Short Call | Banks' deposit woes ebbing, premiumisation no one-way street; Bajaj Auto, Angel One, LTI Mindtree, HDFC Life in focus

Will growing affluence lead to more consumers upgrading to expensive products?

Banking stocks are not as hot as they were till a couple of months back. Reason: pressure on net interest margins because of rising costs of deposits. Things are improving, but it is still a mixed picture for now.

According to IIFL Securities, India’s deposit growth is not only improving, but is also higher than other countries. The catch here though is that the loan-to-deposit ratio has risen compared to other countries. In short, Indian banks are getting deposits fast enough to be able to maintain the pace of making loans.

The good news: System liquidity is improving, and bank deposits are offering competitive rates compared to other savings instrument. The not-so-good news is that household savings are shrinking, and that there is a shift in allocations to other instruments, notably mutual funds.

The Street is bullish on premiumisation as a theme, which is based on the assumption that growing affluence will lead to more consumers upgrading to expensive products. But that theory may have its limits because of rising income equality, cautions Ambit in a recent report.

From the report:

“As income inequality rises, it would be a major headwind to sustainable economic growth. This has led to a situation where too few account for a

large share of overall consumption. In fact, the recently released Consumption Survey suggests real consumption growth halved over FY12-23 for both urban and rural India compared to FY05-12.”

The stock has been under pressure of late as the market is worried about integration-related challenges following the merger process. The company has seen a series of high-level exits.

Bull argument: Valuations at 30 times trailing 12-month earnings not too expensive. The company is structurally sound, brokerage firm Macquarie said in its report.

Bear argument: Integration challenges could weigh on the stock in the near term. Also, as valuations are not too attractive either, investors may want to wait it out for a while before getting in, since the outlook on the IT sector itself is hazy.

The stock failed to sustain big gains made earlier this week.

Bull argument: Leading analysts like Jefferies and Morgan Stanley have turned positive on the stock of late. Rising crude prices will boost the company’s earnings. Morgan Stanley sees the company’s outperformance to continue with better capital allocation.

Bear argument: Lack of regulatory continuity, slower ramp-up in domestic production till the end of 2024.

The company’s March quarter results beat the Street estimates.

Bull argument: Volumes rose 25 percent on-year to 1.06 million units. New launches in premium and electric space are expected to support volumes.

Bear argument: The company said despite the PLI scheme, the unit economics of EV 2 wheeler is still at a loss.

Angel One reported a 27.3 percent YoY growth in net profit at Rs 340 crore for the quarter ended March 31.

Bull argument: The company is undertaking a change in its business model, with focus on gaining market share in the cash segment and strong growth in distribution revenues, over the next two-three years, says Motilal Oswal. It is also continues to invest in technology to strengthen its position in the market.

Bear argument: Jio Financial's and BlackRock's entry into the broking segment might lead to a loss in market share for Angel One.

The stock held ground in a bearish market after reporting a 14 percent on-year rise in net profit for the March quarter, beating the market estimates.

Bull argument: Analysts at Nuvama noted that the management appeared confident and were focused on growth rather than margins.

Bear argument:  Product mix and fixed costs dragged margins in Q4.