Weekly Market Updates

Posted on 22-Apr-2017 Comments  0

Big News

The banking results for the fourth quarter ending March 2017 have just about started coming, but the first signs of divergence are already visible. There has been a divergence between private banks and PSU banks for quite some time. That was on the parameters of growth,margins, profitability, NIMs and the quality of assets.

The divergence is evident from the fact that HDFC Bank alone has a market valuation that is higher than all the PSU banks (including SBI)combined. That gives you an idea of the amount of wealth that Private Banks has created in the past few years at the expense of the PSU banks. But now the divergence within the private baking space is becoming clearer.…

Legacy versus non-legacy assets…

This is where newer banks tend to have a distinct advantage. However, even within the private banking space, there are clear cases of legacy assets putting pressure. For example, IDFC Bank is up against a major problem of legacy infrastructure assets inherited from IDFC.Similarly ICICI Bank has a problem with its own legacy as a financial institution as well as its legacy of aggressive growth through the 1990s and 2000s. On the contrary, banks like HDFC Bank, Kotak Bank and IndusInd Bank have managed to overcome the legacy problem more successfully. This is only going to sharpen the divergence.

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Market Capsule

Highlights of the Week (Apr 17 – Apr 21) and Impact Analysis

Major News Item

Impact Analysis

  • Yes Bank and IndusInd Bank give positive profit growth

  • For both the banks, the worry was on the NPA front with slippages visible in the aftermath of demonetization

  • In case of Yes Bank, the Gross NPAs doubled from 0.76% to 1.52%, although it is still comparatively comfortable

  • NALCO divestment sees good demand from retail and QIB investors

  • The OFS was priced at a discount to the market price making the stock attractive to OFS investors

  • The demand for NALCO was also buoyant due to a pick-up in growth in China and strong global metal prices

  • Credit growth sinks to a 60-year low at just 5% for the fiscal year 2016-17

  • The fall in credit growth is being interpreted by many analysts as a sign of disintermediation in debt fund raising

  • Despite surplus liquidity with banks to the tune of Rs.4 trillion and lower MCLR,credit growth from banks is yet to pick up

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