2 Nifty Stocks That Motilal Oswal Has A “Buy” Call For Good Gains

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Buy HDFC Bank, says Motilal Oswal

The broking firm has set a target price of Rs 2,000 on the stock of HDFC Bank, as against the current market price of Rs 1,676. According to the firm, strong recovery in retail loans along with robust trends in commercial and rural loans resulted in a pick-up in NII growth to 12% YoY vs 8.5% YoY in 1QFY22.

“Core net interest margins stood flat QoQ at 4.1%. This coupled with healthy fee income resulted in a net profit of Rs 88.3 billion (+18% YoY; inline),” the brokerage has said.

According to Motilal Oswal, the bank witnessed a healthy pickup in business momentum as deposits/loans were up 4.5% QoQ each. Retail segment grew 13% YoY while Commercial and Rural Banking grew robustly at 27.6% YoY. CASA deposits grew 29% YoY and the ratio now stands at 46.8% (+130bp QoQ).

Motilal Oswal’s valuation and view on the stock of HDFC Bank

Motilal Oswal’s valuation and view on the stock of HDFC Bank

“Earnings were in line, despite making additional contingent provisions to strengthen its Balance Sheet. Asset quality ratios have improved, while the restructured book increased to 1.5% of loans (v/s 0.8% in 1QFY22). However, high provision coverage and contingent provision buffer provide comfort on asset quality.

Pick up in loan growth particularly retail would aid NII and margins which would drive profitability. Our estimates remain unchanged at 20% PAT CAGR over FY21-24E, with a RoA/RoE at 2.1%/18.3% in FY24E. We maintain Buy and roll-forward our estimate to Sep’23E with a revised target price of Rs 2,000 per share (3.6 times Sep’23E ABV + Rs 120 per share from subsidiaries),” the brokerage has said.

Buy HCL Tech for target of Rs 1,430

Buy HCL Tech for target of Rs 1,430

The brokerage also sees an upside potential of Rs 1,430 on the stock of HCL Tech, as against the current market price of Rs 1,212.

“We are encouraged by the strong performance in the Services business, especially the ER&D vertical, where the demand environment remains favorable. With the management expressing confidence in continued growth momentum in the business in 2H, this should drive growth in FY22,” the brokerage has said.

“We tweak our FY23E EPS estimate by 2% due to a slower pickup in high margin Products and Platforms business. We maintain our Buy rating as we expect traction in the Services business in 2HFY22E and FY23E, driven by higher IMS/Cloud-focused deals. Our target price of Rs 1,430 per share implies 25 times FY23E EPS,” the brokerage has said.

Disclaimer

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal Financial Services. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.



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Shipping industry faces ESG heat from lenders, BFSI News, ET BFSI

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LONDON: Banks are demanding much stricter environmental criteria when financing shipping companies as investor pressure grows on the sector to accelerate going greener, according to Boston Consulting Group (BCG).

Shipping, which transports about 90% of world trade, accounts for nearly 3% of the world’s CO2 emissions and BCG forecast the industry will need $2.4 trillion to achieve net-zero emissions by 2050.

“ESG-driven requests are already prompting more action from banks. Shipping is already feeling it and they (shipping companies) are under pressure now,” said Peter Jameson, partner with BCG, which are consultants for the COP26 UN climate summit that starts on Oct. 31.

Standard Chartered has already provided loans linked to sustainability targets for drilling group Odfjell and the shipping division of Oman’s Asyad Group, the bank has said.

“When looking at lending on new assets, banks are going to create a bigger conduit for CO2 reductions through their policies,” Jameson told Reuters.

“The banks are also seeing insurance companies feeling shareholder pressure and this is also causing big pension funds to reassess.”

Leading shipping financiers currently provide close to $300 billion of lending to the industry annually, analysts estimate.

Of the $2.4 trillion that BCG estimates will be needed to achieve net-zero emissions by 2050, Jameson said $500 billion would be required between now and 2030 with the remaining $1.9 trillion between 2030-2050.

The bulk of the total amount – around $1.7 trillion – would go towards developing future fuels.

“Funding sources are already becoming available, yet plenty more are still required,” Jameson said.

ESG-related assets under management are estimated to represent up to 80% of total lending to shipping by 2030, BCG said.

UN shipping agency the International Maritime Organization (IMO) has said it aims to reduce overall greenhouse gas (GHG) emissions from ships by 50% from 2008 levels by 2050, but industry groups are calling for more progress from governments.

“The risks to balance sheets will start to force more questions being asked to the IMO,” said Ulrik Sanders, managing director at BCG, adding that this would “prompt more action towards decarbonisation”.



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Net profit drops but disbursements improve, BFSI News, ET BFSI

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Mumbai: L&T Finance Holdings (L&T Finance) the non-banking finance company of the engineering to IT group reported a 10 per cent fall in net profit year on year as its loan book shrunk even as collections and disbursements improved in the second quarter ended September 2021.

Net profit dropped to Rs 223 crore in the quarter ended September 2021 from Rs 248 crore a year ago largely due to a 12 per cent fall in interest income to Rs 2903 crore from Rs 3282 crore a year ago.

Interest income fell as the company’s loan book shrunk an identical 12 per cent to Rs 86,936 crore from Rs 98,823 crore led by a 21 per cent fall in real estate finance and a 19 per cent fall in infrastructure finance. Compared to the first quarter ended June 2021, the loan book fell 2 per cent. To be sure, the company is refocussing its business towards rural and retail housing away from infrastructure and real estate finance.

CEO Dinanath Dubhashi said the second wave of the Covid pandemic as well as skewed monsoon have had an impact on the business environment in the second quarter, though some businesses have seen a strong pick up in the quarter.

“L&T Finance’s rural finance business had its best-ever Q2 disbursement and witnessed normalisation in collections and disbursements,” Dubhashi said adding that he expects disbursements to further pick up in the rest of the fiscal.

In the second quarter, rural finance saw the highest ever disbursement at Rs. 4,987 crore, up 51 per cent from June 2021 leading total disbursements of Rs 7,339 crore in the quarter, led by financing for farm equipment, two-wheeler loans and microfinance.

In real estate finance, the company is now focussing on projects at an advanced stage of construction and disbursements in new proposals undertaken only for pre-approved top developers, while in infrastructure finance the focus is refinancing operational solar projects and funding of greenfield projects.

Collections too normalised across businesses to pre-pandemic levels led by data analytics, concerted field efforts and gradual unlocking of the economy, L&T Finance said.

The company is carrying additional provisions and one-time restructuring provisions of Rs. 1,747 crore which is 2.22 per cent of the standard book which is over and above its gross NPA provision.

The total gross NPA in absolute terms stood at Rs. 4,796 Cr or 5.74 per cent of loans up from 5.19 per cent a year ago but unchanged from 5.75 per cent reported in the quarter ended June 2021.

The company had liquid assets in the form of cash, fixed deposits and other liquid investments of Rs. 13,122 crore at the end of September 2021.



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BofA survey shows fund managers worried about growth expectations, BFSI News, ET BFSI

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Mumbai: The latest monthly survey by Bank of America Securities showed fund managers are increasingly worried about growth expectations, China and stagflation.

Cash levels are at a one-year high while growth expectations are the weakest since April 2020, the survey showed.

According to the survey, 6 per cent of fund managers believe global growth will weaken in the next one year while 15 per cent said profit growth will slow. Predictions of a ‘boom’ have dropped to 61 per cent while that of stagflation have risen to 34 per cent, said Bank of America Securities.

Around 85 per cent of the fund managers surveyed expect higher short term rates and pencil one Fed rate hike for 2022.

Short China was the most crowded trade, the survey showed.

The survey also showed that inflation, China and COVID-19 were the biggest risks.

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I-banks rake in decade-high $611mn on IPO, M&A wave, BFSI News, ET BFSI

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MUMBAI: The IPO frenzy and M&A wave are minting money for Deal Street.

Fees earned by big investment banks and boutique advisory firms in India rose to $611 million (over Rs 4,500 crore) in the first nine months of 2021, making it the highest in a decade. Equity issuances raked in $237 million (about Rs 1,770 crore) as IPO fund-raising activity spiked, followed by $196 million (Rs 1,465 crore) fetched by M&A and $177 million (over Rs 1,300 crore) by debt deals.

With two months left for the year to be completed, Ibanks anticipate record revenue on the back of bullish deal making momentum. In 2010, advisory fees were about $900 million and, in 2007, it had topped $1 billion. This calendar year till September 24, Bank of America earned the most ($55 million), vaulting three places from number four in 2020 to top the charts, according to data from Dealogic – a global tracker of investment banking business. Rival US banks JP Morgan and Citi retained their second and third positions, grossing $50 million and $35 million in revenues.

I-banks receive the bulk of the advisory fees on completion of an M&A or IPO transaction. Significantly, their earning charts are closely tracked as they determine bonus payouts for dealmakers. Switzerland’s Credit Suisse with $33 million revenue climbed one spot to number four in the latest rankings, while local bank Axis rocketed to the fifth position from 13th last year with $32 million. “2021 has been the busiest year for us in the last several years,” said Bank of America MD (investment banking) Asit Bhatia. “The IPO pipeline is the strongest it has ever been. 2021 will end as a record year in terms of equity capital market (ECM) fund-raise,” he said.

India Inc raised over $9.5 billion in the first nine months of this year through 72 IPOs. And with more companies intending to list on the stock exchanges in the coming months, 2021 will create anew record for IPO fundraise. Fees from ECM – which include IPOs, follow-on offerings and block deals – surpassed that of M&A for the first time in four years for Ibanks, according to Dealogic.

Kotak Mahindra Bank and Avendus, in which private equity fund KKR owns a majority stake, broke into the top 10 list of dealmakers by fees earned in 2021 till September 24. Kotak Mahindra netted $31 million in revenue, while Avendus, riding on transactions like Prosus buying BillDesk for $4.7 billion in what was the largest M&A in India’s fintech space, earned $28 million. Avendus, which is mainly into M&A advisory, is looking to get into capital market advisory to cash in on the IPO deal activity as several tech-enabled companies, including unicorns, make public-listing moves, said one of its top executives.

Firms are also looking to add freshers and seasoned investment bankers, said ICICI Securities head (investment banking and institutional equities) Ajay Saraf.



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‘RBI should’ve acted on YES Bank 5 months earlier’, BFSI News, ET BFSI

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MUMBAI: Former State Bank of India chairman Rajnish Kumar has said in his book that the Reserve Bank of India should have sacked the Yes Bank board five months earlier in November 2019 as the bank was already losing deposits and defaulting on reserve requirements.

In his book, ‘The Custodian of Trust’, the former SBI chairman has provided some behind-the-scenes glimpses of what went into resolving something that appeared as a Lehman Brothers moment for India. It was during his tenure that the financial sector was hit by the triple failure of IL&FS, DHFL and Yes Bank.

Giving a hint of the workings of Yes Bank, Kumar reveals how the private lender stepped in to help GVK attain financial closure for its Navi Mumbai project. The Rana Kapoor-promoted bank had charged a high upfront fee even when SBI — which was several times bigger and facing pressure from various authorities — was reluctant given the group’s stressed situation. He has also questioned the delay in deciding on the reappointment of Kapoor, which left the RBI with no choice but to offer a three-month extension up to January for Kapoor.

Pointing out that Yes Bank’s plan to raise capital was not well thought out and the board had not applied its mind to a revival plan, Kumar said, “The action that the RBI took as late as March 2020 could probably have been taken as early as November 2019. But everyone is wiser in retrospect.”

Kumar has also dwelt extensively on the Jet Airways collapse. According to him, the SBI board was wary of backing Kumar on a resolution plan for the airline without a letter of comfort from the finance or aviation ministries. The airline’s fate was finally sealed after Etihad rejected the resolution plan.

According to Kumar, the negotiations with Etihad had turned ugly with both Jet promoter Naresh Goyal and SBI coming around to the view that Etihad was only interested in the Jet Privilege programme where it held stake and wanted to open this to other airlines. When this was mentioned to Etihad CEO Tony Douglas in a meeting by SBI MD Arijit Basu, the Etihad chief moved menacingly towards Basu and was stopped by Kumar’s intervention.

Kumar, whose tenure coincided with the great bad loan clean-up in Indian banks, also exposes some bitterness in banks taking the fall for a collective failure among stakeholders. “Attributing non-performing loans entirely to crony capitalism or zombie lending only highlights the lack of an in-depth analysis of the situation, in turn causing resentment among bankers,” he said.

The book, which is published by Penguin, is dedicated to the late Arun Jaitley who Kumar says guided him in crucial decisions. It was Jaitley who supported SBI’s decision to bite the bullet and provide for bad loans with a wry statement in Hindi: “Aur kya kar sakte hain, Rajnishji? (What else can be done?)”

Another interesting fact is that the reclusive former governor Urjit Patel, who was earlier on the SBI board, met Kumar only once during his tenure and closed the doors for all communication with banks.



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Britain’s Lloyds Bank to close another 48 branches, BFSI News, ET BFSI

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Lloyds Banking Group will close a further 48 branches across England and Wales, the British lender said on Wednesday, as it seeks to further cut costs by trimming its physical network.

The closures are the latest in a string of such moves by the bank, which in June announced the closure of 44 different branches.

Banks have stepped up branch closures after many paused restructuring for much of last year to focus on responding to the COVID-19 pandemic.

“The announcement by Lloyds Banking Group of closing a further 48 bank branches is a complete betrayal of the communities and staff who have long supported this highly profitable business,” said Sharon Graham, general secretary of employment union Unite.

Lloyds said it is responding to customers using branches less frequently, and that it is piloting a scheme whereby ‘community bankers’ visit customers in their areas.

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Bitcoin ETF Trade Spurs Bitcoin To All Time High Levels: How To Invest In Them?

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Planning

oi-Roshni Agarwal

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Millennials have been an excited lot entering this uncharted world of crypto and top their frenzy now Bitcoin ETFs have even been allowed to trade. And as the trading in the first ETF backed by Bitcoin kicked off, bitcoin prices hit a new all time high price of $66,974 per token.

Bitcoin ETF Trade Spurs Bitcoin To All Time High Levels: How To Invest In Them?

Bitcoin ETF Trade Spurs Bitcoin To All Time High Levels: How To Invest In Them?

Notably the first Bitcoin futures ETF-have started trading on the New York Stock Exchange so how does we sitting in India can invest in them. Here is in brief on how to go about investment in Bitcoin ETF.

Now in the current regime, engaging in trade in such an investment avenue shall not be possible through Indian brokerage account and like you invest in foreign stocks through specific platforms for them, you would be able to buy bitcoin ETFs through similar portals.

What are Bitcoin ETFs and why is the first traded ETF futures based?

An exchange-traded fund is an investment that tracks an underlying asset class for its price and other features. Herein the bitcoin ETF shall track the price of bitcoin futures traded on the Chicago Mercantile Exchange, rather than bitcoin itself. Notably, here the underlying shall not be the real bitcoin but bitcoin futures trading independently on regulated U.S. exchanges such as CME.

How bitcoin ETFs are a better proposition?

The ETF route in cryptos is highly being appreciated for the investor base it shall be able to bring owing to the safety pertaining to the security as well as storage of the asset class.

Further being backed by the stock exchanges such as the New York Stock Exchange as well as the SEC, investors’ interest in the instrument shall be manifold given the seen momentum it has imparted to crypto Bitcoin in just 1 day of trade on the exchange.

“The introduction of Bitcoin ETF will enable a lot of people to start investing through traditional investment channels. For Indians who are looking to invest can look to buy this ETF through brokers soon as they should launch it in near future and see a massive demand,” Udupa- Co-Founder of Scenes by Avalon is quoted in a leading business daily.

GoodReturns.in



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National Asset Reconstruction Company: First set of NPA transfer to bad bank likely by January

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Last month, the Cabinet approved a proposal to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL, which is estimated to cost the exchequer Rs 30,600 crore over five years. In the first phase, fully-provisioned toxic assets will be transferred.

The National Asset Reconstruction Company (NARCL), or the so-called bad bank, is expected to witness the transfer of the first batch of toxic assets worth about Rs 90,000 crore by January 2022, banking sources told FE.

Earlier this month, the NARCL got a licence from the central bank to start operations. “It’s (NARCL) in the process of forming its board. Large stressed assets have already been identified, so their transfer is unlikely to be delayed beyond late December or early January,” a top banker familiar with the development told FE. The asset transfer will be a decisive step towards the resolution of large stressed assets worth Rs 2 lakh crore in the banking system.

Last month, the Cabinet approved a proposal to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL, which is estimated to cost the exchequer Rs 30,600 crore over five years. In the first phase, fully-provisioned toxic assets will be transferred.

The Indian Banks’ Association (IBA), which is spearheading the initiative to set up the bad bank, has put in place a preliminary board for the NARCL. Padmakumar M Nair, a chief general manager in the stressed assets resolution group of State Bank of India, has been appointed the managing director of NARCL. IBA chief executive Sunil Mehta, SBI deputy managing director SS Nair and Canara Bank chief general manager Ajit Krishnan Nair have also been inducted to the NARCL board so far. More directors are expected to be appointed soon.

The plan to set up NARCL comes at an opportune time. Gross NPA ratio of banks may surge to 9.8% by March 2022, under a baseline scenario, from 7.48% in March 2021, driven partly by the Covid crisis, according to the Reserve Bank of India’s Financial Stability report in July.

Although the Centre is giving guarantee on the SRs, it has not contributed to the equity of the Rs 6,000-crore NARCL. In fact, public-sector banks (PSBs) will hold 51% in it and private players will own the rest. Similarly, the PSBs and public financial institutions will have a 49% stake in the India Debt Resolution Company (IDRCL), which is being set up as an asset management company to work out the non-performing assets (NPAs) under the overarching NARCL structure, and the rest will be held by private lenders.

The NARCL will acquire the assets at net book value by offering 15% of it upfront (in cash), and the rest (85%) in SRs. Once the bad loan is resolved, realisation for the relevant bank would be in sync with its SR interest in that asset.

Typically, the NARCL will acquire assets by making an offer to the lead bank. Once its offer is accepted, the IDRCL will then manage the bad loans, add value to them and finally sell them off.

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Improved Spends: Driven by storefront QR codes, offline merchant transactions grow

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The surge in offline merchant payments during Q2FY22 has been aided by the opening up of more stores and businesses ahead of the festive season and after the second wave of Covid-19

Offline merchant transactions, driven by storefront quick response (QR) codes, grew faster than online merchant transactions during the quarter ended September, according to a report by PhonePe. Industry players attributed the pick-up in offline digital transactions to the pandemic-era habit of minimising cash usage as also the unlocking of businesses after the second Covid wave receded.

In its report on digital payment trends in July-September, PhonePe said that offline merchant payments — such as paying at kiranas in store — grew faster than online merchant payments at a sequential rate of 65%. “In a clear indicator of recovery post the second wave of the pandemic, and stores rapidly opening up, nearly four out of five merchant payments are now offline payment transactions,” PhonePe said in the report.

Industry executives are of the view that the increased incidence of digital payments that was observed when the pandemic first broke out has turned into a habit for many people. Consumers now seek the same convenience in paying for groceries or vegetables that they have got used to while ordering food or electronics online.

Anand Kumar Bajaj, founder & CEO, PayNearby, said the rise in offline payments seen in the last few months is a direct outcome of people getting used to paying digitally for e-commerce products and services over the last two years. “We have also seen the number of QR-enabled storefronts rise by 22-23%. The newly acquired convenience of paying online from home has now translated into a search for a similar kind of convenience offline,” he said.

The surge in offline merchant payments during Q2FY22 has been aided by the opening up of more stores and businesses ahead of the festive season and after the second wave of Covid-19. Independent fintech expert Parijat Garg said the number of merchants offering QR-based payments has increased, with small roadside shops and vegetable vendors also joining in. “This year, the growth in transactions has been good because of improved sentiment and the easing of mobility restrictions. The fact that there is no fixed cost involved has also helped the adoption by a large number of offline merchants,” Garg said.

Historically, merchant payments at brick-and-mortar establishments in India relied mainly on debit and credit cards, which required a point of sale (POS) machine at every store. The spread of QR-based transactions has offered merchants, especially those operating on thin margins, an option to accept cashless payments with hardly any increase in cost.

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