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

Equity Bottom-Up

*Solid Results In FY 2Q21: Kotak Mahindra Bank (KMB.IN) [Kotak] reported a fairly stellar FY 2Q21 earnings result of INR 21.8 bn – exceeding FY 1Q21 results by INR 9.3 bn or 75.5% - a high quality beat of consensus as well; and*Strong Credit Metrics Across The Board: Gross NPLs were flattish linked quarter, while net new NPLs increased just INR 1.1 bn or 7.6% on an annualized basis. Further, despite the loss provisioning decline of INR 5.9 bn (61.7%), loss reserves at KMB increased INR 2.8 bn (7.4%) as NCOs continue to decelerate.

*Solid Results In FY 2Q21: Kotak Mahindra Bank (KMB.IN) [Kotak] reported a fairly stellar FY 2Q21 earnings result of INR 21.8 bn – exceeding FY 1Q21 results by INR 9.3 bn or 75.5% - a high quality beat of consensus as well; and*Strong Credit Metrics Across The Board: Gross NPLs were flattish linked quarter, while net new NPLs increased just INR 1.1 bn or 7.6% on an annualized basis. Further, despite the loss provisioning decline of INR 5.9 bn (61.7%), loss reserves at KMB increased INR 2.8 bn (7.4%) as NCOs continue to decelerate. 

Kotak Mahindra Bank – Surprisingly Strong Performance

*In-Line Results: Bajaj Finance (BAF.IN) [Bajaj] reported FY 2Q21 results of INR 9.6 bn - essentially in-line with FY 1Q21 results. While in line on a linked quarter basis, we do note improvement in the NIM by 70 bp to 9.9% which drove the INR 1.1 bn (3.3%) increase in net interest income;*Credit Risk Increasing: On a linked quarter basis, we found that gross NPAs actually declined INR 5.2 bn (26.9%)  - primarily on account of FY 2Q21 NCOs of INR 20.5 bn which appear to have accelerated again. Credit remains weak with net new NPAs of INR 15.3 or an alarming 434.1% annualized increase. Loss reserves also remain light in the neighbourhood of INR 66.4 bn by our calculation or over five quarter of pre-tax results; and*Lowered Guidance: For AUM, Bajaj expects AUM growth during FY 2021 of just between 6%-7% - well below previous guidance of 10-12%. Several other headwinds over the near-term are also worrisome, including: 1) the elevated payment-bounce rate; and 2) the lack of clarity surrounding the flexi loan book.

*In-Line Results: Bajaj Finance (BAF.IN) [Bajaj] reported FY 2Q21 results of INR 9.6 bn - essentially in-line with FY 1Q21 results. While in line on a linked quarter basis, we do note improvement in the NIM by 70 bp to 9.9% which drove the INR 1.1 bn (3.3%) increase in net interest income;*Credit Risk Increasing: On a linked quarter basis, we found that gross NPAs actually declined INR 5.2 bn (26.9%)  - primarily on account of FY 2Q21 NCOs of INR 20.5 bn which appear to have accelerated again. Credit remains weak with net new NPAs of INR 15.3 or an alarming 434.1% annualized increase. Loss reserves also remain light in the neighbourhood of INR 66.4 bn by our calculation or over five quarter of pre-tax results; and*Lowered Guidance: For AUM, Bajaj expects AUM growth during FY 2021 of just between 6%-7% - well below previous guidance of 10-12%. Several other headwinds over the near-term are also worrisome, including: 1) the elevated payment-bounce rate; and 2) the lack of clarity surrounding the flexi loan book.

Thematic (Sector/Industry)

*HFC Harmonization With NBFCs: The Reserve Bank of India (RBI) had initially published a draft proposal for changes in regulations for Housing Finance Companies (HFC) in June 2020, seeking commentary from stakeholders by July 15, 2020; and*Final Regulatory Changes: After stakeholder review, there is essentially one key change to the draft proposal mandating a higher 60% of total assets be “qualifying housing finance assets” and that a minimum of 50% of total assets be housing loans. The RBI has indicated that other differences between HFC and NBFC regulations will be eliminated over a period of two years.

*HFC Harmonization With NBFCs: The Reserve Bank of India (RBI) had initially published a draft proposal for changes in regulations for Housing Finance Companies (HFC) in June 2020, seeking commentary from stakeholders by July 15, 2020; and*Final Regulatory Changes: After stakeholder review, there is essentially one key change to the draft proposal mandating a higher 60% of total assets be “qualifying housing finance assets” and that a minimum of 50% of total assets be housing loans. The RBI has indicated that other differences between HFC and NBFC regulations will be eliminated over a period of two years.

Reserve Bank of India  - Final HFC Changes

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

The 2020 Monsoon Session of parliament will go down in history for ushering in modern India’s most transformative economic reforms. Farmers (hitherto obliged to sell their produce to a monopsonist within each state) are now free to sell to whoever they wish (including directly for export), and the famously inflexible labour market has been ingeniously freed up.Economic reforms that economists have salivated over, but which politicians considered too hot to handle, have now been delivered by the Modi government. The simplification of labour laws (with 44 laws cut to 4 simple codes), and particularly allowing employers to take employees on (renewable) fixed-term contracts, makes India's labour market as flexible as any in Southeast Asia. The removal of the dead hand of government from vital parts of the economy – with the associated opportunities for pelf they provided to politicians and bureaucrats – has naturally resulted in an avalanche of political criticism, as most policies are in India.But the benefits to the national economy are certain over the decades ahead. The flexible labour market will bolster investment in labour-intensive manufacturing, which (like Japan in the 1950s, Taiwan and South Korea in the 1960s, Malaysia and Thailand in the 1980s, China in the 1990s) will help draw labour from low-marginal-productivity work on farms to much higher-productivity jobs in manufacturing. And as workers are drawn away from farms, those that remain there will see some improvement in their productivity -- benefitting additionally from the elimination of the intermediaries between farms and retailers, which will boost the prices earned by farmers. Early evidence that the farm-sector reforms are working is the 32% YoY increase in tractor sales in the last quarter (July-September 2020). The reforms, coupled with the IBC (Insolvency &amp; Bankruptcy Code) and GST, will provide a significant fillip to medium-term economic growth. We are positive on Indian equities on a 12-18 month view.        <div>      </div>

The 2020 Monsoon Session of parliament will go down in history for ushering in modern India’s most transformative economic reforms. Farmers (hitherto obliged to sell their produce to a monopsonist within each state) are now free to sell to whoever they wish (including directly for export), and the famously inflexible labour market has been ingeniously freed up.Economic reforms that economists have salivated over, but which politicians considered too hot to handle, have now been delivered by the Modi government. The simplification of labour laws (with 44 laws cut to 4 simple codes), and particularly allowing employers to take employees on (renewable) fixed-term contracts, makes India's labour market as flexible as any in Southeast Asia. The removal of the dead hand of government from vital parts of the economy – with the associated opportunities for pelf they provided to politicians and bureaucrats – has naturally resulted in an avalanche of political criticism, as most policies are in India.But the benefits to the national economy are certain over the decades ahead. The flexible labour market will bolster investment in labour-intensive manufacturing, which (like Japan in the 1950s, Taiwan and South Korea in the 1960s, Malaysia and Thailand in the 1980s, China in the 1990s) will help draw labour from low-marginal-productivity work on farms to much higher-productivity jobs in manufacturing. And as workers are drawn away from farms, those that remain there will see some improvement in their productivity -- benefitting additionally from the elimination of the intermediaries between farms and retailers, which will boost the prices earned by farmers. Early evidence that the farm-sector reforms are working is the 32% YoY increase in tractor sales in the last quarter (July-September 2020). The reforms, coupled with the IBC (Insolvency &amp; Bankruptcy Code) and GST, will provide a significant fillip to medium-term economic growth. We are positive on Indian equities on a 12-18 month view.              

Modi's Blitz of Economic Reform Will Transform Farm Sector and Labour Market

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>TMI's text-mined India Lead Indicator has jumped to +1.5x STDEVs, highest reading since 11/2019; our indicator is equally comprised of macro components &amp; domestic corporate drivers</li>
<li>Just as the US and Europe are seeing a surge in COVID-19 cases, India has seen an encouraging -32% decline in the past month from a 7DMA new case count of 93K/day mid-September to the most recent reading of 63K/day; positive impact on mobility is already noticeable</li>
<li>Our RBI sentiment indicator surged to +1.6x STDEV as the central bank stated it will "look through" transitory inflationary supply shocks, pledging a prolonged accommodative policy stance while doubling down on open market operations and announcing new sector-specific TLTROs</li>
<li>While macro sentiment is the key catalyst, we also see an incipient recovery in corporate sentiment evidenced in positive news flow such as the sequential headcount increase at the likes of TCS, Infosys and Wipro</li>
<li>Our India Lead Indicator has been 80% correlated with the iShares MSCI India ETF with a slight lead in the T12M</li>
<li>At this point, our sentiment-based India indicators appear to be ahead of other Asian jurisdictions across most vectors</li>
</ul><div class="content-highlight">TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </div>


TMI's text-mined India Lead Indicator has jumped to +1.5x STDEVs, highest reading since 11/2019; our indicator is equally comprised of macro components &amp; domestic corporate drivers
Just as the US and Europe are seeing a surge in COVID-19 cases, India has seen an encouraging -32% decline in the past month from a 7DMA new case count of 93K/day mid-September to the most recent reading of 63K/day; positive impact on mobility is already noticeable
Our RBI sentiment indicator surged to +1.6x STDEV as the central bank stated it will "look through" transitory inflationary supply shocks, pledging a prolonged accommodative policy stance while doubling down on open market operations and announcing new sector-specific TLTROs
While macro sentiment is the key catalyst, we also see an incipient recovery in corporate sentiment evidenced in positive news flow such as the sequential headcount increase at the likes of TCS, Infosys and Wipro
Our India Lead Indicator has been 80% correlated with the iShares MSCI India ETF with a slight lead in the T12M
At this point, our sentiment-based India indicators appear to be ahead of other Asian jurisdictions across most vectors
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Indicators: India Indicators Rise On COVID-19 Trends, RBI Policy Shift and Corporate Optimism

India

iShares MSCI India ETF is an exchange-traded fund incorporated in the USA. The ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI India Index.

iShares MSCI India ETF (INDA US)

Kotak Mahindra Bank – Surprisingly Strong Performance

KOTAK MAHINDRA BANK: Surprise, Surprise, Surprise. Both Credit Metrics and Ne Interest Income Improves As Risk Substantially Declines

Thomas J. Monaco

Bajaj Finance – Removing The Lipstick

BAJAJ FINANCE: Results Would Suggest That Credit Portfolio Risk Has Significantly Deteriorated, and That Reserves Need Buttressing By Over Five...

Thomas J. Monaco

Reserve Bank of India - Final HFC Changes

RESERVE BANK OF INDIA - Final Housing Finance and Non-Bank Financial Company Rule Harmonization Regulations Now Set With Stricter Rules.

Thomas J. Monaco

Modi's Blitz of Economic Reform Will Transform Farm Sector and Labour Market

Labour reforms allowing new workers to be employed on fixed-term contracts give employers enormous flexibility. Coupled with the liberalization of...

Prasenjit K. Basu

TMI Indicators: India Indicators Rise On COVID-19 Trends, RBI Policy Shift and Corporate Optimism

TMI's text-mined India Lead Indicator recently surged to a new 2020 high on notably improving COVID-19 trends, dramatic policy shift at the RBI,...

Elan Gore