Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Edelweiss Financial Services / Equity Bottom-Up

*Negative Operating Performance: Edelweiss Financial Services (EDEL.IN) [Edelweiss] reported yet another consolidated loss of INR 630.0 mn (post minority interest) for FY 3Q21 – declining INR 69.0 mn (12.3%) linked quarter. Excluding the gain on sale of securities, Edelweiss’ core operating results were actually frightening at a loss of INR 4.9 bn – down a further INR 106 mn (2.2%) over the same period. Nothing appears to be going right for Edelweiss, with management now beginning to discuss liquidity metrics; and *Wheels Falling Off The Bus: We are significantly troubled by the enormity of the breakdown in credit, as net new NPLs, by our calculation, increased INR 2.7 bn linked quarter for an annualized rate of growth of 106% - far and away the worst showing of any Indian financial under our coverage. Given the net new NPL increase, we find that loss reserves are light to tune of INR 15.7 bn or 2.3x stated equity of INR 6.9 bn at FY 3Q21.  Negative operating losses coupled with potentially challenged liquidity, and the poor credit cushion could invite regulatory intervention.

*Negative Operating Performance: Edelweiss Financial Services (EDEL.IN) [Edelweiss] reported yet another consolidated loss of INR 630.0 mn (post minority interest) for FY 3Q21 – declining INR 69.0 mn (12.3%) linked quarter. Excluding the gain on sale of securities, Edelweiss’ core operating results were actually frightening at a loss of INR 4.9 bn – down a further INR 106 mn (2.2%) over the same period. Nothing appears to be going right for Edelweiss, with management now beginning to discuss liquidity metrics; and *Wheels Falling Off The Bus: We are significantly troubled by the enormity of the breakdown in credit, as net new NPLs, by our calculation, increased INR 2.7 bn linked quarter for an annualized rate of growth of 106% - far and away the worst showing of any Indian financial under our coverage. Given the net new NPL increase, we find that loss reserves are light to tune of INR 15.7 bn or 2.3x stated equity of INR 6.9 bn at FY 3Q21.  Negative operating losses coupled with potentially challenged liquidity, and the poor credit cushion could invite regulatory intervention. 

Edelweiss Financial Services – The Whole Package

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Quantitative Analysis

In this report, we screen for the largest overweight Country/Sectors across Global EM by analysing the allocations of long-only active Emerging Market funds.In part one of the series, we focus on Indian Financials.  We look at where current allocations sit versus history, drill down to find the most widely held stocks in the sector, the key overweight and the key underweight holdings. We find that despite it being the largest overweight holding, Indian Financials exposure is far from excessive, both versus its own history and versus peers.  Furthermore, recent activity points to an increase in exposure among managers.Our Emerging Market fund universe consists of 242 Global Emerging Market active long-only funds, with combined AUM of $450bn.

In this report, we screen for the largest overweight Country/Sectors across Global EM by analysing the allocations of long-only active Emerging Market funds.In part one of the series, we focus on Indian Financials.  We look at where current allocations sit versus history, drill down to find the most widely held stocks in the sector, the key overweight and the key underweight holdings. We find that despite it being the largest overweight holding, Indian Financials exposure is far from excessive, both versus its own history and versus peers.  Furthermore, recent activity points to an increase in exposure among managers.Our Emerging Market fund universe consists of 242 Global Emerging Market active long-only funds, with combined AUM of $450bn. 

Emerging Market Overweights Series.  Part 1:  Indian Financials

Thematic (Sector/Industry)

*New Circular, New Loopholes: The Reserve Bank of India (RBI) has proposed capping non-bank financial company (NBFC) dividend payout ratios to a maximum of 50%. The methodology is predicated on the net NPL ratio and CAR. The new proposal is riddled with loopholes, as NBFCs can easily manipulate these ratios; and*Well-Placed NBFCs: Excluding LIC Housing Finance (LICHF.IN) and Shriram Transport (SHTF.IN), most large NBFCs are well placed to meet the proposed dividend cap if the guidelines are made applicable from the previous year.

*New Circular, New Loopholes: The Reserve Bank of India (RBI) has proposed capping non-bank financial company (NBFC) dividend payout ratios to a maximum of 50%. The methodology is predicated on the net NPL ratio and CAR. The new proposal is riddled with loopholes, as NBFCs can easily manipulate these ratios; and*Well-Placed NBFCs: Excluding LIC Housing Finance (LICHF.IN) and Shriram Transport (SHTF.IN), most large NBFCs are well placed to meet the proposed dividend cap if the guidelines are made applicable from the previous year.

Reserve Bank of India – Nothing Changes

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Cholamandalam Investment and Finance / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/cholamandalam-investment-and" target="_blank" data-smartkarma-citation="entities:17583:1" rel="noopener">Cholamandalam Investment and Finance (CIFC IN)</a> ["Chola"] is an Indian NBFC with a focus on vehicle financing, especially commercial vehicles (CV), in rural and semi-urban areas. With the economy getting back on track post lockdown, CV cycle is poised to witness disproportionate recovery after going through a depressed cycle over the past couple of years. With rural and semi-urban economy recovering faster and seeing stronger resilience, Chola's CV financing book has all the more reasons to cheer given its strong focus on tier-II and below towns. Below we dive-deep into Chola's competitive strengths and potential for strong growth in the near future.

Cholamandalam Investment and Finance (CIFC IN) ["Chola"] is an Indian NBFC with a focus on vehicle financing, especially commercial vehicles (CV), in rural and semi-urban areas. With the economy getting back on track post lockdown, CV cycle is poised to witness disproportionate recovery after going through a depressed cycle over the past couple of years. With rural and semi-urban economy recovering faster and seeing stronger resilience, Chola's CV financing book has all the more reasons to cheer given its strong focus on tier-II and below towns. Below we dive-deep into Chola's competitive strengths and potential for strong growth in the near future.

2021 High Conviction | Cholamandalam Investment: A High Quality Play on CV Cycle Recovery in India

Lakshmi Iyer, CFA

Credit

We reiterate our buy recommendation on bonds issued by <a href="https://www.smartkarma.com/entities/iifl-holdings-ltd" target="_blank" data-smartkarma-citation="entities:20197:1" rel="noopener">IIFL Holdings (IIFL IN)</a> (USD bonds due '23). While spreads have tightened following the release of 2Q FY'21 results, we feel there is potential for further tightening. The upcoming sale of part of the real estate portfolio could also prove supportive.<div class="content-highlight">Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.</div>

We reiterate our buy recommendation on bonds issued by IIFL Holdings (IIFL IN) (USD bonds due '23). While spreads have tightened following the release of 2Q FY'21 results, we feel there is potential for further tightening. The upcoming sale of part of the real estate portfolio could also prove supportive.Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

India

Shriram Finance Limited provides consumer finance services. The Company offers automobile, commercial vehicle, business, and gold loan services. Shriram Finance serves customers in India.

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Shriram Finance (SHFL IN)

Edelweiss Financial Services – The Whole Package

EDELWEISS FINANCIAL SERVICES: Edelweiss reported another loss. We are troubled by the enormity of the breakdown in credit, light loss reserves at...

Thomas J. Monaco

Emerging Market Overweights Series. Part 1: Indian Financials

Emerging Market Overweights Series. Part 1: Indian Financials. Analysing the make-up of the overweight in Indian Financial stocks.

Steven Holden

Reserve Bank of India – Nothing Changes

RESERVE BANK OF INDIA: New proposed dividend cap on Nonbank financials companies, while trying to rein-in systemic risk, is laden with loopholes.

Thomas J. Monaco

2021 High Conviction | Cholamandalam Investment: A High Quality Play on CV Cycle Recovery in India

Chola is a high quality franchise with a leading presence in the CV segment. As the CV cycle recovers in India, Chola has potential to deliver 50%+...

Ankit Agrawal, CFA

IIFL Finance Ltd. - Reiterate Buy

IIFL bonds rose after it reported reported decent numbers for 2Q FY21. We foresee further spread tightening. The upcoming sale of the real estate...

Lakshmi Iyer, CFA

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