Monday 30 November 2015

Bank Nifty (Dec): What's Next ?

 Expect Further Strength Only Above 17585-17635 Zone For 18050-18950; 
Otherwise 17065-16625 May Be Again On The Card

RBI will be on "hold" mode till Feb-Apr'16; 
But expect some PSB moves on FDI clarification by RBI


Trading Levels: BNF-DEC


BNF-Dec LTP 17425






SL=+/-  25 POINTS FROM SLR










T1 T2 T3 T4 T5 SLR
Strong > 17585 17635-752 17850 18050-135* 18210-300 18485-950 <17535
Weak < 17535 17485-368 17317-250 17161-065* 16950-830 16750-625 >17585



There is no hope for any action on the part of RBI this time as the "job" was already done for the year in the previous occasion on Sep meet. 

Some may expect/think about any CRR/SLR/MSF tweaking for the liquidity factor among various PSBS; although very remote possibility. 

RBI may throw some definitive clues about 49% FDI market buzz for PSBS in order to improve their capital structure and running them as professional corporate/entity. Thus some buying may be happening in PSBS ahead of the RBI policy tomorrow.

All eyes will be on to the Q2 GDP, which will be published in the evening today and RBI stance on inflation (hawkish/dovish). Depending upon the actual implementation of 7-th Pay Comm (possible wage inflation in the system) and Fed decision on Dec-16, RBI may be quite cautious this time. 

RBI may only start to act in Feb-Apr'16 for an overall expected cut of another 0.50-0.75% in FY-17, depending upon the inflation curve and need for extra stimulus for overall economy as real rate of interest in India is still quite high wrt to WPI (which matters the industry) and corporates are still struggling with their earnings.

Analytical Charts:










Nifty Fut(Dec):Has To Break Above 8000-8055 For 8345-8405; Otherwise Expect 7725-7680 Again (GST Or No GST)

Despite "Chai-pe-Charcha" (Tea Party Discussions),  
GST may not be an one sided smooth affair.

Eventually, GST may be passed, but after more "drama" amid "Intolerance" politics  !!


Trading Levels (NIFTY FUT-DEC)

SGX-NF: 7957 (LTP)

NSE-NF: 7976 (LTP)



SL (+/-) 10 POINTS FROM SLR














For Intraday Swing  Trader








T1 T2 T3 T4 T5 SLR
Strong > 8000
8027-55* 8105-165 8185-250 8305-345* 8365-405 <7980









Weak < 7980
7949-915* 7878-838 7796-725 7705-680* 7630-540 >8000









FOR  Conservative Positional Trader
















T1 T2 T3 T4 T5 SLR
Strong > 8000
8055* 8165 8250 8345* 8405-35 <7980









Weak < 7980
7915* 7838 7725 7680* 7540-05 >7770










Apart from India's Q2 GDP, RBI & ECB policy meet, US NFP data this week etc (total 42 major/minor global events !!) and all important Dec-16 Fed meet, all eyes will be on political front for passage of GST in the current winter session of our Parliament.

As expected, NAMO invited the Cong leaders for a discussions on GST and passage for it after Bihar debacle and subsequent back-door negotiations with Cong and other important political opponents.

Although, it appears that BJP breaks the "ice" with Cong leadership on GST, but some "chill" may still be there !!

The Friday's 45-minute meeting at PMO residence did not result any immediate breakthrough. Both the parties (Cong & BJP) has discussed their own specific points regarding the GST with each other and will meet again (possibly by 2-nd WK of Dec), after their own internal party meetings / final decision/ political strategy.

Now Cong, the "architecture" of the "Indian version of GST" has three specific points: 
  1.  18% cap on the rate of GST : Govt (BJP) is not very comfortable with it, because its far below the "revenue neutral" rate, which is at around 23-25% at present. Govt may like the GST rate to be around 20-23% and may not be in a position for any significant compromise on the net revenue front for the sake of reform, because of fiscal discipline and also there will be 7-th Pay Comm & OROP pressure in the coming months. Ultimately, GST may be passed with open ended rate for the time being and the same will be decided by March'16 (Budget session of Parliament) by way of referring it to a panel of experts. As India is mainly a "service industry" oriented economy, any GST rate significantly higher to the existing service tax rate (14.5%) may also be seen as politically unpopular and may also cause unintended inflation in the underlying economy.
  2. GST dispute settlement authority: Govt has explained the practical problem for this to the Cong leadership and this may not be a big prestige issue for Cong also in the final negotiation. 
  3. Scrapping of 1% additional GST for MFG/producer states : Although BJP states like GJ & MH will benefit most, majority of the other states are also in favour of it because of net revenue factor. This may be a politically tough decision for Cong also. 
Clearly, the back-door discussions are progressing, but each party is quite conscious of its own "political image & mileage" and will not let each other so easily to get the full credit of the passage of GST. 

Thus this GST passage is turning into a major "political game" for both the parties (Cong & BJP) and also with others (TMC/AIDMK/JD-U/SP/BSP etc). All will try to act in its own interest for the sake of passage for it and will try to take credits for it as the public support for GST may be on the rise. Also there is great pressure on Cong from the industry body and investors (FII/DII) to act in favour of GST this time after last Parliament "wash out" fiasco in the monsoon session.

There is a great possibility that GST may be passed in any form in the current Winter session of Parliament, which is scheduled to end on 23-rd Dec. So, by Christmas day, we may get a "Santa Claus" gift from our political system in the form of GST.

But this may be not be a one sided smooth affair. Each party will try to take of its own advantage & political mileage out of the present situation. 

After Bihar debacle, BJP is now in some type of political back foot and even praising previous Cong PM for "Good Constitution" and seeking "consensus" from all political parties/oppositions for good governance (passage of key reform bills in RS), instead of "arrogance of  majority".   

Cong & other "united" oppositions may raise the "intolerance" issues vigorously amid absence of PM in the Parliament (who is now in Paris for "Climate Talk") and will make sure that the "issue of development" does not belong to a particular party (BJP). So, until the 2-nd Week of Dec, we may see various dramas in the Parliament and at the end an "exciting T-20 match" for passage of the GST in the 3-rd WK only.

Technically, NF has to sustain over 8055 zone for upper targets up to 8250-8345-8405; otherwise, it may fall again towards 7725-7680 zone.

Any fall towards 7725-7680 or even 7540 zone may be utilized for value buying (until 7500 area holds in the near term) as GST will likely to be passed before "Christmas Holiday" after various dramas & political negotiations. This time, this may not be a complete "intolerance wash out" for the Parliament.

Also, Fed may not be overly hawkish on Dec-16 with "no lift off" at all  and ECB may "do what ever is required" for stimulation of EU economy. Any major "China" crash may again help Fed this time !!

After all, Fed may not prefer for any lift off at "year end" time to spoil the "party", specially, when $ is significantly strong because of apparent policy divergence between Fed & ECB. 

In any way, a token "one & off" Fed lift off may also be priced in to a great extent by the market and even if Fed choose to hike by 0.25-0.50% on Dec-16, we may see $ selling after a whipsaw movement, considering the current strength of the same (i.e. another major "buy on rumour and sell on news" event).

Thus, buy on any major "intolerance"/ "China"/ "Fed" dips may not be a bad idea for a surprise "Santa Claus gift" in the form of GST passage & not so hawkish FOMC.

Analytical Charts:

















 

Friday 27 November 2015

Yes Bank: Transforming Itself From Corp. To Retail Lender ?

For Yes Bk, 730-710 area may be a good buying zone
Near term target may be 780-800

Decreasing fresh corporate exposoure and increasing retail lending 
may help in the near term 


CMP: 750

Either buy on sustained break out above 760 or wait for dips around: 730-720-710

TGT: 780-800* (1-3M)

TGT: 855-905-1025-1065 (12-24M)

TSL<690

Note: Consecutive closing below 690 for any reason, Yes Bk can fall up to 674*-640-620-595* and 560-520 zone in the alternative worst case scenario. But, time & price action suggests that 620-595 may be a very good demand zone for the stock in that scenario and one can again accumulate from  there for better investment buying average.

Q2FY16 result of Yes Bk was above street estimates but lagged asset quality concerns. Q2 PAT was around Rs.610 cr against median expectation of Rs.593 cr, registered a growth of around 26% (YOY-482 & QOQ-551).

Q2 EPS was at 14.25 against consensus of 13.66 (YOY-11.38 & QOQ-12.85).

The bank may issue bonds in the coming months to raise $ 300-500 mln for funding its IFSC banking operation in GIFT city (Gujrat).

Q2 NII was at Rs.1108.5 cr against estimate of Rs.1085.80 cr; up by almost 29.5% YOY.

Although NIM was expanded by 0.10% to 3.3% on YOY basis, sequentially it was almost flat.

In Q2FY16, net NPA of Yes Bk shot up by around 49% sequentially and 194% on YOY basis to Rs.159 cr. 

in Q2, provision for stressed assets (bad loans) although declined by 13% on YOY basis to around Rs.104 cr, it was increased by around 6% sequentially. 
Thus in Q2, strong NII, other income (non-interest income grew by 22%) and operating profit (up by 25%) helped Yes Bk, but higher provisions and tax liability (up by 42%) limited its overall profitability.

In Q2FY16, Yes Bk's advances grew by around 29% & deposit increased by 24%. Corporate banking business accounted for almost 68% of total advance portfolio and the rest 32% constituted by retail & SME portfolio.

The bank has also cut down overall corporate loan exposoure amid increasingly stretched corporate balance sheets and trying to diversify and expand into high margin, low risk retail & SME lending. 

The bank has indicated a gradual increase in retail & SME loan portfolio from around projected 35% of total advances in FY-16 to 45% and around 60% of CASA from retails in next three to five years.

Yes Bk has also put out its controversial exposoure to some of the sensitive sectors this time after the UBS report fiasco some months ago. The bank has an exposoure of around 10%, 4% & 6% exposoure in electricity, metals (iron & steel) & EPC and commercial real estate as on Q2FY16 and has no exposure on SEBS (Discoms). 

Thus for Yes Bk, around 25% of overall loan portfolio is exposed to the most sensitive (stressed) sectors of our economy. 

But having said that, worst may be over for these sensitive core sectors of our economy which might be primarily caused by "past policy paralysis" and now things are moving quite rapidly, thanks to various reform initiatives by our Govt and active monitoring of the situation by the PMO itself. We may see gradual improvement in these sensitive sectors in the coming quarters.

We may also remember that in July'15, UBS published a report about Yes Bk with a concern of huge exposoure to some vulnerable corporate groups in the above sensitive sectors and their possible default. (NPL/Stressed assets). But the bank maintained that the data base used by UBS was not proper and although there were some sanctioned credit limits to some of the over stressed groups, actual disbursements were not happened and the bank is actively monitoring such accounts very closely. The bank and also some other analysts at Macquarie and BoFA-ML assured that "all is well" with Yes Bk and the "stressed assets" reports was exaggerated.    

The management is quite confident this time of retaining its NIM of around 3.3% in the coming quarters on the back of incremental flow in  low cost CASA and cut in its deposit rates (due to base rate cut transmissions) in the coming quarters.Though Yes Bk is mainly "wholesale funded", its NIM is well managed within 2.8-3.3% even considering new base rate calculation method.

Over the past few years, Yes Bk was restructuring itself and taking various initiatives for greater thrust in retail business & lending. The bank aims to have 2500 branches by FY-20 from present strength of 730 branches. For rapid expansion in retail lending, physical branches is very necessary at key locations.

In India, as recovery is still in very nascent stage and there is no visible impacts in earnings as expected (although, some margin expansion is happening), corporates are still shying away from fresh big ticket borrowing from banks and banks are also not very enthusiastic to increase exposoure to them at this point of time. So , all banks, specially private ones are increasingly giving more thrust towards retail & SME lending, where chances of big ticket default is very low and there are plenty of good quality manageable borrowers too !! 

As par some leading experts, there is huge scope of retail business & lending in India for the banks as the segment is "barely scratched" so far. Corporate business & lending will gradually grow up for the banks from FY-17 onwards amid hopes of real economic recovery.

Some analysts are also concerned about future of Yes Bk because of relatively higher credit costs & lower ROE and large corporate bond portfolio along with substantial exposoure in stressed assets (NPL).  

In Q2FY16, the actual credit cost was 0.54% and the management has guided a range of 0.50-0.70% of the same in the coming quarters (FY-16). The bank has also maintained that the apparent sharp jump in net NPA(s) was because of relatively lower base effect and the absolute number is not very significant (only Rs.52 cr). 

In Q2, the bank's cost to income ratio was at 41% which was well within the guided range of 40-42%. The bank is also confident to maintain this ratio despite in investment mode (Continuing branch additions and investment in digital & back-office network for increased retail banking thrust). The bank has guided to improve its cost to income ratio to 37-38% range in the next three to five years amid hopes of good retail banking revenues.

Regarding stressed assets management, the bank does not believe in selling loans at steep discount to ARCS (like some other private counterparts). It has an in-house expertise, called ARMY (Asset reconstruction management by Yes Bankers) for the same purpose and thus the bank did not sale any loans (stressed assets) to the ARCS in the last four quarters. The bank want to solve their own problems regarding stressed assets with the help of this ARMY and not very inclined to outsource (sell) the same to external ARCS. As par management, this is a long term strategic decision of the bank  Certainly, the active engagement of the ARMY is very helpful in recovering/reconstructing stressed assets in some of the sensitive/highly indebted corporate sectors and may be more helpful for retail exposures in the coming years.    

Thus, Yes Bk being a relatively "new generation bank", is very careful about its loan portfolio and its asset quality is expected to be in manageable levels in the coming quarters. The bank is also targeting a healthy credit growth of around 21% (CAGR). This, along with strong core operating performance, robust professional management and higher yielding retail loan, may make Yes Bk an ideal portfolio stock in the private banking space.    

As par BG metrics & current market parameters:
(Based on TTM & FWD EPS)

Present median valuation of Yes Bank may be around: 835 (FY:15/TTM)

Projected fair valuations of Yes Bank might be around: 870-945-1005 (FY:16-18/FWD)

(It is now available at comparatively lower PE of around 14 against industry average of around 20).


SCRIP EPS(TTM) BV(Act)  P/E(AVG) Low High Median  200-DEMA 10-DEMA
YESBANK 51.57 278.69 18 838.08 830.89 834.48 756.66 743.73

YESBANK 55.75 367.95 18 871.38 863.91 867.64 756.66 743.73

YESBANK 65.55 485.75 18 944.87 936.76 940.82 756.66 743.73

YESBANK 74.35 641.95 18 1006.30 997.66 1001.98 756.66 743.73

 Analytical Charts: