Tag: stock market

What has led to Indian millennials storming the stock market

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A surge is visible in the equity markets, both in pre- and post-Covid India. Besides, most of the newcomers are between the age of 20 and 30 years. This young generation, or the so-called millennials, are more adaptive to new technology, apart from being keen on finding new ways to achieve their goals. There are other catalysts to this influx of first time participants. For instance, the entire stock markets ecosystem has evolved over the last five years and is conducive to new young participants.

Also, the surge of learning platforms and more genuine resources to conduct research has further helped spur the participation. Unlike their previous generations, the term stock market doesn’t bring a sense of fear among millennials as they are well read and well informed. They take their own decisions and take calculated risks in the markets.

Reduced dependency on brokers

Previously, the brokerage firms were dominating the industry in terms of providing a platform to trade, stock suggestions and managing money on the client’s behalf. However, with the entry of new-age tech brokers the industry has seen a drastic change as now there are separate companies offering different specialised solutions to each of the above services — a trading platform, specific recommendations and holistic financial planning.

The new entrants have given special attention to ease of use and focus towards providing a hassle-free experience through the use of technological advancements. It’s a win-win for all. From KYC updation to new account opening, everything can be done digitally. Almost everything is just a click away.

Besides, the broking industry has also become highly competitive in terms of the charges, which have given a further fillip to millennial participation. Zerodha, which is a discount broker, for instance, saw higher influx of younger investors during the pandemic. Investors in the age group of 20-30 years now make up 69 per cent of the company’s investors compared to 50-55 per cent pre-Covid.

Growth in learning platforms

Millennials prefer to make their own decisions. They focus on learning about stock markets and stock market education platforms have provided a lot of support. There is a plethora of knowledge available on the internet, — including blogs, YouTube, and online courses –at optimal cost to help people start their own stock market journey.

Some popular stock market education portals cover topics from basics to expert level. Examples of such platforms include Udemy and Elearnmarkets. These platforms offer courses suiting all needs–offline, online, self-paced, or live.

This has helped young participants to first develop a proper knowledge base and then venture into the markets so that they are more apt to handle the volatile nature of the market.

Ease of doing research

Earlier, the brokers and media houses used to do all the research and give trading calls to their clients through news, calls and reports. The scenario has now changed with the millennials barely relying on such news and preferring to do their own research. In this regard, research sites have gained popularity, which has simplified the process of doing fundamental and technical analysis.

Offering a host of information such as market news, charts, financial data of companies, everything at a click, online tools and platforms have made stock research quite accessible. Stockedge is one such platform that hosts such information. These platforms have helped participants take well-informed decisions. Access to information and readymade analytics is no more a barrier for them. Other platforms such as TradingView, Chartink, have made intraday trading easy for active traders in the market by providing them solutions that help them make quick decisions during market hours.

We see how the entire ecosystem has become very inclusive and supportive for anyone to join in, learn and grow.

The stock market has recently been in an upward trend and has raised optimism among newbies. But the market is unpredictable and may become volatile soon. Experienced participants manage through such volatile phases and only time will tell if the millennials shy away or continue with their journey.

The author is a co-founder and CEO of StockEdge & Elearnmarkets.com

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Fincare SFB files DRHP for IPO of up to ₹1,330 cr

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Fincare Small Finance Bank will be making an initial public offer (IPO) aggregating up to ₹1,330 crore, comprising fresh issue aggregating up to ₹330 crore and an offer-for-sale aggregating up to ₹1,000 crore by the promoter selling shareholder.

Fincare SFB proposes to utilise the net proceeds from the fresh issue towards augmenting its Tier-1 capital base to meet its future capital requirements, according to the bank’s Draft Red Herring Prospectus (DRHP).

The bank may, in consultation with Managers (to the IPO), consider a pre-IPO Placement aggregating up to ₹200 crore, the DRHP said.

Fincare SFB’s promoter, Fincare Business Services Ltd, owns 78.59 per cent stake of the bank’s issued, subscribed and paid-up equity share capital.

Also read: Motilal Oswal PE buys minority stake in Fincare Small Finance Bank for about ₹185 crore

In terms of the RBI’s SFB Licensing Guidelines, the bank is required to list its equity shares on the stock exchanges within three years from reaching a net worth of ₹500 crore.

As per the DRHP, Fincare SFB has a network of 528 banking outlets, 219 business correspondent outlets and 108 ATMs spread across 16 States and three Union Territories, covering 192 districts and 38,809 villages as of December 31, 2020.

The bank’s network is particularly strong in south (Tamil Nadu and Karnataka) and west India (Gujarat), it added.

According to the prospectus, the bank had a gross loan portfolio and total deposits of ₹5,548 crore and ₹5,277 crore, respectively, as at December-end 2020.

Following the RBI granting Disha Microfin Ltd (DML) a licence on May 12, 2017 to carry on small finance bank business in India, its name was changed to Fincare Small Finance Bank.

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SBI MF likely to be listed in Q1 of FY23, says SBI MD, BFSI News, ET BFSI

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A blip or a pause of three months should not affect the long-term story of our economy, says Ashwani Bhatia, MD, State Bank of India.
What is your understanding of the economy and the business impact of the second Covid wave? The first wave was brutal on banks and the economy. How big has been the collateral damage so far?
It is kind of a repeat of what we had last year except for the fact that the spike in the infection curve has been parabolic. That was not expected. Last year, the lockdown came in the last week of March. This time it has come in the third week of April in different locations. We saw an increase in deposits initially and then in the second half the credit pick up happened, housing loans took off, governments gave discounts and reduced the stamp duty. Interest rates are already at a record low, demand was there and people have saved a lot and spent a lot also.

Till the first week of April, we have seen the instalments coming in. So, to that extent, we have not seen any deterioration in the numbers. Last year, we also gave options to customers, especially on the retail side, to postpone their instalments. But all the instalments came and we did not see any stress in particular over there.

Going forward, I would only hope and pray that the same thing repeats in this financial year also. So far, it is holding up. We hope that this does not last more than a quarter and the flattening of the curve starts happening soon. The fact that the government announced vaccination for all above 18 from May 1 is welcome. Money has gone into Bharat and it has gone into Serum Institute. So, some kind of supplier credit has happened. From our side, we can only be hopeful. It is too early to take any call very frankly.

The problem is at the bottom of the pyramid, the lower strata and the MFI space where job losses have happened and migrant labour issues are going to be challenging. Will the second wave impact this end of the society and would the borrowing cycle be even harder because the numbers are so big that the impact is going to be felt very hard?
Quite possible but again, it is very difficult to give a definite direction. If more lockdowns are announced, there could be loss of life and livelihood just like last time. This may be repeated this year also but it is too early to take a call on the numbers or on the delinquencies. The initial estimates are that the lockdown is not as severe as it was last year where there was no traffic on the roads, no toll collection, the aircraft were not running, the trains were not permitted to run and so on. This time, it has been more measured, more calibrated. So the collapse of demand may not be as strong this time around.

Digital may continue to see an uptick, deliveries are happening and to that extent, the services sector that was really impacted may not be that bad. Very frankly, it is just a wait and watch kind of a situation and I do hope that within the next one month, things improve.

Last time, RBI came out with a moratorium to help the borrowers. The government came out with credit guarantee schemes which gave a lot of help to the entire SME and MSME sector. Do you think a similar scheme should be considered again?
I think the jugalbandi that you saw last year will continue into this year also. So let us just go back to what the governor said in his last policy statement. He actually used the word whatever it takes and there are plenty of measures that RBI can always take and the fact that he has announced things like the government securities acquisition programme, the fact that he said OMOs would be in addition to this. He will be accommodative to all those things. RBI will be in readiness to provide all support to the financial sector, to the industry and to the economy.

There was some optimism in the last couple of months. Could the second wave challenge that optimism?
Three months in the life of an economy does not really make a difference. At the most, it can be postponed by three months to six months. The commodities cycle still looks pretty strong, pretty robust. A blip or a pause of three months should not affect the long-term story of our economy.

Birla AMC has already filed for an IPO. There is HDFC Life. There is Nippon. There is Birla. When will SBI AMC see the light of the day?
I would think that within a year we should be done with the process. So SBI Mutual Fund will definitely be the next subsidiary of the State Bank Group that will be listed. So maybe around the first quarter of the next financial year.

The digital business which is the YONO business, has reached a critical mass both in terms of size and the fact that it is now nearing its break even while a lot of other fintech firms in the payment business are still losing money. When are you planning to monetise it?
The question of monetising may be some time away or we are not even thinking about it. It still needs to gain critical mass. We think that it will grow very fast this year also. We have been having a CAGR growth of about 35% there. We are in excess of 5 lakh crores plus the PMS that we do is another Rs 7 or 8 lakh crore or so. The total business that is managed is about Rs 13 lakh crore. It has scaled up very well. The profitability numbers are also likely to be decent for the previous financial year and the digital bit. So many changes are happening every other month. A lot of scope exists over there.

State Bank of India is the only large bank which did not raise capital even at the peak of the pandemic news. Do you have sufficient capital buffer to participate in the growth cycle?
We are very comfortable at the moment. You will see our numbers within the next one month. We think that our capital requirements are met by our own internal reserve and profits that we have. As time goes, we will have a look at equity raising but in the next six to seven months, I do not think we’ll be coming to the market. We are quite well and adequately capitalised at the moment.

Citi India has gone on record saying that they want to monetise their consumer businesses, credit business and wealth management businesses. Is there any business there which excites you?
Certainly. So maybe not the whole piece, but if it is available in segments, we may look at some part of it.

Can you be slightly more specific about which end of the business excites you?
There are plenty of things. Number one is their retail franchise itself. The kind of clientele they have is interesting as is credit cards business and even their housing portfolio. We will examine it once the opportunity is shown to us.

ET Now: A lot of other banks are facing breakdown issues including some of the best private sector banks but SBI has done a great deal of technology advancement. How did you adopt that?
Ashwani Bhatia: When SBI Mutual Fund became number one in the market, somebody asked me how could you beat the private sector players and I said why not? Where do we lack in human resources, capability and reach? I would give the same answer here also.

SBI has reinvented itself again and again. We have shown direction everywhere. In the ‘60s and ‘70s, it would have been the small scale industry (SSI) or agriculture, MSME sector wherever. I would think that we would continue to be thought leaders and provide support in whatever form and we will use the best in-house talent to improve our capabilities, our products and our technology.



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Average deal sizes have been going up for last 3-4 years, says Kotak Investment Banking CEO, BFSI News, ET BFSI

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FY21 saw 120 deals on the ECM side, raising more than Rs 2,20,000 crore compared with FY20 that had 65 deals raising about Rs 1,40,000 crore, says S Ramesh, MD & CEO, Kotak Investment Banking.

How special was FY21 in your view and how are things geared for the next couple of months in FY22?
I would say FY20 and FY21 were exemplary years for the investment banking industry. FY21 was a notch higher and was a great year for the industry. Just to put some statistics around this, FY21 saw 120 deals on the ECM side, raising more than Rs 2,20,000 crore compared with FY20 that had 65 deals raising about Rs 1,40,000 crore. Similarly, the advisory and M&M side deals announced in FY21 were close to $120 billion compared with about $90 billion in FY20.

The components of the ECM business were IPOs and QIPs and we also saw during the last two years, the largest right issue came in from RIL and on the M&M and advisory side, the financial sponsors, private equity and the tech dominated in terms of doing deals. Overall, for the investment banking industry and for us, it has been a very busy time.

How do you expect FY22 to be?
We expect FY22 to continue on similar lines. There is a little bit of pause and fatigue in the equity capital market (ECM) given the volumes of deals and the bad news around Covid, but the pipeline is quite strong.

The composition of money is changing. Historically, US-based North American funds have been dominant in India but this time capital flow is coming from newer geographies. Give us some flavour of the kind of money which is coming in.
If I were to look at money flow in the context of the ECM deals, for some time now Asia and India have been dominant but let me give some new perspectives. There are a bunch of investors, particularly the sovereign wealth funds, who have been present in the secondary markets but who were not so active in IPOs. We are now seeing a change in that trend. In some of the recent IPOs, we saw sovereign wealth funds come in and invest a reasonable amount of money. We expect this pattern to continue. Similarly, emerging funds out of Europe have preferred participating in large caps and in the secondary markets. They have moved the bar a little bit to participate in midcap IPOs. We are seeing the trends continue.

We are also seeing very active involvement from hedge funds which are opening their long only books to remain invested in some of the IPOs. In our conversations with clients — both private equity investors and corporates — we find that there is reasonable optimism about deal making. There is also optimism that Indian markets have a great architecture to allow them listing or do M&A deals.

There is also an optimism that the flow of money will continue. Except for these odd windows when we may have abatement both on advisory and payment & cash management (PCM) — we continue to see a fair bit of optimism among both investors and clients.

What kind of enquires are in the pipeline? We understand that Nykaa, Zomato and policybazaar IPOs are in the offing. Some of the big new tech companies are showing interest about coming to D-Street.
I will not give you the names but I will give you an idea what kind of pipeline we are seeing. I think 2022 and 2023 are likely to be dominated on the equity capital market side by new listings on the tax base. The new age companies’ pipeline is quite active. There is also good interest from investors to invest in these companies. We have already seen some announcements of pre-IPOs and we expect the new age tech company IPOs to be very active.

The second space is specialty chemicals and allied space. Some very interesting and large names which have remained unlisted over the last many decades are now finding it worthwhile to consider listing. The healthcare sector continues to see inquiries and so we will see listings of healthcare and occasionally large auto ancillary companies. Last but not the least, the financial services space will see IPOs.

Quite a few names are likely to get listed over the next 12 to 18 months and this will give us an idea of the flavour of the sector. In the last one to two years, we saw real estate or financial services dominating the IPO space. We are now seeing more diversification. Newer sectors like specialty chemicals, agri chemicals and some very interesting companies in the consumer space are making it quite interesting for investors to engage. Our conversations with clients and investors show that there will be reasonable interest to partake in some of these offerings. On the QIP front, there was a lot of fundraising that happened front ended in FY20 and a little bit in FY21.While there will be some action in FY22, a lot more may happen in FY23.

Are the average deal sizes also going up? Is there more risk appetite among the investor community for some of these newer assets?
When we talk to investors and clients, we find there is a profound recognition that the sustainable way to build wealth is through a proper listing on the stock market and continuing to nurture it. There is one trend line that we have seen every year over the last three-four years. The average deal sizes have kept moving up and investors generally like large companies where they have the ability to participate. The impact cost is less and if these companies do well, they will have the ability to get into various indices over time.

We are noticing conversations. Companies are now looking at much larger floors than they were before. The average deal size has moved to Rs 1,000 crore but I will not be surprised if over the next one to two years, this needle will move a notch up to maybe Rs 1,500 crore. There are other deal sizes which are larger.

In the last two years, SBI Cards IPO was the largest in the private sector at close to Rs 10,000 crore. This year, Rs 6,479.55-crore Gland Pharma IPO took place. We were involved in both these deals. Larger deal sizes are preferred by investors. In some of these new age tech companies, we are seeing similar conversations where the deal sizes and the floors are likely to be large.

A quick word on where are we on the cycle as far as the stock market is concerned? Do you see any upside in 12-24 months as far as the earnings are concerned?
I will break it up into two parts. I think we are currently all in this second wave that has hit India in particular and other parts of the world. So, the move is a little muted but there is more optimism because there was a turnaround and a lot of companies were doing well. Some of the industries and sectors found their way through this muddle.

Currently, you will have to give a little time for companies to spend off the temporary lockdowns and come back. In general, I will make two points. Both on the corporate and the economy side there is more optimism that India in particular, over the next few years will do well. The second thing is that given this backdrop and given that governments all over the world are loosening their purse strings, we expect the flow to be quite good for India.

The emerging markets in particular are likely to benefit but India will get a reasonably good proportion of these funds. We think that liquidity will not be a challenge but there will be pockets where you have to be careful. Otherwise, the trend line is quite positive when we look at the next two or three years.



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Sensex and Nifty ends flat amidst high volitality, financials underperform, BFSI News, ET BFSI

Personal Finance

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Domestic equity market benchmarks BSE Sensex and Nifty 50 traded flat on Friday. Benchmark indices erased most of the intraday gains and ended on flat note on April 16 amid high volatility. At close, the Sensex was up 0.06% at 48,832.03, and the Nifty was up 0.25% at 14,617.90.

Except financials all other sectoral indices ended in the green. ICICI Bank, SBI Bank, Bajaj Finance were among top index laggards.BSE Midcap and Smallcap indices outperformed broader indices today as recent fall in the space made investors to do bargain trading in quality midcap and small cap space.

The Nifty Bank Index ended flat at 31,977 down by 0.42%. Amongst the biggest losers were- ICICI Bank at Rs 566 (-1.43%) followed by Bandhan Bank at Rs 322 (-1.09%), RBL Bank at Rs 187 (-1.03%), SBI at Rs 339 (-0.82%), Kotak Mahindra at Rs 1,764 (-0.54%). Amongst biggest gainers were IDFC First Bank at Rs 54 (2.29%) followed by AU Small Finance Bank at Rs 1,077 (2.05%), Induslnd Bank at Rs 862 (0.54%).

Nifty Financial Services ended also flat at 15,362 losing 0.16%. Amongst the biggest losers were – Bajaj Finance at Rs 4,616 (-0.94%) followed by REC at Rs 127 (-0.78%), Power finance at Rs 109 (-0.32%). List of gainers included- Muthoot Finance at Rs 1,168 (1.31%) followed by HDFC at Rs 2,574 ( 1.06%), Chola Invest at Rs 540 (0.99%), Bajaj Finserv at Rs 9,824 (0.87%).

Other key takeaways

Gold prices recover in India, back above Rs 47,000
Gold prices recovered in Indian markets on Friday, after closing above Rs 47,000 per 10 gram for the first time since February 23, 2021, in the previous session. Although MCX gold June futures were trading weak, down Rs 85 or 0.18 per cent at Rs 47,090 per 10 grams, against the previous close of Rs 47,175.

MCX silver was trading at Rs 68,407 per kg, down Rs 169 or 0.25 per cent, as compared to a previous close of Rs 68,540 per kg. On April 13, MCX gold hit Rs 47,000 mark in intraday after nearly two months. Last year in August, MCX gold touched a record high of Rs 56,191 per 10 grams.

Rupee Close
Indian rupee extended the early gains and ended near the day’s high at 74.35 per dollar, amid buying saw in the domestic equity market. It opened higher by 13 paise at 74.79 per dollar against Thursday’s close of 74.92 and traded in the range of 74.28-74.79.

Rising domestic cases above 2-lac per day, widening India’s trade deficit, and the recent rebound in the crude oil could be a headwind for the Rupee. Overall, the short-term range for the USDINR is likely to be from 74.20-75.50.

Dow closes above 34,000 for first time
The Dow industrials closed above 34,000 for the first time on Thursday as the blue-chip benchmark and S&P 500 posted fresh record highs on a tech stock rally fueled by falling bond yields and strong March US retail sales, according to Reuters. The Dow Jones Industrial Average 0.9 per cent, the S&P 500 gained 1.11 per cent, and the Nasdaq Composite added 1.31 per cent.



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Bitcoin: Keep 10-15% of assets in physical gold, avoid Bitcoin: Mark Mobius, BFSI News, ET BFSI

Personal Finance

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I do not think Bitcoin is a good asset class for the average investor and the simple reason is that converting Bitcoin into cash that can be used is an extremely difficult and even dangerous proposition, says Mark Mobius, Founder, Mobius Capital Partners.

While the good is definitely getting better in metals, is the best yet to come?
All the metal prices are up and even in areas like palladium, platinum, etc, they are all moving up very quickly. That will be reflected downstream.

Is it imperative now to have some portfolio allocation to Bitcoin and continue with investments in gold as an asset class along with equities?
I do not think Bitcoin is a good asset class for the average investor and the simple reason is that to convert Bitcoin into cash that can be used is an extremely difficult and even dangerous proposition. The US government is after many of these Bitcoin exchanges. So, this is something I would not recommend.

However, gold at this level sounds like a good investment. In fact, I have added some gold to my own portfolio because I think it has reached a sort of turning point where we are going to see a recovery in gold prices. But even if you are not following gold on a day-to-day basis, from a long-term point of view, you are better off with 10% or 15% of assets in physical gold.

Would it be the same case for silver as well?
Yes silver, platinum and palladium as well. It is a good idea to diversify in these precious metals. The four key ones would be gold, silver, platinum and palladium.

Where do you stand as an investor in the entire home decor segment including paints?
We have not been able to find a company meeting our requirements in terms of the fundamentals in this area. Most of them are rather small. There are some exceptions but we have not found the right investment in that area. But I would not discourage anybody from looking at that and investigate more carefully because companies like paint companies and companies that are doing furniture might be an interesting entry into that sector.

What happens to the real estate revival in India? While the second wave could put a bit of a dampener, is this a sector one should stay invested in?
 The real estate sector is very interesting, particularly in India, because the demand for housing is almost endless. We are not going to see a let up in demand for many years to come. Many Indians are living in substandard housing and they want to do better and as incomes rise, there will be a greater demand for housing.

The issue in the housing market is of course having reliable systems of registration and financing these houses and apartments. This is a big challenge for not only the federal government but also the individual states. In fact there has been the idea of using blockchain to track ownership of houses and apartments. I am familiar with the US system of title insurance which might be an answer for India going forward.



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Benchmark indices starts the new financial year on a positive note; financials outperform, BFSI News, ET BFSI

Personal Finance

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Market opened with a gap up at 14798.40 following the global peers but could not maintain the higher levels and took the support near the levels of 14700. However, Benchmark indices ended with a percent gain on the first day of the new financial year supported by the metal and financials.

At close, the Sensex was up 520.68 points or 1.05% at 50,029.83, and the Nifty was up 176.70 points or 1.20% at 14,867.40. Except FMCG, all other sectoral indices ended in the green with Nifty metal index rose 5% and PSU bank index added 2.6%.

The Nifty Bank Index ended higher at 33,858 adding a good 1.66%. Amongst the top gainers were- RBL Bank at Rs 216 adding 4.17% followed by Federal Bank at Rs 78 (4.02%), Bandhan Bank at Rs 350 (3.54), AU Small Finance at Rs 1,267 (3.26%), Kotak Mahindra Bank at Rs 1,804 (2.94%), Axis Bank at Rs 713 (2.23%) and ICICI at Rs 594 (2.11%).

Nifty Financial Services ended higher at 15,909 adding over 1.23%. Amongst the biggest gainers were- Indiabulls Hsg at Rs 204 adding 4.15% followed by Bajaj Finance at Rs 5,272 (2.37%), Bajaj Finserv at Rs 9,781 (1.25%), Muthoot Finance at Rs 1,214 (0.70%), Chola Invest. at Rs 562 (0.66%) and Power Finance at Rs 114 (0.57%).

Stock in Talk
Indian Overseas Bank: Indian Overseas Bank in its BSE filing said it has received a capital infusion of Rs 4,100 crore from the government towards the contribution of Central Government in the preferential allotment of equity shares of the bank during the Financial Year 2020-21, as government’s investment

Bank of India: The bank in a BSE filling informed that Government of India has infused capital of Rs 3,000 crore in Bank of India for the purpose of preferential allotment of equity shares after obtention of shareholder’s approval in the extraordinary general meeting and other related regulatory approvals

Other key takeaways

GST collection in March 2021 at record high of Rs 1.23 lakh crore
GST Revenue collection for March’ 21 sets a new record. A new record of Rs 1,23,902 crore in form of Goods and Service Tax (GST) revenue was collected in the month of March 2021, the Ministry of Finance said on April 1.

“The gross GST revenue collected in the month of March 2021 is at a record of Rs 1,23,902 crore of which CGST is Rs 22,973 crore, SGST is Rs 29,329 crore, IGST is Rs 62,842 crore (including Rs 31,097 crore collected on import of goods) and cess is Rs 8,757 crore (including Rs 935 crore collected on import of goods),” an official release stated

Nifty futures lot size cut to 50 from 75,effective from July contracts
All monthly expiry contracts starting from the July expiry contract will have a lot size of 50. July contracts will start trading from April 30, 2021. However, according to a SEBI circular, the April, May, and June contracts will continue to have a lot size of 75. The circular also stated that the lot size of all existing Nifty long term options contracts (having expiry greater than 3 months) shall be revised from 75 to 50 after the expiry of June 2021 contracts.

Govt to infuse Rs 14,500 crore in 4 PSU banks through recapitalisation bonds
The Finance Ministry on Wednesday notified that the government will infuse Rs 14,500 crore through recapitalisation bonds in four public sector banks. The notification issued by the finance ministry said that the government would infuse capital by issuing non-interest-bearing bonds to banks.

Currency market shut today
Indian currency market will remain shut on April 1 on account of annual bank closing. On March 31, Indian rupee ended near the day’s high at 73.11 per dollar versus Tuesday’s close of 73.38.



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Uday Kotak, BFSI News, ET BFSI

Banking & Finance

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Uday Kotak, MD & CEO, Kotak Mahindra Bank, in conversation with Nikunj Dalmia of ET NOW at the Times Network India Economic Conclave 2021.
During the last India Economic Conclave (IEC), you had said that India needs banks but it needs few PSU banks, it needs adaptation of fintech and it needs consolidation in the sector. I guess you knew what was happening because that indeed is happening one year after our interaction?
I do believe that India has made very serious progress in this pandemic era and actually grasped the opportunity of what we need to do. Therefore the financial sector is in for a significant change. The government’s move of testing out with two public sector banks is first of its kind and this combined with the fact that over time you will have four or five large state owned banks and private sector banks and at the same time opening up competition in the sector is the right way to go. At the same time, we need to be clear that in the last one year, Covid has changed our lives in the field of technology and financial services by a multiplier of five. What would have otherwise taken us five years is happening in one year. That is what we are going to be ready for.During the course of 2020 every time we interacted with you on various forums your words were: “India Inc has been hit. It is like a ship which is now trapped in muddy waters.” Is the challenging time behind us? Has the ship reached the shore?
Covid has created a new category of what I call as haves and have nots. The people who have had access to capital are in the category of haves and that is primarily the organised sector or companies which have access to public markets as also private equity and the have nots are the ones who did not have access to capital. There is a very stark difference between the haves and the have nots, based on access to capital. Therefore, even if you are from a stressed sector, if you have access to capital you are in good shape. If you do not have access to capital, you are in a tougher position and that is the difference which we have seen happen in front of us. That is as a result of dramatic pouring of money and liquidity globally and in India as well. That has enabled equity capital to rescue most of the organised sector.

The broad commentary from India Inc is one of highest-ever margins, strongest demand visibility and high optimism. A year ago, there was fear, gloom and doom on the Street. How does one differentiate the kind of indications which we are getting from India Inc.? Are these permanent or are there spurts of demand like sugar rush?
One year ago we did not know what hit us, we had no idea of the contours of the Covid impact. Today one year later, we seem to understand the virus a little better though it continues to mutate. At the same time, there is greater optimism on the possibility of vaccination of a lot of our people though I think it is going to take a few months more for us to get to a more comfortable place.

At the same time, we have started being able to deal with this virus in terms of our lives, what we can do, what we cannot do. We have adapted our life to the new reality. All these are the pluses and that is one of the reasons why business and industry feels they are in a better place than what it was one year ago.

Having said that, things will need to be better handled on the virus and vaccination moving forward but we have to be careful of a mindset of complacency. The virus has not gone one year later. It is still around and we feel more comfortable with it. But the virus is mutating and therefore I will certainly be looking with optimism because we are seeing a changed world. But I keep my guard up. I would not lower my guard too soon and make this more a marathon rather than a sprint.



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Saswata Guha, Fitch Ratings, BFSI News, ET BFSI

Personal Finance

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We are pretty mindful of the fact that a fair degree of underwriting has been done by banks over the last three to four years in certain cases quite aggressively and some of that underwriting is probably yet to see the right kind of seasoning yet, says Saswata Guha, Director & Team Head, Fitch Ratings.

The gist of your report is that the impact of pandemic going forward is likely to pose challenges for the banking sector. You have said that not only credit cost will rise but even the NPA situation would get challenging. Most of the large banks say they have adequately provided for the challenges which lie ahead. What is your hypothesis for this space right now?
The hypothesis is primarily based on the premise that not everything that is arguably stressed is getting recognised at the moment as NPL, simply because there continues to be several forbearances in place as well as the judicial stay on some of the moratorium loans.

The number is roughly about 4% odd over and above the system’s NPL ratio which is roughly around 7%. But having said that, the 4% still does not account for the incipient stress including anything that is 30-60 days overdue and that is a number that has been on the rise quarter on quarter across the banks.

But more importantly, what it does not include are the several SME loans which have been refinanced under the various easy refinance schemes under the government’s relief measures and that cumulatively means that whatever the government is guaranteeing is just about 20% of the total exposure. The total exposure of those loans is roughly about 8.5% of the total system loans and when you start adjusting all of these into the number that we have at the moment, it is quite clear that at some point, whether it is easy liquidity condition or waning of some of the forbearances, it is likely to have an impact on asset quality. Whether that will manifest in the next financial year and whether some of it will get pushed further out because of forbearance measures being extended, we do not know, but it is quite clear that whatever banks are reporting while not being outside of our expectations, also does not present the full picture.

There is a race to bottom as far as home loans are concerned. Other consumer loans are also getting quite competitive. Meanwhile, fixed deposits rates etc also are in a race to the bottom. From here on, do you see rates hardening? How much do you see the additional borrowing cost for the NBFC universe? Will the banks face the same pinch?
Funding costs will be impacted. The declining funding cost trajectory has been a huge contributor to the fact that banks have continued to do well through a time of very limited growth. At some point, we do expect the funding cost to bottom out but if you were to consider the current liquidity situation, of which funding costs are a significant function, we expect that to continue at least for some more time, at least for a large part of this particular calendar year.

Any upward movement on the rate side will put pressure on the banks but what is important here is to also understand the inclination of the banks to lend now that it is being driven by two factors. One is credit demand itself which continues to remain reasonably subdued, at least as of now. The other of course is the bank’s ability to lend and in this situation, I have to call out the state owned banks which are constrained by virtue of the capitalisation.

Both of these factors are contributing to very limited credit supply. So without the inclination of banks to go out and lend in a meaningful way, it will not put pressure on the loan to deposit ratio which would therefore mean that banks might still have some headroom even after the rates start inching up for them, to be able to maintain their funding costs at low rates.

But quite clearly, what we have seen as of now is not sustainable because at some point we expect rates starting to inch up. You have raised a fairly valid point on retail credit and we have seen a fair bit of that and continue to see banks almost getting lock, stock, barrel into that space and trying to give out retail credit as much as possible.

It is quite possible that certain parts of retail credit, especially home loans, may prove to be a little more resilient than what we had expected initially and that was back in 2020 when things were very very uncertain. But there is also a large segment of unsecured credit cards within retail which are the usual suspects which we deem as vulnerable. You could also see vulnerabilities emanating on account of loan against property, loan against shares and some spaces which NBFIs dabble in a lot more than banks.

That is one space where we would see potential pressure in future. What is challenging with retail and to an extent even SMEs is that unlike large corporates which were pretty much the epicentre of the last asset quality cycle, it is very difficult to try and square in on an individual SME or an individual retail given how granular this portfolio is.

Banks would have to look at it on a portfolio basis but we are pretty mindful of the fact that a fair degree of underwriting has been done by banks over the last three to four years in certain cases quite aggressively and some of that underwriting is probably yet to see the right kind of seasoning yet. In times to come, clearly we will see some pressure and the litmus test of that portfolio.



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Ajay Srivastava, BFSI News, ET BFSI

Banking & Finance

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We will see more and more of this happening because the sheer demand of loans has collapsed in the economy and that is the challenge for the economy and the banks, says Ajay Srivastava, CEO, Dimensions Corporate Finance.

There is a very aggressive home loan rate war out there. Kotak Mahindra Bank has reduced home loan rates to 6.65% till March 31. SBI is giving it at 6.70%, HDFC Bank and ICICI Bank at 6.8%. How are you reading into this? Would the ticket sizes of these home loans be much lower than pre Covid times?
It is an indicator that there is nowhere to lend. Most companies are able to access capital and they have realised that when capital is available at these valuations, why the hell borrow money? Let us dilute. So across the board, we see QIPs, PE fund raising, sale of companies. I do not meet a promoter who wants to borrow money at the end of the day. He is likely to raise capital and keep it in the bank.

The lowering of home loan rates come out of the sheer desperation of not having enough avenues to lend money to. How much can you lend money on personal loans, unsecured loans etc? That is not the smartest way to play the game. Historically, the housing loans have been the most stable platform for most of the institutions. HDFC ruled the roost and would continue to do so because their DNA and the cost structure are very different.

These banks will often come in, play the game and try to get you as a customer but all it tells you is that there are no borrowers of significant kind and they have run through individuals as borrowers because who wanted to borrow, you did not want to lend to and instead are targeting those who don’t want to borrow. So, it is very peculiar. You will see more and more of this happening because the sheer demand of loans has collapsed in the economy and that is the challenge for the economy and the banks. So yes, it is down there but not so much that we get excited.

Would you buy HDFC? It is a fantastic business but the stock is underperforming?
I do not think it is underperforming. The stock got rerated quite sharply. I have a holding in that stock and I do not sell it. It went from Rs 1,500 to Rs 2,800. It got back to Rs 2,500, if I am not wrong. It is an incredible franchise and they have done a remarkable job at doing two things — balancing corporate real estate loans and individual real estate loans, doing side investment as well. And of course there’s the holding company. They hold the best bank in the country, the best life insurance company, the best AMC in the country. That is the India story at the end of the day.

What they do not have is Fintech in their portfolio. So, they have got a problem there. Maybe they will come in there through HDFC Bank. but There is no better surrogate for Indian economy than HDFC as an institution. The problem is it is so over owned as a stock that if FIIs decide to sell or one large FII decides to dispose it off, there will be a large correction in the stock.

As a retail person if you are starting your life, that is the stock I want to keep for my children’s education, for my retirement. It is in a separate category. Do not evaluate it day-to-day. Instead, 17 years from now, this stock should pay for your son’s education.



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