipca Laboratories?

Why ICICI Securities is bullish on Ipca Laboratories?

“Ipca’s share price has grown by ~4.1x over the past five years (from ~Rs 488 in June 2016 to ~Rs 2026 levels in June 2021). We change our view from HOLD to BUY on this stock due to good traction in domestic formulations and growth in the medium term Target Price and Valuation: We value Ipca at Rs 2560 i.e. 25x P/E on FY23E EPS,” the brokerage has said.

Key triggers for future price-performance:

  • The total portfolio is poised for stable expansion, with incremental growth in other medicines (excluding malaria), especially noncommunicable diseases like pain management, cardio-diabetology, and so on.
  • Due to USFDA import alerts for the Ratlam factory, which is the only API source for Silvassa and Pithampur formulations, momentum in the US will take longer.
  • Sustained traction from branded and generics exports sales, along with a resurgence in the EU, is anticipated to buffer the US gap.

Buy Caplin Point Laboratories: ICICI Securities

Buy Caplin Point Laboratories: ICICI Securities

Caplin earns all of its money from exports, with 92 percent of its sales coming from Emerging Markets (LatAm + Africa), where it has an end-to-end business strategy that includes last-mile logistics solutions for its exclusive distributors.

Current Market Price Rs 893
Target Price Rs 1,135
Potential upside 27%

According to the brokerage, Caplin announced strong performance during the first quarter of FY22.

Sales increased by 25.1 percent year over year to Rs 300.4 crore; EBITDA increased by 29.3 percent year over year to Rs 92.6 crore, and adjusted PAT increased by 70.9 percent to Rs70.9 crore (up 29.9 percent YoY).

Why ICICI Securities is bullish?

Why ICICI Securities is bullish?

“What should investors do? Caplin’s share price has grown by ~3.8x over the past five years (from ~Rs 231 in July 2016 to ~Rs 884 levels in July 2021). We maintain our BUY rating on the stock due to visible growth in the medium to long term. Target Price and Valuation: We value Caplin at Rs 1135 i.e. 24x P/E on FY23E EPS,” the brokerage has said.

Key triggers for future price performance:

  • The company has developed its own brand with long-drawn ambitions and significant capex by succeeding in lesser-known CA markets and cracking the US generic pharma code of injectable.
  • Portfolio consists of 20 ANDAs that have been filed, 15 of which have been approved. In addition, the company has 45+ goods in the works.
  • The momentum of growth is expected to continue, owing to additional front-end expansion, a larger product basket, a shift in product mix, and the launch of own-brand products.

Buy Abbott India with 16% upside

Buy Abbott India with 16% upside

Abbott India is one of the fastest-growing MNC pharma businesses on the stock exchange. It has consistently surpassed the industry in areas such as women’s health, GI, metabolic, pain, and CNS, to name a few.

Current Market Price Rs 17507
Target Price Rs 20360
Potential upside 16%

According to the brokerage, Abbott announced strong Q1FY22 performance. Sales increased 14.4% year on year to Rs 1217.8 crore. In Q1FY22, EBITDA was Rs 265 crore, up 13% year on year, with margins of 21.8 percent and PAT was 195.8 crore as a result of this (up 8.5 percent YoY).

Why buy the shares of Abbott?

Why buy the shares of Abbott?

“What should investors do? Abbott share price has grown by ~4x over the past five years (from ~Rs 4666 in July 2016 to ~Rs 19012 levels in July 2021). We maintain our BUY rating on the stock given the good Q1 performance and possible medium term traction. Target Price and Valuation: We value Abbott at Rs 20360 i.e. 42x P/E on FY23E EPS,” the brokerage has said.

Key triggers for future price-performance:

  • Abbott has a strong and long-term business model based on consistent growth, a debt-free balance sheet, favourable market dynamics such as doctor prescription stickiness, and decreased perceived risk concerns.
  • Abbott’s great track record in power brands and capacity to launch new products on a constant basis (+100 launches in the last ten years).

Disclaimer

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house, Motilal Oswal are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are at record highs, with the Nifty crossing the 16,000 points mark.



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Will RBI joining NGFS help in climate finance?, BFSI News, ET BFSI

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The months of May, June and July gave a fierce glimpse of the natural disasters – cyclones on east and west coast, excess rainfall, floods and cloudbursts – that reigned havoc in India and are set to increase in frequency and intensity in years to come.

Loss of infrastructure apart from loss of lives and livestock is a major setback after every such disaster. For instance, several areas of Konkan that witnessed huge floods in July were without power for many days as the entire power department infrastructure suffered massive damage. Several metres/kilometres of roads were washed away when the Himalayan states of Himachal Pradesh and Uttarakhand witnessed landslides and cloudbursts recently.

A crucial report from the Intergovernmental Panel on Climate Change (IPCC) on Monday is likely to paint an even dismal scenario with a warning to not just take mitigative steps but also increase adaptation. Therefore, it becomes crucial to understand what is at stake for the financial sector in India. Will India’s finance sector witness an increased understanding of and a push for integrating climate risk in the existing set up of financial institutions?

The Reserve Bank of India (RBI) has been talking about green finance for many years and has taken various steps towards it. It has pushed, on the lines of corporate social responsibility for private companies, the concept of Environmental, Social and Governance (ESG) principles into financing aspects. But April 2021 saw an important development vis-a-vis climate finance.

The RBI joined the Network for Greening the Financial System (NGFS) in April 2021. The NGFS, launched in December 2017 at the Paris One Planet Summit, is a group of central banks and supervisors from across the globe to share the best practices and contribute to the development of the environment and climate risk management in the financial sector. It is an institutional yet voluntarily membership. It will also help mobilize mainstream finance to support the transition toward a sustainable economy.

The Paris Agreement – that India has signed – has three components. One and the most talked about is the global efforts to restrict the temperature rise to 2 degrees Celsius and if possible, to keep it at 1.5 degrees Celsius. The second is about adaptation to climate impacts. But it is the third that is rarely talked about, i.e. that all finance goals should be aligned with the de-carbonisation or the low carbon pathway.

“It is not yet clear what exactly would be the role of the monetary policy in addressing climate change. We are looking at both, natural disasters which hit infrastructure and also the planning for new infrastructure investments taking into account increased risks. It translates into very simple yet significant decisions, such as ‘how high will you construct a bridge?’ or ‘Where will you locate your airport?'” Director (Climate) at the World Resources Institute (WRI), a think tank, Ulka Kelkar told IANS.

This will mean, choosing the location that will bear the least or minimal impact due to climate change or taking into account that the cost will increase in view of climate proofing the project or there will be a need to have additional insurance, all such things wherein the initial increase in cost can offset the long-term damage, she said.

As per the NGFS literature, its goal is to provide a common framework that will allow central banks, supervisors, and financial firms to assess and manage future climate-related risks. However, it also cautioned that “the use of scenarios by central banks and by companies requires caution”, as they have many limitations that can hamper an accurate assessment of the risks and potentially harm financial decisions and climate risk management practices.

The NGFS has given a very easy way to understand four ‘Climate Scenarios Framework’: ‘Disorderly’ (Sudden and unanticipated response is disruptive but sufficient enough to meet climate goals); ‘Orderly’ (We start reducing emissions now in a measured way to meet climate goals); ‘Too little, too late’ (We do’t do enough to meet climate goals, presence of physical risk spurs a disorderly transition) and ‘Hot house world’ (We continue to increase emissions, doing very little, if anything, to avert the physical risks).

The 22nd Financial Stability Report (FSR22) of the RBI had, about the “climate-related risk” that the value of financial assets/liabilities could be affected either by continuation in climate change (physical risks), or by an adjustment towards a low-carbon economy (transition risks). The manifestation of physical risks could lead to a sharp fall in asset prices and increase in uncertainty, it said.

“A disorderly transition to a low carbon economy could also have a destabilising effect on the financial system. Climate-related risks may also give rise to abrupt increases in risk premia across a wide range of assets amplifying credit, liquidity and counterparty risks,” it said in no uncertain terms.

According to NGFS, there is a growing understanding that climate-related risks should be incorporated into financial institutions’ balance sheets. It said, ‘physical’ risks arise from both ‘chronic’ impacts, such as sea level rise and desertification, and the increasing severity and frequency of ‘acute’ impacts, such as storms and floods. The ‘transition risks’ are associated with structural changes emerging as the economy becomes low and zero-carbon.

RBI’s 23rd Financial Stability Report (FSR23) released last month under its ‘Systemic Risk Survey’ mentioned as ‘declined’ the risk due to ‘climate change’ in the general risk category. Earlier, the FSR22 released in January 2021 had mentioned as ‘increased’ the risk due to ‘climate change’ in the general risk category.

In the FSR21 released in July 2020, the climate change related risk had ‘decreased’; in the FSR20 released in December 2019, it had ‘decreased’; in the FSR19 released in June 2019, it had ‘increased’ while it had remained ‘decreased’ both in FSR18 (December 2018) and FSR17 (June 2018).

Explained a financial sector analyst, who did not wish to be named, “This is a quarterly survey where the RBI asks respondents about their views on various kinds of risks with regard to financial stability. The view about risks may change from quarter to quarter depending on the emerging and anticipated scenario. For the lay person, the risk analysis is done on the basis of the respondents’ perception about certain scenarios.”

However, specific queries via mail and text messages to the RBI Chief General Manager, Corporate Communications Yogesh Dayal, about what changes the risk perception in the ‘ystemic Risk Survey’ and has the RBI’s joining NGFS changed the risk perception vis-à-vis climate change, remained unanswered.

Earlier, the FSR19 had mentioned that how a report from the International Association of Insurance Supervisors (IAIS) posits that non-incorporation of physical risks arising due to climate change can potentially result in under-pricing/under reserving, thereby overstating insurance sector resilience.

As per RBI documents available in public domain, a key prerequisite to climate risk assessment exercise for India is to develop emission reduction pathways for energy intensive sectors and “map them onto macroeconomic and financial variables and integrate them with quantitative climate risk related disclosures to develop a holistic approach to addressing the financial stability risks arising out of climate change.”

The ‘cross industry, cross disciplinary’ forum as mentioned by the RBI is the need of the hour.



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