14February 2017 India Daily
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INDIA DAILY February 14, 2017 India 13-Feb 1-day 1-mo 3-mo Sensex 28,352 0.1 4.1 5.7 Nifty 8,805 0.1 4.8 6.1 Contents Global/Regional indices Dow Jones 20,412 0.7 2.6 8.2 Special Reports Nasdaq Composite 5,764 0.5 3.4 10.5 Strategy FTSE 7,279 0.3 (0.8) 7.8 Nikkei 19,452 (0.0) 0.9 10.0 Strategy: Day 1 takeaways from Chasing Growth 2017 Hang Seng 23,711 0.6 3.4 6.7 Daily Alerts KOSPI 2,076 (0.1) (0.0) 5.1 Value traded – India Results Cash (NSE+BSE) 232 260 119 Motherson Sumi Systems: SMRPBV growth still below par but standalone Derivatives (NSE) 3,613 2,813 4,776 showing strong growth Deri. open interest 3,170 2,806 2,814 NMDC: Weak due to one-offs Forex/money market IDEA: Weak earnings print on expected lines Change, basis points Hindalco Industries: In-line quarter; demonetization impacts marginally 13-Feb 1-day 1-mo 3-mo Rs/US$ 66.9 (5) (118) (95) Tata Power: Underlying strength, distorted by one-offs 10yr govt bond, % 7.3 3 49 26 Muthoot Finance: Strong performance in a challenging environment Net investment (US$ mn) 10-Feb MTD CYTD National Aluminium Co.: Alumina prices aid improvement (1,170 FIIs 83 2,903 ) Balkrishna Industries: Robust quarter MFs (2) 881 6,951 Top movers SRF: Waiting for turnaround Change, % Prestige Estates Projects: Demonetization leads to sales collapse; but Best performers 13-Feb 1-day 1-mo 3-mo collections from past sales sustain IDEA IN Equity 107.3 (2.9) 55.9 53.3 Jagran Prakashan: Steady quarter JPA IN Equity 13.2 (1.9) 33.5 50.3 HPCL IN Equity 578.3 1.2 18.3 28.9 Company alerts TTAN IN Equity 428.4 (0.8) 19.5 27.9 DLFU IN Equity 147.8 (0.1) 19.1 26.9 Infosys: Takeaways from CEO's address at Kotak conference: Expect stable growth Worst performers DIVI IN Equity 740.4 (1.3) (0.8) (39.4) Economy alerts RCOM IN Equity 33.6 (3.0) 7.0 (19.7) Economy: Core inflation inches higher CRG IN Equity 66.8 (6.2) 3.8 (15.1) ARBP IN Equity 662.0 (2.6) (6.0) (14.3) UBBL IN Equity 785.1 (0.8) (5.1) (10.0) For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. INDIA Strategy FEBRUARY 14, 2017 NEW RELEASE BSE-30: 28,352 Day 1 takeaways from Chasing Growth 2017. Mr Uday Kotak set the tone for KIE's 2017 edition of the Chasing Growth annual global investor conference with a chose look at growth in financial services. Keynote addresses for the 3-day conference were led by Vishal Sikka, Ireena Vittal, Rohit Kumar Singh, Prukalpa Sankar, Adi Godrej, Sanjiv Bajaj and an intrepid band of young women from the Dharavi Diary project. Day 1 – February 13 companies at KIE’s Chasing Growth conference 1. Aurobindo Pharmaceuticals 19. IndusInd Bank 2. Axis Bank 20. Infosys 3. Bajaj Corp 21. JSW Steel 4. Bajaj Finserv 22. Jyothy Labs 5. Bharat Forge 23. L&T Finance Holdings 6. Blue Dart Express 24. L&T Infotech 7. CARE 25. Mindtree 8. City Union Bank 26. Pidilite Industries 9. Dish TV 27. PVR 10. Dr. Lal PathLabs 28. Raymond 11. Dr. Reddy's Laboratories 29. RBL Bank 12. Emami 30. Reliance Industries 13. Godrej Consumer Products 31. Shriram Transport Finance Company 14. Gujarat Pipavav 32. Skipper 15. Gulf Oil Lubricants India 33. Tata Steel 16. HSIL 34. Tech Mahindra Sanjeev Prasad 17. ICICI Prudential Life Insurance 35. Ujjivan Financial Services 18. IDFC Bank 36. Zee Entertainment Enterprises For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Strategy India SPEAKER SESSIONS: GOLCONDA, TRIDENT UDAY KOTAK: THE FUTURE OF FINANCIAL SERVICES IN INDIA Executive Vice Key takeaways Chairman & Right financial services business model. The best business model in financial services is Managing Director, ‘Concentrated India Diversified Financial Business Strategy’. Focused NBFC plays can work Kotak Mahindra Bank but need adequate risk management. However, they have to ask the tough question— what happens if the concentration goes against them? Systemic risk can sound the death-knell for such players if they are inept at managing them. One of the most important trends in this regard is that the risk comes either because of the concentration itself or because of a structural shift in government policies. How the financial service industry can be affected by technology. The impact will be felt in three areas. Transactions. At present, there is significant profitability in transaction services. This is one area where the threat of digital transformation can eat into the bottom-line of incumbents. Transaction services are most likely to get commoditized. The same phenomenon has already been seen in the brokerage industry. Similarly, the core area of execution in transaction is going to be commoditized. One comparable example can be seen in the telecom industry, which is an eye-opener on what people can get when they focus on driving huge volumes at the cost of value-addition services, whereby profitability of the entire eco-system faces a shock. There has been a huge growth in volume of transactions post demonetization. This growth has not come at a profitable way and margins are going to get lower. Risk. The key concept of credit had originated with taking money from the saver and giving it to the borrower. The intermediary made the spread by understanding the underlying risk. Mr Kotak is more optimistic about the future of financial services industry in this regard. He has seen countless examples of models going wrong and leveraged institutions face a huge threat to their survival when things go wrong. ‘Core of risk’ as the bedrock of financial services will sustain over a long period of time. His personal experience from the past 25-30 years is that all players made mistakes. Knowledge and skill. There is a role for financial services here. Discretionary, asset management, retail, wealth management, etc. are areas where the value addition happens through knowledge. Knowledge- and skill-led financial services will be able to maintain their dominance even under threat from digital. Massive shift into formal financial savings (one impact of demonetization). For the past few years there has been a change in the savings pattern of Indian savers. Households had been shifting their savings from physical to financial. This has seen an impetus from the government move of demonetization. As households move money from real estate and gold, it is entering into the formal financial savings. This trend is very sustainable over the next 5-10 years and is going to be a mega-trend. Within the industry, the sector that has benefitted the most is the mutual fund industry. It has been the fastest-growing part of financial services. If it manages its risk well, it is in a mature game. However, the industry will need to be very careful. There is a propensity to chase return at the cost of higher risk to beat one’s peers. As more and more retail money comes, the responsibility of the manager gets bigger. A growth rate of 30% CAGR (almost 3X the nominal GDP growth) is sustainable in India. However, every player has to be mature and responsible in not chasing marginal return at higher risk and put the savings of Indian households into jeopardy. KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Strategy Banking. Banking will continue to see increasing competition, primarily on transaction but less on risk and knowledge. The industry is at a crossroads given the uncertainty around 70% of the market with public banks who are suffering from stress in their assets. The needle has not moved enough despite efforts from successive governments. There has been a plethora of restructuring mechanisms employed but all these different debt-restructuring schemes are unable to change the fact that money is not coming back from borrowers from those accounts. Recognition has got better in the past year and half but resolution has not yet seen satisfactory progress. Mr Kotak is of the view that the government is quite focused to find a solution to this problem and is discussing with all stakeholders to bring about a successful resolution to this problem. Post demonetization there is a need to be careful about areas where insipient risk can come, especially from informal based sectors such as SME. A very large part of the industry has challenges and opportunities. With the banking industry poised to grow at 1.5-2X of the nominal GDP growth and some incumbents failing to make use of that growth opportunity, the growth opportunity becomes bigger for the rest of the competition. However, they have to be cautious about potential systemic risk while chasing the incremental growth opportunity. 4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India VISHAL SIKKA: INFOSYS AND THE FUTURE OF IT SERVICES CEO, Infosys Key takeaways Strategy for Infosys. Dr Sikka first articulated a three-pronged strategy in 3QCY14—(1) ‘renew’ the core of the company, (2) innovate into ‘new’ businesses and (3) reinvigorate the ‘culture’ of the firm. As a result of the efforts, INFO’s revenue growth has now caught up with average industry levels after trailing the industry numbers. In fact, for 9MFY17, INFO’s revenue growth at 8.3% has exceeded the industry’s growth.