Tag: non-banking financial companies (NBFCs)

Here’s what govt can do in the budget to spur demand, says Edelweiss’ Rashesh Shah

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The key thing the government can do via the union budget would be to spur demand because we have a problem of consumption, said Rashesh Shah, chairman and CEO of Edelweiss Financial Services, adding that consumption has been the key engine and the budget could be the time government could relax the fiscal deficit target, spend a little bit more, maybe cut taxes for the common man and spur consumption and demand.

“The government has done quite a bit in the last few months including corporate tax, announcing a lot of schemes for liquidity, for non-banking financial companies (NBFCs), for real estate sector. The last thing that is required is for the consumption to be spurred,” said Shah from the sidelines of the Edelweiss Credit Conclave. “Now consumption is at the center-stage and if we can get that going, investment will pick up after a few quarters,” he added.

“My expectation would be that government does expand on the disinvestment programme and raise a lot of revenue through asset sales. Government, on one side should relax taxes and spur consumption and on the other side, try and sell assets to raise revenues for fresh investments into infrastructure. This should be the two-pronged approach for the annual budget. I hope they follow-through on this,” said Shah in an interview with CNBC-TV18.

When asked about his expectations from the Reserve Bank of India’s (RBI) in terms of rates cuts, he said, “We were all hoping that central bank will cut rates in February again to bring down the cost of capital but given the oil price uncertainty, it may not cut, and that could be a little bit of dampener from a liquidity and cost of credit point of view.”

On NBFCs, he said “The last year was a crunch year for them. Especially, the July-September quarter, which was the hardest one because there was a lot of liquidity freezing that happened. However, in the last quarter that is October-December, things have significantly improved. We have seen a lot of NBFCs raise liquidity via bond issues. Even the bank credit has started flowing again.”

In the last week of the year, the government cleared the final clarifications on the partial credit enhancement schemes (PCGS), he said, adding that this quarter they expect about Rs 30,000-35,000 crore to flow from banks to NBFCS via the PCGS.

“So, hopefully by end of March we will see a lot of liquidity coming into the system and also into NBFCs. Last year was a very difficult year but the last quarter, the greenshoots have started coming through and NBFC liquidity clearly has improved in the last three-four months,” he said.

According to him, liquidity is still not enough for growth to come back in a significant way for NBFCs,  and so FY21 would still be a year of consolidation for NBFCs. “NBFCs will still be very calibrated in growth and maybe after that growth will come back. One more year of stabilisation but not distress anymore is what I expect going forward,” he said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Believe in buying quality stocks with good corporate governance, says Marcellus Investment Managers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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“If you stay away till the dust settles, you will probably be staying away for the entire next 100 years. There is no dust settling in the stock market. It doesn’t happen like that, there will always be some sort of issue or the other,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.

“The successful way to make money in India over the last 12 months, over the last 10-20 years has been buy high quality companies with clean corporate governance, strong cashflows, good balancesheet, strong competitive advantages, etc., and if you do that then the Indian stock market rewards you amply and that remains the way forward, whether there are issues in Middle-East or back home in India, it seldom matter as long as you invest sensibly,” said Mukherjea in an interview CNBC-TV18.

“Invest sensibly in great companies with clean governance and good accounts, you will make decent sums of money whether it is today or whether it is in a hypothetical future three-four months out after the budget,” said Mukherjea.

When asked about his views on Bajaj Finance, he said, “It is a large holding in our clients’ portfolio. The non-banking financial companies (NBFCs) industry’s balancesheet is actually shrinking. If you see the data that the Reserve Bank of India (RBI) is publishing, it shows that the last four-five months, the balancesheet of the industry is shrunk. So in that context 35 percent growth is remarkable. It is tremendous to see 35 percent growth when the industrial balancesheet is going backwards because most NBFCs barring three-four, have no access to money market funding and therefore the industry is in deep crisis.”

“Our mantra has been buy great companies, which can continue compounding whether the industry is booming or otherwise. In a shrinking industry Bajaj Finance is the big consolidator. My reckoning is, another year out, we will have three-four large NBFCs which will survive in our country. This company will survive, it will thrive and our view therefore is our clients’ position in this should be held right through this crisis,” he further mentioned.

When asked about currency trajectory, he said, “It is a matter of time before the rupee goes to mid-70s to the dollar and if you want to play on currency weakness, naturally IT and to some extent pharmaceutical space as well will give you a play on the rupee weakness,” he noted.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect Q3 to be better; see good business growth ahead, says Muthoot Finance

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A persistent slowdown in the Indian economy may be leading to a surge in gold mortgaging, said George Alexander Muthoot, MD of Muthoot Finance.

Talking to CNBC-TV18, Muthoot said that the company’s business was better in December quarter as compared to second quarter.

“This quarter is expected to be better in terms of business growth than the September quarter period as issues in non-banking financial companies (NBFCs) sector are now behind. Further, we have also raised adequate funding in the last two months,” said Muthoot.

“We are on target to achieve our earlier guidance of 15 percent growth on the gold loan for FY20 or even more,” he added.

The company expects lower cost of funds from banks going ahead.

“We are competing with the banks for the last several decades. The advantage for NBFCs is that gold loan are all very small. The average ticket size is only Rs 40,000,” he mentioned.

The company’s net interest margin (NIMs) are at around 10 percent and expects to keep it constant going forward.

However, the NBFC may reduce the interest rates on loans if the cost of fund comes down, but without hurting the NIMs.

Further, on the Mutual Fund business, Muthoot said, “We don’t think it to be as profitable as gold loan business but then this is a service which we should be providing to our customers on the liability side. We don’t need to invest lot of capital into this.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

See 2020 as a year of consolidation; upbeat on midcap IT, corporate banks, says Aditya Narain of Edelweiss Securities

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Aditya Narain, head of research, institutional equities at Edelweiss Securities is of the view that the 2020 theme would be that of consolidation.

“What the theme will also play through is markets taking on little bit more risk, which is moving down from the top-tier companies to effectively next level where you take on certain amount of risk but not going all the way down,” he said.

With regards to their allocations he said 40-50 percent would be in largecaps, 30-40 percent in midcaps and about 10-15 percent in smallcaps.

Talking about the carnage seen in midcaps, he said the challenge is that there is liquidity in the system, expectations too are building but the ability to inflate the bottom-end of the economy needs more. So, until that starts happening, midcaps and the smallcaps will face a little bit more challenge, he said in an interview with CNBC-TV18.

When asked about his views on the potential hike in goods and services tax (GST) rates, he said the risks of these increases coming through are probably a little lower than what the market is anticipating because according to him it is the wrong end of a policy approach. “At the end of the day, a lot of  policies in an environment like this need to be countercyclical and this would be pushing it down to some extent,” he said.

“However, if it were to come in, it would be a little bit of a challenge because the reality is you have got liquidity in the system, you have got rates generally a little lower, what you require is an expansion to push up the economy. If you push up rates, that becomes a little bit of a challenge,” he said. ” So, if it were to come through, it would be from a policy framework contradictory to what has been done so far and that would then cap the market or weigh a little bit on the market,” he further added.

Taking about the banking sector, he said, “At an underlying level, I don’t think there are that many skeletons to come out. The bigger risks are the fact that you were tending to see a certain level of systemic risk in terms of liquidity for some institutions, for the broader banking system and that has also been arrested. So, don’t think there is that much in terms of risk hanging out there.”

“I do believe is that if you are looking for a positive measure to inflate expectations and drive in a little bit of confidence, if the regulator could come in with a stronger reassurance in terms of backstops that the non-banking financial companies (NBFCs) have, that some of the banks have or facilitating more capital coming into the system, that would do a world of good to the system,” he said, adding that liquidity is there in the system but it is not available to everyone.

“Financials are generally a place to stay in and risk-adjusted, corporate banks are the best place to be in,” he said.

On autos, he said they were sellers of the space two months ago but more liquidity came through raised it to neutral. “We are still neutral to a little cautious on the space,” he added.

With regards to other sectors, he said the house is neutral on cement but have an overweight stance on IT with a positive bias on midcap IT.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect improvement in profitability for some private sector banks, says Moody’s Investors Service

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ratings agency Moody’s has a negative outlook for Asia Pacific banks for 2020. They believe the operating environment is worsening because the US-China trade dispute is weighing on gross domestic product (GDP) growth.

Alka Anbarasu, Vice chairman and senior credit officer-financial institutions group at Moody’s Investors Service and Mrutyunjay Mahapatra, MD and CEO of Syndicate Bank shared their views and outlook for the space in an interview with CNBC-TV18.

Anbarasu said broadly the outlook is for Asia-Pacific banks and this outlook is driven by some of the topics including US-China trade tensions, high leverage in many countries as well as low interest rate environment that is impacting banks’ profitability. “Specifically, when it comes to Indian banks, we do think that there is a read-over of some of these risks even for Indian banks. To a large extent, the outlook that we have on the Asian-Pacific banks has a read-through impact even for the Indian banks,” said Anbarasu.

Meanwhile Mahapatra said they had a different outlook “The top non-banking financial companies (NBFCs), which were going through concerns, the outlook has only improved.”

” The big names, which were creating this perception problem are on the way of resolution. I believe that the asset quality pressures, which we thought would rise their heads again, are coming back to a normal path of normal slippages and net slippage ratios will also be pretty much controllable,” he noted.

Talking about provisions and slippages with regards to Syndicate Bank per se  Mahapatra said, “On asset quality front, the outlook is a little negative. What we are looking at is that Reserve Bank of India (RBI) is taking industrywise view of all banks, which is a global practice. So, divergence provisions are likely to be a little higher and also some of the insolvency and bankruptcy code (IBC) related resolutions – if they get into the next aging bracket because of lack of resolution then that can bring a little more provision. However, new slippages are well within control.”

When asked if there would be an decline in incremental slippages in Q3, Mahapatra said, “There is one lumpy account. I cannot take the name  but it is a public sector undertaking (PSU) unit. There is a government of India resolution plan which is in progress.”

Talking about loan growth, Mahapatra said, “Q2 was good over Q1. We did around 7.5 percent total but we propose to bring in many other things which are likely to give some amount of growth and we have large number of proposals.  Moreover, NBFCs are also looking up, so that will also give some growth. I hope we will see similar growth in Q3 as we have seen in Q2,” Mahapatra further mentioned.

When asked about profitability of private sector banks, Anbarasu said, “For some of the private sector banks like HDFC, profitability has always been at a higher level than most other rated banks that we have in India but for ICICI Bank and Axis per se, we do think that they have done a lot of work in terms of improving their provisioning coverage. So in that context, credit cost should come down.

“On top of this, the banks are well capitalised so their ability to garner new and incremental business is higher and that should boost profitability for these banks. The credit costs are still at a cyclically higher level and they are coming down but gradually. Nevertheless these banks are the ones where we do expect improvements in profitability,” Anbarasu added.

Speaking about Yes Bank and RBL Bank, Anbarasu said they do not rate RBL Bank but when it comes to YES Bank, we put out a press release on a rating action just last week where we had downgraded the bank’s ratings by two notches. “In our rating release, we do talk about some of the uncertainties or execution challenges around the capital raise that the bank has planned and we will watch the story as it goes along,” she added.

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Seeing a sense of optimism in market; people looking to invest, says Rashesh Shah of Edelweiss Securities

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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People are looking to invest in the market as optimism is back, according to Rashesh Shah, chairman and CEO of Edelweiss Financial Services.

“Especially in areas like smallcap, midcaps, there are quite a few good companies that have already started doing well in the stock market,” said Shah at the Edelweiss Emerging Ideas Conference in Mumbai.

He, however, added that a lot of undervalued companies is also there. “There is going to be a lot of stock-picking ideas that investors will get a chance to grapple with.”

Speaking about recovery in earnings, he added, “Corporate tax rates are the lowest in India’s economic history. So with such low corporate taxes, with such low-interest rates, we just need a little bit of confidence to come back and the snowball can start.”

On trade war between US and China, he said, “If there is a global trade pact between US and China and the global economy picks up… India’s GDP growth can get some kind of a revival.”

He also said that the worst seems to be over for the non-banking financial companies. “A lot of NBFCs have become stronger, raised capital, managed liquidity… I think the rejigging of the businesses is going on… Going forward, NBFCs will have a model which will be partnerships with banks rather than competition with banks.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect ‘2020’ to be a stock-pickers delight; like small private banks, says Enam Holdings’ Sridhar Sivaram

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Sridhar Sivaram, investment director at Enam Holdings is of the belief that the year ‘2020’ would be a stock-pickers’ delight. Broader market will do well. However, he is not sure how well the index would do but believe there would be enough money making opportunities in the broader market, he said.

In an interview with CNBC-TV18 shared his views and outlook on market and sectors like banks, telecom, autos etc.

Talking about the banking sector, he said, “Capital is coming back for many of the private sector banks especially the smaller ones because that was the concern  in the market that many of the smaller private sector banks are not able to raise capital. The Reserve Bank of India (RBI) sort of indicated that they don’t want any more accidents in the financial sector. If I read both of this together, it is reasonably positive for the market. Some of these smaller banks do need capital. I still remain positive on private sector banks and I think 2020 could be the year for some of the smaller private sector banks as they receive capital.”

He said the house is upbeat on the telecom sector. In a competitive environment it is better to be a consumer than investor. Looking at the broad numbers for the industry, he said, “Two and half years back the peak revenue was Rs 2 lakh crore, which is currently at Rs 1.5 lakh crore. The minutes of usage is more than 50 percent from what it was two and a half years back, data usage is 10 times more. So, even if you assume that if we go back to where we were two and a half years back, that is Rs 50,000 crore more EBITDA for the industry. So, if you look at the overall numbers, it doesn’t look like a big problem to me right now. We remain positive on the sector right now,” he said.

With regards to the auto sector, he said, “I did a three-day road trip in Punjab, meeting a lot of auto-dealers, cement-dealers. Clearly there are greenshoots at every level. We couldn’t find a negative news on the road. Because we have BS-VI transition coming, dealers didn’t want to stock and the companies are also not wanting to produce more right now. My belief is that we would have seen a strong recovery had BS-VI not been in the pipeline. We feel that there is a bottom in place, we have some technical issues, which have to be sorted out.

When asked about themes they would look at going forward, he said the first biggest theme is midcap private sector banks which have some tinge of retail lending attached to it. Second is auto ancillaries because once the BS-VI noise is over, some of these auto ancillaries would start to play. The demand is there but the companies are not wanting to produce, he said.

In terms of housing finance companies (HFCs), he mentioned, “I don’t like HFCs because I don’t like the business model where 30-35 percent is lent to builders and to loan against property (LAP) and only about 60-70 percent is mortgaged but the collateral damage has been to the non-banking financial companies (NBFCs). So it is an HFC crisis but NBFCs are bearing the brunt. Some of them have good business models where they are lending to niche segments and they will thrive. The ones who will survive this crisis will come back very strong. We do like NBFCs as a sector but not HFCs.”

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow