Midnight News Update – Oct 25th 2017
In a significant boost for PSU banks, the government has decided to infuse up to Rs.211,000 crore into bank capital over the next 2 years. Indian banks are stuck with NPAs to the tune of Rs.800.000 crore with another Rs.800,000 crore languishing in the form of doubtful assets and restructured assets. The Indian banks need a sizable capital infusion to be able to compete effectively in the global banking space. Nearly Rs.135,000 crore will be give out in the form of recapitalization bonds while the balance Rs.76,000 crore will come in the form of budgetary support from the government.
For the quarter ended September 2017, HDFC Bank reported a 20% growth in net profits to Rs.4151 crore. This was aided by lower credit costs and a healthy growth in the loan book even as the bank has started benefiting from a reversal of the farm loan waivers. Gross NPAs for the quarter was almost flat at 1.26%, although the average rate is higher than previous quarters. Net interest margins dropped marginally from 4.4% to 4.3% while the capital adequacy was comfortable at above 15%. The bank’s loan book grew at over 22.3%, a healthy growth when other banks are still struggling.
It appears to be the season of giveaways for the government with the general elections approaching in less than 18 months. The government has approved an outlay of Rs.700,000 crore for a variety of highway projects which includes the Bharatmala project, which is the most ambitious road project since the Golden Quadrilateral was taken up 14 years ago. The Ministry of Roads will lay roads to the extent of 80,000 kilometres over the next 5 years, including the Bharatmala project. India is already laying roads on a daily basis that is a historic record.
With Indian debt yields at extremely attractive levels, foreign investors are making full use of the enhanced limits in debt. Apart from central government debt, the FPIs are also investing heavily in state government debt. The only practical problem that they are facing is due to the absence of reliable data on these bonds. Most bond investors are keen on state level bonds considering their higher yields but have a major challenge in accessing information relating to the state of the economies of the states as well as data pertaining to such bonds. RBI stance is only adding to the demand for these bonds.
Even as the Infosys earnings did meet analyst estimates, the company has gone ahead and cut its guidance for the full year both in terms of the top-line and the bottom-line. For the year ending March 2018, the company expects an overall revenue growth of around 6.5% in dollar terms, which is lower than previous estimates put out when Vishal Sikka was the CEO. Most of the key sectors like BFSI and retail have scaled back on their outsourcing work due to a mix of business concerns and also due to more stringent visa norms, which is making life difficult for Indian companies. For the quarter, the revenues were up by 3% while net profits were up by 7%. However, Nandan Nilekani has not painted a very rosy picture of the future as they expect pressure on financials to continue.
In a surprising move, Gujarat Ambuja managed to beat profit estimates of analysts for the September quarter. Net profits were up by 10% at Rs.272 crore, which is sharply higher than the consensus estimates of the street. Net sales for the quarter were up by 15% at Rs.2320 crore, which was aided by strong volume growth and better pricing power in Western India. Among other key financial highlights, volumes were up by 12% while the realization per tonne was also up by 3.2%. Cement companies have been seen price traction for the last few months on expectations of a turnaround.
