India Financials

Saumya Agarwal

Equity Bottom-Up

IDFC First Bank Limited / Equity Bottom-Up

IDFC first Bank, one of the youngest Banks in India, has been making steady progress on its strategic goals - that of de-risking the balance sheet and augmenting its retail liabilities. However it continues to trade at a marked discount vis-à-vis peers. What can close this valuation gap for IDFC First Bank?

IDFC first Bank, one of the youngest Banks in India, has been making steady progress on its strategic goals - that of de-risking the balance sheet and augmenting its retail liabilities. However it continues to trade at a marked discount vis-à-vis peers. What can close this valuation gap for IDFC First Bank?

IDFC First Bank- What Can Close the Valuation Gap of IDFC Bank Vis-A-Vis Its Peers?

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a few positions, especially where there are gains and the price ratios are at turning points.</div><div>
These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
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In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a few positions, especially where there are gains and the price ratios are at turning points.
These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.


Thematic (Sector/Industry)

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure due to multiple factors playing out such as Moratorium, the Supreme Court interim order and the Restructuring framework. How well placed are Indian Banks to ride the current stress cycle?

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure due to multiple factors playing out such as Moratorium, the Supreme Court interim order and the Restructuring framework. How well placed are Indian Banks to ride the current stress cycle?

Indian Banks: How Well-Placed Are Indian Banks to Ride the Current Stress Cycle?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Aadhar Housing Finance / Equity Capital Markets

Aadhar Housing Finance (AHF) was the largest affordable housing finance company (HFC) in India, in terms of AUM as of Mar 2020. It plans to raise around US$1bn via selling a mix of primary and secondary shares in its India IPO. AHF is 98.72% owned by Blackstone.AHF is entirely retail-focussed, serving economically weaker and low-to-middle income customers. The average ticket size of its loans was INR0.85m, with an average loan-to-value of 56.73%, as of Sep 2020. 64.83% of its gross AUM consisted of loans to salaried customers, with the rest coming from self-employed customers, as of Sep 2020. AHF’s customer base has grown at 22.18% CAGR over FY18-20, while AUM grew at a CAGR of 19.79%. Total income growth outpaced AUM growth with a 30.85% CAGR over FY18-20.However, its disbursements have been falling and its AUM growth has slowed down over the past few years. In addition, its disclosures aren’t exactly the best.

Aadhar Housing Finance (AHF) was the largest affordable housing finance company (HFC) in India, in terms of AUM as of Mar 2020. It plans to raise around US$1bn via selling a mix of primary and secondary shares in its India IPO. AHF is 98.72% owned by Blackstone.AHF is entirely retail-focussed, serving economically weaker and low-to-middle income customers. The average ticket size of its loans was INR0.85m, with an average loan-to-value of 56.73%, as of Sep 2020. 64.83% of its gross AUM consisted of loans to salaried customers, with the rest coming from self-employed customers, as of Sep 2020. AHF’s customer base has grown at 22.18% CAGR over FY18-20, while AUM grew at a CAGR of 19.79%. Total income growth outpaced AUM growth with a 30.85% CAGR over FY18-20.However, its disbursements have been falling and its AUM growth has slowed down over the past few years. In addition, its disclosures aren’t exactly the best.

Aadhar Housing Finance Pre-IPO - Decent past Growth but Comes with Weird Disclosures

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in February. Global monetary accommodation is in large part responsible for recent outperformance. Credit fundamentals have yet to catch-up with spreads in bonds which continue to outperform. Continued performance, however, cannot be ruled out as credit tourists crowd-in and markets melt-up.Asia’s US$-denominated bank bonds (x-Japan) had an outstanding month with each of the +100 bonds that we track tightening during the month of February, in Z-spread terms. The return of the economic reflation trade, with rising long-term rates on increased economic growth expectations, and short-term levels anchored by central banks globally, pushed investors to grab low risk, high duration securities. This could unwind spectacularly when real inflation concerns appear.Short duration, non-investment grade bond lagged with lower rated bonds at the bottom in terms of performance. Fundamental concerns remain regarding the weakest financial credits in Asia and these remain concentrated in India. At the same time, extension risk concerns may be overdone amongst the callable bonds which underperformed in February.In addition to identifying the bonds which out- and under-performed in February, we dive deeper into the Philippine banks which outperformed, despite starting at already tight spread levels, and we consider if extension risk being priced into the short-callable, China-centric, bonds is appropriate.

Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in February. Global monetary accommodation is in large part responsible for recent outperformance. Credit fundamentals have yet to catch-up with spreads in bonds which continue to outperform. Continued performance, however, cannot be ruled out as credit tourists crowd-in and markets melt-up.Asia’s US$-denominated bank bonds (x-Japan) had an outstanding month with each of the +100 bonds that we track tightening during the month of February, in Z-spread terms. The return of the economic reflation trade, with rising long-term rates on increased economic growth expectations, and short-term levels anchored by central banks globally, pushed investors to grab low risk, high duration securities. This could unwind spectacularly when real inflation concerns appear.Short duration, non-investment grade bond lagged with lower rated bonds at the bottom in terms of performance. Fundamental concerns remain regarding the weakest financial credits in Asia and these remain concentrated in India. At the same time, extension risk concerns may be overdone amongst the callable bonds which underperformed in February.In addition to identifying the bonds which out- and under-performed in February, we dive deeper into the Philippine banks which outperformed, despite starting at already tight spread levels, and we consider if extension risk being priced into the short-callable, China-centric, bonds is appropriate.

Bank Credit Compass: High Duration, Low Risk Notes Outperform in Feb.

India

ICICI Bank Limited operates a network of banks located throughout India. The Group specializes in retail and corporate banking, in addition to Forex and treasury operations. ICICI Bank also provides a wide variety of investment banking, insurance and financial services to its clients.

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Icici Bank Ltd Spon Adr (IBN US)

IDFC First Bank- What Can Close the Valuation Gap of IDFC Bank Vis-A-Vis Its Peers?

IDFC first Bank has been making steady progress on its strategic goals but continues to trade at a marked discount vis-à-vis peers. What can close...

Saumya Agarwal

Pair Trading Ideas - Asian Financials

Pair trades on large cap Asian financials that trade in excess of US$20m a day. These pairs trade in bands versus each other and currently offer...

Brian Freitas

Indian Banks: How Well-Placed Are Indian Banks to Ride the Current Stress Cycle?

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure . Can...

Saumya Agarwal

Aadhar Housing Finance Pre-IPO - Decent past Growth but Comes with Weird Disclosures

Aadhar Housing Finance, the largest affordable housing finance company, plans to raise around US$1bn via selling a mix of primary and secondary...

Sumeet Singh

Bank Credit Compass: High Duration, Low Risk Notes Outperform in Feb.

Lower risk tolerance combined with duration desires to drive performance in Feb. Continued performance cannot be ruled out as credit tourists crowd...

Hank Calenti, CFA

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