- In this issue:
- » A 'Realty' check on The Banks
- » Banks awash with Liquidity could slash Deposit rates
- » Update on markets
- » ...and more!
Fighting on a furious field,
Once a javelin pierced his shield;
Soldiers, with a loud lament,
Bore him bleeding to his tent.
Groaning from his tortured side,
'Pain is hard to bear,' he cried;
'But with patience, day by day,
Even this shall pass away.'
- Theodore Tilton
I recently wrote about the need to find managements that have the capacity to suffer.
The conclusion: Managements that can endure short-term pain to invest for the future can create great long-term wealth for their shareholders.
The past week has been a roller coaster ride. The government, on a mission to stamp out black money, has created a bit of short-term pain.
Long lines, cash shortages, frozen funds.
People are now hoarding loose change, salt, etc. Many companies have been negatively impacted. Especially companies catering to the micro finance segment for whom cash plays an integral role in day to day operations. There is angst and a feeling of despondency. The stock markets seem to be in a free fall.
We believe these problems are temporary. Yes, even this shall pass away.
Renowned value investor and behavioral finance professor Mr Sanjay Bakshi, includes the capacity to suffer on his three-point checklist to identify a good promoter. The checklist is simple. You want a promoter with:
- A growth mindset
- Willingness to delay gratification
- Capacity to suffer
And when you find a promoter with these qualities, stay invested with them for a long time.
The CEO of Indian Government has these qualities.
He has grand vision-plans for India. He is willing to take unpopular steps that draw criticism from all corners. And he's embraced short-term sufferings to accomplish his vision of a developed India in the long run.
Now, we too must do our part. We must endure some of this pain. This cleansing of our economy will help the country prosper in the long run.
How can you benefit from the government's moves?
The simple fact is that if you hold stocks of good businesses run by 'intelligent fanatics' in the long run, you will be rewarded for your patience.
Current market volatility should be viewed as an opportunity to make long-term bets on solid and fundamentally strong businesses.
We have one such long-term bet on a company. The company is run by a fanatical entrepreneur who has foregone his commissions and receives a modest salary. We believe it will create a lot of wealth for our subscribers in the long run.
The Hidden Treasure service aims to identify honest, intelligent fanatics who run small companies that have the potential to grow disproportionately compared to their larger peers. Will you partner with such owner operators and create wealth alongside them?
03:45 Chart of the Day
One of the biggest sectors likely to be hit by the demonetisation drive is real estate. With the sector largely thriving on cash transactions, the huge hit on high denomination notes is expected to bring in the much needed curbs on such deals. Therefore, it is no surprise that realty stocks have been pummeled on the bourses.
Realty Check on Banks
Banks have benefitted from the surge in deposits due to limits on the amount of money that can be withdrawn with the balance getting deposited in the account. Moreover, rising financial inclusion has also contributed to the growing deposit base of banks. However, banks having exposure to commercial real estate are also likely to face the music from the government's crackdown on black money.
Among banks, Yes Bank has the highest share of exposure to commercial property at 6.8%. However large private sector banks such as Axis Bank, ICICI Bank, and HDFC Bank have shares of 4.3%, 3.2% and 2.2%, respectively. Largest bank State Bank of India has a miniscule 0.9% share of exposure to commercial real estate.
Apart from cracking a whip on black money, another positive outcome from demonetisation is likely to be the much anticipated fall in interest rates. Banks are already flush with liquidity as people rush to exchange the old currency notes. This has led to a sharp jump in the low cost deposits of banks. These funds are being parked by banks in government bonds pushing up prices and lowering their yields. As per Business Standard, the yield on 10-year government bond has fallen by 26 basis points since the announcement of demonetisation. Remarkably, India is the only major economy that is witnessing a bullish bond market.
With the Marginal Cost of Lending Rate regime in place, banks will have to pass on the lower cost of funding from surplus liquidity in form of rate cuts. However, fall in the lending rate is unlikely to stoke credit demand in an already depressed market. The excess liquidity will continue to be parked in bonds further pushing down yields as well as interest rates. And as the bank's margins come under pressure, they are likely to slash deposit rates impacting public savings. Tanushree Banerjee, Co-Head Research, has a very interesting take on the likely pitfalls of lower deposit rates for the country's large population of savers. Here's what she says,
- The government's concern so far has only been about lower interest cost for borrowers. The fact that at negative real interest rates, bank deposits will become unviable, has been of little concern.
Reluctance to park money in low yielding bank deposits could have multiple adverse impact on the economy.
First, the household savings appetite could truncate further.
Secondly, investors looking for fixed returns may get lured by the steep yields offered by risky corporates on their bonds.
Thirdly, households may choose to go back to investments in gold and real estate instead of growing their financial assets.
The only chance of our fears being unfounded is if the government manages to cut down the fiscal deficit meaningfully.
After opening the day on a firm note, Indian equity markets continued to rise in the post noon trading session. At the time of writing, BSE Sensex was trading higher by 206 points and NSE-Nifty was trading lower by 49 points. Each of the mid cap and small cap indices are trading higher by 1.6% and 1.3%, respectively. Stocks from auto, IT and consumer goods are the biggest gainers.
04:55 Today's Investing Mantra
"When a management team with a reputation of brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." - Warren Buffett
|DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
Details of Associates are available here.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
- 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
- Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
- Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
- Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
- Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
- Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
Definitions of Terms Used:
- The Research Analyst has not served as an officer, director or employee of the subject company.
- Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
- Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
- Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
- Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
- Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringementDisclosure & Disclaimer:
Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.
This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.
This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.
This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.
As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use
, available here. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407