Week ended June 22, 2012 WEEKLY ROUND UP : ICICI Bank research
24 June 2012
Week ended June 22, 2012 WEEKLY ROUND UP : ICICI Bank research
Week ended June 22, 2012 WEEKLY ROUND UP : ICICI Bank research
Reserve ratios and themoney multiplier effect :Business Line
Recently, there has been much discussion on whether the RBI would consider changing its reserve ratio to alter credit availability in the economy. What is reserve ratio and how does it affect money supply in the economy?
RESERVE RATIO
It is the minimum amount of deposits and notes that commercial banks are mandated by their respective central bank to set aside as reserves for contingency.
This move is established in view of unanticipated (bulk) withdrawals from customers so that banks are able to (at least partially) meet their repayment obligations.
Thus, if commercial banks receive Rs 1,000 as deposits from customers, they set aside a proportion — say 5 or 10 per cent — of that Rs 1,000, which cannot be lent to borrowers. Only the remaining 95 or 90 per cent of the deposit amount (deposit – RR*deposits) can be loaned out.
Private banks geared for Basel III :Business Line
With the introduction of Basel III norms, Indian banks’ minimum capital requirement, as a proportion of risk-weighted assets, is set to rise in the next six years. This could apply pressure on the return on equity of Indian banks, especially those in the public sector. Given that banks need to have core equity (shareholder funds) in excess of 8 per cent by 2018, the ability to leverage may also be limited going forward.
WHY BASEL III?
After the financial crisis of 2008, many financial institutions had to be bailed out by their respective governments. This necessitated stricter regulations, including higher capital requirements for banks to weather future shocks relatively better.
The Basel Committee on Banking Supervision in December 2010 introduced the Basel III rules which consist of higher core equity requirement (common shareholder funds), higher leverage ratios (tier-1 capital-to-total exposure), bringing more instruments into coverage and maintenance of liquidity ratios.
Pivotals: Infosys, Reliance Industries, SBI, Tata Steel :Business Line
Reliance Industries (Rs 711)
Reliance Industries remained volatile and slipped 2 per cent in the past week. The stock is hovering above a key support level Rs 700. Fresh short positions are recommended only if the stock declines below Rs 700 with stop-loss at the same level. In such a scenario, the stock can decline to Rs 684 and to Rs 670 in the short-term. Important supports below Rs 670 are positioned at Rs 657, Rs 632 and Rs 610 levels.
However, strong breakthrough of the stock’s immediate resistance at Rs 730 will provide some bullishness and lift the stock higher to Rs 746. Decisive rally beyond Rs 746 can lift it higher to Rs 770 and to Rs 792. We restate that as long as the stock trades below Rs 790 levels, its medium-term trend remains down.
How compound interest can make you RICH! :MorningStar
It's not just how much money you start with that counts, it's also how much time you allow that money to work for you.
Compound interest arises when interest is added to the principal of a sum, so that from that moment on, the accumulated interest that has been added also earns interest.
We see examples of compound interest in our everyday finances, both working for us, such as the interest in our savings accounts and investments, as well as against us, such as the interest accrued on credit card balances, mortgage payments, etc.
When it's working for us, the great part about compound interest is that it can help us to achieve our financial goals, such as becoming a millionaire, retiring comfortably, or being financially independent.
HDFC BANK (HDFCB IN, 1-OW, PT RS590): STEADY PERFORMANCE ::Barclays Capital,
HDFC BANK (HDFCB IN, 1-OW, PT RS590): STEADY PERFORMANCE
HDFC Bank remains our top pick in the private sector banks space. Its strong liability
franchise, relatively conservative provisioning policies, and track record of consistent
delivery justifiably position it as a low-risk investment. Its strong pre-provision
profitability provides it a strong loss-absorbing cushion in the current environment. We
raise our price target to Rs590 from Rs539 as we roll forward the stock’s valuation on
22x one-year forward earnings. The key risk to our call is a slowdown in the bank’s
growth.
Edelweiss, DLF Seeks approval for sale of wind mills
DLF is seeking shareholders’ nod for sale of its wind power business,
which we believe is a pre-cursor to its eventual sale. Media reports
indicate a deal value of INR10bn. We believe the company’s focus on
asset monetization is a positive and we reiterate ‘BUY’ on the stock.
STERLITE INDUSTRIES Raykal acquisition ‐ too early to cheer:: Edelweiss,
Sterlite Industries has purchased 24.5% stake in Raykal Aluminum
(Raykal) for INR 2bn. Raykal owns prospecting licences (PL) in bauxite
mines in Orissa which can potentially feed Vedanta Aluminium‘s (VAL)
1mtpa alumina refinery. Though directionally positive, we believe mine
commencement is 3‐4 years away considering approvals and mine
development processes. With uncertainties in obtaining mining approvals
in India and the back‐ended nature of mine commencement, we think it’s
too early cheer on this development. We maintain ‘BUY’ with a target
price of INR146.
INDIA BANKS It’s a U- not a V- shaped recovery ::Barclays Capital
INDIA BANKS
It’s a U- not a V- shaped recovery
We maintain our view that FY13 will be another tough year for the banking sector.
The macro environment is likely to remain difficult, particularly in contrast to the
sharp recovery of FY10. Credit quality trends are unlikely to improve sharply as
industrial production is particularly weak, corporate leverage is high and the power
sector is likely to require restructuring. Growth is likely to remain moderate as
investment activity remains sluggish and an inflation-fighting RBI restrains
monetary growth. On the revenue front, we expect fee growth to remain moderate
and we see some downside risk to NIMs. We have 1-OW ratings on SBI, HDFC and
IDFC and 3-UW ratings on Yes Bank and Bank of Baroda.
Sizzling Stocks: Shree Cement (Rs 2,924.5); HPCL (Rs 334.3) :Business Line
Shree Cement (Rs 2,924.5)
The stock jumped up almost 8 per cent with above average volumes on Friday, pushing its weekly gains to 10.4 per cent. Following a corrective decline from its all-time high of Rs 3,279, registered in early April 2012, the stock found support at Rs 2,270 during early June. Triggered by positive divergence in the daily relative strength index, the stock reversed direction and began to move higher. Since then it has been on a short-term uptrend. This upward journey appears to have resumed its long-term uptrend that has been in place from 2008 low of Rs 330. Intermediate-term trend is also up since September 2011 low of Rs 1,570. Both the daily and the weekly RSI are featuring in the bullish zone.
The stock can continue its upward momentum and test resistance at Rs 3,000 in the short-term and Rs 3,300 in the medium-term. Strong breakthrough of Rs 3,300 can push the stock higher to Rs 3,500. Conversely, inability to rally above Rs 3,300 can pull the stock down to Rs 2,700 or to Rs 2,400 in the same period. Next important support is at Rs 2,100.
Validate your credit information report :Business Line
If you have applied for a loan or a credit card, the Credit Information Report (CIR) which lending institutions get from Credit Information Companies (CIC) plays a crucial role in the approval process. It is therefore important to understand the information contained in the report and also to monitor it regularly to ensure that it is accurate and updated.
The central bank surprises. Again. :Business Line
The Reserve Bank of India surprised the markets for the second time in a row. The RBI cut the repo rate by 50bps in April when most analysts where expecting no change in the policy rate. Now, after the negative surprises in most growth indices, the markets were expecting the central bank to ease monetary conditions and the RBI stayed put.
LIKELY TO TURN PRO GROWTH
The RBI was far less accommodative in its policy statement than what was expected. The central bank’s less accommodative stance would clearly be sentiment-negative at the moment and would impart greater uncertainty regarding its future action.
That said, I do think that the RBI will likely turn pro growth in the coming months. Growth indicators have thrown much larger surprises compared with the inflation indices. Industrial activity is clearly weak and headwinds to growth still exist.
With distinctly slower growth and contained core inflation, I am convinced of the RBI cutting the repo rate in the coming month. In fact, the constrained fiscal health, especially in the wake of recent rating agency actions, and complicated political backdrop mean that the onus of supporting growth is more on monetary policy in the coming months. A policy rate cut on July 31 clearly remains on the cards, in my view.
Cement makers face CCI whip; Niko’s reserve estimate cut drags RIL :Business Line
The Competition Commission of India (CCI) has imposed a penalty of nearly Rs 6,300 crore on 11 cement companies and the Cement Manufacturers Association.
The companies penalised were ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements now merged with Ultratech Cements, JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements. The stocks of these companies shed between 1 and 4 per cent on Friday.
The penalty was computed at 50 per cent of the profits of these companies for the financial year 2010 and 2011 and was much higher than the amount anticipated by the market. The penalty amount was in the range of Rs 129 crore to Rs 2312 crore.
The CCI said that these companies did not utilise the capacities available so that they could reduce supply and keep prices high. Such an act was held to be detrimental not just to consumers but also to the economy as a whole, since cement is a critical raw material for construction and infrastructure industry.
The Cement Manufacturers Association has been asked to stop collecting and disseminating data on cement prices. The eventual impact on the companies’ profitability is not known since they are expected to appeal against the penalty to the Competition Appellate Tribunal (CAT).
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