Short Call | Of improving sentiment, bank stocks, LIC’s heartburn bet, Marico, and all that counts

The Current Account Savings Account (CASA) of RBL Bank is at its best ever, while those of Federal Bank and IndusInd Bank are at multi-quarter lows. Those struggling to grow their deposit base include South Indian Bank and Bandhan Bank, and the positive surprises include AU Small Finance Bank and Suryoday Small Finance Bank.

Investors will be watching closely the banks’ net interest margins —difference between a bank charges borrowers and what it pays depositors —as there are signs of pressure because of rising interest rates. The banks have so far been able to boost their NIMs by charging borrowers higher rates. But now depositors need to be paid higher too.

Roller coaster

Shares of Capri Global Capital have been on a roller coaster ride over the last few weeks. The stock first crashed from Rs 727 in early February to a low of Rs 570 in the last week of March. And then it miraculously surged to close at Rs 661 on the last trading day of FY23 on heavy volumes, but low delivery.

The new financial year has not started all that well for Capri, with the stock crashing 7 percent on Monday. The gyrations must be causing heartburn to LIC, the biggest domestic institutional investor in the company. The big daddy of insurers has been hiking its stake in the company steadily since December 2020.

Considering the controversial dealings between Money Matter Financials (Capri’s previous avatar) and senior officials of LIC Housing in 2010 that led to CBI raids and arrests. And, valuations are not cheap either. At nearly six times trailing book value, Capri Global is commanding a valuation not far from Bajaj Finance, without a similar loan book profile or spectacular growth in net profit.

Mixed bag

Marico’s Q4 business update has been a mixed bag. Volume sales have picked up year-on-year, but consolidated revenue has grown in low single digits. Also, the commentary does not make it clear how the rural market is faring, considering that it has been one of the major points for the company. On the positive side, moderation in raw material prices is helping margins.

The stock price has been struggling over the last three months, even as investors occasionally sought shelter in FMCG stocks during the choppy March quarter for the stock market. This indicates that investors could be waiting for clearer signs of improvement in the operating environment before taking a call on the stock.

Realty tremors

Sales of rental apartment buildings in the US are falling at the fastest rate since the subprime-mortgage crisis, a sign that higher interest rates, regional banking turmoil and slowing rent growth are hurting demand, reports the Wall Street Journal.

“Investors purchased $14 billion of apartment buildings in the first quarter of 2023, according to a preliminary report by data firm CoStar Group. That represents a 74% decline in sales from the same quarter a year earlier and would be the largest annual sales decline for any quarter going back to a 77% drop in the first quarter of 2009.”

It ain’t over yet

JP Morgan boss Jamie Dimon has warned that the crisis in the banking sector may not be over yet.

From Dimon’s annual letter to shareholders:

“As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come. Any crisis that damages Americans’ trust in their banks damages all banks – a fact that was known even before this crisis. While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd.”

Rate hikes and cuts

The Australian central bank—Reserve Bank of Australia—kept its key interest rate unchanged at 3.6 percent, but warned that more hikes may be needed. RBA Governor Philip Lowe said inflation had peaked in the country, and there was a "a substantial slowing" in household spending because of inflation high interest rates and falling house prices.

Sri Lanka kept its benchmark rate unchanged at 16.5 percent. The island nation has the highest inflation rate in Asia at 50 percent. It recently secured a $3-billion International Monetary Fund bailout, which is expected to lower borrowing costs in the months ahead.

Crisis-hit Pakistan’s central bank raised its benchmark interest rate to a record 21 percent as prices continue to soar and the country is on the on the brink of default on its loans.

No crude shock

Investment bank Morgan Stanley has trimmed its crude price forecast for 2023, saying the latest production cut by OPEC could be a signal that the oil body is worried about demand slowing down.  Morgan Stanley’s estimate for Brent crude for the second quarter has been cut to $85 from $90 a barrel, third-quarter estimate, by $5 a barrel—to $90 from $95, and the fourth-quarter price estimate to $87.50 from $95 per barrel.

The case for costly crude

Writing in oilprice.com, columnist Irina Slav feels crude prices could stay higher-for-longer, with strong demand from India and under investment in oil exploration being the key factors

“…. OPEC is quite optimistic about India’s demand, expecting the subcontinent to become the leader in oil demand growth in less than 20 years and remain the leader until at least 2045. Demand for oil and gas appears set to be rising faster than supply growth. Normally, this would lead to higher prices, which would, in turn, dampen demand, eventually pushing prices lower. But that was when investment in new supply was adequate to demand patterns. Now, things may turn out very differently, with the higher-for-longer price scenario looking like the most likely one.”