Visit http://indiaer.blogspot.com/ for complete details �� ��
• We highlight the key risks for Indian financials, with the Sensex and
Bankex near all-time highs. Our positive view, based on strong
fundamentals, is unchanged; however, we think the stretched valuations
warrant a closer look at the risks. Disintermediation, oil prices, and
regulatory intervention are the major issues that worry us. Herein, we
also flag key risks for each individual stock.
• Oil prices could sour the macro sweet spot: Our base case is that India
grows at 8%+ amid continued global weakness and QE2-driven capital
flows. These factors, however, also support high oil prices, which could
destabilize the economy via inflation and/or fiscal pressures. On the
other hand, if the US recovers and global liquidity tightens, stocks could
suddenly de-rate, irrespective of fundamentals.
• Disintermediation and sluggish loan growth: Offshore borrowing is
accelerating, led by rising rate differentials and a liberal policy attitude.
Moreover, the base rate regime has encouraged market borrowing.
These, coupled with weak capital spend, have depressed FY10 YTD loan
growth to an anemic 7%. Continued disappointment in 2H could trigger
earnings downgrades.
• Regulatory and government action: The RBI has only moved on rates
so far, but could broaden its tightening to capital and reserve ratios if the
liquidity flows continues rapidly. Government action has hurt MFs, MFIs
and lifecos, and there is a risk to banks as well. These would test bluesky
assumptions.
• Buy protection: ICICI, HDFC Bank and PNB: A good way to protect
against these risks is to focus on banks/fincos with: a) strong capital, b)
stable liabilities, c) conservative credit practices, and d) moderate
valuations. Our alternate portfolio which combines these attributes is
ICICI, HDFC Bank and PNB. We reiterate that our base case remains
bullish, as we think a strong economy and continued capital flows will
ensure strong returns for Indian banks.
No comments:
Post a Comment