India Financials

Saumya Agarwal

Equity Bottom-Up

Axis Bank, India’s third largest private sector bank by advances, reported a manifold increase in FY21 net profit driven by a pick-up in revenue drivers and a decline in credit costs. However, NPA’s in the Corporate and SME segment continue to weigh down on the asset quality, despite higher write-offs and moderation in fresh slippages.

Axis Bank, India’s third largest private sector bank by advances, reported a manifold increase in FY21 net profit driven by a pick-up in revenue drivers and a decline in credit costs. However, NPA’s in the Corporate and SME segment continue to weigh down on the asset quality, despite higher write-offs and moderation in fresh slippages. 

Axis Bank Q4FY21 Results – Corporate and SME Asset Quality in Focus

Specialist in Indian Banking and Economic Research

Hemindra Hazari

<a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a>’s decision to <a href="https://www.citigroup.com/citi/investor/data/qer121.pdf?ieNocache=351" target="_blank" rel="noopener">withdraw</a>  from consumer banking in 13 geographies, including India, and focus instead on corporate/institutional banking, is a lesson in missed opportunities, at least in the case of India. Citi India was the pioneer in consumer banking, in products such as mortgages and credit cards, but it flourished when there were only government banks. The post-1991 entry of the new private banks in India which concentrated on the retail and corporate customers of foreign banks, and the post-Lehman crisis in 2008, heralded the decline of foreign banks in India. The present market capitalisation of the new private banks, and their significant footfall in retail banking in India, highlight the missed opportunity by foreign banks like Citi. The Reserve Bank of India (RBI) provided the foreign banks an opportunity from <a href="https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPR936SC1113.pdf" target="_blank" rel="noopener">2013</a>  to set up Indian subsidiaries which could unfetter their network shackles and expand their branches, which is necessary for consumer banking, but the foreign banks preferred not to get tied down by the other regulatory and social commitments. Instead they focused on hiring direct sales agents to grow their consumer book. Although Citi developed a premium retail clientele franchise, the lack of a broader retail network and intense competition impeded their growth in retail. They preferred to remain focused on the corporate portfolio where, using their global balance sheet, creating structured products and handling treasury and foreign exchange transactions, they managed a lucrative business. Citi’s 5% market share in credit cards remains the jewel in its retail consumer franchise in India, and its monthly credit card spends per customer are at the top of the league, and close to HDFC Bank. Many players are eyeing Citibank’s market share in credit cards and it remains to be seen whether Citi offloads it on a standalone basis, or sells it with its other retail franchise in India, or sells all 13 geographies to a global player.

Citigroup Inc (C US)’s decision to withdraw  from consumer banking in 13 geographies, including India, and focus instead on corporate/institutional banking, is a lesson in missed opportunities, at least in the case of India. Citi India was the pioneer in consumer banking, in products such as mortgages and credit cards, but it flourished when there were only government banks. The post-1991 entry of the new private banks in India which concentrated on the retail and corporate customers of foreign banks, and the post-Lehman crisis in 2008, heralded the decline of foreign banks in India. The present market capitalisation of the new private banks, and their significant footfall in retail banking in India, highlight the missed opportunity by foreign banks like Citi. The Reserve Bank of India (RBI) provided the foreign banks an opportunity from 2013  to set up Indian subsidiaries which could unfetter their network shackles and expand their branches, which is necessary for consumer banking, but the foreign banks preferred not to get tied down by the other regulatory and social commitments. Instead they focused on hiring direct sales agents to grow their consumer book. Although Citi developed a premium retail clientele franchise, the lack of a broader retail network and intense competition impeded their growth in retail. They preferred to remain focused on the corporate portfolio where, using their global balance sheet, creating structured products and handling treasury and foreign exchange transactions, they managed a lucrative business. Citi’s 5% market share in credit cards remains the jewel in its retail consumer franchise in India, and its monthly credit card spends per customer are at the top of the league, and close to HDFC Bank. Many players are eyeing Citibank’s market share in credit cards and it remains to be seen whether Citi offloads it on a standalone basis, or sells it with its other retail franchise in India, or sells all 13 geographies to a global player.   

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.</div><div>These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.</div><div>
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.
</div>

In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.


Thematic (Sector/Industry)

In quite an innovative move, the Government of India amended the Insolvency and Bankruptcy code (IBC) 2016, by promulgating an ordinance to provide pre-packaged resolution for micro, small and medium Enterprises (MSME’s). The move is expected to create a win-win situation for the MSME debtor and creditor alike. Banks with sizeable exposure to the MSME segment and/or  higher stress in the segment stand to benefit the most , from this amendment.

In quite an innovative move, the Government of India amended the Insolvency and Bankruptcy code (IBC) 2016, by promulgating an ordinance to provide pre-packaged resolution for micro, small and medium Enterprises (MSME’s). The move is expected to create a win-win situation for the MSME debtor and creditor alike. Banks with sizeable exposure to the MSME segment and/or  higher stress in the segment stand to benefit the most , from this amendment. 

The ‘Pre-Pack’ Scheme for MSME: Which Banks Have the Most Stressed MSME Portfolio ?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Macrotech Developers / Equity Capital Markets

Macrotech Developers  (Lodha) aims to raise around US$350m in its India IPO. It is the largest real estate developer in India, by residential sales over FY14-20. In FY20, it had a share of 24% of total supply (by units), 32% of total absorption (by units) and 46% of total absorption (by value) in the Top Seven Indian Markets. Lodha's is primarily a residential developer with most of its operations restricted to the Mumbai Metropolitan Region (MMR).  It has projects across the value spectrum from the affordable segment to ultra-luxury high-end residential projects. As of Dec 2020, it had completed 91 projects with a developable area of 77.22m sqft. As of Dec 2020, it also had 36 ongoing and 18 planned projects in India with a developable area of 28.78m sqft and 45.08m sqft, respectively.This will be the company’s third listing attempt, after 2009/10 and 2018. The size of the deal is expected to be much smaller as well versus the US$800m that it was hoping to raise in 2018. We have looked at its previous listing attempt in our prior note, <a href="https://www.smartkarma.com/insights/lodha-developers-pre-ipo-second-time-lucky-but-not-really-that-much-affordable" target="_blank" rel="noopener">Lodha Developers Pre-IPO - Second Time Lucky but Not Really that Much Affordable</a>.In this note we will talk about the updates since our last note in 2018

Macrotech Developers  (Lodha) aims to raise around US$350m in its India IPO. It is the largest real estate developer in India, by residential sales over FY14-20. In FY20, it had a share of 24% of total supply (by units), 32% of total absorption (by units) and 46% of total absorption (by value) in the Top Seven Indian Markets. Lodha's is primarily a residential developer with most of its operations restricted to the Mumbai Metropolitan Region (MMR).  It has projects across the value spectrum from the affordable segment to ultra-luxury high-end residential projects. As of Dec 2020, it had completed 91 projects with a developable area of 77.22m sqft. As of Dec 2020, it also had 36 ongoing and 18 planned projects in India with a developable area of 28.78m sqft and 45.08m sqft, respectively.This will be the company’s third listing attempt, after 2009/10 and 2018. The size of the deal is expected to be much smaller as well versus the US$800m that it was hoping to raise in 2018. We have looked at its previous listing attempt in our prior note, Lodha Developers Pre-IPO - Second Time Lucky but Not Really that Much Affordable.In this note we will talk about the updates since our last note in 2018

Macrotech (Lodha) Developers Pre-IPO - New Name but up to Some of the Same Old Tricks

India

Axis Bank Limited provides a full range of banking services throughout India. The Group's activities include retail banking, investment management, merchant banking, treasury and NRI services, cash and credit management services, and ATM facilities.

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Axis Bank Ltd (AXSB IN)

Axis Bank Q4FY21 Results – Corporate and SME Asset Quality in Focus

Axis Bank reported a manifold increase in net profit in FY21. However, asset quality of the Corporate and SME book continues to be stressed and is...

Saumya Agarwal

While Citi Slept

Citi's decision to withdraw from consumer banking in 13 geographies, including India, and focus on corp./institutional banking, is a lesson in...

Hemindra Hazari

Pair Trading Ideas - Asian Financials

We highlight potential trades among liquid large cap Asian financial stocks that are correlated and exhibit mean reversion. We recommend closing...

Brian Freitas

The ‘Pre-Pack’ Scheme for MSME: Which Banks Have the Most Stressed MSME Portfolio ?

The Government has amended the IBC code 2016 to provide pre-packaged resolution for MSME's. Banks with sizeable exposure to MSME and /or the...

Saumya Agarwal

Macrotech (Lodha) Developers Pre-IPO - New Name but up to Some of the Same Old Tricks

Macrotech Developers (Lodha) aims to raise around US$350m in its India IPO. It is the largest real estate developer in India, by residential sales...

Sumeet Singh

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