04 October 2011

Sector update Banking “Present tenser” as down-cycle looks imminent,:: Centrum

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Sector update
Banking
“Present tenser” as down-cycle looks imminent, 15% downside risk to stress case despite cheap valuation
Correction in financial stocks has continued unabated in recent months as the anticipated headwinds exerted pressure on investor sentiments. So far, Bankex has declined by ~13% since our sector initiation –in line with our view of 10-15% downside risk given the domestic and global headwinds (report titled “Present Tense, Future (near) Perfect”). Having said that, new risks to the downside have emerged, since our initiation, emanating primarily from the ‘extra-hawkish’ stance adopted by RBI and rising risk aversion globally. With monetary tightening well above our expectations, we have lowered our economic growth assumptions (FY12 real GDP at 7% vs 7.6% earlier). In turn, this has led to a reduction in credit growth estimate (from 18% to 16.5% for FY12) and tightening of our asset quality assumptions. We continue to prefer large cap private banks.
m      Growth down-cycle looks imminent: RBI continues to maintain its hawkish stance underpinned by a single-minded focus on containing inflation. As a result, the repo rate has been tightened more than required in our view. Importantly, there is no indication of RBI easing its stance on tightening, if we go buy the recent commentary, despite noticeable weakening in conviction over growth. Given that monetary tightening has been above our expectations and the trends in incremental data, our economist has revised GDP growth estimates downwards from 7.6% earlier to 7% for FY2012. The downward revision of GDP growth estimate is a reflection of policy inertia, over-hawkish RBI and elevated costs of production & consumption extending beyond comfort. Moreover, the current fiscal situation leaves limited scope for fiscal stimulus when the need arises – a major difference between the situation now and back in 2008.
m      Credit growth estimate lowered to 16.5%: In line with the downward revision of GDP growth estimate (from 7.6% to 7%) and ongoing moderation in credit demand so far into the fiscal, we are lowering our credit growth estimate downwards to 16.5% with a downward bias (vs RBI’s revised estimate of 18%). Importantly, the prolonged moderation in economic growth is likely to translate into a weaker H2FY12 in terms of credit growth.
m      Asset quality cycle to reverse: Besides the impact on credit demand, the downward revision in our GDP growth estimate also implies increased challenges on asset quality front for banks and NBFCs. Given the macro challenges (slowing growth & high inflation), we believe that the deterioration in asset quality (especially SME, export oriented sectors and infrastructure) is likely to be higher than expected earlier. In turn, the macro environment will keep the slippage rate and credit costs higher during FY2012. Already, worsening credit quality has pressurized earnings of banks (especially PSBs) in past two quarters.
m      “Present Tense” likely to extend further: In our sector initiation report titles “Present tense, Future (near perfect” (released in June’2011), we had highlighted the risk of 10%-15% downside given near term headwinds. With domestic growth fundamentals heading well below last decade’s average, the current situation warrants a re-look at our estimates. Effectively, the incremental developments and data trends suggest that pain may extend beyond our earlier expectations. Our revised estimates are 5-6% below consensus estimates as we factor in implications of a slower economic growth in the form of 1) slower credit growth and 2) higher stress on loan book quality.
m      Valuations cheap but risk remains skewed on the downside (~15%): Most banks under our coverage are currently trading below their five year average forward multiple (12 month rolling) but still above -1 standard deviation. While the current valuations are definitely attractive, they could still head towards -1 SD led by 1) anticipated below average macro growth trends 2) uncertainty over global growth 3) increased probability of sovereign defaults in Europe and resulting risk aversion. Specifically, our stress case scenario analysis suggests ~15% average downside risk for banks under our coverage and hence a “pause & play” approach is advised. We continue to prefer private banks over PSBs due to better risk-reward profile at the current juncture.

Thanks & Regards, 

Moody downgrades State Bank of India's (SBI)

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Modest capital and weakening asset quality; senior debt rating unaffected

Singapore, October 04, 2011 -- Moody's Investors Service has downgraded the State Bank of India's (SBI) bank financial strength rating (BFSR), or stand-alone rating, to D+ from C-. The revised rating maps to a baseline credit assessment (BCA) of Baa3.

As a result of the lower BCA, the Hybrid debt rating was downgraded to Ba3(hyb) from Ba2(hyb).

The revised BFSR carries a stable outlook and the Hybrid rating a negative outlook.

Meanwhile, other credit ratings are unaffected and are detailed below.

RATINGS RATIONALE

"The rating action considers SBI's capital situation and deteriorating asset quality. Our expectations that non-performing assets (NPA) are likely to continue rising in the near term -- due to higher interest rates and a slower economy -- have caused us to adopt a negative view on SBI's creditworthiness," says Beatrice Woo, a Moody's Vice President and Senior Credit Officer.

SBI reported a Tier 1 capital ratio of 7.60% as of 30 June 2011. The level pushes the bank into a lower rating band. In addition, it was below the 8% Tier 1 ratio that the government of India has committed to maintaining in public sector banks (PSB) and substantially lower than those of other C- rated Indian banks. The latter include banks such as Axis Bank (Ba1; C-/Baa2; stable), HDFC Bank (Ba1; C-/Baa2; stable), and ICICI Bank (Ba1; C-/Baa2; stable).

Finally, such a level for its Tier 1 capital ratio provides an insufficient cushion to support growth and to absorb potentially higher credit costs from its deteriorating asset quality.

"Notwithstanding our expectations that SBI's capital ratios will soon be restored through a capital infusion by the government, SBI's efforts to secure this capital for the better part of the year demonstrates the bank's limited ability to manage its capital," says Woo.

"And given that a bank's ability to freely access the capital markets is an important rating criterion globally, we therefore believe a lower BFSR for SBI is warranted, especially as these circumstances are likely to recur," says Woo.

As SBI, similar to other PSB in India, will face cyclical swings in its Tier 1 ratio over a 3-year period, we have rated it through the cycle assuming an average Tier 1 capital ratio of 8.5%.

The INR230 billion rights issue that SBI is currently seeking would raise its Tier 1 ratio to approximately 9.30%. However, we estimate that capital deployed for loan growth, assuming 15% per annum for the next three fiscal years, will cause the Tier 1 ratio to fall below 8%, thereby necessitating another capital exercise.

On the asset quality front, the bank's NPA, as of 30 June 2011, reached a 3-year high of 3.52% of loans and INR277,680 million on a absolute basis. For the system, the ratio was 2.3% as of 31 March 2011.

Against a backdrop of a slowing economy and higher interest rates, the rising trend evident in SBI's new NPA formation rate since 3QFY11 will continue.

Therefore, Moody's expects SBI's potential credit costs will be relatively high in the near-term. NPA -- as a percentage of the bank's Tier 1 capital ratio -- is now about 43%.

In determining SBI's stand-alone BFSR, Moody's assessed the bank's capital after incorporating expected losses in its risk assets using scenario analysis. This approach is consistent with Moody's "Calibrating Bank Ratings in the Context of the Global Financial Crisis" (February 2009) and the assumptions in "Stress Testing Indian Banks' Asset Quality" (January 2009).

Under a stress scenario, which assumed a gross NPA ratio of 12.07%, SBI would require INR374.0 billion, or USD8.0 billion, to replenish its Tier 1 capital ratio to 8%. To put this into perspective, SBI's ability to absorb losses in a stress situation is below that of the C- rated Indian banks.

In order for SBI to raise its stand-alone rating, the bank has to increase and sustain the level of its Tier 1 capital, as well as contain its asset quality, in line with other C- rated Indian banks over an extended period.

Finally, the credit ratings incorporate Moody's unchanged assessment that the probability of systemic support for SBI, if needed, is very high, and results in a one-notch lift in its GLC deposit rating of Baa2 from its standalone rating of Baa3.

This view is predicated on SBI's systemic significance in the domestic banking landscape, and its close relationship with the government of India, via the latter's 59.4% holding, and as evidenced by the bank's receipt of repeated capital infusions.

The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

SBI, headquartered in Mumbai in India, had assets of INR12,237 billion as of March 31, 2011. It is the largest bank by any measure in the country.

The detailed ratings and actions are shown below. The ratings carry stable outlooks except where indicated:

The standalone BFSR was lowered to D+ from C- which maps now to a BCA of Baa3 from Baa2; GLC deposit of Baa2; foreign currency long-term/short-term deposit of Ba1/Not Prime; foreign currency long-term/short-term senior debt of Baa2/Prime-2; foreign currency subordinated, or Lower Tier II debt of Baa3; junior subordinated, or Upper Tier II debt of Ba1; and the Hybrid Tier 1 debt was lowered to Ba3(hyb) from Ba2(hyb) with a negative outlook.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

FII DERIVATIVES STATISTICS FOR 04-Oct-2011

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FII DERIVATIVES STATISTICS FOR 04-Oct-2011 
 BUYSELLOPEN INTEREST AT THE END OF THE DAY 
 No. of contractsAmt in CroresNo. of contractsAmt in CroresNo. of contractsAmt in Crores 
INDEX FUTURES979172322.241230932911.4054418112839.39-589.16
INDEX OPTIONS51946712287.1350176311958.31167098339867.70328.82
STOCK FUTURES635521496.46741431767.47111269225618.38-271.01
STOCK OPTIONS18972444.5919017438.6131309746.155.98
      Total-525.37

 
 


--

Taksheel Solutions - IPO: Over subscribe 2.99x; QIB 0.24x, HNI 4.7x and Retail: 6.18x

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TAKSHEEL SOLUTIONS LIMITED

Total Issue Size 5500000
Total Bids Received 16430220
Total Bids Received at Cut-off Price 10710450
No. of times issue is subscribed 2.99 

Sr.No. Category No.of shares offered/reserved No. of shares bid for No. of times of total meant for the category
1 Qualified Institutional Buyers (QIBs) 2750000 666675 0.24
1(a) Foreign Institutional Investors (FIIs) 666675
1(b) Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies) 0
1(c) Mutual Funds 0
1(d) Others 0
2 Non Institutional Investors 825000 3873735 4.70
2(a) Corporates 2015190
2(b) Individuals (Other than RIIs) 1858545
2(c) Others 0
3 Retail Individual Investors (RIIs) 1925000 11889810 6.18
3(a) Cut Off 10710450
3(b) Price Bids 1179360

Updated as on 04 Oct 2011 at 1730 hrs

BSE, Bulk deals, 4/10/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
4/10/2011531686Advik LabVINEET SINHAS474924.14
4/10/2011531560Aroma EnterprisesACCURATE FINSTOCK PVT. LTDB7000072.00
4/10/2011532435Asia HR TechHEMALI MITESH PUJARAB1000005.24
4/10/2011532435Asia HR TechMEENAKSHI MALAYANDIS1000005.24
4/10/2011506027Bhoruka AlumVARMORA KAMLESH DINESHBHAIB16974010.95
4/10/2011506027Bhoruka AlumCHETAN LAXMIKANT DAVEB16202210.35
4/10/2011506027Bhoruka AlumVARMORA KAMLESH DINESHBHAIS16974010.36
4/10/2011506027Bhoruka AlumCHETAN LAXMIKANT DAVES16202210.33
4/10/2011500078Camphor & Allied-$SAINATH HERBAL CARE MARKETING PRIVATE LIMITEDB50000174.47
4/10/2011522292CHANDNI TEMONAECUM PROPERTIES PRIVATE LIMITEDB13312601.05
4/10/2011522292CHANDNI TEAILISH TRADERS PRIVATE LIMITEDS19218351.05
4/10/2011531358Choice IntlANIL ANANT MAHADIKB5649550.18
4/10/2011531358Choice IntlANIL ANANT MAHADIKS5020149.81
4/10/2011522001CranexPIYUSH AGRAWALB3249514.90
4/10/2011531695Dhvanil ChemJHAVERI TRADING AND INVESTMENT PVT LTDB15000014.00
4/10/2011531695Dhvanil ChemSUNNY RASHMIKANT THAKKARS15000014.00
4/10/2011590117Mahaveer Infoway-$VIKAS GAJANAN PATILS3900021.53
4/10/2011500329Pentamedia GrapSHER SINGHB1750001.34
4/10/2011533605PRAKASH CONREEMA MAHESH ASWANIB151759163.59
4/10/2011533605PRAKASH CONDHIREN ANANTRAI MODIB98750158.44
4/10/2011533605PRAKASH CONNAVEEN TAPARIAB405765170.16
4/10/2011533605PRAKASH CONROSE VALLEY MARCHENDISE PVT. LTD.B110000154.08
4/10/2011533605PRAKASH CONMILLENNIUM STOCK BROKING PVT LTDB123392161.79
4/10/2011533605PRAKASH CONVIJETA BROKING INDIA PRIVATE LIMITEDB326628161.80
4/10/2011533605PRAKASH CONGENUINE STOCK BROKERS PVT. LTD.B251026168.58
4/10/2011533605PRAKASH CONN B SHAHB144538158.82
4/10/2011533605PRAKASH CONTRANSGLOBAL SECURITIES LTD.B181394162.95
4/10/2011533605PRAKASH CONMAHESH MEETALB225397166.14
4/10/2011533605PRAKASH CONSHREYA MULTITRADE PRIVATE LIMITEDB68500179.34
4/10/2011533605PRAKASH CONSHREE BHUVANAKARAM TRADINVEST PRIVATE LIMITEDB516726154.36
4/10/2011533605PRAKASH CONSHREE AERAN MARKETING PRIVATE LIMITEDB95162173.46
4/10/2011533605PRAKASH CONA K G SECURITIES AND CONSULTANCY LTDB2703010165.33
4/10/2011533605PRAKASH CONALFA FISCAL SERVICES PVT LTDB200228207.31
4/10/2011533605PRAKASH CONSHETH BROTHERB107415178.63
4/10/2011533605PRAKASH CONJALPA VINIT SOMAIYAB91138158.89
4/10/2011533605PRAKASH CONNIRMALABEN SURESHBHAI PARIKHB65400145.89
4/10/2011533605PRAKASH CONCHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITEDB2716457162.35
4/10/2011533605PRAKASH CONMARWADI SHARES AND FINANCE LIMITEDB301316157.42
4/10/2011533605PRAKASH CONEUREKA STOCK & SHARE BROKING SERVICES LTDB138718169.79
4/10/2011533605PRAKASH CONGKN SECURITIESB1834464164.66
4/10/2011533605PRAKASH CONPRANAV RAVINDRABHAI SHAHB79500152.20
4/10/2011533605PRAKASH CONSANDIPKUMAR KANJIBHAI PATELB155760158.14
4/10/2011533605PRAKASH CONSOLACESTOCKSPRIVATELIMITEDB165000149.63
4/10/2011533605PRAKASH CONARV ENTERPRISESB332041169.15
4/10/2011533605PRAKASH CONR M SHARES TRADING PRIVATE LIMITEDB1080981147.47
4/10/2011533605PRAKASH CONCHAMPAKLAL NARSHIBHAI PUJARAB518648146.39
4/10/2011533605PRAKASH CONCHIRAG BHARAT HUFB70590161.61
4/10/2011533605PRAKASH CONJHAVERI TRADING AND INVESTMENT PVT LTDB80000154.23
4/10/2011533605PRAKASH CONINVENTURE FINANCE PVT LTDB150000154.72
4/10/2011533605PRAKASH CONKAILASH FICOM LTDB69418136.73
4/10/2011533605PRAKASH CONDEEPAK POPATLAL VORAB123738157.85
4/10/2011533605PRAKASH CONOVERALL FINANCIAL CONSULTANTS PVT LTDB94003155.15
4/10/2011533605PRAKASH CONCHETAN LAXMIKANT DAVEB400465153.40
4/10/2011533605PRAKASH CONREEMA MAHESH ASWANIS151759163.32
4/10/2011533605PRAKASH CONDHIREN ANANTRAI MODIS98750163.19
4/10/2011533605PRAKASH CONNAVEEN TAPARIAS405765163.09
4/10/2011533605PRAKASH CONMILLENNIUM STOCK BROKING PVT LTDS123392161.64
4/10/2011533605PRAKASH CONVIJETA BROKING INDIA PRIVATE LIMITEDS326328163.24
4/10/2011533605PRAKASH CONGENUINE STOCK BROKERS PVT. LTD.S251026168.80
4/10/2011533605PRAKASH CONN B SHAHS144538159.14
4/10/2011533605PRAKASH CONTRANSGLOBAL SECURITIES LTD.S181394164.17
4/10/2011533605PRAKASH CONMAHESH MEETALS200397211.17
4/10/2011533605PRAKASH CONSHREYA MULTITRADE PRIVATE LIMITEDS68500193.93
4/10/2011533605PRAKASH CONSHREE BHUVANAKARAM TRADINVEST PRIVATE LIMITEDS347705150.24
4/10/2011533605PRAKASH CONSHREE AERAN MARKETING PRIVATE LIMITEDS95162172.11
4/10/2011533605PRAKASH CONA K G SECURITIES AND CONSULTANCY LTDS2703010165.46
4/10/2011533605PRAKASH CONALFA FISCAL SERVICES PVT LTDS85228234.00
4/10/2011533605PRAKASH CONSHETH BROTHERS78385150.53
4/10/2011533605PRAKASH CONJALPA VINIT SOMAIYAS91138159.71
4/10/2011533605PRAKASH CONNIRMALABEN SURESHBHAI PARIKHS65400142.56
4/10/2011533605PRAKASH CONCHANDARANA INTERMEDIARIES BROKERS PRIVATE LIMITEDS2716457163.42
4/10/2011533605PRAKASH CONMARWADI SHARES AND FINANCE LIMITEDS300816158.88
4/10/2011533605PRAKASH CONEUREKA STOCK & SHARE BROKING SERVICES LTDS138718170.09
4/10/2011533605PRAKASH CONGKN SECURITIESS1834464164.72
4/10/2011533605PRAKASH CONPRANAV RAVINDRABHAI SHAHS79500149.27
4/10/2011533605PRAKASH CONSANDIPKUMAR KANJIBHAI PATELS155760164.72
4/10/2011533605PRAKASH CONARV ENTERPRISESS302041150.23
4/10/2011533605PRAKASH CONR M SHARES TRADING PRIVATE LIMITEDS1080981148.10
4/10/2011533605PRAKASH CONCHAMPAKLAL NARSHIBHAI PUJARAS219912164.19
4/10/2011533605PRAKASH CONCHIRAG BHARAT HUFS70590162.18
4/10/2011533605PRAKASH CONJHAVERI TRADING AND INVESTMENT PVT LTDS80000163.89
4/10/2011533605PRAKASH CONKAILASH FICOM LTDS69418143.53
4/10/2011533605PRAKASH COND.J. SHAH SECURITIES PVT.LTD.S103026158.00
4/10/2011533605PRAKASH CONDEEPAK POPATLAL VORAS123738157.23
4/10/2011533605PRAKASH CONCHETAN LAXMIKANT DAVES300465157.02
4/10/2011503873Priyadarshini SpnPRADEEP KUMAR AGGARWALB7500054.20
4/10/2011532866Quintegra SolCNI RESEARCH LIMITEDB14750002.95
4/10/2011532866Quintegra SolSAINATH HERBAL CARE MARKETING PRIVATE LIMITEDS14750002.95
4/10/2011533470Rushil DecorANKITKUMAR DINESHKUMAR RAVALB135000188.00
4/10/2011533470Rushil DecorSTOCK BROKERS SHASWATB129276193.64
4/10/2011533470Rushil DecorPRAKASHBHAI ISHWARBHAI RANAS144000188.29
4/10/2011533470Rushil DecorSTOCK BROKERS SHASWATS129276187.68
4/10/2011505729Singer IndiaMAYURA ROHIT SHAHB15158138.83
4/10/2011505729Singer IndiaMAYURA ROHIT SHAHS13758038.81
4/10/2011590111VAISHNAVIDHAVAL AMRISH SHAHB14419411.50
4/10/2011590111VAISHNAVIBUDDHAN SINGHS13344511.48
* B - Buy, S - Sell
** = Weighted Average Trade Price / Trade Price