Lifting of Ban on New Credit Card Issuance Reflects in HDFCB’s Q2 Results

Yesterday’s Market Performance

Nifty: 18477.00 I 138.50 (0.76%)
FII Buy Net: INR 512.44 Cr
DAX: 15,474.47 I 112.89 (0.72%)

Sensex: 61765.59 I 459.64 (0.75%)
DII Sell Net: INR -1,703.87 Cr
FTSE: 7,203.83 I 30.20 (0.42%)

Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

HDFC Bank delivered strong growth: Q2 results
Kotak Mahindra Bank finally to give a breakout?
Gold imports on a roll
An education concept to keep you chugging along

HDFC Bank delivered strong growth, with the minor hiccup of increased restructuring: What happened in Q2, and what does it indicate for the future? 🤔

Retail credit improved by 13% YoY, driven by healthy growth in the home, auto & personal Loans; lifting of the ban on issuing new credit cards & other payment products positively reflected during the quarter, and should augur well for the future (see image below)

According to the bank, commercial & rural businesses remain on track to achieve 25% YoY growth in FY22, aided by market share gains in semi-urban & rural areas (traditionally been weak points), through improved customer retention strategies and deeper geographic presence
Likewise, the bank is continuing to build out its corporate loan segment business vertical (Working Capital, Term Loans) with the objective of achieving scale & developing a long-term fee business
The management has indicated it expects the economy to rebound quicker than anticipated, with current retail growth a precursor for things to come, given the higher rate of inoculation and greater ease in movement (sooner than expected)

Nice! What about the bottom line? Profits, NPAs, restructuring? (Great points my man) 🤨

GNPA (Gross Non-Performing Assets) improved QoQ, due to relatively lower fresh NPA formation (1.8% vs 2.5% in Q1), which augurs well for the fresh growth recorded by the bank
On the restructuring front, the Bank judiciously increased contingency provisions, growing to INR 203 Bn (1.7% of loads vs 0.68% in Q1) and directed mainly towards the Personal Load segment
Higher contingency means lesser capital earmarked towards growth, however, the Bank expects a low relapse rate (0.1-0.2% of overall loans); HDFCB is the numero uno private sector bank (sorry, ICICI) and with the additional INR 12 Bn as contingency buffer, the Bank now carries a buffer of ~0.8% of loans
Cumulatively, with the above provisions, lower Net Interest Margins (NIMs), and higher staff expenses the bank reported 14% growth (QoQ) to INR 88 Bn

Interesting! Final thoughts? 🧐

Healthy retail growth, lifting of the embargo on issuing new cards (strong point for the Bank), positive early signs in segments that have traditionally been weak (commercial & rural), and visibility in the corporate book make for a steady quarter
With the likelihood of current growth + return profile to continue, the Bank presently trades at 3.5x 1 yr FWD, Price / Adjusted Book Value, which takes into consideration profile, return ratio likelihood (2% RoA, 18% RoE) is worthy to track?

Kotak Mahindra Bank finally about to break out from a year-long resistance? 🤯

Analyzing one of the highest contributors to Bank Nifty on a weekly time-frame (over 60 weeks), indicates that the stock is on the verge of giving a breakout above its main resistance level (2050)
KMB has been in a year-long resistance, at INR 2050, and is currently trading for close to this level, with the stock in a sideways momentum for the better part of 8 months
Prices have been taking support at the rising trendline (see image below), suggestive of an overall uptrend, with a long consolidation period indicative of positive momentum (in the event the resistance of INR 2050 is broken)

Interesting! Let’s get a second confirmation through other parameters/indicators? (That’s my maan) 😉

Initially, we looked at Kotak on a weekly time frame, trying to understand the trend the stock is making; we’ll now analyse the stock on a daily time frame to get a second confirmation and avoid potential traps (Swing / Positional setup)
On a daily time-frame, Kotak Mahindra Bank has recently recorded a positive golden crossover
What is a golden crossover?
- It’s a setup where we take 2 moving averages of the price (MA), one which is a higher MA (200-day) and another which is a lower MA (50-day).
- If the lower MA crosses the higher MA and goes higher (see image below), it is referred to as a positive golden crossover
Golden cross-overs are rare, and very cherished (aptly named :P)

Nice! Final thoughts?🧐

The constant accumulation (consolidation) and steady uptrend (rising trendline) which led to the important resistance getting tested multiple times thus making it weaker (on a weekly time-frame) and a positive golden cross (daily time-frame), gives us a clear picture on the stock while safeguarding us against possible traps
Finding multiple confirmations while performing technical analysis on a chart is important and helps avoid traps, at the same time notifies us about any upcoming trades
We started on a weekly time-frame with overall price action and trend analysis and took second confirmation on a daily time-frame, while observing a positive golden crossover

What else caught our eye? 👀

Gold imports on a roll

Gold imports rose as high as $24 billion in the April-Sept 2021 quarter on the back of increased demand (corresponding fig for last year is $6.8 billion)
This has led to a widening in the country’s trade deficit to $22.6 billion during Sept this fiscal against $2.96 billion for the same period last year.
India is the largest importer of gold (mainly owing to the jewellery industry)

Coal imports lag behind

August saw coal imports dropping by 2.7% to 15.22 million tonnes – leading to fuel shortages in many power plants
There has also been a steady increase in seaborne coal prices + import substitution practices undertaken by domestic miners
The power sector remains an ardent supporter with an increase in demand from the sector.

GoI offers support to the NCLT, NCLAT

The National Company Law Tribunal (NCLT) is positioned to welcome new members – specifically nine judicial and six technical members
The aim is to add capacity in dealing with cases relating to company law, bankruptcy, competition law and auditing.
There has also been a need for institutional capacity building to ensure time taken for bankruptcy resolution is reduced