Banks worry dip in

co’s cash flow may

delay loan payments

Our Bureau

Mumbai: Lenders hot in chase of defaulters or possible defaulters among its corporate clientele have found a new problem that is very different from incomplete projects or white elephant power plants without fuel. Lenders to linen mak-er Welspun India told the company to come clean regarding the dispute over raw material used for bed-sheets supplied to Target Corp.

This was conveyed in an emer-gency meeting held on Monday be-tween lenders and the company of-ficials. Banks have lent close to `2,000 crore to the company.

On August 19, Target Corp, one of their biggest customers, said that it is in the process of terminating its relationship with Welspun India due to dispute over raw material. Following this, a number of inves-tors lined up to sell shares at the exchange. The stock has lost 42% in the last three days, losing `4,400 crore in market cap.

In an email response to ET, the

company spokesperson said, “We are in continuous dialogue with all our key stakeholders.”

During the meeting, the lenders took stock of the situation and asked the company to revert with-in a fortnight on its exact position on the matter.

The company has conveyed that it would appoint an external audi-tor to audit the supply system and the processes.

Bankers are worried that such de-velopments could lead to reputa-tion risk as other customers too may follow Target that is severing ties with Welspun.

“Our worry is that this may affect the company’s cash flow, following which the company may delay pay-ments to lenders,” said a senior bank official who did not want to be named. Target accounts of 10% of Welspun’s revenues.

Rajesh.Mascarenhas@timesgroup.com

Mumbai: Infosys’ valuations a re at t h e i r l owe s t eve r discount to the stock benchmark Nifty. Once a darling on Dalal Street, the stock has always en-joyed premium valuations but increasing concer ns over the impact of Brexit on its busi-ness and slowing growth have moderated investor interest in the company.

The stock’s estimated price to earnings (P/E) ratio is currently trading at more than 15% dis-count to the Nifty. The Nifty is currently trading at 17.8 times estimated ear nings, while

Infosys is trading at 15 times. Analysts said this discount in P/E ratio — a measure for valua-tions —has never happened be-fore as investors have rarely doubted Infosys’ prospects.

Tata Consultancy Services (TCS), Infosys’ rival and the big-gest software exporter, is trading at 19.17 times estimated earnings.

Infosys shares have underper-formed both Nifty and TCS so far this year. Infosys declined 4.4% so far this year, as against a 6% gain in TCS. Nifty has surged over 8% since January 1.

“Bad news this year does not bode well for the company which just keeps adding to the uncer-tainty around the stock,” said Saurabh Mukherjea, CEO, insti-

tutional equities, Ambit Capital.Anantha Narayan, analyst at

Credit Suisse, said slow growth rates and uncertainty over the impact of Brexit give little reason for Infosys multiples to re-rate.

Last week, shares of Infosys hit

their lowest level in eight months after Royal Bank of Scotland de-cided to junk its plan to separate and list a new UK standalone bank, for which the company was a technology partner.

“Moderate growth prospects

macro uncertainties, justifying a slight discount to the historical P/E multiples” said Narayan.

Infosys’ current valuation dis-count to TCS measured on esti-mated 12-month forward P/E is at 25%, lowest since October 2014.

Analysts said the main reason for this discount is because of in-vestors’ preference for TCS, HCL and Tech Mahindra over Infosys.

“The street is clearly willing to pay a significant premium for relative certainty and assured-ness (as we think is exemplified by TCS), while signaling its frus-tration with recovery/restruc-turing stories that exhibit a stop-start-stop pattern (as embodied, by Infosys)” JP Morgan said in a note on Wednesday.

Infosys Valuations Slip to Lowest Discount to NiftyCONCERNS OVER Brexit fallout and slowing growth diminish investor interest in co which always enjoyed premium valuations

‘5 YEAR TERM FOR CEOs NECESSARY’

‘Reforms in pvt banks

have to be focused

on misaligned

compensations’

Our Bureau

Mumbai: Salaries and incentives to private sector bankers should be realistic, government’s stake in in state-sponsored lenders should come down, and bank CEOs should be given five-year term, according a top Reserve Bank of India official.

Speaking on the reversal of for-tunes of banks and high sticky loans, RBI deputy governor SS Mundra said, “…some of the events were external and hence, not in control of the bank man-agement. But the important les-son is unambiguous: In absence of strong structural and govern-ance reforms, consistency of the performance would always re-m a i n s u s c e p t i bl e t o s u ch events”. In this context he said, “Such reforms in private sector banks have to be focussed on misaligned incentives/compen-sations.”

Emphasising that continuity of top management is crucial, he said “Reasonably longer tenure for CEO, say 5 years, is necessary. Initial appointment could be for 3 years with certain set milestones, which if achieved, should earn automatic extension for next 2 years.” he said.

At present, the government fills the top slots in PSU banks with of-ficials who are due to retire in two to three years.

HR autonomy would, according to Mundra, would naturally flow from the above.

Continued on SMART INVESTING

Mundra Bats for a Lower Govt Stake in State-Run Banks

LOCAL UNIT may earn a total 2.03% against the dollar by March, outperforming most of emerging market peers

Welspun Lenders Wary, Seek Details of Target Dispute

Pratik Bhakta & Abhishek Nair

Mumbai: Finished withdrawing cash from an ATM, do not just walk away as the screen might flash an instant loan offer for you. Driven by the ability to analyse data, banks can now pre-approve small value personal loans for its customers us-ing ATMs as a point of disbursal.

With corporate credit yet to show signs of revival, banks are increas-ingly relying on the retail credit space for growth. Interestingly, banks are using the ATM machine —a touch point that attracts all kinds of cus-tomers throughout the day — to push their financial products.

“It is an undisputed fact that an ATM is a potential touch point or a customer interface point which is frequented by almost every bank customer. It is also the point where if an individual has an emergency, he can avail of that loan immediate-

ly even on a holiday,” said Arvind Kapil, group head, unsecured loans and mortgage at HDFC Bank.

Banks are using big data analysis capturing facts such as the custom-er’s work profile, income, personal details, payment capacities to de-cide on his credit worthiness. Once the bank has decided on the amount of loan that he is eligible for, he swipes his debit card at an ATM where he gets the offer. If the cus-tomer is interested, all he has to do is ‘Agree’ to the legal terms and con-ditions and type in his mobile num-ber for verification and get the amount added to his account in sec-onds.

“We can push credit and insur-ance products from the back-end and this is possible at ATMs through a multi-vendor software which is ATM hardware-agnostic,” said Mrutyunjay Mahapatra, chief information officer, State Bank of India.

Mahapatra explained that with the help of a multi-vendor software which works across all hardware, its entire ATM network comes un-der the control of the bank. Hence customers walking in can be detect-ed instantly and content can be pushed, depending on the results thrown by the data analytics.

India’s largest lender SBI has in-vited tenders for the multivendor

software and is in the process of rolling it out across its 50,000-strong ATM network. The bank has put in a central team to customise the product and control the display con-tent across its ATM screens to pro-mote its financial products.

“We get around 300 to 400 hits on an ATM on an average every day and it is a potential customer base. We are trying to use those screens to

be able to interact with the custom-ers and offer them products which will be able to meet their unique re-quirements,” said Mahapatra.

The proposition might sound simi-lar to a preapproved loan that is widely publicised by banks, but what separates it is the fact that it can be disbursed through the ATM itself. There’s no need for an indi-vidual to come to the bank branch or talk to any phone banking execu-tive for this credit product.

However, this facility is available only for the bank’s own customers, others will need to go through the formal application process before the loan can be disbursed.

“For people who are not our cus-tomers we have a ‘Call Back’ option, where he can give us his contact de-tails and we will call him back to help him through the application procedure,” said Amit Sethi, chief information officer, Axis Bank, which offers a similar product.

INSTANT CREDIT ATMs to flash the quantum of loan available, amount to be added to account within seconds

Now, Get a Personal Loan from Your ATM

LOSING STEAM

Infosys shares have underper-

formed both Nifty and TCS so far this year. Infy declined 4.4% so far this year, as against a 6% gain in TCS. Benchmark Nifty has surged over 8% since Jan 1

Beating VolatilityMarketsET

MONEY MATTERS

Aiming at 1.5 m Customers by FY17 EndQ&A with IDFC Bank’s Rajiv Lall

Our Bureau

Mumbai: The Street is still divided on whether the asset quality woes of Indian banks have abated. But, Bank of America Merrill Lynch (BofAML) has raised the tar-get prices on major banks by 3-8% as they believe that the cycle of non-performing loans has peaked.

Overall, at the sector level the June quarterly results were mixed, but slippages of most banks declined, giving confidence that they have peaked out, the bank said.

Moreover, the Reserve Bank of India’s commitment to provide liquidity continues to pull down bond yields, which would result in dispro-portionate gains in the trad-ing books of banks, BofAML said in a note on Wednesday.

“While asset quality issues may persist t h r o u g h FY17/18, at the sector level, the NPL cycle h a s p e a ke d and fresh slip-pages should be somewhat lower, though remaining ele-

vated. Rate cuts should also help support this,” it said.

The bank has raised target price on ICICI Bank by 5% to `320, Axis Bank by 7% to `675 and YES Bank by 7.8% to `1,590. The target price of HDFC Bank has been raised by 3% to `1,550, for IndusInd Bank by 5% to `1,415, for State Bank of India by 3% to `310 and for Bank of Baroda by 5% to `137.

BofAML said the risk-re-ward is still favourable for most of the private banks and State Bank of India among public sector lend-ers even after adjusting the book values for the poten-tial stress in asset quality. Due to this, private banks still warrant a re-rating from the current levels but government banks have limited potential for re-rat-ing despite the low valua-tions as they are facing higher asset quality stress.

BofAML Raises Target Prices on Banks

‘NPL CYCLE PEAKED’

Sensex Edges Up 70 Points, Mid-Cap Stocks RallyMUMBAI: In yet another volatile session, the BSE Sensex on Wednesday settled nearly 70 points higher, breaching the 28,000-level on mild buying in pharma, IT and PSU counters, but broader market sentiment remained edgy awaiting cues on US interest rate hike this year. However, covering-up of short positions ahead of Thursday’s expiry of August series in the derivatives segment gave equities a

slight push. Globally, investors’ focus is on US Federal Reserve Chair Janel Yellen’s speech at the bankers’ gathering in Jackson Hole later this week. During the day, after shuttling between 28,108.39 and 27,959.87, the Sensex settled 69.73 points, or 0.25%, higher at 28,059.94. — PTI

Infosys Stock Price Vs Target Price1500

1200

900

600

300Aug 23, 2011 Aug 23, 2016

Stock Price Target Price (Bloomberg estimates)

566.8

1039.7764.8

1268.6

The risk-re-ward is still favourable for most of the private banks and State Bank of India, among pub-lic sector lenders

AN

IRB

AN

BO

RA

It May be Rupee’s Turn to Vault On to Currency Podium

Rank Country SpotQ1 17

Forecasted Return (%)

1 Russian Ruble 6.25

2 Argentine Peso 2.99

3 Indonesian Rupiah 2.87

4 Mexican Peso 2.26

5 Indian Rupee 2.03

6 Brazilian Real 0.97

7 Peruvian Sol 0.90

8 Turkish Lira 0.55

9 Malaysian Ringgit 0.39

10 Chinese Renminbi 0.30

Likely Gainers

Saikat.Das@timesgroup.com

Mumbai: With Urjit Patel set to be-come the Governor of the Reserve bank of India, the Indian rupee is likely to outperform most of its peers from the emerging market lot when it comes to total investment returns that include spot exchange rate and interest income.

According to Bloomberg data, overseas investors could earn a to-tal forecasted return of 2.03% in the rupee-dollar pair by March end next year, compared with 0.30% in

the Chinese yuan and 0.97% in the Brazilian real.

The rupee, pegged against the greenback, is ranked fifth-best per-forming while the Russian ruble is holding the top rank. But, improving domestic macroeconomic funda-

mentals stand India in a good stead compared to other emerg-ing economies.

Yield tourists find India a logi-cal destination, which offers both relative safety and higher

rates at a time when more than $13-trillion dollar worth of bonds are yielding negative returns amid con-tracting global economies.

With a stable currency, many foreign portfolio investors are seen not hedging their India ex-posure. Thus, they are able to en-hance investment gains by elimi-nating the hedging costs.

RUBLE’S THE BEST

The rupee, pegged against the greenback, is ranked fifth-best

Gilt Holding to Cost More? MUMBAI: RBI is weighing a proposal that would force all banks to attach a risk weight — and therefore earmark for capital — for their exposure to central and state governments. “..other measures are cur-rently under discussion, such as, imposing risk weight on sovereign ex-posure and new standard-ised approach for credit and operational risk,” said SS Mundra. Banks hold large amount of central government bonds and state government guaran-teed securities which are considered as risk-free. Attaching risk weightage would require banks to raise extra capital to meet the minimum capital standards. — Our Bureau

Welspun India120

100

80

60

40

104.8

59.3

Share Price on BSE (`)

Aug 16 Aug 24

DE

EP

A K

AR

MA

KA

R

ILL

UST

RA

TIO

N: A

RIN

DA

M

MSCI India 703.97 0.27MSCI EM 1891.51 0.97MSCI BRIC 459.06 0.56MSCI World 6782.02 0.06SX 40 16889.92 0.18Nikkei 16597.3 0.61Hang Seng 22820.78 0.77Strait Times 2869.57 0.67

Prices per Troy Ounce ($)

GOLD RATE

Nifty 50 8650.3 0.21Sensex 28059.94 0.25

At 7 pm ISTValues in US $, Gross

STOCK INDICES % CHANGE

*At 10.30pm, After adjusting for import duty, Indian spot gold lower by $ 23.52 to US Comex gold price on Wednesday. The premium on local gold is due to tight supply following import curbs.

US India

OPEN 1342.20 1450.22

LAST* 1341.20 1451.80

FOREX RATE (`-$ Exchange Rate)

DUBAI CRUDE46.120.67

Absolute Change

OIL ($) BOND

10-YR YIELD7.140.02

Figures in %

OPEN

67.15

LAST*

67.10

Market Trends

Market on Twitter@ETMarkets

Morgan Stanley Upbeat on Earnings Growth

Our Bureau

Mumbai: Indian companies, which have been suffering due to pressure on corporate profits, are coming out of that phase and could see a “mean reversion” in earnings, said Morgan Stanley in a note. Morgan Stanley said it expects earnings to grow at a compounded annual growth rate of 16% over FY16 to FY18. India’s real and nominal gross domestic product growth appear to have bottomed, household and gov-ernment savings have risen, the corporate debt cycle has peaked and terms of trade have im-proved, which are likely to aid earnings, it said.

Till now, earnings were weighed down by weak growth, high inter-est costs and over-capitalised bal-ance sheets. “We expect upward earnings revisions, a factor that drives stock prices up. Our Sensex target for June 2017 (30,000 points) offers double-digit relative US dol-lar upside versus EM,” the report said. India is currently 200 basis points overweight in Morgan Stanley’s emerging market portfo-lio, second only to Taiwan.

The financial services firm added that improvement in earn-ings parameters such as revenue growth and earn-ings before interest, tax-es, depreciation and am-ortisation is encouraging and supports that the earnings trough has passed.

BOTTOMING OUT

WWW.ETMARKETS.COM MUMBAI, THURSDAY, 25 AUGUST 2016