ICICI Bank has recommended buy rating on the stock with a target price of Rs 520 in its research report dated August 23, 2019

ICICI Bank's (ICICIBC) annual report reaffirms our view that the bank is progressing well in its endeavour to strengthen the balance sheet with a strong focus on the retail franchise. While its retail portfolio has been leading overall loan growth, GNPA has remained stable at 1.7% for many years; also, retail fees contribute over 70% to total fees. The concentration of the top-20 advances/exposures improved by 206bp/208bp to 12.1%/11.9% during the year. 

On the liability side, the concentration of the top-20 depositors improved by ~50bp to 5.7%. BB and below pool reduced to INR175b (~3.0% of total loans) while net stressed loans declined to 3.3% (excluding NNPA). During 1QFY20, the BB & below pool further reduced to INR154b (~2.6% of loans) while net stressed loans declined to 2.9% (excl. NNPA). 

SA per branch has improved to INR448m in 1QFY20 v/s INR354m in FY17, thus, indicating higher productivity and operational efficiency at branch level. The bank has one of the highest proportion of retail deposits with a strong CASA mix. With asset quality stabilizing, we expect credit cost to moderate sharply and estimate core RoA/RoE to improve to 1.5%/15.5% by FY21.

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Edelweiss has a positive business outlook on Ujjivan Small Finance Bank (USFB) but said the listing of USFB will mean dilution & holding company discount for the existing shareholder

Shares of Ujjivan Financial Services fell nearly 8 percent intraday on August 19 after the company's decision to launch IPO of Ujjivan Small Finance Bank. Analysts feel the listing of the bank is negative for shareholders of a microfinance lender

The stock was quoting at Rs 272.55, down Rs 11.55, or 4.07 percent on the BSE.  

Ujjivan Small Finance Bank is planning an initial public offering to raise Rs 1,200 crore. The company on August 16 filed a draft red herring prospectus with SEBI.

"Ujjivan Small Finance Bank is proposing to undertake an initial public offering of equity shares of the face value of Rs 10 each, comprising a fresh issue of equity shares by bank aggregating up to around Rs 1,200 crore," Ujjivan Financial Services said in its BSE filing on August 16.

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The Sensex was down 286.35 points at 36,690.50, while Nifty was down 92.80 points at 10,855.50 

The last hour selling has pulled the indices to the day's low level after remained volatile as Reserve Bank of India (RBI) has cut the repo rate by 35 bps at 5.40 in its policy meet.

At close, the Sensex was down 286.35 points at 36,690.50, while Nifty was down 92.80 points at 10,855.50. About 1107 shares have advanced, 1348 shares declined, and 159 shares are unchanged. 

Indiabulls Housing, M&M, Tata Steel, Tata Motors and BPCL were among major losers on the Nifty, while gainers were Zee Entertainment, Cipla, HUL, Yes Bank and Hero Motocorp.

Except for IT and pharma, all other sectoral indices ended in the red led by bank, metal, auto, energy and infra. BSE midcap and smallcap index ended with a marginal loss.

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The highlight of mortgage lender Housing Development Finance Corp. Ltd’s (HDFC’s) June quarter earnings was its loan book growth, which has now fallen to 13%, compared to 18% growth in the year-ago period. Analysts, however, said the results were good, seen in the light of the poor state of the economy and relative to the rest of the industry. Indeed, even HDFC’s growth has remained in double digits only because of its strong individual loans franchisee. Here, growth has stayed rock solid at 17%, marginally down from the 18% growth in the year-ago quarter

But its non-individual loan book, that is corporate loans, posted an all-time low growth of a mere 2%. In the past one year, HDFC’s exposure to this category has declined. And it looks like it has deliberately adopted a cautious stance here. In the backdrop of the recent liquidity-related concerns and slowdown in the real estate sector, HDFC’s vigilance isn’t surprising.

“Given the uncertainty and risk averseness in the lending environment for non-individual loans, the corporation opted to be prudent by curtailing some of its lending to non-individual loans," HDFC said in a release.

Addressing the company’s annual general meeting, chairman Deepak Parekh said: “Banks are reluctant to lend and there has been a flight to safety where a select few, high rated NBFCs and HFCs have access to funding, while for several others, access to credit has been chocked. As a result, a number of NBFCs and HFCs have curtailed disbursements. One is hopeful that normalcy will be restored soon and, by the time the festive season sets in, some of the risk averseness should taper off."

For now, HDFC continues to focus on lending to the affordable housing segment. “The challenge in the housing sector has been with the upper-middle segment and high-end luxury housing. I would like to reiterate that the demand for smaller sized homes at affordable price points is still strong," Parekh added. In FY19, 37% of the home loans approved in volume terms and 18% in value terms have been to customers from the economically weaker section and lower-income group segment.

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Indian stock markets staged a sharp recovery on Friday amid a buzz that the Prime Minister's Office was set to intervene in order to arrest the prolonged fall in the stock markets partly caused by the tax on the super-rich proposed in the Union Budget

However, no such announcement was made until late evening. This begets the question as to how and when the government will act to reverse the damage caused by the exodus of foreign funds as only 3 parliamentary sessions are left before the close of the Budget session.

One way could be the route of an ordinance, which has been used extensively by NDA-2 for taking various big-ticket decisions. The ordinance gives six months life to a proposal within which time either the plan has to be ratified by Parliament or ordinance is re-promulgated. 

Experts believe that this route will give enough time to the government to think all over its budget proposal to provide relief to a big segment of FPIs. 

The most likely course of action to correct the new super-rich tax burden on FPIs is to provide one-time tax-free transfer of shares to special purpose vehicles (SPVs). The other move could be a mechanism of self-declaration by FPIs. 

FPIs have off-loaded equities worth over Rs 2,500 crore from the Indian capital markets since July 1, which has partly caused the equity indices to shed heavily during the same period.

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Automobile major Mahindra and Mahindra (M&M) on Thursday reported a 15 per cent decline in its total vehicle sales for July, owing to tight liquidity and low buying sentiment in the domestic market

The total sales of the company fell to 40,142 units last month, against 47,199 units sold during the corresponding period of 2018.

Similarly, the company's domestic sales plunged by 16 per cent to 37,474 units from an off-take of 44,605 units in the like period of last year.

However, M&M's exports inched higher by 3 per cent to 2,668 vehicles in July.

"The headwinds faced by the automotive industry continue as a result of subdued consumer sentiment, triggered by various factors," said Veejay Ram Nakra, Chief of Sales and Marketing, Automotive Division, M&M.

"The industry needs stimuli to help revive consumer demand and conversions. We hope that the overall buying sentiment will improve in the run-up to the festive season and with the monsoon turning out to be better than initially anticipated," he added.

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The Nifty Midcap index itself fell 18 percent and around 45 stocks included in the index corrected in the range of 30-90 percent in the last 18 months.

After hitting a lifetime high in January 2018, the broader markets continued to underperform frontline indices. In fact, the Nifty Midcap index traded at a big discount to Nifty50 on back of sharp correction in several key stocks.

Asset quality concerns, LTCG tax imposition, liquidity crisis, consumption slowdown, debt defaults, global trade war, and crude volatility etc., have hit several stocks, which corrected sharply in the past.

The Nifty Midcap index fell 18 percent and around 45 stocks included in the index corrected in the range of 30-90 percent in the last 18 months.

"The midcap indices (Nifty 100Midcap and BSE100 Midcap) are now trading at a discount of 15 percent to the Nifty 50 (compared to historical lows of 30-40 percent discount)." JM Financial said.

"The correction followed the downward revisions to the earnings for FY19 (28 percent lower than estimated) on account of high expectations, higher share PSU financials/ stressed groups and cyclicals (industrials/ discretionary in the midcap indices being at 27.5 percent versus 12.7 percent in Nifty 50)," they added.

But, as most analysts say, the NBFC crisis is near the end and with most of the negative priced in, there is hope building. This sentiment could be renewed by the Union Budget and expected rate cuts by India's and other global central banks. Hence, the sharp rally could be seen in midcaps rather than large-caps in the coming quarters, experts said.

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The share touched its 52-week high Rs 690 and 52-week low Rs 60 on 03 September 2018 and 19 June 2019, respectively.

Shares of Dewan Housing Finance Corporation (DHFL) declined more than 7 percent intraday on June 28 after the company deferred Q4 earnings announcement.

The company was scheduled to announce Q4 earnings on June 29.

Earlier, the company had informed the stock exchanges that it will not be able to furnish the audited standalone and consolidated financial statements for FY19 within the time stipulated by SEBI norms.

DHFL said that the delay was due to new submissions under the provisions of the Companies (Indian Accounting Standards) Rules, 2015, which came into effect from April 1, 2018. This means the financial year which ended on March 31, was the first full financial year when these rules were applicable.

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Steel is the world’s second most used material after cement, and China is the leading producer and consumer of steel and demand and supply from the country largely influence the global prices.

Oversupply in the market hit the prices of ferrous metals, with the most active construction steel rebar futures in benchmark Shanghai Futures Exchange plunging to a seven-and-a-half month low this week.

Similar moves were seen in the domestic steel prices as well.

Steel is the world’s second most used material after cement. China is the leading producer and consumer of steel, and demand and supply from the country largely influence the global prices.

Steel prices remained firm during the second and the third quarters of 2018 due to worries over supply squeeze in China amid their plan of cutting down the excess capacity of heavy industries.

As per the program, the country had closed down more than 200 million tonnes of steel capacity in just two years that raised concerns of supply shortage. Steel and aluminum plants in the country were operating with a spare capacity which impacted industrial profitability.

Expectations of a periodic output cut during winter on the remaining capacity kept prices firm, pushing up futures prices to a seven-year high during August 2018.

As per the Chinese government's mandate, heavy industries should reduce production during winter owing to environmental issues. However, prices lost more than 25 percent since then due to various fundamental reasons.

Healthy supply and worries on manufacturing growth in China are weighing down the sentiments. Demand for long steel products like rebar is high in construction areas, while flat products like hot-rolled coil especially from auto manufacturers are reportedly down.

The trade dispute with the US is putting pressure on the Chinese manufacturing sector and demand for metals. As per the Chinese Iron and Steel Association (CISA), the average daily crude steel production and inventories at Chinese mills have increased in the last month.

As supplies are on the higher side, traders are staying away from adding inventories, which is undermining the market sentiment.

In the meantime, the recent US and Chinese ceasefire deal for ninety days fueled gains in global stocks and metal prices. The possible demand for steel from automakers is likely to strengthen the market.

During the G20 meeting, the US President said that China has agreed to reduce and remove tariffs on cars imported by China from the US. This could perhaps boost demand for steel from western automakers.

China, the world’s largest car maker, had imposed 40 percent tariff on auto imports from the US since July, forcing US carmakers to raise prices, which hit the US auto sector.

At the same time, concerns over Chinese economic growth is weighing on the sentiments. Chinese economic growth has softened to 6.5 percent year-on-year in the third quarter of 2018, its weakest pace since early 2009, due to trade conflict with the US.

Latest official data also showed that manufacturing growth is at its weakest level in more than two years.

Export orders from the country too declined for the fifth straight month in August 2018, suggesting the intensifying trade spat with the US beginning to put a strain on businesses.

Looking ahead, even as the US and China agreed to suspend imposition of fresh trade tariffs, the temporary gains in prices are unlikely to continue amid weak market fundamentals.

Slowing manufacturing growth, high steel output, and the seasonal decline in demand could weigh on prices.

Though India is the second top producer of steel, it still largely depends on imports for special steel products like electrical and auto-grade steel. Hence, price movements in the overseas market is likely to drive the sentiments in the local market.

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Here is the list of all the major developments in the auto space

Car manufacturers say they are no longer able to bear the cost pressures that they were trying to keep at bay since a few months. And so the list of number of companies declaring a hike in January is growing by the day. Here is the list of all the major developments in the auto space along with a brief write up on the need to switch to reporting retail numbers from wholesales.

Maruti to hike prices, VW by 3% from January

Maruti Suzuki India Wednesday said it will increase prices of its vehicles across various models from next month to offset adverse impact of increase in commodity prices and foreign exchange rates. The company, however, did not specify by how much the prices of its vehicles would increase

German auto major Volkswagen on December 7 said it will increase prices of its products in India by up to 3 per cent from January 2019 citing rising input costs. Following dynamic changes within the economy and rising input costs followed by a depreciating rupee, there has been a foreseen requirement to increase prices in the passenger vehicle segment, Volkswagen India said in a statement.

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Current tumultuous period provides good opportunity to accumulate growth stock like Edelweiss Financial Services for long term.

Highlights:

- A ‘bank-like’ structure with diversified revenue streams

- Niche in distressed credit business

- Rapidly gaining scale in the wealth and asset management space

- Risk-reward favorable at this juncture

We are enthused by the fact that over a period of time Edelweiss Financial Services has evolved into a ‘bank-like’ structure, with diversified revenue streams. More importantly, it has identified and created a niche in certain non-traditional growth segments like distressed assets and structured credit and is rapidly gaining scale in the wealth and asset management space.

Its lending business is currently facing sectoral issues in form of high interest rates, reduced liquidity and intense competition. However, with presence across business segments, there are multiple growth levers for the NBFC. Value unlocking through potential stake sale in any of its business stream can be a key catalyst for the stock in medium term. Read: What Edelweiss' reported stake sale in wealth, AMC business means for stock

Edelweiss’s profitability has improved over the past few years. However, it still remains sub-optimal as the costs associated with incubating new businesses is dragging down group’s overall profitability. A significant portion of the group's capital is employed in businesses that are either low-yielding or loss-making currently like insurance. However, we expect the Edelweiss group to build a significant market presence in its chosen lines of businesses, resulting in higher earnings and accruals to capital over the long term.

In the medium term, despite the expected moderation in its lending business, we see the NBFC’s profitability to be supported by steady growth in wealth and asset management businesses as well as healthy recoveries in its distressed credit business. It is worth noting that both these businesses have the potential to provide huge RoE (return on equity) fillip.

The wealth and asset business does not have high capital requirement, hence it can possibly generate non-linear profit growth and RoE expansion. The prospects of its ARC business also looks promising as it can generate high carry income (more than 16-17% IRR) in case the asset realisation is higher than the price at which was acquired.

As per the management commentary, ARC recovered around Rs 2,000 crore in H1 FY19 and expects to recover another Rs 10,000-12,000 crore in H2 FY19 on resolution of delinquent assets under Insolvency and Bankruptcy Code (IBC).

The stock has witnessed a sharp fall since September end following the liquidity concerns that engulfed the sector. Of late, it has seen smart recovery as access to funding has improved for the sector over the past 3-4 weeks. However, it is still down more than 40 percent from its 52-week high. The recent stock price correction has eliminated valuation froth creating favourable risk-reward for the stock, making its worthy bet for long term.

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