Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>GEM managers strengthen Indian exposure during the recent market turbulence.  Average weights now stand at 9.61%, up from a low of 8.69% at the end of March 2020.</li>
<li>Ownership levels have increased across Energy, Consumer Discretionary, Health Care and Tech sectors but decreased in Utilities, Real Estate, Materials and Financials.  </li>
<li>
<a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a> makes leadership challenge, closing in on <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> as India's most widely held stock.</li>
<li>Recent ownership increases have pushed <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a> to the 3rd most widely invested stock and the largest Indian holding on an average weight basis. </li>
</ul>Analysis taken from our Global Emerging Markets research, covering 243 EM active funds with combined AUM of $370bn.


GEM managers strengthen Indian exposure during the recent market turbulence.  Average weights now stand at 9.61%, up from a low of 8.69% at the end of March 2020.
Ownership levels have increased across Energy, Consumer Discretionary, Health Care and Tech sectors but decreased in Utilities, Real Estate, Materials and Financials.  

Reliance Industries (RIL IN) makes leadership challenge, closing in on HDFC Bank (HDFCB IN) as India's most widely held stock.
Recent ownership increases have pushed Reliance Industries (RIL IN) to the 3rd most widely invested stock and the largest Indian holding on an average weight basis. 
Analysis taken from our Global Emerging Markets research, covering 243 EM active funds with combined AUM of $370bn.

India:  Confidence Returns Among EM Active Managers

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a>  1HFY2021 results is a study in contrasts to its non-bank finance company (NBFC) subsidiary, HDB Financial Services (HDB). While the standalone bank reported a 19% yoy growth in net profits, HDB’s  profits collapsed by an alarming 94% yoy (HDB reports only half-yearly performance). The dichotomy in performance lucidly highlights the concentration of stress in both entities, with HDB customers apparently being far worse off than HDFC Bank standalone. It appears the Covid-19 lockdown has taken a heavier toll on the higher-risk portfolio of HDB, especially on its Loan against Property (LAP) and commercial vehicle loans. It is now clear why HDB in a non-transparent and inhumane manner decided to <a href="https://hemindrahazari.com/2020/05/18/hdfc-banks-downsizing-programme-disturbing-lack-of-humanity-and-transparency/" target="_blank" rel="noopener">remove staff</a>  in April 2020, as the management were aware of the problem at an early stage. Pertinently, while HDB’s staff costs in 1HFY2021 declined 4% yoy, the bank’s standalone staff costs rose 10.6% yoy. On the results <a href="https://www.youtube.com/watch?v=-1QghaLEdsI" target="_blank" rel="noopener">conference call</a> while outgoing CEO, Aditya Puri reassured investors that the bank had not removed staff, and had even given increments and bonuses, it appears the HDB staff were treated differently in this period. It is also unfortunate that in its results call held on October 17, none of the senior business heads at HDFC Bank, who spoke at length reassuring investors that all was well on their respective fronts, chose to mention the disastrous performance at HDB, which appears to have borne the full brunt of the Covid-19 lockdown (one analyst, though, did query the bank on HDB’s poor performance). Indeed the management commentary on the call was in direct contradiction to HDB’s financial performance. HDB's valuation (prior to 1HFY2021 results) has estimated to have declined by around 25% from 3 months ago, to nearly US$ 9 bn. After the results, the valuation should further reduce. HDB’s results is an early indicator of the performance of the NBFC sector during the lockdown and investors must exercise caution. Even though HDB’s loans are only around 5% of HDFC Bank’s consolidated loans, it is a relevant subsidiary in terms of valuation, and one hopes that in future under the leadership of Sashi Jagdisan, transparency and corporate governance improve in the bank.

HDFC Bank (HDFCB IN)  1HFY2021 results is a study in contrasts to its non-bank finance company (NBFC) subsidiary, HDB Financial Services (HDB). While the standalone bank reported a 19% yoy growth in net profits, HDB’s  profits collapsed by an alarming 94% yoy (HDB reports only half-yearly performance). The dichotomy in performance lucidly highlights the concentration of stress in both entities, with HDB customers apparently being far worse off than HDFC Bank standalone. It appears the Covid-19 lockdown has taken a heavier toll on the higher-risk portfolio of HDB, especially on its Loan against Property (LAP) and commercial vehicle loans. It is now clear why HDB in a non-transparent and inhumane manner decided to remove staff  in April 2020, as the management were aware of the problem at an early stage. Pertinently, while HDB’s staff costs in 1HFY2021 declined 4% yoy, the bank’s standalone staff costs rose 10.6% yoy. On the results conference call while outgoing CEO, Aditya Puri reassured investors that the bank had not removed staff, and had even given increments and bonuses, it appears the HDB staff were treated differently in this period. It is also unfortunate that in its results call held on October 17, none of the senior business heads at HDFC Bank, who spoke at length reassuring investors that all was well on their respective fronts, chose to mention the disastrous performance at HDB, which appears to have borne the full brunt of the Covid-19 lockdown (one analyst, though, did query the bank on HDB’s poor performance). Indeed the management commentary on the call was in direct contradiction to HDB’s financial performance. HDB's valuation (prior to 1HFY2021 results) has estimated to have declined by around 25% from 3 months ago, to nearly US$ 9 bn. After the results, the valuation should further reduce. HDB’s results is an early indicator of the performance of the NBFC sector during the lockdown and investors must exercise caution. Even though HDB’s loans are only around 5% of HDFC Bank’s consolidated loans, it is a relevant subsidiary in terms of valuation, and one hopes that in future under the leadership of Sashi Jagdisan, transparency and corporate governance improve in the bank.  

HDB’s Profit Collapse: Canary in the Coalmine for the NBFC Sector in the Lockdown?

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

*Strong Results, But Managed: HDFC Bank (HDFCB.IN) [HDFCB] reported FY 2Q21 results of INR 770.3 bn, which increased INR 77.6 bn (11.2%) linked quarter. On a core operating basis, results improved INR 84.6 bn (14.5%) to INR 668.6 bn over the period. Other income drove the results outperformance;*Credit Still Breaking Down Ex-Supreme Court Ruling: The Supreme Court of India, in a public interest litigation directed that accounts which were not declared NPL through August 31, 2020 shall not be declared as such until further notice. On an apples-to-apples basis, we find that HDFCB’s gross NPLs increased 4.3% linked quarter. Inclusive of NCOs of INR 184 bn, we calculate that net new NPLs actually increased INR 765 bn or 22.4% on an annualized basis; and*Reserve Cover Needs Improvement: While provisions cover NCOs by 2.4x, we would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues gives HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 680 bn or an entire quarter of core operating results.

*Strong Results, But Managed: HDFC Bank (HDFCB.IN) [HDFCB] reported FY 2Q21 results of INR 770.3 bn, which increased INR 77.6 bn (11.2%) linked quarter. On a core operating basis, results improved INR 84.6 bn (14.5%) to INR 668.6 bn over the period. Other income drove the results outperformance;*Credit Still Breaking Down Ex-Supreme Court Ruling: The Supreme Court of India, in a public interest litigation directed that accounts which were not declared NPL through August 31, 2020 shall not be declared as such until further notice. On an apples-to-apples basis, we find that HDFCB’s gross NPLs increased 4.3% linked quarter. Inclusive of NCOs of INR 184 bn, we calculate that net new NPLs actually increased INR 765 bn or 22.4% on an annualized basis; and*Reserve Cover Needs Improvement: While provisions cover NCOs by 2.4x, we would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues gives HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 680 bn or an entire quarter of core operating results.   

India Financials

Saumya Agarwal

The Q2FY21 results season has just commenced and HDFC Bank is among the first ones to come out with its Q2FY21 earnings. Even as analyst and investors were expecting some signs of stress / slowdown to become visible in the Banks Q2 numbers, especially now that the moratorium is over, HDFC Bank surprised one an all by a stellar set of numbers for the September quarter. The numbers seem to proudly defy ALL the prevailing economic and banking sector woes and would largely be an outlier among Banks!

The Q2FY21 results season has just commenced and HDFC Bank is among the first ones to come out with its Q2FY21 earnings. Even as analyst and investors were expecting some signs of stress / slowdown to become visible in the Banks Q2 numbers, especially now that the moratorium is over, HDFC Bank surprised one an all by a stellar set of numbers for the September quarter. The numbers seem to proudly defy ALL the prevailing economic and banking sector woes and would largely be an outlier among Banks!

HDFC Bank Q2FY21 Results – Robust Q2 Performance Seems to Defy All the Prevailing Economic Woes!

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

In this, the second of several short insights in our Yes Bank Deposit Run Anniversary Series, we adjust Liquidity Coverage Ratio (LCR) assumptions regarding likely deposit flight to the reality of what occurred at <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> to derive “Yes-Stressed” resultant LCRs for each institution. We then assess this “Yes-Stressed” LCR relative to US$-denominated securities to see if this real liquidity is priced-in, from a credit perspective. We also consider the implications of it not being priced and conclude with whether it was Yes Bank’s missing LCR deposits that broke the bank.Approximately one-year ago, India-headquartered Yes Bank began to experience a silent run on its deposits. To mark this inauspicious anniversary, we undertake a series of short insights to determine if the funding and liquidity lessons from Yes Bank are being applied at India-headquartered banks. Spoiler alert: they are not.As we noted in <a href="https://www.smartkarma.com/insights/india-bank-deposit-flight-risk-lessons-from-yes-bank" target="_blank" data-smartkarma-citation="insights:37617" rel="noopener">India Bank Deposit Flight Risk: Lessons from Yes Bank</a>, India-headquartered bank funding franchises are more sensitive to potential deposit flight than displayed in their quarterly financial presentations. With an undue focus on the levels of current, savings and time deposits, the discussion neglects crucial factors which lead to a stable deposit franchise. At the same, undue reliance on Liquidity Coverage Ratios is not warranted.In our first insight on this matter, we derived the amount of stable deposits and compared this to deposit costs at each major India-headquartered bank. We then assessed these items relative to US$-denominated securities to see if they are priced-in, from a credit perspective. Please see <a href="https://www.smartkarma.com/insights/india-headquartered-banks-stable-deposits-and-costs-1-year-after-the-yes-bank-silent-run" target="_blank" data-smartkarma-citation="insights:43981" rel="noopener">India-Headquartered Banks: Stable Deposits and Costs 1-Year After the Yes Bank Silent Run</a> for more details. In follow-up insights, we intent to incorporate deposits that are not captured in LCR reports and then further stress the reported LCRs for possible Covid-19 related payment delinquencies.

In this, the second of several short insights in our Yes Bank Deposit Run Anniversary Series, we adjust Liquidity Coverage Ratio (LCR) assumptions regarding likely deposit flight to the reality of what occurred at Yes Bank (YES IN) to derive “Yes-Stressed” resultant LCRs for each institution. We then assess this “Yes-Stressed” LCR relative to US$-denominated securities to see if this real liquidity is priced-in, from a credit perspective. We also consider the implications of it not being priced and conclude with whether it was Yes Bank’s missing LCR deposits that broke the bank.Approximately one-year ago, India-headquartered Yes Bank began to experience a silent run on its deposits. To mark this inauspicious anniversary, we undertake a series of short insights to determine if the funding and liquidity lessons from Yes Bank are being applied at India-headquartered banks. Spoiler alert: they are not.As we noted in India Bank Deposit Flight Risk: Lessons from Yes Bank, India-headquartered bank funding franchises are more sensitive to potential deposit flight than displayed in their quarterly financial presentations. With an undue focus on the levels of current, savings and time deposits, the discussion neglects crucial factors which lead to a stable deposit franchise. At the same, undue reliance on Liquidity Coverage Ratios is not warranted.In our first insight on this matter, we derived the amount of stable deposits and compared this to deposit costs at each major India-headquartered bank. We then assessed these items relative to US$-denominated securities to see if they are priced-in, from a credit perspective. Please see India-Headquartered Banks: Stable Deposits and Costs 1-Year After the Yes Bank Silent Run for more details. In follow-up insights, we intent to incorporate deposits that are not captured in LCR reports and then further stress the reported LCRs for possible Covid-19 related payment delinquencies. 

India-Headquartered Banks: Yes-Stressed Deposit Flight Simulation

India

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

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HDFC Bank (HDFCB IN)

India: Confidence Returns Among EM Active Managers

Global EM managers strengthen India exposure during the recent market turbulence. Ownership increases across Energy and Consumer Discretionary,...

Steven Holden

HDB’s Profit Collapse: Canary in the Coalmine for the NBFC Sector in the Lockdown?

HDFC Bank and its NBFC subsidiary HDB a study in contrasts indicating the huge hit the NBFC sector may take as a result of the Covid-19 lockdown.

Hemindra Hazari

HDFC Bank – Not A Great Quarter

HDFC Bank: Improved Bottom-line Clouded By Supreme Court Ruling On Credit Quality Calculations. Reserve Cover Lower Than On/Off Balance Sheet Risk...

Thomas J. Monaco

HDFC Bank Q2FY21 Results – Robust Q2 Performance Seems to Defy All the Prevailing Economic Woes!

In a stellar Q2FY21 performance, and which will probably be an outlier among Banks, HDFC Banks defies ANY and ALL signs of the prevailing...

Saumya Agarwal

India-Headquartered Banks: Yes-Stressed Deposit Flight Simulation

In this 2'nd insight in our Yes Bank Deposit Run Anniversary Series, we apply Yes Bank deposit flight rates to derive “Yes-Stressed” LCRs at India...

Hank Calenti, CFA

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