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Banks/NBFCs (Vishal Goyal and Ajitesh Nair)
Budget 2011 impact: Neutral
Fiscal deficit FY12 - expected to be at 4.6% and net market borrowing of
Rs3.4tn. This is lower than UBS and market expectations. As per Phillip
Wyatt, UBS India economist, crude would be a big factor to drive the
subsidies and hence the net borrowing. High government borrowing is one of
the overhangs for banks as it will be a key determinant of private credit
growth and liquidity as well as short term rates. We believe at Rs3.4tn net
borrowing, banking system with a 17% NDTL growth will be able to fund
18% credit growth which is our base case. However, as per our Oil& Gas
analyst, crude sustaining at current levels will lead to higher under recoveries
than what is currently being budgeted by the government (Rs236bn) if retail
prices of petroleum products are not increased, which can lead to over shoot
in net borrowings.
Limit for FII investment in corporate bonds with residual maturity >5 years
by infrastructure sector companies has been increased to US$25bn from
US$5bn earlier. Total limit in corporate bonds is now at US$40bn. Impact:
This could lead to substitution of bank credit near term basis which can
impact growth but will also provide fee based income opportunity; Good for
overall liquidity and rates in near term. Marginal positive for IFCs and
NBFCs due to additional source of funding available.
Government has allowed Mutual funds to accept subscription from foreign
investors. This should be positive for leading asset management companies
which can tap international institutions interested in investing in India and
given the performance track record and competitive management fees, we
believe could drive growth in AUMs. Along these lines, we think Reliance
Capital (not rated) is likely to be positively impacted. For other stocks, asset
management business value is less than 5% of overall value so unlikely to be
material.
Allocation of Rs60bn towards infusion of capital in PSU Banks- Positive for
PSU banks with low Tier-1 ratios/low government holding like OBC, Dena
Bank. We believe this does not fully include allotment due to SBI rights
issue planned over next 3 months or so government share in which could
amount to Rs120bn.
Home loan up to Rs2.5mn will be treated as priority sector from Rs2mn
earlier. In our view will not be material for HFCs at the margin.
Other measures include Agriculture credit flow of Rs3.75tn, enhancement of
interest subvention from 2% to 3% for timely repayment of crop loans etc
which in our view are neutral. Government has proposed Rs1bn equity fund
in collaboration with SIDBI to support small MFIs.
Sector view: Neutral
We are neutral on the sector as we expect risks on earnings are high given
tightening risk due to high inflation, Fiscal and Current deficit are vulnerable to
higher crude prices. We would be more bullish if inflation (and inflation
expectations) falls, or valuations become too attractive to ignore.
Top picks
Our most preferred stocks in the sector are ICICI Bank (ICICI), Indus Ind Bank,
Axis Bank and Shriram Transport finance (Key call).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks/NBFCs (Vishal Goyal and Ajitesh Nair)
Budget 2011 impact: Neutral
Fiscal deficit FY12 - expected to be at 4.6% and net market borrowing of
Rs3.4tn. This is lower than UBS and market expectations. As per Phillip
Wyatt, UBS India economist, crude would be a big factor to drive the
subsidies and hence the net borrowing. High government borrowing is one of
the overhangs for banks as it will be a key determinant of private credit
growth and liquidity as well as short term rates. We believe at Rs3.4tn net
borrowing, banking system with a 17% NDTL growth will be able to fund
18% credit growth which is our base case. However, as per our Oil& Gas
analyst, crude sustaining at current levels will lead to higher under recoveries
than what is currently being budgeted by the government (Rs236bn) if retail
prices of petroleum products are not increased, which can lead to over shoot
in net borrowings.
Limit for FII investment in corporate bonds with residual maturity >5 years
by infrastructure sector companies has been increased to US$25bn from
US$5bn earlier. Total limit in corporate bonds is now at US$40bn. Impact:
This could lead to substitution of bank credit near term basis which can
impact growth but will also provide fee based income opportunity; Good for
overall liquidity and rates in near term. Marginal positive for IFCs and
NBFCs due to additional source of funding available.
Government has allowed Mutual funds to accept subscription from foreign
investors. This should be positive for leading asset management companies
which can tap international institutions interested in investing in India and
given the performance track record and competitive management fees, we
believe could drive growth in AUMs. Along these lines, we think Reliance
Capital (not rated) is likely to be positively impacted. For other stocks, asset
management business value is less than 5% of overall value so unlikely to be
material.
Allocation of Rs60bn towards infusion of capital in PSU Banks- Positive for
PSU banks with low Tier-1 ratios/low government holding like OBC, Dena
Bank. We believe this does not fully include allotment due to SBI rights
issue planned over next 3 months or so government share in which could
amount to Rs120bn.
Home loan up to Rs2.5mn will be treated as priority sector from Rs2mn
earlier. In our view will not be material for HFCs at the margin.
Other measures include Agriculture credit flow of Rs3.75tn, enhancement of
interest subvention from 2% to 3% for timely repayment of crop loans etc
which in our view are neutral. Government has proposed Rs1bn equity fund
in collaboration with SIDBI to support small MFIs.
Sector view: Neutral
We are neutral on the sector as we expect risks on earnings are high given
tightening risk due to high inflation, Fiscal and Current deficit are vulnerable to
higher crude prices. We would be more bullish if inflation (and inflation
expectations) falls, or valuations become too attractive to ignore.
Top picks
Our most preferred stocks in the sector are ICICI Bank (ICICI), Indus Ind Bank,
Axis Bank and Shriram Transport finance (Key call).
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