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India Banks Asia Roadshow
Pessimism all over!
Event
Feedback - Investors very bearish: We met around 35 investors during our
roadshow on Indian banks in HK and Singapore. Investors continue to be
underweight Indian banks and are unlikely to change their positions in the
near term.
Impact
Bearish stance: Investors in Asia continue to be very negative especially the
Singapore based investors with some of them even arguing that PSU banks
need to trade at 0.5x P/BV. Long Only funds are underweight Indian banks
and Hedge funds are still looking for short ideas though at the margin some of
them have covered their short positions a bit due to the sharp fall in stock
prices. Certain sections of the investors argued that this time it could be even
worse than GFC considering how ineffective and helpless the Government
has been with virtually no policy making and action on the ground and if
political situation persists like this downside could be huge.
PSU banks under-owned: Hardly anyone owned any PSU bank. HDFC
Bank continued to be a core holding for many of them and though many of the
investors liked Kotak, they argued that they would rather own HDFC Bank and
would not prefer owing both HDBK and Kotak. Some interest in YES Bank
was seen. SBI was a complete “NO”. Hedge funds were looking for short
ideas and some of them are short on PSUs like PNB and NBFCs like LICHF.
Indian banks better than Chinese banks: Quite a lot of comparison with
Chinese banks and many clients felt that, on a relative basis, Indian banks
looked better than Chinese banks given that the issues with Indian banks are
known and at least they have started reporting bad nos whereas Chinese
banks remain a black box, yet to see a bad result and nos cannot be trusted.
Lack of any catalyst in the near term: Many of them agreed with our view
that there isn’t any positive catalyst in the near term and valuations could
remain subdued for a long time. The only catalyst is the cut in interest rates
which at this point in time is quite some time away considering inflation
dynamics. Interest was also lower in names like ICICI and Axis as investors
were very skeptical on the quality of exposures built up. Lot of investors were
disappointed with HDFC Ltd’s quality of earnings (with more than 50% now
coming from non-retail loans) and them taking recourse to aggressive
accounting practices to inflate earnings.
Retail could also get affected: Finally a very interesting thought emerged
from some meetings which also possibly explains the recent weakness in
HDFC Bank’s share price. They argued that India can’t have a slowdown
where only corporates participate and retail segment remains insulated. The
last leg of the downfall could be driven by retail. There would be job losses in
retail segment, growth has to slowdown and slippages would increase (though
largely cyclical and nothing structural) which is not captured into estimates.
Outlook
We maintain our bearish stance on the sector. Top pick remains HDFC Bank
and top underperform is SBI followed by PNB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Banks Asia Roadshow
Pessimism all over!
Event
Feedback - Investors very bearish: We met around 35 investors during our
roadshow on Indian banks in HK and Singapore. Investors continue to be
underweight Indian banks and are unlikely to change their positions in the
near term.
Impact
Bearish stance: Investors in Asia continue to be very negative especially the
Singapore based investors with some of them even arguing that PSU banks
need to trade at 0.5x P/BV. Long Only funds are underweight Indian banks
and Hedge funds are still looking for short ideas though at the margin some of
them have covered their short positions a bit due to the sharp fall in stock
prices. Certain sections of the investors argued that this time it could be even
worse than GFC considering how ineffective and helpless the Government
has been with virtually no policy making and action on the ground and if
political situation persists like this downside could be huge.
PSU banks under-owned: Hardly anyone owned any PSU bank. HDFC
Bank continued to be a core holding for many of them and though many of the
investors liked Kotak, they argued that they would rather own HDFC Bank and
would not prefer owing both HDBK and Kotak. Some interest in YES Bank
was seen. SBI was a complete “NO”. Hedge funds were looking for short
ideas and some of them are short on PSUs like PNB and NBFCs like LICHF.
Indian banks better than Chinese banks: Quite a lot of comparison with
Chinese banks and many clients felt that, on a relative basis, Indian banks
looked better than Chinese banks given that the issues with Indian banks are
known and at least they have started reporting bad nos whereas Chinese
banks remain a black box, yet to see a bad result and nos cannot be trusted.
Lack of any catalyst in the near term: Many of them agreed with our view
that there isn’t any positive catalyst in the near term and valuations could
remain subdued for a long time. The only catalyst is the cut in interest rates
which at this point in time is quite some time away considering inflation
dynamics. Interest was also lower in names like ICICI and Axis as investors
were very skeptical on the quality of exposures built up. Lot of investors were
disappointed with HDFC Ltd’s quality of earnings (with more than 50% now
coming from non-retail loans) and them taking recourse to aggressive
accounting practices to inflate earnings.
Retail could also get affected: Finally a very interesting thought emerged
from some meetings which also possibly explains the recent weakness in
HDFC Bank’s share price. They argued that India can’t have a slowdown
where only corporates participate and retail segment remains insulated. The
last leg of the downfall could be driven by retail. There would be job losses in
retail segment, growth has to slowdown and slippages would increase (though
largely cyclical and nothing structural) which is not captured into estimates.
Outlook
We maintain our bearish stance on the sector. Top pick remains HDFC Bank
and top underperform is SBI followed by PNB.
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