Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

S&P BSE SENSEX Index / Technical Analysis

S&P BSE SENSEX Index (SENSEX INDEX EQUITY)

<ul>
<li>Many major indexes are still testing (and holding above) critical supports. This includes MSCI ACWI (ACWI-US), TOPIX/TOPIX Small/Nikkei 225, EURO STOXX 50, STOXX Europe 600, and the DAX</li>
<li>Our overall outlook remains neutral, and we continue to see many attractive buying opportunities, especially out of Japan, India, and a new one -- Brazil.</li>
<li>Buy ideas focus on the Consumer Discretionary and Financials Sectors, with the vast majority of stock recommendations from Japan, India, and Brazil</li>
</ul>


Many major indexes are still testing (and holding above) critical supports. This includes MSCI ACWI (ACWI-US), TOPIX/TOPIX Small/Nikkei 225, EURO STOXX 50, STOXX Europe 600, and the DAX
Our overall outlook remains neutral, and we continue to see many attractive buying opportunities, especially out of Japan, India, and a new one -- Brazil.
Buy ideas focus on the Consumer Discretionary and Financials Sectors, with the vast majority of stock recommendations from Japan, India, and Brazil


Europe, Japan, $ACWI Testing Critical Supports; Rising DXY, Global Sovereign Yields a Major Headwind

<ul>
<li>We are starting to see early signs of a potential bottom on MSCI EM (EEM-US).</li>
<li>Specifically, the EEM-US has reversed topside its 6-month downtrend. If MSCI EM has indeed bottomed, we want to be buying the leaders; that is where this report comes in.</li>
<li>Specific themes include attractive opportunities in India and Thailand, and also many in Taiwan and South Korea. Attractive Sectors include Energy, Financials, Materials, and Industrials.</li>
</ul>


We are starting to see early signs of a potential bottom on MSCI EM (EEM-US).
Specifically, the EEM-US has reversed topside its 6-month downtrend. If MSCI EM has indeed bottomed, we want to be buying the leaders; that is where this report comes in.
Specific themes include attractive opportunities in India and Thailand, and also many in Taiwan and South Korea. Attractive Sectors include Energy, Financials, Materials, and Industrials.


Finding Leadership Within Emerging Markets

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Even though <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a> reported an impressive growth in net profit, higher than that of its peers, the stock market penalised the bank, as the growth of its business, top line and profit before provisions was lower than that of its peers. The stock market traditionally favours both top and bottom line growth, and in Axis Bank’s case the market believed that the poor business growth is a symptom of a deeper problem in the bank’s business model.Some analysts have highlighted Axis Bank’s poor business indicators in the 2QFY2022 as compared with those of its peers, and their reading-between-the-lines is that it may be an undisclosed or even undiagnosed problem. It is also possible that Axis Bank 2QFY2022 was an off quarter, where the management took its eye off the ball, and that performance may rebound and match that of its peers in 2HFY2022. However, another, more ominous, explanation could be that staff morale may be the cause of the poor performance.This analyst was the first to <a href="https://hemindrahazari.com/2021/05/26/why-are-axis-banks-directors-mum-about-the-extraordinary-staff-churn/" target="_blank" rel="noopener">highlight</a> Axis Bank’s high and worsening attrition from FY2018 to FY2020, when it peaked at 36.8% for the overall bank and an alarming 69.2% for the sales category (this category has the maximum number of staff which sources new business). In FY2021, Axis Bank reported a trend reversal, a significant improvement in attrition to 23.8% (sales attrition at 49.7%); the improvement was also seen in other private sector banks. It is possible that the work-from-home regime in FY2021 resulted in less stressful daily physical meetings, and relaxation in achieving sales targets, on account of the lock-down. With 2QFY2022 gradually returning to normal, the pressures on the staff may have resumed to a point where attrition may have increased and morale plummeted, impacting the top line performance of Axis Bank.Attrition can be a lead indicator for future performance, and analysts have been concerned with the steady senior level <a href="https://economictimes.indiatimes.com/markets/stocks/news/two-senior-executives-quit-axis-bank-for-piramal-nbfc/articleshow/75546095.cms" target="_blank" rel="noopener">exits</a> since Amitabh Chaudhry took charge as Chief Executive Officer on January 1, 2019. The latest <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/299d20f1-8fa4-45d5-90f5-e4aed0484c6e.pdf" target="_blank" rel="noopener">resignation</a>  was of Rajesh Dahiya, executive director and in-charge of human resources since June 2010. But what was largely unreported was the plight of the bulk of the Axis Bank staff, which was ignored by analysts. This despite the fact that the bank had comprehensive disclosures on the issue which painted a sorry picture of human resource management since FY2018. Staff discontent may take some time to filter down to impacting overall performance, and we need more quarters to monitor performance to validate this hypothesis.The Axis Bank board of directors need to urgently enquire into the reasons for the poor business and revenue performance in 2QFY2022 and the stock market penalising the share price may provide the appropriate push to the board to investigate the matter and come out with remedial measures.

Even though Axis Bank Ltd (AXSB IN) reported an impressive growth in net profit, higher than that of its peers, the stock market penalised the bank, as the growth of its business, top line and profit before provisions was lower than that of its peers. The stock market traditionally favours both top and bottom line growth, and in Axis Bank’s case the market believed that the poor business growth is a symptom of a deeper problem in the bank’s business model.Some analysts have highlighted Axis Bank’s poor business indicators in the 2QFY2022 as compared with those of its peers, and their reading-between-the-lines is that it may be an undisclosed or even undiagnosed problem. It is also possible that Axis Bank 2QFY2022 was an off quarter, where the management took its eye off the ball, and that performance may rebound and match that of its peers in 2HFY2022. However, another, more ominous, explanation could be that staff morale may be the cause of the poor performance.This analyst was the first to highlight Axis Bank’s high and worsening attrition from FY2018 to FY2020, when it peaked at 36.8% for the overall bank and an alarming 69.2% for the sales category (this category has the maximum number of staff which sources new business). In FY2021, Axis Bank reported a trend reversal, a significant improvement in attrition to 23.8% (sales attrition at 49.7%); the improvement was also seen in other private sector banks. It is possible that the work-from-home regime in FY2021 resulted in less stressful daily physical meetings, and relaxation in achieving sales targets, on account of the lock-down. With 2QFY2022 gradually returning to normal, the pressures on the staff may have resumed to a point where attrition may have increased and morale plummeted, impacting the top line performance of Axis Bank.Attrition can be a lead indicator for future performance, and analysts have been concerned with the steady senior level exits since Amitabh Chaudhry took charge as Chief Executive Officer on January 1, 2019. The latest resignation  was of Rajesh Dahiya, executive director and in-charge of human resources since June 2010. But what was largely unreported was the plight of the bulk of the Axis Bank staff, which was ignored by analysts. This despite the fact that the bank had comprehensive disclosures on the issue which painted a sorry picture of human resource management since FY2018. Staff discontent may take some time to filter down to impacting overall performance, and we need more quarters to monitor performance to validate this hypothesis.The Axis Bank board of directors need to urgently enquire into the reasons for the poor business and revenue performance in 2QFY2022 and the stock market penalising the share price may provide the appropriate push to the board to investigate the matter and come out with remedial measures.

Axis Bank: Toxic Workplaces Don’t Bring In More Business

A notable feature in <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> and <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> (KMB) is the historical absence of any commercial banking expertise amongst the independent directors on the boards. The founders ( <a href="https://www.smartkarma.com/entities/housing-development-finance" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener">HDFC Limited (HDFC IN) </a>and Uday Kotak) and the Nomination and Remuneration Committee in both banks, as a deliberate strategy, have tried to ensure that only non-independent directors have commercial banking expertise. This is unusual, as other private sector banks such as <a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a>, <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a>,  <a href="https://www.smartkarma.com/entities/indusind-bank-ltd" target="_blank" data-smartkarma-citation="entities:1558:1" rel="noopener">Indusind Bank (IIB IN)</a> and <a href="https://www.smartkarma.com/entities/federal-bank-ltd" target="_blank" data-smartkarma-citation="entities:11784:1" rel="noopener">Federal Bank (FB IN)</a> have former commercial bankers as independent directors on their boards.Banking, being a specialised and highly regulated sector with an economy-wide systemic impact, needs that some directors have commercial banking expertise separate and distinct from the executive.The absence of such independent functional expertise on the board is a sign that the executive/controlling shareholders do not want to be challenged or to have close oversight in the banks’ core area of operations. HDFC Bank and KMB are poster banners for private sector banking in India, with a combined market capitalisation of US$ 159 bn. They have achieved this without the presence of former commercial bankers as independent directors. Both Aditya Puri (erstwhile HDFC Bank CEO) and Uday Kotak maintained an iron-clad grip on asset quality, which is visible in their track record of profitability and stock market valuation. However, banking should not be individual-based, but based on appropriate systems. A diversified board of directors, including those with commercial banking expertise independent of the executive, should be mandatory in all banks. Regardless of their track record and valuation, banks which deliberately exclude such critical functional expertise on their boards must be hauled up by the Reserve Bank of India, credit rating analysts and the capital markets. The fact that HDFC Bank and KMB have rewarded shareholders manifold without such independent expertise on their boards should not be an excuse for such an anomaly to continue, nor should it be replicated in other banks.

A notable feature in HDFC Bank (HDFCB IN) and Kotak Mahindra Bank (KMB IN) (KMB) is the historical absence of any commercial banking expertise amongst the independent directors on the boards. The founders ( HDFC Limited (HDFC IN) and Uday Kotak) and the Nomination and Remuneration Committee in both banks, as a deliberate strategy, have tried to ensure that only non-independent directors have commercial banking expertise. This is unusual, as other private sector banks such as ICICI Bank Ltd (ICICIBC IN), Axis Bank Ltd (AXSB IN),  Indusind Bank (IIB IN) and Federal Bank (FB IN) have former commercial bankers as independent directors on their boards.Banking, being a specialised and highly regulated sector with an economy-wide systemic impact, needs that some directors have commercial banking expertise separate and distinct from the executive.The absence of such independent functional expertise on the board is a sign that the executive/controlling shareholders do not want to be challenged or to have close oversight in the banks’ core area of operations. HDFC Bank and KMB are poster banners for private sector banking in India, with a combined market capitalisation of US$ 159 bn. They have achieved this without the presence of former commercial bankers as independent directors. Both Aditya Puri (erstwhile HDFC Bank CEO) and Uday Kotak maintained an iron-clad grip on asset quality, which is visible in their track record of profitability and stock market valuation. However, banking should not be individual-based, but based on appropriate systems. A diversified board of directors, including those with commercial banking expertise independent of the executive, should be mandatory in all banks. Regardless of their track record and valuation, banks which deliberately exclude such critical functional expertise on their boards must be hauled up by the Reserve Bank of India, credit rating analysts and the capital markets. The fact that HDFC Bank and KMB have rewarded shareholders manifold without such independent expertise on their boards should not be an excuse for such an anomaly to continue, nor should it be replicated in other banks.

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

The Reserve Bank of India (RBI)’s decision to grant a 1-year <a href="https://ir.rblbank.com/pdfs/regulatory/ReappointmentofMDCEOMrVishwavirAhujaFinal2021.pdf" target="_blank" rel="noopener">extension</a> to  Vishwavir Ahuja, Chief Executive Officer (CEO), <a href="https://www.smartkarma.com/entities/rbl-bank-ltd" target="_blank" data-smartkarma-citation="entities:22856:1" rel="noopener">RBL Bank Ltd (RBK IN)</a> is similar to the 1-year extensions it provided to <a href="https://www.dcbbank.com/pdfs/BSENSEReAppointmentOfMDANDCEOApril2021.pdf" target="_blank" rel="noopener">Murali Natarajan</a>, CEO, <a href="https://www.smartkarma.com/entities/dcb-bank-ltd" target="_blank" data-smartkarma-citation="entities:1557:1" rel="noopener">Dcb Bank Ltd (DCBB IN)</a> and <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/d8768272-3bd1-4d07-808b-43b725fcdc69.pdf" target="_blank" rel="noopener">Shyam Srinivasan</a>, CEO <a href="https://www.smartkarma.com/entities/federal-bank-ltd" target="_blank" data-smartkarma-citation="entities:11784:1" rel="noopener">Federal Bank (FB IN)</a>. In recent times, Udak Kotak, CEO-founder, <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a>(KMB) enjoys the unique distinction of getting a <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/d5faa2b3-1886-42a9-af9d-960ff207a4ce.pdf" target="_blank" rel="noopener">3-year</a>  extension by the regulator, despite having been a CEO for over 15 years, contradicting RBI’s <a href="https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12078&amp;Mode=0" target="_blank" rel="noopener">policy</a>  regarding the maximum tenure for bank CEOs.There are three issues raised by RBI’s conduct. Firstly, the decision to favour Uday Kotak and KMB is plainly <a href="https://thewire.in/banking/uday-kotak-ceo-kotak-mahindra-bank-rbi" target="_blank" rel="noopener">partisan</a>, undermining the credibility of the banking regulator. Secondly, by granting three private bank CEOs only a 1-year extension, is the regulator indicating to the banks its displeasure with the existing CEOs and the need to find a replacement in the course of the year? Although the RBI granted Shyam Srinivasan a second 1-year extension last year, the Federal Bank board of directors has <a href="https://economictimes.indiatimes.com/industry/banking/finance/federal-bank-board-seeks-another-3-year-term-for-ceo/articleshow/81639243.cms?from=mdr" target="_blank" rel="noopener">sought</a>  a 3-year extension when his term ends on September 29, 2021, indicating that the bank has chosen not to read the regulator’s tea leaves – or that the RBI did not give any such indication to the bank to look for a successor. If the RBI were to approve a further term to Shyam Srinivasan, it would raise questions about the regulator’s competence; what was the justification for repeated 1-year extensions? Thirdly, RBI’s policy of renewing CEOs with 1-year tenures unnecessarily introduces uncertainty in a bank’s future strategy: the existing CEO and the bank can plan for only one year, as the RBI may insist on a replacement at the end of the year.   Such short-term planning, especially in the current environment of economic stress, can be disruptive to the bank and its stakeholders, and it is unfortunate that it is being caused by the regulator’s decision to approve only 1-year extensions, without any explanation to the public.The capital market plays an important role for private banks, and the regulator must either be more transparent in explaining its decisions or it should reconsider its policy of granting 1-year extensions even when the candidates are conforming to the regulator’s norms of age and tenure for the CEOs. It is tragic that the RBI’s credibility as an impartial regulator has reached a nadir. Latest developments -- the favoured treatment it has meted to Uday Kotak, and its inability to comprehend the significance of its decision to renew CEO tenures for only  one year -- take its credibility even lower.

The Reserve Bank of India (RBI)’s decision to grant a 1-year extension to  Vishwavir Ahuja, Chief Executive Officer (CEO), RBL Bank Ltd (RBK IN) is similar to the 1-year extensions it provided to Murali Natarajan, CEO, Dcb Bank Ltd (DCBB IN) and Shyam Srinivasan, CEO Federal Bank (FB IN). In recent times, Udak Kotak, CEO-founder, Kotak Mahindra Bank (KMB IN)(KMB) enjoys the unique distinction of getting a 3-year  extension by the regulator, despite having been a CEO for over 15 years, contradicting RBI’s policy  regarding the maximum tenure for bank CEOs.There are three issues raised by RBI’s conduct. Firstly, the decision to favour Uday Kotak and KMB is plainly partisan, undermining the credibility of the banking regulator. Secondly, by granting three private bank CEOs only a 1-year extension, is the regulator indicating to the banks its displeasure with the existing CEOs and the need to find a replacement in the course of the year? Although the RBI granted Shyam Srinivasan a second 1-year extension last year, the Federal Bank board of directors has sought  a 3-year extension when his term ends on September 29, 2021, indicating that the bank has chosen not to read the regulator’s tea leaves – or that the RBI did not give any such indication to the bank to look for a successor. If the RBI were to approve a further term to Shyam Srinivasan, it would raise questions about the regulator’s competence; what was the justification for repeated 1-year extensions? Thirdly, RBI’s policy of renewing CEOs with 1-year tenures unnecessarily introduces uncertainty in a bank’s future strategy: the existing CEO and the bank can plan for only one year, as the RBI may insist on a replacement at the end of the year.   Such short-term planning, especially in the current environment of economic stress, can be disruptive to the bank and its stakeholders, and it is unfortunate that it is being caused by the regulator’s decision to approve only 1-year extensions, without any explanation to the public.The capital market plays an important role for private banks, and the regulator must either be more transparent in explaining its decisions or it should reconsider its policy of granting 1-year extensions even when the candidates are conforming to the regulator’s norms of age and tenure for the CEOs. It is tragic that the RBI’s credibility as an impartial regulator has reached a nadir. Latest developments -- the favoured treatment it has meted to Uday Kotak, and its inability to comprehend the significance of its decision to renew CEO tenures for only  one year -- take its credibility even lower.

RBI’s 1-Year Extensions to Bank CEOs: Creating Uncertainty and Short-Termism

India

Federal Bank is a major Indian private sector commercial bank offering a comprehensive suite of banking and financial services, including retail banking, wholesale banking, and treasury operations. It provides products such as savings and current accounts, loans, credit and debit cards, insurance, and wealth management. The bank is headquartered in Aluva, Kochi, Kerala, India, and was founded on April 23, 1931.

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Federal Bank (FB IN)

Europe, Japan, $ACWI Testing Critical Supports; Rising DXY, Global Sovereign Yields a Major Headwind

Europe $STOXX 50, Japan $TOPIX $Nikkei 225, $ACWI Testing Critical Supports; Rising $DXY, Global Sovereign Yields Remain Major Headwinds for global...

Vermilion Research

Finding Leadership Within Emerging Markets

We are starting to see early signs of a potential bottom on $EEM. Specifically, the EEM has reversed topside its 6-month downtrend. If EEM has...

Vermilion Research

Axis Bank: Toxic Workplaces Don’t Bring In More Business

2QFY2022 may have been an aberration, but if staff have become unresponsive to the management’s directives to push business growth, Axis has a ...

Hemindra Hazari

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

The absence of independent commercial banking expertise on the board is a sign that the executive do not want to be challenged or to have close...

Hemindra Hazari

RBI’s 1-Year Extensions to Bank CEOs: Creating Uncertainty and Short-Termism

The favoured treatment RBI has meted to Uday Kotak, and its inability to comprehend the significance of its decision to renew CEO tenures for only ...

Hemindra Hazari

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