In this briefing:
- Another Top Executive Leaves HDFC Bank, But Don’t Try Finding the News in the Media
- Morning Views Asia: Alam Sutera Realty, Glenmark Pharmaceuticals
- Double Bubble, Double Trouble?
- Relative Value – Manappuram ’23 Vs. Muthoot ’23
- 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment
It is the season for long serving business head verticals to exit HDFC Bank (HDFCB IN). Following the abrupt departures of Abhay Aima (former Group Head – private banking) and Ashok Khanna (ex-Group Head – automobile loans) comes news of Munish Mittal (Group Head – Information Technology and Chief Information Officer [CIO]) quitting the bank on July 10, 2020.
In the true tradition of recent senior-level departures at HDFC Bank, the bank’s highly visible and active communications department did not bother to inform stakeholders or even its own staff. Instead it was left to an anonymous source to tweet that Munish Mittal’s last date was July 10, 2020, as was the case for one of his deputies in the department. The business media as usual did not consider the departure of the CIO at India’s number 1 bank by market capitalisation (one which prides itself on its digital strategy) to be newsworthy, or found it too onerous to verify by querying the bank. Responding to a query by this writer, HDFC Bank said that the 51-year old Mittal, who joined the bank on August 1996 and rose to be the CIO, had decided to take a break, and wanted to enrol for a 2-year course at a foreign university.
There is something fundamentally wrong in the system when a prominent bank does not disclose senior level management exits, and it is left to anonymous sources or whistleblowers to inform the market. The business media, which exist to report such news, refuse to do elementary journalism and decline even to contact the bank to verify the news. In HDFC Bank it is all the more worrying as Aditya Puri, the CEO since the bank’s inception, is finally stepping down in October 2020, and the successor is not yet known to the market. In this situation, it adds to the uncertainty when we find heads of important verticals suddenly leaving.
Today, the largest bank by market capitalisation, in a country where the index has a significant weightage towards banking and the financial sector, declines to provide market sensitive information; the media chose to report only information which the company itself officially releases, and deliberately avoid reporting any information which may embarrass the company. The market is treading on dangerous ground when HDFC Bank is yet to officially acknowledge the controversial exits of Aima and Khanna, and the media has only just reported Khanna’s unceremonious exit; but nobody seems concerned that the market is deprived of market sensitive information by the institutions tasked with the universal disbursal of such information.
Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.
A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?
Is this just a double bubble, and does that imply double trouble ahead?
We are not sure. We are torn between Bob Farrell’s Rule No. 4:
Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
And Rule No. 7.
Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.
Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.
Both Muthoot Finance (MUTH IN) and Manappuram Finance (MGFL IN) are gold loan companies with very similar businesses. The major difference is the larger size of Muthoot and the somewhat larger share of non-gold loans in Manappuram’s portfolio. Given this, we feel the spread differential of over 200 bps between bonds of the 2 companies due ’23 is excessive at present. As such, Manappuram represents better value.
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.
In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:
- 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
- Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
- South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
- The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.
Previous related insights:
5G for the Next Big Turn of a New Decade
Will 2020 See Successful Deployment of 5G?
Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment?
5G Delay and Disappointment – Will Murata Suffer?