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HDFC Bank to Sell Strategic Stake in Financial Services ARM

HDFC Bank to Sell Strategic Stake in Financial Services ARM
by 5paisa Research Team 06/10/2021

Just a couple of months back, HDFC Bank had officially put off plans of an IPO for its financial services arm, HDB Financial. Incidentally, HDB Financial is 95% owned by HDFC Bank and focuses on select retail and mid-level corporate lending. Their product portfolio includes gold loans, SME loans, car loans, commercial vehicle finance, personal loans etc.

Just a couple of months after the decision, it is reported that HDFC Bank may adopt the strategic sale route to sell a stake in HDB. HDFC Bank has already appointed Morgan Stanley to scout for a buyer for the business. HDFC Bank is of the view that in a world obsessed with digital stories, institutions may  be better positioned to grasp the strategic value of HDB.

To begin with, HDFC Bank is reportedly looking at an overall valuation of $9 billion for HDB Financial and that type of valuations may be hard to get in an IPO. HDFC bank, for now, only plans to divest about 20-25% of their overall holdings. This strategic sale is likely to become the benchmark for pricing the IPO at a future date.

HDB Financial has about 87 lakh customers across all its loan products. Its total AUM or assets under management as of the end of FY21 stood at Rs.61,567 crore. HDB contributes about 5% of the bottom line of HDFC Bank, so it is still quite small in impact terms. Even the estimated valuation of HDB at around $9 billion is just 8% of the market cap of HDFC Bank.

The real challenge for HDB in the last few quarters has been two fold. They have seen loan yields fall due to the sustained rate cuts initiated by the RBI in last 2 years. Secondly, the pandemic and its aftermath have resulted in the gross non-performing assets or Gross NPAs spike for fiscal year 2021 to 7.75% of the total book.

On the positive side, HDB enjoys net interest margins (NIMs) of 7.5%, which is best in class in the entire industry. However, the bigger challenge for Morgan Stanley will be to find a buyer for a company where NPAs have spiked and where the competition is becoming intense from the array of digital players in the market.

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What is Driving the Rally in Oil Stocks in India?

What is Driving the Rally in Oil Stocks in India?
by 5paisa Research Team 06/10/2021

The market cap of ONGC crossed Rs.2 trillion mark after a very long time. The stock has rallied by over 35% in the last two months and this trend is visible across other upstream and downstream oil companies. What exactly is driving this enthusiastic response to the oil and gas stocks?

Company Name

CMP (06th Oct)

52-week Low Price

Returns from lows

ONGC Ltd

Rs.167.30

Rs.64.10

160.99%

Indian Oil

Rs.129.50

Rs.73.75

75.59%

Reliance Industries

Rs.2,554

Rs.1,830

39.56%

GAIL Ltd

Rs.165.35

Rs.81.20

103.63%

BPCL Ltd

Rs.446.85

Rs.325.00

37.49%

Oil India

Rs.248.85

Rs.83.50

198.02%


It is hard to imagine when was the last time we saw such a sharp rally in oil stocks. Clearly, the impact has been the most visible in the upstream oil extractors like ONGC and Oil India and the dedicated gas players like GAIL. For the upstream oil companies, the spike was a mix of positive tidings on oil price and also on gas prices.

The first reason is the sharp spike in crude oil prices. In the last one year crude prices have climbed from $30/bbl to $82/bbl. Currently, Brent Crude quotes at $82/bbl while WTI crude quotes at $79/bbl. For both the baskets of crude oil, this is the highest price level since the oil prices started falling in the last quarter of 2014. That has meant better realizations.

A spike in Brent Crude prices improves the landed price of crude and thus improves the realization per barrel. This has been a big positive for ONGC and Oil India, although Oil India has also gained from the stake sale in Numaligarh Refinery. Refiners gain as higher prices lead to better gross refining margins and also better translation value for inventories.

The other reason for the enthusiasm is the higher gas prices fixed by the government for the second quarter. For the regular gas finds, the government has hiked prices by 62% from $1.79 per BBMtu to $2.90 per BBMtu. In addition, the deep-water gas prices were raised to $6.13 per MMBtu. This is likely to be a big positive for the gas extractors like RIL and ONGC and also for transporters like GAIL.

Of course, some of downstream players like CGDs stand to lose, but the overall impact is likely to be positive for oil.

Read: Sectors dependent on crude Oil

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8 Stocks to Enter the Futures and Options (F&O) List from 29-Oct

8 More Stocks to Enter the F&O List from 29-Oct
by 5paisa Research Team 07/10/2021

With the trading in the futures and options segment already accounting for over 95% of overall trading volumes on the NSE in notional terms, the exchange and SEBI are looking to continuously expand this list of F&O eligible stocks. As per the SEBI circular dated 06-Oct-2021, 8 more stocks are being added to the list of stocks eligible for F&O trading effective 29-Oct.

It may be recollected that the regulator had just added 8 stocks to the F&O list on 01-Oct. The list of 8 stocks added on 01-Oct included Abbott India, Crompton Greaves, Dalmia Bharat, Delta Corp, India Cements, JK Cements, Oberoi Realty and Persistent Systems. That accretion to the list had taken the F&O eligible list from 172 to 180.

Check: 8 Stocks in F&O from October 2021

Now, effective from the new settlement starting on 29-Oct, SEBI has approved the addition of 8 more stocks to the F&O eligible list.
 

List of stocks to be added in Futures and Options (F&O) from November series

 

Serial No. Company Name NSE Symbol
1 Atul Ltd ATUL
2 Birlasoft Ltd BSOFT
3 Chambal Fertilizers Ltd CHAMBLFERT
4 Firstsource Solutions Ltd FSL
5 Gujarat State Petronet Ltd GSPL
6 Laurus Labs Ltd LAURUSLABS
7 SBI Cards and Payment Services Ltd SBICARD
8 Whirlpool of India Ltd WHIRLPOOL

Date Source: NSE Circulars

Of course, the final inclusion of these 8 stocks will be subject to fulfilment of eligibility criteria of the quarter sigma computation cycle for the month of October 2021.

The addition of the above 8 stocks will take the total number of eligible stocks in F&O from 180 to 188. The other details pertaining to the F&O contracts of these 8 stocks including market lot, scheme of strike prices and the quantity freeze limits will be intimated by the exchange separately on 28-October, a day before the F&O contracts on these 8 stocks go live.

Inclusion in the F&O list provides greater liquidity and narrower spreads as well as institutional arbitrage demand for the stock. Stocks included in the F&O are not subject to circuit filters applicable to individual stocks on the stock exchange. Currently, F&O contracts are available on 180 stocks and 3 indices.

Also Read:

I.)    5 Mantras for Trading Derivatives

II.)   5 Mantras for Trading in Futures

III).  5 Mantras for Trading in Options

 

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Circuit Filter Limits Modified for 560 Stocks Effective 07-Oct

Circuit Filter Limits Modified for 560 Stocks Effective 07-Oct
by 5paisa Research Team 07/10/2021

The Bombay Stock Exchange announced that circuit filters had been modified for a total of 560 stocks listed on the BSE. These changes in price bands or circuit filters for the stocks will be applicable with effective from the start of trading on 07-October, Thursday. 

Like in any concerted circuit changes, the shifts have been higher (price band increased) or the circuit shifts have been lower (price band decreased).

Here is a tabular compilation of the major circuit filter changes effective from 07-Oct.

Circuit filter increased from 5% to 10%

Half of the list of 560 circuit filter changes comprises of an increase in circuit filter band from 5% to 10%. In all, 280 stocks have seen this change. Here is a quick sampler.

Price Band Change

Total Stocks

Company Examples

Price band from 5% to 10%

280 stocks

Ambalal Sarabhai, HCL Info, IVP, Ansal Housing, JMT Auto, Trigyn, Simplex, Nicco Parks, Ind-Swift Labs, RCOM, Nitco, Lokesh Machines, Eastern Silk etc.


Circuit filter increased from 5% to 20%

Out of the 560 circuit filter changes announced by BSE, a total of 12 stocks saw changes from the 5% band to the 20% band.

Price Band Change

Total Stocks

Company Examples

Price band from 5% to 20%

12 stocks

RSWM Ltd, Sadhana Nitro Chem, Punjab Alkalies, Khaitan Chemicals, Shreyas Shipping, Syncom India, NACL Industries, Jaiprakash Power, Jai Balaji Industries, Best Agrolife and Nureca Ltd


Circuit filter increased from 10% to 20%

Out of the 560 circuit filter changes announced by the BSE, a total of 241 stocks saw changes from the 10% band to the 20% band.
 

Price Band Change

Total Stocks

Company Examples

Price band from 10% to 20%

241 stocks

MTNL, Ruchi Soya, Thomas Cook, Goa Carbon, Jindal Drilling, Indian Acrylics, Ashima, Accel, Websol Energy, RIIL, Bal Pharma, Menon Pistons, Shiva Cements, Redington, Dish, MT Educare, Angel Broking, etc.


Circuit filter reduced from 10% to 5%

Out of the list of 560 circuit filter changes announced by BSE, a total of 14 stocks saw reduction from the 10% band to the 5% band.
 

Price Band Change

Total Stocks

Company Examples

Price band from 10% to 5%

14 stocks

Simplex Realty, Kaycee Industries, Informed Tech, Umiya Tubes, Visco Trades, Provestment Services, Danlaw, Sheetal Cool, BNK Capital, Misquita, Zenith Exports, Lee & Nee, Sainik Finance, Supreme Holdings


Circuit filter reduced from 20% to 5%

Out of the comprehensive list of 560 circuit filter changes announced by BSE, a total of 5 stocks saw reduction from the 20% band to the 5% band.
 

Price Band Change

Total Stocks

Company Examples

Price band from 20% to 5%

5 stocks

GG Dandekar Machine Works, Upasana Finance, Acrow India, NPR Finance, Yamuna Syndicate Ltd


Circuit filter reduced from 20% to 10%

Out of the complete list of 560 circuit filter changes announced by BSE, a total of 8 stocks saw reduction from the 20% band to the 10% band.

Price Band Change

Total Stocks

Company Examples

Price band from 20% to 10%

8 stocks

Transglobe Foods, Phyto Chem India, Paragon Finance, Shiva Texyarn, Comfort Commotrade, TCM Ltd, Yasho Industries Ltd and Panchsheel Organics Ltd


You can download the complete list of 560 stocks with relevant circuit filter changes from the hyperlink provided below.

https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20211006-40

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Government Allows 100% FDI in Telecom via Automatic Route and More

Government Allows 100% FDI in Telecom via Automatic Route and More
by 5paisa Research Team 07/10/2021

The government built on its reforms package for the telecom sector. One of the major announcements was 100% FDI in telecom through the automatic route. Currently, while 100% FDI in telecom is permitted, only 49% is allowed through the automatic route. Under the new package, companies like Vodafone Idea would find it easier to raise capital abroad.

The 100% FDI in telecom is not just limited to provision of telecom services. It also covers other business like related telecom services, support services like data centres and telecom infrastructure items like towers and cables. This should come as a boost to companies like Tata Communication and Infratel, which would find it easier to raise foreign money.

This is an important step towards the ease of doing business in all aspects of the telecom sector. The sector has been under a lot of stress in recent times due to the huge AGR burden, high SUC charges payable as well as stiff competition from undercutting of price. This move will enable telecom companies to build adequate funding war-chests.

One of the major objections that the telecom companies had was the steep license fees and spectrum usage charges that were levied by the government. The government has already promised some changes. In the announcement last month, the government promised rationalization of SUC charges and exclusion of non-telecom revenues from ambit of AGR.

However, the issue of huge bank guarantees still remained. These bank guarantee entail huge fee payments to the banks and also had become a major solvency challenge to the telecom companies. In the latest announcement on 06-Oct, the government has made some important changes on the extent of bank and performance guarantees required.

For telecom operators the requirement of bank and performance guarantees has been slashed by 80%, which would be a big boost to telecom players bidding for spectrum. This will be with retrospective effect. It will apply to the old telecom licenses in the UASL category as well as to the Unified licenses issued post 2012.

The government has again done its bit and assured that this is still work in progress. There is hope that more goodies could come the way of telecom companies.

Also Read:-

How the Telecom Relief Package will Impact Stocks

Sector Update - Telecommunication

Outcome of the Telecom Committee Meeting

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Moody’s Upgrades the Outlook of 9 Banks from Negative to Stable

Moody’s Upgrades the Outlook of 9 Banks from Negative to Stable
by 5paisa Research Team 07/10/2021

Just a couple of days after Moody’s upgraded India’s sovereign rating outlook from “Negative” to “Stable”, it has followed up with a more micro rollout of upgrades. It has upgraded the outlook for 18 Indian companies in all, which includes 9 banks and 9 non-banking companies. In all the cases, the outlook was upgraded from Negative to Stable.

Check - Moody’s Upgrades India’s Rating Outlook to “Stable”

In the case of India’s sovereign rating, the overall rating had been maintained at Baa3, which is still the lowest investment grade and holds India at par with Russia and Italy. However, the outlook was raised from Negative to Stable and that adds an important buffer of safety to the India ratings as there is no immediate risk of dipping into speculative grade.

But, back to the banks that were upgraded by Moody’s. The justification for the upgrade in outlook of 9 banks was substantial improvement in asset quality and improved capital buffers. Despite appearing extremely vulnerable during the COVID-19 pandemic, Moody’s pointed out that the Indian banks had done very well and reforms had been supportive.

The list of 9 banks upgraded included 3 private sector banks and 6 PSU banks. The private banks with upgraded outlook were HDFC Bank, Axis Bank and ICICI Bank. The 6 PSU banks that saw their outlook upgraded included SBI, Bank of Baroda, PNB, Canara Bank, Union Bank and EXIM Bank. Out of the 6 PSU banks, EXIM Bank is the only non-listed bank.

Apart from the 9 banks, Moody’s also upgraded the outlook for 9 companies, consisting of 5 PSU companies and 4 private companies. The PSU companies included ONGC, Petronet LNG, Oil India, IOCL and HPCL. The private companies that saw their outlook upgraded included Reliance Industries, TCS, Infosys and Ultratech Cements.

Most of the upgraded companies are heavyweights whose fortunes are closely linked to the macro performance of the Indian economy. In its sovereign outlook upgrade, Moody’s had pointed out that the vicious cycle of the real economy and financial sector debilitating each other had been broken and the economy was on a growth path. That has worked in favour of most of the large corporates too.

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