Good Morning Toasters!

Sssup friends!! Happy weekend! Time to rest and recharge before we get started with another week of investing, and hair-pulling, jk jk 

Kotak Mahindra Bank hosted an analyst/investor day to update the community on their fintech product, 811 which has now crossed 10 Mn active accounts, since it was launched in 2017, post demonetisation (remember that event??)

Bajaj Auto, the OG 2W player in the country has given a positive golden crossover on a Technical Chart, which for all you traders out there is as good as it comes, right? The stocks have been breaking previous highs, and making new ones, consistently.

And finally, we’ve started a rollout of our newest product, Trade:able, that aims to democratise trading, via a unique and fun learning experience. There are a bunch of amazing rewards and prizes to win. Click here to know more.

Market Watch

Nifty 50: 16,352.45 | +182.30 (+1.13%)
FII Net Sold: INR 1,943.10 crore

Sensex: 54,884.66 | +632.13 (+1.17%)
DII Net Bought: INR 2,727.47 crore

Technical Setup

Bajaj Auto finally gives a positive golden crossover 

• Analyzing Bajaj Auto on a weekly time frame indicates that the stock is trading in a double bottom pattern (see image below)
• Prices are trading close to the resistance band (3922-4047) after a good upward momentum which is the previous swing high for the stock

Nice! Tell me more? Any moving confirmations?

• Looking at the daily chart, the stock has been breaking previous highs and making new ones. Lately, support levels are strong which resulted in stock making higher lows
• The stock gave a positive golden crossover (50-day SMA crossing the 200-day SMA and moving higher) 9 trading sessions ago

That’s Great! How do I enter / exit such a setup? 

• Making a long position post the breakout on the resistance band on a weekly time frame would be the ideal choice in this case
• A stop-loss can be placed just below the lower end of the 50-day SMA (just in case prices give a false breakout)
• RR ratio can be set as per your risk appetite, hence your target can be calculated accordingly

Interesting! Final thoughts?

• On a weekly time frame, prices forming a double bottom and about to break the resistance band show positivity
• On a daily time frame, prices make higher highs and higher lows and making a positive golden crossover adds strength

Keep a track?

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Around the World 

• China tech doesn’t follow the herd – Alibaba and Baidu proved to be the knight in shining armour for China’s tech industry after their results surpassed the market’s downbeat expectations, leading to a major jump in stock prices though they are still from the start of the year. Alibaba reported a higher-than-expected 9% increase in revenue for the last quarter thanks to growth in its main e-commerce business. Baidu performed well, supported by strong demand for the Chinese search giant’s cloud and artificial-intelligence products
• E&Y is splitting – Big Four accounting firm Ernst & Young is looking into a potential split of its audit and advisory businesses globally as it is facing scrutiny about conflicts of interest and creating two giant professional firms in the process. $13.6 billion of its $40 billion revenue last year came from audit work. There is no timeliness set as of now, and there are chances that the move may not go ahead altogether
• Fed riding the digital bandwagon – The Fed is considering a potential new form of money to keep pace with private-sector payments innovations in the form of a U.S. central bank digital currency. Top officials believe that it could coexist with and be complementary to stablecoins by providing a widely available, government-backed means of payment, and even provide an additional layer of safety to investors

Company News

Kotak’s digital savings products 811 is here to stay – what’s up and what do you need to know!

• Launched in 2017, Kotak’s 811 liability (savings) product was aimed to accelerate digital customer acquisition post demonetisation, with limited growth/traction initially
• Covid19 turned out to be a bigger blessing, however, with the bank adding ~4mn customers (1/3rd) via 811 in FY22, taking the total count to 12.3mn
• The product currently has ~6.2 Mn Monthly Active Users (MAUs), accounting for ~50% of the overall 811 customer base
• The average balance in 811 savings bank accounts is low at INR 6100 per account (INR 19,500 for vintage customers, with accounts since 2018) vs INR 38,000 at the overall bank-level (which is also low vs other banks)

Tell me more? Some more data points, please

• The total savings balance for 811 customers stands at INR 75 Bn or 6% of the total savings balance as of FY22-end, which could also be due to the high customer on-boarding traction received because of Covid-19
• The focus seems to have shifted to increasing customer engagement and cross-selling with 811’s contribution to incremental SA (savings account) generation in Q4 being 29%, 34% in RD, 32% in Personal Loan and 32% in insurance premium (non-life) generation
• According to the management, judging pure savings balance in each account is a misleading metric to track, with 56% of customers <30 years of age, and thus with high churn, cross / up-sell is a better indication of customer success (see % above)
• That being said, 811 customer acquisition stands at INR 860 or USD 11 per customer, which when compared to global & domestic peers (fintech) is high as Brazil-based Nu Bank (comparative peer) acquires at USD 5, while Indian fintech do so at USD 8

Interesting! Going forward? Any view on the break-even period? And what about Kotak otherwise?

• The annual operating income (net of operating costs) stands at Rs190 (USD 2.5), including distribution income from loans (cross-selling), which has significantly reduced the breakeven period from 9.4 years in FY19 to 5.2 years in FY22
• 811 is/was a unique way on-board new customers, while also maintaining a foot in the burgeoning India fintech space; that being said, improvement in CASA ratios between FY17 and now have primarily happened due to the higher savings account rate the bank has offered
• At the recently conducted analyst meet, the Bank shared new strategic objectives, namely getting aggressive on customer on-boarding, increasing engagement / cross-selling to improve Savings Account balance, which should in cumulation reduce the breakeven period (interesting!!)

Kotak Bank otherwise?

• The Bank’s at a crossroads, with RBI’s dictum on choosing a successor at the Promoter cum MD, Mr. Uday Kotak reaches his retirement age in Dec’23 an obvious overhang on the stock (we believe)
• The Bank elevated Mr. Kotak’s son, Jay to the post of Co-Head of 811, while elsewhere two incumbent EDs are in the fray for the MD’s position, amongst others
• The stock currently trades at 3.3x 1 Year Forward Adjusted / Book Value and has performed reasonably well in relative terms to the Nifty50

What else caught our eye? 

RBI is not behind in the digital race

• The RBI will be following a grated approach to launching the central bank digital currency (CBDC) in the economy
• Conformity objectives of monetary policy, financial stability and efficient operations of currency and payment system need to be considered
• The digital currency which is expected to be tethered to the fiat version of INR will use blockchain and similar technologies to operate

Another divestment fail

• The strategic sale of Bharat Petroleum Corp. Ltd (BPCL) has been called off after initially interested changed their minds because of the pandemic and soaring prices
• By not passing on soaring oil prices (due to Russia vs Ukraine) to consumers, BPCL has been consistently losing money
• The government was set to sell its full shareholding of 52.98% and transfer management control for this divestment strategy

Results Preview (Nifty 200)

Friday, 28th May: ONGC, M&M, Clean Science & Tech

Monday, 30th May: Aurobindo Pharma, Jindal Steel, Jubilant FoodWorks, Sun Pharma, Trident, Dixon Tech, IRCTC

Educational Topic of the day

Growth Capex

Growth Capex is a form of capital expenditure undertaken by a company to expand existing operations or further growth prospects. It focuses on activities such as the acquisition of fixed assets, purchase of hardware (e.g., computers), vehicles for transporting goods, and building expansion.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com