Month: October 2021

4 Stocks To Buy As Suggested By ICICI Securities Based On Their Quarterly Results

Personal Finance

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Buy HCL Technologies with upside potential of 18%

HCL Technologies (HCLT) serves the BFSI, retail, health, telecommunications, manufacturing, media, and hi-tech industries with IT, ER&D, and products.

ICICI Direct sees a nearly 18% upside on the stock of HCL Technologies from the current market price Rs 1251. The firm has set a target price of Rs 1475 on the stock.

Q2FY22 Results of HCL

  • HCLT reported good income from IT services.
  • In CC terms, revenue climbed 3.5 percent over the previous quarter. Revenues from IT services and ER&D increased by 5% year over year, while P&P fell by 8%.
  • EBIT margin fell 63 basis points quarter over quarter, including a 50 basis point impact from reduced P&P revenues.
  • Revenues from P&P are likely to be unchanged this year, compared to previous projections of low single-digit increase.

HCL Technologies: Minimum 75% payout for FY22-26

HCL Technologies: Minimum 75% payout for FY22-26

Target And valuation

“HCLT share price has grown by ~3.5x over the past five years (from ~| 364 in October 2016 to ~| 1,259 levels in October 2021). We continue to remain positive and retain our BUY rating on the stock. Target Price and Valuation: We value HCLT at Rs 1475 i.e. 24x P/E on FY23E EPS,” the brokerage has said.

Key triggers for future price performance:

  • The company continues to secure multiyear contracts in Cloud transformation, cyber security, and other areas.
  • In FY22E, the company expects solid double-digit revenue growth, primarily due to better growth in IT & business services and ER&D.
  • We predict HCLT to grow at a 13.2 percent CAGR in FY21-23E as large deal wins increase, geographies expand, and sales and capabilities are invested.

Buy Wipro with upside potential of 15%

Buy Wipro with upside potential of 15%

Wipro is a BFSI, health, consumer, energy & utility, technology, and communication IT, consulting, and BPO firm.

ICICI Direct sees a nearly 15% upside on the stock of Wipro from the current market price Rs 708. The firm has set a target price of Rs 815 on the stock.

Q2FY22 Results of Wipro:

  • Wipro announced strong Q2FY22 performance.
  • In dollar terms, revenues climbed 8.1 percent over the previous quarter, with organic growth accounting for 4.6 percent.
  • In Q2, Wipro signed nine significant deals with a total value of $580 million. In Q3FY22E, Wipro expects to gain 2-4 percent QoQ.

Wipro: Strong Q2 numbers

Wipro: Strong Q2 numbers

Target and Valuation

“Wipro’s share price has grown by ~4x over the past five years (from ~| 174 in October 2016 to ~| 708 levels in October 2021). We maintain BUY on strong deal momentum especially on large size deals. Target Price and Valuation: We value Wipro at Rs 815 i.e. 29x P/E on FY23E EPS, the brokerage has said.

Key triggers for future price-performance:

  • Restructuring of the organisation, client mining, and the desire to win one significant transaction every quarter to fuel growth are all part of the new CEO’s plan to turn around the company.
  • Higher penetration in Europe, client mining, new logo acquisition, and traction digital sales will all help to boost revenue growth.

Buy HDFC Bank with upside potential of 19%

Buy HDFC Bank with upside potential of 19%

HDFC Bank is a leading private sector bank with a long history of continuous expansion and operational performance.

ICICI Direct sees a nearly 19% upside on the stock of HDFC Bank from the current market price Rs 1685. The firm has set a target price of Rs 2000 on the stock.

Q2FY22 Results of HDFC Bank

  • Overall, the performance was in line with expectations.
  • Advances increased by 15.5 percent year over year to 11.9 lakh crore, while deposits increased by 14.4 percent.
  • NII is up 12.1 percent year over year, NIM is unchanged at 4.1 percent, and C/I is up QoQ to 37 percent.
  • R/s increased 90 bps QoQ to 1.7 percent, while GNPA climbed 12 bps QoQ to 1.35 percent.
  • HDB Financial’s gross stage 3 assets are at 6.1 percent, down from 7.7 percent in the previous quarter.

Buy Mahindra CIE with upside potential of 31%

Buy Mahindra CIE with upside potential of 31%

Mahindra CIE (MCI), a multi-technology, multi-product automotive component supplier established in Spain, is part of the CIE Automotive Group.

ICICI Direct sees a nearly 31% upside on the stock of Mahindra CIE from the current market price Rs 251. The firm has set a target price of Rs 331 on the stock.

Q3CY21 Results of Mahindra CIE

  • MCI had a good Q3CY21 performance.
  • Consolidated net sales increased by 2.4 percent on a quarterly basis to $ 2,091 crore.
  • EBITDA margins were steady year over year at 12.8 percent.
  • PAT increased by 22.2 percent year over year to Rs 166 crore, helped by a lower effective tax rate.

Mahindra CIE: Steady performance; investment thesis unchanged

Mahindra CIE: Steady performance; investment thesis unchanged

Target and Valuation

“The stock price has grown at ~5% CAGR over the past five years (from ~| 190 levels in October 16), slightly outperforming Nifty Auto index. We retain BUY on expected margin improvement & inexpensive valuations. Target Price and Valuation: We introduce CY23E numbers; value MCI at 10x average CY22E-CY23E EV/EBITDA for the revised target of Rs 330,” the brokerage has said.

Triggers for future pricing performance

  • We anticipate a 16.7% net sales CAGR in CY20-23E, led by the India business.
  • Higher utilisation and efficiency measures will help boost margins to 13.5 percent (CY23E)
  • CY23E EPS expected to be | 18/share; RoCE expected to improve to 12% by CY22E.
  • CFO and FCF yields in CY23E were 12 percent and 7%, respectively, with net debt free b/s.

Disclaimer

Disclaimer

The above 4 stocks to buy are picked from the report of ICICI Securities. Please note investing in stocks is subject to market risks and one needs to be cautious at this point of time as markets have gone-up sharply. Neither the author, nor Greynium Information Technologies Pvt Ltd would be responsible for losses incurred based on a decision made.



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Millennials pull crypto out of the shadows

Banking & Finance

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In hundreds of India’s small cities and towns, a generation that has hardly had any experience with stocks and bonds is heading straight for Bitcoin, Ethereum, Cardano and Solana. The average age of the 11 million users of CoinSwitch Kuber, a cryptocurrency trading app that didn’t exist 18 months ago, is 25, and 55 per cent of them are from outside large metropolises like New Delhi or Mumbai.

Widespread acceptance of digital tokens by millennials and Generation Z is helping the industry step out of the shadows, a far cry from 2018 when the co-founders of a crypto exchange were briefly in police custody for daring to put up a kiosk in a Bangalore shopping mall where people could swap their Bitcoin for money. Now trading is all very public, and highly visible. CoinSwitch Kuber has signed up a popular Bollywood youth icon for an ad campaign with the tagline, “Kucch toh badlega” — something will change.

Changing environment

For CoinSwitch, which started out as a an aggregator of best real-time prices for digital assets around the world, something already has. In 2018, the fledgling venture couldn’t play on its home turf because India’s monetary authority had instructed banks not to entertain customers who dealt in virtual currency. It was only in March last year that the Supreme Court overturned the ban. CoinSwitch, whose app was released in June, acquired 11 million customers in 16 months. Investors took notice of the start-up and it recently became the first in the country to raise money from Silicon valley venture capitalist Andreessen Horowitz, at a valuation of $1.9 billion.

Looming regulations

Having gone mainstream in such a short time, the industry itself is demanding to be regulated. “We’ve decided that we’ll show our faces,” saidAshish Singhal, one of CoinSwitch’s three Co-founders. “Even if regulation harms our business in the short run, it’s better than being forced to operate in a grey area with little certainty and not much room for growth.”

Also see: Bitcoin nears $60,000 as investors eye first US ETFs

Fears of being outlawed have swirled since last year’s court order that gave the dying industry new life. But that risk is now receding. While Beijing last month announced, in most unequivocal terms, its resolve to root out all transactions in virtual currencies, the consensus is that New Delhi will hesitate to take such an extreme step. That’s partly because the relationship between private business and the State is different in India, where politicians need corporate donations to fight expensive elections, and citizens don’t like being told by the government whether tutoring, online gaming — or owning crypto assets — is bad for them.

Internet Wall Street

In part, the industry’s confidence stems from the belief that policy makers have been persuaded of the benefits to the economy from blockchain-based innovation. iSPIRT, an influential Bangalore-based think tank, is advising India to embrace the growing field of decentralised finance to close a $250 billion funding gap for small and mid-size firms, and build a Wall Street for all on the internet, as Balaji Srinivasan, formerly the Chief Technology Officer at Coinbase Global — the largest US-based crypto exchange — describes it.

“We, as a country, missed out on internet 1.0,” saidSinghal. “We gave world-class talent to Google and Microsoft, including their current CEOs, but we didn’t create those titans. With blockchain, we can build some global giants.”

Still, mass adoption of crypto trading continues to make authorities — especially the central bank — uncomfortable. CoinSwitch isn’t the only firm employing celebrity endorsement to drum up business ahead of Diwali, the traditional gold-buying season. According to Bloomberg News, officials recently met with Amitabh Bachchan to inform the Bollywood superstar of their concerns over his brand-ambassador deal with CoinDCX, another Indian crypto exchange.

Past the event horizon

The current speculative fervour could use some tamping, though it’s too late to try anything more draconian. Putting an entire asset class off limits won’t be fair to Generation Z investors. They have “grown up on the internet,” saidSharan Nair, CoinSwitch’s Chief Business Officer. “Many are techies like us who like to solve problems in the crypto world by contributing code. What can they do as shareholders of a bank whose website they don’t like?”

Also see: US Treasury puts crypto industry on notice over rising ransomware attacks

About 83 per cent of urban Indians are aware of digital currencies, while 16 per cent actually own them, according to a survey by data analytics firm Kantar. Many more want to — the draw of crypto is now half as powerful as that of mutual funds, a product with which older generations have a far deeper familiarity.

That offers a glimpse of what investor portfolios will look like in future: A mix of digital assets and traditional financial products. Even without the reflected light of Bollywood stars, India’s crypto industry isn’t going dark again.

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2 Mid Cap Funds For SIP In 2021 Based On 1 Year Returns of Up To 99.88%

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PGIM India Midcap Opportunities Fund Direct-Growth

According to the data of Groww, PGIM India Midcap Opportunities Fund Direct-Growth returns for the previous year are 99.88 percent, and since its debut, it has generated 22.38 percent average annual returns. The fund’s expense ratio is 0.32 percent, which is lower than that of most other funds in the mid-cap category. The fund’s equity allocation is strongly concentrated across the engineering, financial, healthcare, construction, and services sectors.

Mphasis Ltd., Ashok Leyland Ltd., Voltas Ltd., Max Financial Services Ltd., and JB Chemicals & Pharmaceuticals Ltd. are the fund’s top five holdings. According to its past performance, the fund received a 5-star rating from Value Research and is actively doing well in terms of generating returns. The fund has a 94.5 percent equity holding and a 6.5 percent debt exposure and as of October 14, 2021 it has a Net Asset Value (NAV) of Rs 49.03 and AUM of Rs 3,060.29 Cr.

The product has an exit load of 0.5 percent if units more than 10% of the investment value are redeemed within 90 days of the purchased date. SIPs in this fund can be commenced with as little as Rs 1000 per month.

Axis Midcap Direct Plan-Growth

Axis Midcap Direct Plan-Growth

Axis Midcap Direct Plan-Growth returns for the last year are 74.31 percent, and it has generated 22.44 percent average annual returns since inception according to the data of Groww. The fund’s expense ratio is 0.49 percent, which is lower than that of most other funds in the same category.

The fund’s equity exposure is spread across the Financial, Technology, Chemicals, Services, and Healthcare sectors. Cholamandalam Investment & Finance Co. Ltd., NIIT Technologies Ltd., MindTree Ltd., Bajaj Finance Ltd., and Astral Poly Technik Ltd. are the fund’s top five holdings.

Value Research has rated the fund 5-star, indicating its past performance excellence in terms of generating risk-adjusted returns. The fund has a 94.90 percent equity holding and a 4.7 percent debt exposure, with a Net Asset Value (NAV) of Rs 81.54 and an AUM of Rs 15,394.86 Cr as of October 14, 2021.

If units of more than 10% of the investment value are redeemed within one year of the purchase date, the fund carries a 1% exit load. SIPs can be started in this fund with an amount of Rs 500 only.

2 Mid Cap Funds For SIP In 2021 Based On 5-Star Rating of Value Research

2 Mid Cap Funds For SIP In 2021 Based On 5-Star Rating of Value Research

The performance of the two above-mentioned mid-cap funds is illustrated below which you can consider for starting SIP in 2021 relying on Value Research’s 5-star rating.

Funds 1 mth returns 6 mth returns 1 Yr returns 3 Yr returns 5 Yr returns Annualized returns since inception
PGIM India Midcap Opportunities Fund Direct-Growth 5.30% 44.72% 99.88% 40.15% 22.77% 22.38%
Axis Midcap Direct Plan-Growth 5.70% 37.57% 74.31% 31.92% 23.29% 22.44%
Source: Groww

Disclaimer

Disclaimer

The views and investment tips expressed by authors or employees of Greynium Information Technologies, should not be construed as investment advice to buy or sell stocks, gold, currency, or other commodities. Investors should certainly 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. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates, and authors do not accept culpability for losses and/or damages arising based on information in GoodReturns.in



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Millennials pull crypto out of the shadows in India, BFSI News, ET BFSI

Personal Finance

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In hundreds of India’s small cities and towns, a generation that has hardly had any experience with stocks and bonds is heading straight for Bitcoin, Ethereum, Cardano and Solana. The average age of the 11 million users of CoinSwitch Kuber, a cryptocurrency trading app that didn’t exist 18 months ago, is 25, and 55% of them are from outside large metropolises like New Delhi or Mumbai.

Widespread acceptance of digital tokens by millennials and Generation Z is helping the industry step out of the shadows, a far cry from 2018 when the cofounders of a crypto exchange were briefly in police custody for daring to put up a kiosk in a Bangalore shopping mall where people could swap their Bitcoin for money. Now trading is all very public, and highly visible. CoinSwitch Kuber has signed up a popular Bollywood youth icon for an ad campaign with the tagline, “Kucch toh badlega” — something will change.

For CoinSwitch, which started out as a an aggregator of best real-time prices for digital assets around the world, something already has. In 2018, the fledgling venture couldn’t play on its home turf because India’s monetary authority had instructed banks not to entertain customers who dealt in virtual currency. It was only in March last year that the Supreme Court overturned the ban. CoinSwitch, whose app was released in June, acquired 11 million customers in 16 months. Investors took notice of the startup: It recently became the first in the country to raise money from Silicon valley venture capitalist Andreessen Horowitz, at a valuation of $1.9 billion.

Having gone mainstream in such a short time, the industry itself is demanding to be regulated. “We’ve decided that we’ll show our faces,” says Ashish Singhal, one of CoinSwitch’s three cofounders. “Even if regulation harms our business in the short run, it’s better than being forced to operate in a gray area with little certainty and not much room for growth.”

Fears of being outlawed have swirled since last year’s court order that gave the dying industry new life. But that risk is now receding. While Beijing last month announced, in most unequivocal terms, its resolve to root out all transactions in virtual currencies, the consensus opinion is that New Delhi will hesitate to take such an extreme step. That’s partly because the relationship between private business and the state is different in India, where politicians need corporate donations to fight expensive elections, and citizens don’t like being told by the government whether tutoring, online gaming — or owning crypto assets — is bad for them.

But in part the industry’s confidence stems from the belief that policy makers have been persuaded of benefits to the economy from blockchain-based innovation. iSPIRT, an influential Bangalore-based think tank, is advising India to embrace the growing field of decentralized finance to close a $250 billion funding gap for small and midsize firms, and build a Wall Street for all on the internet, as Balaji Srinivasan, formerly the chief technology officer at Coinbase Global Inc., the largest U.S.-based crypto exchange, describes it.

“We, as a country, missed out on internet 1.0,” says Singhal. “We gave world-class talent to Google and Microsoft, including their current CEOs, but we didn’t create those titans. With blockchain, we can build some global giants.”

Still, mass adoption of crypto trading continues to make authorities — especially the central bank — uncomfortable. CoinSwitch isn’t the only firm employing celebrity endorsement to drum up business ahead of Diwali, the traditional gold-buying season. According to Bloomberg News, officials recently met with Amitabh Bachchan to inform the Bollywood superstar of their concerns over his brand-ambassador deal with CoinDCX, another Indian crypto exchange.

The current speculative fervour could use some tamping, though it’s too late to try anything more draconian. Putting an entire asset class off limits won’t be fair to Generation Z investors. They have “grown up on the internet,” says Sharan Nair, CoinSwitch’s chief business officer. “Many are techies like us who like to solve problems in the crypto world by contributing code. What can they do as shareholders of a bank whose website they don’t like?”

About 83% of urban Indians are aware of digital currencies, while 16% actually own them, according to a survey by data analytics firm Kantar. Many more want to — the draw of crypto is now half as powerful as that of mutual funds, a product with which older generations have a far deeper familiarity. That offers a glimpse of what investor portfolios will look like in future: A mix of digital assets and traditional financial products. Even without the reflected light of Bollywood stars, India’s crypto industry isn’t going dark again.



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Acute shortage of crypto experts leads to hike in remuneration in India’s blockchain industry, BFSI News, ET BFSI

Personal Finance

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The number of active job openings in India’s blockchain industry has increased by 50 per cent since last year with 12,000 vacancies, according to Xpheno’s report, an Indian specialist talent solutions company.

The annual salary in the crypto industry has shot up to Rs 80 lakhs for crypto experts with 8 to 10 years of experience, according to the Xpheno report.

Kamal Karanth, the co-founder of Xpheno said that the mainstream visibility and talent-related progress of the crypto industry is still in its nascent stages, despite the industry being 12 years old.

The reason for such a sharp hike in remuneration is attributed to the shortage of a crypto talent base in India and abroad.

It is pushing up the salaries in Indian companies engaged with the global and domestic blockchain industry, the Economic Times reported.

Some other important findings about India’s crypto talent deficit in the Xpheno report are:

* Companies in the blockchain industry mostly search for employees having knowledge and experience in blockchain, machine learning, security solutions, Ripplex solutions, data analysis and front and back-end skills.

According to the Xpheno report, there is a 30 to 60 per cent shortage of skill-set with these specialisations.

* In niche skill areas such as data science and cybersecurity, the shortage is as high as 50 to 70 per cent.

* Karanth has predicted that the shortage of crypto-skilled workforce and the competition in wages will persist for the next two years.

In another report prepared by Nasscom, chamber of commerce of the trade industry in India and WazirX, the Indian crypto exchange, the following findings emerged about job vacancies in the crypto industry:

* Around 50,000 professionals are employed in India’s crypto industry currently.

* According to Sangeeta Gupta, senior vice president at Nasscom, a 30 percent increase in new jobs is expected in the coming months if the sector continues to grow at the current rate.

Since the cryptocurrency domain is still young,, there is a huge gap between the talent and available vacancies. Indian IT companies that are providing services to global clients, fintech start-ups, and consulting firms have been competing for experts in the crypto domain.



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Carry your cards, ATMs are not dying, BFSI News, ET BFSI

Banking & Finance

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There are various reports and discussions on how ATMs are going to vanish soon. But I don’t find any supportive data to believe in it. Digital payments are adding billions of transactions every month and POS terminals are also trying to add the features of ATMs but ATMs will stay in the system for a long time as cash still plays a dominant role in the economy. In fact, there are many restaurants and stores which do not accept any mode of digital payments and believe in only cash. Here is what RBI data of the last two years shows: ATMs are not dying.

State of ATMs – June 2020

Banks Total ATMs ATMs in Rural
PSU Banks 1,34,518 28,900
Pvt Banks 73,098 6,034
SFBs 1,935 199
White Label 23,790 11,807
Total ATMs 2,34,267 46,965

State of ATMs – June 2021

Banks Total ATMs ATMs in Rural
PSU Banks 1,36,889 26,858
Pvt Banks 73,750 6,281
SFBs 2,156 237
White Label 25,995 13,580
Total ATMs 2,39,761 47,011

The data shows that there is a slight increase in the total ATMs from 2020 to 2021. By June 2020 total ATMs were 2,34,267 which increased to 2,39,761 by June 2021. The slight decrease is in the number of rural ATMs by PSU banks may be due to bank mergers.

ATMs are a useful product

ATM was one of the biggest innovations in the banking industry much before digital payments. It killed the long serpentine queues at the bank branches where people used to spend hours to get cash. ATMs allow people to withdraw cash anywhere, anytime according to their convenience. RBI has also ensured that banks have enough ATMs and imposes penalty on banks which don’t maintain their ATMs.

Digital versus ATM

With the rise of digital payments, people have certainly shifted to mobile payments which are far more convenient. But that doesn’t mean that they are not using the cash. India’s cash to GDP ratio is 14.7%, which is much higher compared to the OECD countries.

For online shopping and small payments, people are using mobile payments, but for large payments, they still chose either cash or cheque.

The rise of POS

I often find that POS has been another product that is equivalent to ATMs. Over the years POS also added new features and it’s not just a payment receiving terminal. It has also started dispensing cash and that trend is rising. There are more than five million merchants using POS terminals and many of them are offering cash withdrawal. Recently a payment gateway company Mswipe told me that they are dispensing cash around Rs 50 lakh per day at POS terminals. POS will certainly help small-ticket transactions and areas where there are fewer ATMs.

Need for rationalising ATMs

India has on average 20 ATMs for 100,000 people, the global average is 50. I also find a big mismatch in the placement of ATMs in urban areas. There are areas where dozens of ATMs are set up within a vicinity of 2-3 miles, but there are areas where there are no ATMs at all. I think banks and financial institutions should review their placements. Also, ATM machines need to be upgraded with new features that will inform customers about the shortage of cash before using the machine.

Though people are using digital in villages as well, I am aware of people who travel for 10-12 miles to withdraw cash from ATMs. Jan Dhan Yojana has brought millions of people into banking but still there are many more millions away from banking. And they will need cash.



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Bank of India cuts home, vehicle loan rates, BFSI News, ET BFSI

Banking & Finance

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State-run Bank of India on Sunday announced a cut in its interest rates on home and vehicle loans by 35 basis point and 50 basis points, respectively.

With this cut, the interest rate on home loans starts at 6.50 per cent against earlier 6.85 per cent, and at 6.85 per cent against 7.35 per cent prior on vehicle loans, the bank said in a release.

This special rate, which is effective from October 18, 2021, till December 31, 2021, is available for customers applying for fresh loans and also for those seeking transfer of loans, it said.

The lender said it has also waived processing charges for both home and vehicle loans till December 31, 2021.

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HDFC Bank’s recast loans rise to 1.7%, NPAs ease, BFSI News, ET BFSI

Banking & Finance

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Mumbai: HDFC Bank has reported a significant increase in restructured loans under the Covid relief scheme. Analysts are concerned that a large chunk of these loans might turn into non-performing assets (NPAs).

On the positive side, the bank has reported an improvement in gross NPA ratio by 12 basis points (100bps = 1 percentage point) quarter on quarter to 1.35%. Its subsidiary HDB Financial Services also reported a improvement in GNPA to 6.1% from 7.8% in the corresponding quarter last year.

“However, the restructuring pool for the bank surged sharply quarter on quarter to Rs 20,300 crore (1.7% of loans vs. 0.68% in Q1), mainly led by liberal restructuring in the personal loan book. As a prudent strategy, the bank made additional Rs 1,200 crore provisions in Q2 and now carries a contingent plus floating buffer of Rs 9,200 crore (0.8% of loans),” said Anand Dama of Emkay Global in a research note.

Addressing analysts on Saturday, HDFC Bank chief credit officer Jimmy Tata said, “Restructured loans are considered while making the provisions. If there were to be another shock, the balance sheet needs to be much more resilient, historically we have been conservative and our stance does not change”. He added that the bank was monitoring the restructured loan portfolio based on both pre- and post-Covid behaviour of the borrower. “We do not think the impact will be more than 10-20bps on our NPAs at any point in time,” he said.

The country’s largest private lender on Saturday reported a net profit of Rs 8,834 crore for the quarter ended September 2021, up 18% from the previous year.



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At least seven lenders, including Axis Bank, HDFC Bank and ICICI Bank harness GIFT City facilities, BFSI News, ET BFSI

Banking & Finance

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At least seven lenders, including Axis Bank, HDFC Bank and ICICI Bank, are harnessing the GIFT City facilities to mark a robust Indian presence in the non-deliverable forward (NDF) currency derivatives market, potentially paving the way for eventual currency convertibility that’s considered a draw-card for overseas investments. Average daily volumes in over-the-counter trades at Gujarat GIFT City surged to an estimated $1.5-2 billion from $100-200 million about a year ago, four bankers told ET.

Among the other major participants in the NDF trade are State Bank of India, IndusInd Bank, Kotak Mahindra and Standard Chartered, executives said. “Daily average volumes have surged for offshore OTC NDF trades during the onshore time,” said Bhaskar Panda, executive vice president at HDFC Bank. “This has helped bridge gaps between offshore and onshore prices bringing in relative stability in the exchange rate. This in turn will help attract foreign investors, who always prefer full currency market convertibility.” IndusInd, Kotak and SBI didn’t comment.

The differential between one-month onshore and offshore forwards trade is now less than a paise, which would have been about four-five paise in normal circumstances. A wider differential encourages speculators to tap arbitrage opportunities short-selling rupees or dollars, a potential source for heightened volatility. The one-month Rupee Options Volatility index is now at 4.51 percent versus 7.63 percent nearly a year ago, show data from Financial Benchmarks India (FIBIL). “Axis Bank IBU Branch has been playing a significant role in the NDF markets at GIFT City,” said Lalit Jadhav, CEO – Axis Bank IBU Branch, GIFT City.

“We have a full-fledged Treasury Desk with robust risk controls and look at trading opportunities in this segment which can potentially help reduce volatility and drive price convergence between offshore and on-shore markets.” Before local banks were allowed to tap the NDF market at GIFT City, the Reserve Bank of India was unable to control NDF moves on the rupee-dollar. Now, the central bank even directs private banks along with traditional public sector lenders to buy or sell units, which is known as NDF market intervention.

“NDF business would be one of the core pillars of our business strategy at GIFT City that provides an excellent platform to meet the global banking needs,” said Anupam Verma, head – international banking unit, IFSC GIFT City, ICICI Bank. RBI had permitted Indian banks, which hold a licence to operate in the International Financial Services Centre in GIFT City – Ahmedabad, to participate in the NDF market from June 1 in 2020. “The liquidity has significantly improved in the NDF market at GIFT City with large local banks transacting,” said Anindya Banerjee, currency analyst at Kotak Securities.

“We are gradually moving towards full capital account convertibility making our exchange rate easily available.” RBI deputy governor T Rabi Shankar Thursday called for a preparedness to meet challenges related to full capital account convertibility as foreign investors get full access to India’s debt market under a dedicated route meant for global bond index inclusion.

“A key aspect of currency convertibility is integration of financial markets,” Shankar said at the fifth Foreign Exchange Dealers’ Association of India (FEDAI) annual day. “An effort has already commenced in the interest rate derivative segment.” “NDF-onshore spreads have substantially narrowed after allowing Indian banks into the NDF space,” he said.



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FPIs pull out Rs 19,000 cr from banking, financial stocks in H1; stay cautious in H2, BFSI News, ET BFSI

Personal Finance

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Amid the euphoria in the stock markets, the Foreign portfolio investors (FPIs) have pulled out close to Rs 19,000 crore from the banking and financial sectors in the first six months of the current fiscal.

On the other hand, they have raised their exposure on stocks in the defensive sectors such as consumer goods, IT, pharma and telecom.

According to sector-wise FPI flow data compiled from depositories, FPIs pulled out Rs 18,700 crore from the financial services sector between April and September. Of the total outflows, Rs 13,872 crore went from the banking sector while Rs 4,827 crore was pulled out from ‘other financial services’, which covers financial institutions, non-banking finance companies (NBFCs) and housing finance companies (HFCs).

Nifty Bank lagging far behind vis-a-vis Nifty 50 return on a YTD basis, while the leaders are Nifty Metals, Nifty Realty and Nifty IT.

Banking sector

Within the banking sector, the equity segment witnessed an outflow of Rs 12,964 crore during the April-September period while Rs 1,014 crore went out of the debt segment during H1. On the other hand, the other financial services category witnessed an inflow of Rs 1,159 crore in equities and outflow of Rs 5,797 crore from debt in the first six months of the current fiscal.

“A stand out feature of FPI flows in recent weeks is the outflows from banking and inflows into IT. Even though IT is highly valued, this segment is attracting increasing flows since earnings visibility is high in the segment while banking is struggling with poor credit growth and rising asset quality concerns, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

Defensive sectors

FPIs have been investing in defensive sectors due to rising volatility with the ‘household & personal products’ sector witnessed the highest FPI inflows in the last six months at Rs 6,725 crore followed by consumer durables ( Rs 6,580 crore), retailing (Rs 6,340 crore), telecom (Rs 5,773 crore) and insurance ( Rs 2,881 crore).

Though the economy has recovered in the second half, the market participants are having a cautious outlook as there has been no big jump in loan growth and concerns on NPAs remain.

Going forward, volatility in the global markets as well as global slowdown may impact foreign flows moving into Indian shores.

Also, any direction by US Fed towards tapering of the stimulus measures would make FPI flows into emerging markets volatile and at the same time it would be crucial in dictating the direction of foreign flows into Indian equities.



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