Expansion in NIMs is a common thread or a feature that we have been seeing in financial institutions’ results.ET Now|Oct 22, 2019, 05.19 PM ISTKotak Bank needs to tighten their balance sheets so that the provision coverage ratio is sufficiently within norms. Mahantesh Sabarad, Head, Retail Research, SBICAP Securities. Excerpts from an interview with ETNOW.
Bajaj Finance, Kotak Mahindra results have come in. What is catching your eye and what are you making of these numbers?We have been observing that in this result season, most of the results have been coming in closer to expectations. I do not think we have seen any major disappointments. Bajaj Finance has delivered 38% growth in its advances. It is growing close to 40% per quarter. On a year-on-year basis, it is a very strong growth.
The top Nifty heavy companies are delivering good results and that is showing in the way the market has steadily moved up in the past few days. Last week, the market was up about 3% odd. That was one of the best performing weeks we had seen in the past several months. As the results come in, there are better days ahead of Nifty.
Kotak Mahindra Bank numbers have not been as impressive. The stock has completely flattened out from where it started off. But there has been slower growth in advances. Asset quality has weakened on a sequential basis. But having said that, would you say it should not be much of a concern for Kotak because in the private banking space, Kotak is one of the few trusted names?The individual numbers as far as Kotak Bank is concerned, are not worrisome because generally speaking, while NPAs were expected to tighten or rise, on a case-to-case, basis some banks would have had larger provisioning to be also considered.
They need to tighten their balance sheets so that the provision coverage ratio is sufficiently within norms. Having said that, I do not want to assign much importance to a small uptick in NPAs if the general trend is good loan growth, good advances growth accompanied by expansion in margins and that is what we have seen. Expansion in NIMs is a common thread or a feature that we have been seeing in financial institutions’ results, including banks and therefore Kotak Bank’s results in terms of NPA numbers would not worry us.
We will be closely watching out for L&T result tomorrow and given the fact that it has managed to outperform the Nifty and the capital goods index as well in the last one year, it is expected to be a fairly decent quarter. They have been bagging orders in infrastructure, in the power and hydrocarbon segment. What are you expecting?So firstly a disclaimer, I hold L&T stock in my portfolio. Coming to your question on the expectations around L&T, while you are right the infrastructure growth is of importance for the company and therefore the order intakes that the company will have here onwards, will be observed. But a guidance has been given by the management on the order growth which has led to some expectations around the stock.
More importantly, there were fears about the composition of order book. They have substantial exposure to the real estate sector in terms of their order book and that is where the worry was coming in some time ago. Some colour would be given by the management when it comes to the order book composition on the real estate side. As far as the other assets are concerned, they have been doing divestments in the past and that has worked quite well for the company going forward and the recent acquisition of MindTree will start flowing into the consolidated numbers. It will be interesting to watch what the result would be.
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