UPDATES
BFSI: No place to hide
The RBI has asked banks to keep an additional 100% cash reserve ratio (CRR) on incremental net demand and time liabilities (NDTL) created between 16th Sept and 11th Nov 2016. This directive could cause up to ~10bps impact (negative carry) on pre-tax ROA and limit bond gains for banks. Demonetisation is already expected to hurt loan growth and asset quality of banks in FY17 and FY18; the RBI's move would compound the impact of demonetisation on banks' profitability in FY17/18. We would have to significantly decrease our FY17/18 earnings estimates. Hence, we have put the estimates, target prices and recommendations of our bank stocks under review. (Pankaj Agarwal, CFA, +91 22 3043 3206)
Economy: B2C businesses in North India - most vulnerable to demonetisation-related slowdown
In a bid to capture granularities with respect to two sets of effects namely, (1) the demonetisation-driven slowdown in economic activity; and (2) the likely shrinkage in India's informal sector, we conducted detailed interviews with half a dozen promoters of SMEs spread across India. We conducted these interviews over the course of last week and our findings suggest that: (1) businesses operating in the North and East; and (2) businesses operating in the B2C segment appear most vulnerable to these effects. Additionally, our discussions suggest that a range of businesses have been able to delay the impact of these effects. (Ritika Mankar Mukherjee, CFA, +91 22 3043 3175)
-- BFSI: No place to hide
The RBI has asked banks to keep an additional 100% cash reserve ratio (CRR) on incremental net demand and time liabilities (NDTL) created between 16th Sept and 11th Nov 2016. This directive could cause up to ~10bps impact (negative carry) on pre-tax ROA and limit bond gains for banks. Demonetisation is already expected to hurt loan growth and asset quality of banks in FY17 and FY18; the RBI's move would compound the impact of demonetisation on banks' profitability in FY17/18. We would have to significantly decrease our FY17/18 earnings estimates. Hence, we have put the estimates, target prices and recommendations of our bank stocks under review. (Pankaj Agarwal, CFA, +91 22 3043 3206)
Economy: B2C businesses in North India - most vulnerable to demonetisation-related slowdown
In a bid to capture granularities with respect to two sets of effects namely, (1) the demonetisation-driven slowdown in economic activity; and (2) the likely shrinkage in India's informal sector, we conducted detailed interviews with half a dozen promoters of SMEs spread across India. We conducted these interviews over the course of last week and our findings suggest that: (1) businesses operating in the North and East; and (2) businesses operating in the B2C segment appear most vulnerable to these effects. Additionally, our discussions suggest that a range of businesses have been able to delay the impact of these effects. (Ritika Mankar Mukherjee, CFA, +91 22 3043 3175)
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