Nifty opened the week on a positive note against global trends. It tested
the higher end of the range at 5150 levels but failed to sustain the same.
Selling pushed the index down to 5100 and finally closed around the same
levels.
n Market wide open interest is seen at Rs. 1,13,110 cr. Nifty futures have
seen marginal shed in open interest with volumes seen at recent average
levels.
n Nifty remains in corrective move below 5185 levels. On the downside support
is seen at 5100/5050 levels. Dec turnaround is seen at 5070 above
which the underlying sentiment remains positive. Caution is advised below
5070 levels.
n Selling is expected in select Banking stocks. ICICI has major resistance at
875 levels. SBIN remains weak below 2300-2325 levels and long positions
should be avoided in the same. Similarly PNB remains weak below 925.
n Real estate majors remain weak at current levels. IDFC has critical support
at 162 levels. A bounce from here is expected to push the stock to
fresh highs. Rel Infra remains positive above 1030 for 1130 on the higher
side.
n Nifty OI concentration is seen at 5200 call and 5000 put options. Call writing
is seen at 5150-5200 levels making it difficult for the index to sustain
above the same. In case of put options some support is seen at 4950-5000
levels.
OUTLOOK
n Nifty Dec turnaround is seen at 5075 above which it remains in positive
territory. We advice holding long positions above the same. Long aggression
should be avoided below the same. In the near term consolidation is
expected in the range of 5050-5200.
n GAIL traders with a positive bias above 407 for 425/250. We remain positive
on the pharma space in the medium term. Rel Infra and Rel Cap are
expected to trade with a positive bias in the near term. IDFC has critical
support around 162 levels; bounce from mentioned levels is expected to
initiate a fresh uptrend for the index
HDFC BANK
PRICE: RS.1757 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1840 FY11E P/E: 21.0X; P/ABV: 3.4X
We met with Mr. Paresh Sukhtankar (ED, HDFC Bank) to get an update on
the bank's strategy and future outlook.
CBoP retail is performing on the expected lines. Out of total CBoP retail
book, 2W (two wheelers) book has almost run off whereas personal loan
book would take another 10-12 months to completely run off.
Bank was able to maintain its margin even during Q3FY09 and Q4FY09,
when bulk deposit rate was hovering around 5-6% higher than the current
prevailing rate. So, we believe that it would be easier for the bank to
protect its margins.
We maintain the earning estimates for FY10E and FY11E and maintain
ACCUMULATE rating on the stock with a target price of Rs.1840 based on
P/ABV of 3.5x its FY11E adjusted book value and P/E of 22x its FY11E
earnings.
We like HDFC Bank, a leader among private sector banks with healthy
credit growth, one of the highest CASA, high and stable margins, high RoE,
cleaner asset quality and a large proporation of fees in total income.
Key Takeaways
We met with Mr. Paresh Sukhtankar (ED, HDFC Bank) to get an update on the
bank's strategy and future outlook. We returned positive to recognize its strategic
response to recent macro economic developments.
Loan growth is picking up
Management has been reiterating that the bank endeavors to grow 3-4% faster
than the system. In our view, banking system is likely to grow by 16-17% during
FY10. During the same period, we are factoring 20% growth for HDFC bank.
Management has also indicated that loan growth is picking-up. In retail segment,
mortgages and auto loans are driving the growth whereas bank is going slow on
credit cards and personal loans. During Q2FY10, when system grew by only 3.4%
(QoQ), HDFC bank managed to deliver 9.5% growth (QoQ) in its advances.
During Q2FY10, its retail book grew 7.3% YoY to Rs.626.5 bn, representing
~54.4% of gross advances. This has come mainly on the back of good traction in
the car loan segment (26.7%) despite decline visible during Q2FY10 in personal
loans and credit card segments. During Q2FY10, car loan book grew 6.2% (QoQ)
whereas personal loans and credit card loans declined by 1.2% and 1.3%.
Comfortable Capital Adequacy Ratio (CAR) after warrants conversion
by HDFC Ltd
HDFC Ltd has converted 26.2 mn warrants into equity shares @1530.13 by paying
Rs.36.1 bn (the balance 90% of the subscription amount) to HDFC Bank. HDFC Ltd
had subscribed to the preferential warrants issued by HDFC Bank in June 2008 to
ensure that post HDFC Bank and CBoP merger, its stake in HDFC Bank does not fall
below 20%.
Management has apprised us that this capital would be sufficient to fund the loan
growth for next 2-3 years.
The market is discounting all the positive news as it is clearly failing to surpass the level of 5185/17360 or to close
above 5150/17230 levels on a daily basis. This might lead to a sharp weakness if it starts trading below the level 5030/
16920.
For the day we will watch 5080/17025 level as an immediate support for the market. In case the market starts trading
below the same then we may expect gradual decline towards 5050/5030 (16945/16920) levels. The real weakness will
emerge if it starts trading below 5030/16920 level in the second half and if it closes below the same on a daily basis.
On a higher side, the level 5120/17160 may act as a major resistance initially and sustenance above it may help bulls to
move the market towards 5165/5185 (17290) levels without any extra efforts.
