Yesterday’s Market Performance

Nifty: 16450.50 I -118.30 (0.71%)
FII Sell Net: 2287.03 CR
DAX: 15,808.04 I 42.23 (0.27%)

Sensex: 55329.32 I 300.17 (0.54%)
DII Buy Net: 119.30 CR
FTSE: 7,087.90 I 29.04 (0.41%)

We’d love to hear your thoughts on our newsletter. Please take this simple survey and give us your feedback. Survey

Howdy Toasters!

Join our Discord community where we discuss all things related to finance (trading, investing, economics, data, MFs & more) + memes (of-course). Join here (promise we won’t spam, have we ever??)

In today’s issue, we discuss;

• Credit growth moderated to 12% YOY, picking up the pace as the collection efficiencies improve with lower number of lockdowns in the country.
• Fed signals asset purchases are likely to slow this year.
• Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!

Cadila Healthcare: 534.85 | -7.95(-1.46%)

• The stock surged over 2% after the Govt panel approved Cadila’s Covid vaccine for emergency use

Aarti Ind: 930.05 | -27.15 (-2.84%)

• Profit booking took place after the company decided to demerge it’s Pharma arm (Aarti Pharmaceuticals)

Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn

Banking Recap: Clues & more from India’s Banks and their Q1 numbers

Credit growth is set to improve as the economy opens up (nice!!) 😁

• Credit growth (for the overall banking system) was moderate at 5.8% in Q1FY22 (mainly due to disruptions caused by the second wave), with initial readings indicating an uptick in disbursements (up to 6.1% in July’21)

• As per RBI data, retail credit growth moderated to 12% YoY, with expectations of a meaningful pickup, taking into consideration pent-up demand and onset of the festive season

• Disbursements under the ECLGS scheme (Emergency Credit Line Guarantee Scheme, launched at the start of the pandemic) which were slow, to begin with (banks avoiding covid hit sectors), have picked up (INR 1.7 Tn in Jan’21 vs INR 2.7 Tn in June’21)

Improving Collection Efficiencies with a lower number of localized lockdowns in the country

• Most banks indicated improving collection trends July’21 onwards across retail segments (think: Gold, secured mortgages) though the same states like WB, Assam, Kerala saw a late pick-up due to prolonged lockdowns

• Collection activity is projected to return to pre-Covid levels by Q3 (albeit with the major caveat of a limited third wave)

• Though lumpy (large exposure to single accounts) corporate NPA formation is a thing of the past, some impact from Vodafone Idea & Future Retail can be expected in the near term (increased provisions to safeguard)

• Commentary across the board indicates some NPAs from inflated SMA (categorization before moving to NPA) pool (in Q2), with the restructured book also inching up (see image below)

Interesting! Names? Give me something concrete? (for sure broo) 😏

• Public Sector Banks (think: SBI, Indian, Canara & Bank of Baroda) had a quarter to remember – reporting higher profitability (in comparison to Private Banks), generating handsome one-off gains from United Breweries stake sale (monetised Vijay Mallya’s stake through an open market transaction) and banking healthy treasury gains (USD vs INR theme was intact)

• Among Private Sector Banks, ICICI was the clear outlier, in terms of growth, asset quality and profitability, while carrying a strong provision cover (safeguarding against future surprises)

• In the mid-cap space, Federal Bank (see our note) & KVB delivered solid quarter (in comparison to other similar players), with limited provisions and slippages, and recording decent credit growth

• The underlying consumption demand trend looks strong, with a greater bounce expected once the economy has fully reopened and the risk of a third covid wave dissipates on the back of a higher vaccination count (positively impacting collection efficiencies as well)

Side Note: MFs increased their holding in Banks, going overweight in July (see our previous issue)

US Fed hints at the slowing pace of asset purchases in the coming year: what do we know & what does this indicate 🙄

• Minutes of the last Fed meeting conducted (July 27-28), revealed an emerging consensus amongst officials to taper down the current Treasury & Mortgage securities purchase program (USD 120 Billion every month)

• Several officials favored reducing the asset program over the course of the coming months, better placing the Fed when it decides to raise interest rates in the next year (potentially?)

• The Fed cut interest rates to zero (what whattt) last year with the objective of kickstarting the economy and providing that needed stimulus (initial plan estimated a longer time duration)

• Minutes from the most recent meeting indicate a strong inclination towards decreasing the present asset purchase program, immediately post the next Fed Meeting (scheduled for September), although a consensus number for this is not publicly available

Damn! Okay. So, what next?

• The minutes indicated a need to “reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate”- i.e. reassure public market investors on the independence of both actions

• This has been an issue in the past; in 2013 investors grew confused over comments made by the then-Fed Chairman about a potential reduction in a similar bond-buying program, impacting treasury yields by almost 1% (as investors incorrectly inferred the central bank’s plans)

• Release of the minutes had its impact (we believe) on the markets, with Nifty50 (dragged by Banks) and Bank Nifty both down 0.8% and 1.8% respectively; similarly, European Indices also reacted negatively at the start of trading

• A change in rates at a global level would set the tone for the fiscal measures (for emerging economies), especially with initial fears of inflation proving to be transitory in nature and a quicker than anticipated return to economic activity (thus changing current liquidity conditions, that have part fuelled the markets)

What else caught our eye? 👀

Eicher Motor shareholders vote against re-appointing Siddhartha Lal as MD

• Shareholders voted against a proposal to re-appoint the promoter as MD (post-resignation of Vinod Dasari), and increase his salary by 10% due to inadequate performance during the Covid-19 months

• Prominent public institutional investors voted against (>75%) a salary hike, questioning the rationale when the median salary for the company increased by only 1% during the same period

• Lal was in the past credited with turning around the giant, building out the Royal Enfield brand

Reliance Industries (through Viacom18) en-route to building out a strong sports broadcasting portfolio

• Viacom18 has acquired the media rights (broadcast + digital) for Serie A (Italian Football League), adding to its growing kitty, that also includes La Liga (Spanish football), ATP Masters (tennis), and Abu Dhabi (cricket)

• In addition, the group owns IPL franchise Mumbai India, has a controlling stake in the Indian Super League (football equivalent in India), coupled with Mrs. Ambani on the board of the International Olympic Committee (intense)

• The only thing missing? – a dedicated sports network to complement its offering through JioTv; don’t be surprised if you see one soon enough

RBI against dropping card storage clause (making it easier to make payments online)

• New draft regulations (to be introduced starting 2022) that would require customers to input their 16 digit credit/debit card information for every transaction (vs only authenticating using CVV / OTP presently) are being pushed back vociferously by payment companies

• Designed to protect customer information from being misused by merchants, new rules will mandate access to a ‘tokenized’ key linked to the customer’s card, instead of the entire card details

• Although this sounds more tedious, RBI has customer information privacy and security as a priority (interesting to see how this plays out)

Bid & Ask Price

The bid price is the price that an investor is willing to pay for the security and ask price is the price that an investor is willing to sell the security for.

For more click here