ICICI Bank Q3 Results: What to Expect
ICICI Bank results are tomorrow. Because of the larger retail exposure, the advances growth should be better than what the bank itself has seen in the earlier quarters and better than its peers. In the case of Kotak Bank, the advances growth was quite low which is quite okay in the current stressed environment. The management probably would have taken an intentional call to go slow on that and to that extent, it is okay.
I do expect that ICICI Bank to report better advances growth from retail contribution. Let us see what happens to their credit cost and asset quality because after looking like having stabilised in the last two quarters or so, this quarter we have seen the credit cost or NPAs for its peers have gone up.
A similar action could be seen in case of ICICI Bank. Credit cost and asset quality would have to be watched out for. Margin expansion should be there because the interest rates have been coming down. These are the broad expectations that I have.
Earnings: Time for Midcaps & Smallcaps
Kunj Bansal: Till now we have largely had the results of largecaps. The midcap and smallcap results have not started yet and typically these companies declare their results towards the end of the result season in the last 15 out of the 45 days that they get. At the same time, in addition to largecaps, for the last one-one and a half month, the midcap and smallcaps have finally started to participate in the rally. As a result, it is yet to be seen whether the results would be a negative surprise or will show a hint or expectation of recovery going forward.
This quarter may continue to be a subdued quarter. If we look at the results that have come till now, results from largecap private sector banks have been largely in line and there has not really been any negative surprise although in some cases, the advances growth seemed to be lower. But that is a conservative strategy that managements have been using in the current environment.
A positive surprise has come from insurance companies. These are the companies that have continued to show good growth in a subdued environment. So depending on what parameters we take, whether we take annualised premium equivalent or value of new business, at the margin levels there have been growth ranging from 15% to 20-25%. That is a positive surprise that has come in.
The largecap IT sector as a pack has declared subdued results, in line with expectations. The market has also gone into a range-bound movement for the last few days, pending the continuation of the result season and the Budget which will be there in the next weekend.
Cement Stocks: Q4 to be Better Than Q3
Kunj Bansal: Leaving the quarterly numbers aside, on a sustainable basis we have seen the high single digit volume growth coming in from the sector on a consistent basis over the last few years. In the last few months, we have seen some headwinds; one from the extended monsoon which clearly resulted in the earlier quarter’s lower than expected offtake. As a result, there could be two impacts; one that can continue and would possibly show in case of UltraTech reflecting in terms of lower than expected volume growth. But the whole latent demand, pending construction or real estate activity could suddenly get bumped up in the January- February-March quarter and if not in this quarter, next quarter we can see the sudden pickup in demand growth.
If that happens, we have already seen the raw material prices remaining supportive for the sector as a whole for quite some time and not only in the recent past. That has resulted in continuous margin improvement for the sector for the last few quarters. That is a second positive that will be there.
The third thing that will be there in the last one month or so, if one goes by the market check and secondary check, cement companies seem to have been fairly successful in slowly increasing the prices now which earlier they could not. They used to do post monsoon and in the festival season like Diwali and all of which they could not do this time as successfully. But now it seems they are able to do that. If these factors are put together my expectation is that the Jan, Feb, March quarter will be far better for the cement pack as a whole instead of the December quarter..
Financials: Quality does not Come Cheap
In addition to AU Small Finance Bank, there are one or two other stocks whose results I have noticed. In the last one-one and a half year, there was a large degree of underperformance, particularly from the NBFCs. Some NBFCs and banks were continuing to do well even in the stressed environment post the IL&FS crisis way back in 2017.
Another financial company which has declared its results is a south based NBFC Cholamandalam Finance. This company has been performing reasonably consistently. It has come out with good results in this quarter also. This stock continues to look good for medium to long term investors. Good quality stocks do not come cheap. If the numbers are good, probably valuations are being given a back seat and the stock continues to perform.
FMCG & Recovery in Broader Pack
The numbers from the sector are as expected. We have seen Asian Paints numbers and there have been mixed reactions to it. The company has been able to increase its top line growth, value and volume by going into the lower end of the products instead of the higher end. This quarter, the growth will continue to remain subdued in single digits as has been the case earlier. But, going by the secondary market check, it looks like the expectation has increased in terms of higher amount of money coming-in in the hands of farmers and people in the rural areas because of increased food inflation and increased crop prices.
The higher level of water reservoirs also likely to result in good crop and if the Budget additionally supports rural consumption, that is where we will see the consumption growth coming back and that is where the Jan-Feb-March quarter will be the quarter to watch out for instead of this one.
Within consumption, there have been spots of good performance and spots of not so good performance. If we look at a very small pack of say shoes and chappals, that sub-segment has continued to do well over the last two, three quarters and this is reflecting in the share prices of these companies also. These opportunities are something that probably will continue to be there.
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