India's Results Season Picks Up, Banks Beat Estimates, IT Companies Fall Behind

• <00:56> India's results season picks up steam, banks are beating estimates, IT companies are falling behind.
• <08:03> Ambani revs up in finance and Adani gets ready to exit it
• <11:40> Inflation of key household ingredients like cereals and pulses are in double digits and hurting households, what should we do next, with Siraj Hussain, Former Agriculture Secretary of Govt of India
• <19:02> What to eat when you are on the road, with Dr Nandita Iyer

TRANSCRIPT

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it's Monday the 24th of July and I'm Govindraj Ethiraj coming to you from Mumbai, India's financial capital and still rained out city.

Our Top Reports For Today

• India's results season picks up steam, banks are beating estimates, IT companies are falling behind.
• Ambani revs up in finance and Adani gets ready to exit it.
• Inflation of key household ingredients like cereals and pulses are in double digits and hurting households. What should we do next, with Siraj Hussain, Former Agriculture Secretary of Govt of India.
• What to eat when you are on the road, with Dr Nandita Iyer

Bank Are Hitting It Out Of The Park, IT Companies Are Pausing and So Are Markets

Before I come to banks, I hardly need remind you that we took a welcome breather from the markets consistent rise till last Friday when the indices cracked a little, partly triggered by Infosys' revelation - the technical term being guidance - that it would not report a strong growth for the rest of the year and a sudden realisation that earnings might not remain as strong as we thought, something we discussed as recently as Thursday last.
On Friday, both the Sensex and the Nifty reported their biggest single-day fall in four months, with the Sensex dropping 888 points to 66,684 and the Nifty 50 falling 234 points to close 19,745.
Of course, everyone, including us at The Core Report, has been talking about the slowdown in the Eurozone and North America that was likely to impact toplines for Indian IT companies.
Possibly the markets were hoping against hope and some writers even used words like bombshell and rude shock for the Infosys guidance…terms you would usually use in contexts I would not get into here on a business and financial news show.
And the reason the markets were shocked and awed was because the guidance level was even lower than what was expected.
Or the bulls were stretched and the bears were waiting to get in.
So Infosys says it will grow only by 1-3.5% in revenue for the whole year as opposed to 3-7% that was expected. And this is despite some large deals coming in, like a large $2.3 billion one.
I did read about this deal and somehow was wondering if the announcement of it created an imperfect expectation in the minds of the media and markets. After all, Infosys does not communicate every deal that it wins, as don't other IT companies. Because quite simply many clients who do large outsourcing contracts just don't want their names to appear.
Nothing wrong with the company taking some pride in a big deal like this. But that would I guess depend on someone sitting and adding up all the other deals that the company is scoring or continuing with.
For example, the Infosys management attributed the cut in guidance to delayed decision-making and an uncertain environment compounded by postponement of discretionary spends.
It is quite likely the stuff that is lets say recurring annually or even an outcome of scattered discretionary spending is more valuable than a one-off. On the other hand, if these somewhat predictable discretionary spending deals are not coming or other longer term deals are not renewed, then the one-off will not make up. Which seems to be the case here. All of which is not visible on a continuous basis of course, being my argument here.
I asked then Infosys CFO Mohandas Pai once why they insisted on giving guidance when most companies including in IT and their peers actually did not. And still do not.
He said something to the effect of a tradition they had created and the investor friendly nature of it all. In general, Infosys has led the markets in governance - to their credit - and razzle, dazzle, song and dance investor shows every quarter, beamed live from specially built studios in their Bangalore Electronics City HeadQuarters.
By the way, TCS, the largest IT company in India is seen to have done better in the same quarter. And the two other biggies, Wipro and HCL Tech, also did fine.
Also, they did not and did not give guidance. But as market analyst Avinash Gorakshaker, Head of Research at Profitmart Securities says, Infosys' guidance has affected the stock prices of all companies and that they would remain under pressure.
So I am guessing the CEOs of the other three are either thanking Infosys for saying what they may have but did or can not or cursing it for messing with their stock prices too.
While Infosys surprised this quarter on the downside, banks did exceedingly well.
Before I come to the common threads, a recap of the results.
ICICI Bank posted a 40% year on year growth in net profits, upto Rs 9,648 crore, from Rs 6,905 crore. This is profits for the quarter or three months, just to put it out there. This figure was also higher than analysts' estimates.
Net interest income, or core income, rose 38% year-on-year to Rs 18,226 crore. Other income too was up 16.5% from a year ago and rose to Rs 5,435 crore.
The Bank's asset quality improved with its gross non performing asset ratio improving and net NPA ratio remained flat at 0.48%.
ICICI's retail loan portfolio grew by 21.9% year-on-year and 4.5% sequentially, and comprised 54.3% of the total loan portfolio.
The SME business, comprising borrowers with a turnover of less than Rs 250 crore, grew by 28.5% from a year ago. The rural portfolio grew by 17.6% from last year.
Kotak Bank, whose headquarters is a short walk and around the corner from ICICI Bank in Mumbai's financial hub Bandra Kurla Complex, reported a 51 percent year-on-year rise in its consolidated profit at Rs 4,150 crore in the first quarter of the current financial year.
Its net profit on a standalone basis rose almost 67% to Rs 3,452 crore, beating analysts' expectations of a 53 percent growth at Rs 3,182 crore.
Kotak's gross non performing assets too declined to 1.75 percent from 2.27 percent in the year-ago period.
Average term deposits were up 40 percent though savings deposits were down marginally, something we spoke of earlier.
These were big banks. But even a smaller one like the Thrissur-based South India Bank recorded a 75% growth in net profit for the quarter ended June 30, on higher interest income.
Net interest income went up 34 percent in the latest quarter.
The common thread everywhere of course was that business is growing, margins are improving despite being in a high interest rate environment which may have increased the cost of deposits but saw higher yields on advances.
Overall banks are doing well in a manner that should make many people happy, including the Government for whom a big concern is always a rerun of the previous decade and bank finances collapsing.

And then some disappointments. Reliance Industries reported a roughly 11% dip in net profits for the June quarter because of weaker profits in its oil to chemicals or O2C business as it calls it.
The profitability came from telecom and retail as well as some other income.
Its overall revenue has been slipping over the last year, from Rs 218,855 crore last year's quarter to Rs 207,559 crore this year.
Net profits, despite falling, still stood at Rs 16,011 crore.
Geopolitics could be one reason. The last year was good, according to the company, because of what it called dislocations in the energy markets driving margins to all time highs.
Reliance Retail, net profits were up 19% to Rs 2,448 crore and Jio Platforms which runs Reliance Jio, the telecom network, saw its profits rise 12.5% to Rs 5,098 crore.
Speaking about Reliance, we spoke on Friday on how Jio Financial, a just spun off entity of Reliance Industries with almost no revenue was priced at $20 billion in market value.
The company is yet to start proper operations and the stock will mostly list next month but as I found in my conversation with market veteran Deven Choksey is betting big on Jio Financial grabbing a big share of future growth in retail financial services.
Interestingly, around the same time as Ambani revved up in finance with a blockbuster market debut, reports emerged that Adani Group might exit finance, at least for now.
The Adani's are looking to sell a 90% of its stake in Adani Capital, the finance arm to Bain Capital for around $180 million, reports said.
Bloomberg News earlier reported that a potential sale of Adani Capital can help cut liabilities on the conglomerate's balance sheet as it focuses on its infrastructure development businesses.
Bain and Carlyle Group Inc. are among potential bidders for a controlling stake in the company, Bloomberg News reported earlier this month.
Adani Capital started in April 2017 and has more than 160 branches across India, according to its website.
I talked about falling stockmarkets at the fag end of the last week.
The figure that is rising, if you were looking for some brighter news, is India's forex reserves, now at $609 billion and nearing a 16-month high.
The reason is obviously dollars and lots of money flowing into Indian markets, particularly secondary markets and that at a pace not seen in a while.
The rupee is still around Rs 81.96, so it's not going anywhere up right now, but it seems stable with some strength as opposed to looking like it might collapse further any moment.
Speaking of strong forex reserves and all things to feel good about and staying with Business Standard, columnist TN NInan points out in an interesting piece called Missing the Real Achievements that India is no longer the fastest growing large economy in the world. Saudi Arabia and Vietnam are both ahead at 8% and +.
Nor is India the prime beneficiary of China Plus One, he says. Vietnam is.
His larger point is that India's biggest strengths which have to be capitalised upon are, like I mentioned, forex reserves and thus the external front and a stable currency.
The significance of these systemic changes over the decades says TN NINan is that the economy and currency are more stable, and therefore possibly the politics too.

Inflation Where Is It Going?

Food prices are rising sharply and households across India are feeling the pinch, whether you see or don't see much discussion on it. And it's not just tomatoes.
Pulses and cereals are seeing inflation levels not seen before. Pulses include the dals which are a staple of most households and cereals which include wheat and rice.
India's retail or consumer price index (CPI) inflation rose for the first time in five months to 4.81% in June 2023. Last June, it was at 7%.
One reason why it went up was because of a surge in vegetable prices.
In the Core Report, we have been touching upon this theme and rising prices of pulses like urad dal and tur dal which saw an inflation of 10.5% and cereals which were up almost 12.7% in the same computation of inflation.
One reason it is not shooting further is edible oil prices which were down 18% in the same period and thus providing some relief. Regular listeners may recall my conversation with Atul Chaturvedi of the Asian Palm Oil Alliance on this subject last week and his projections on edible oils.
So very broadly, food prices are driving up inflation. They included pulses which I just mentioned and cereals which went up 12.7%. And of course many vegetables including tomatoes whose prices have skyrocketed.
I caught up with Siraj Hussain, former Agricultural Secretary to the Government of India and now advisor to FICCI and present on boards of various companies and began by asking him, what he was seeing and what could the Government do in this situation ?

Speaking of food, although and admittedly in a different context, it's time to bring you up to speed on The CEOs Diet, penned by columnist Dr Nandita Iyer.
In her latest column, she speaks of how to eat when you are a regular traveller or a road warrior as they say. Do read her column on our website www.thecore.in and she joins me now to give us a preview.

That's it from me. Have a great week ahead and stay in touch and connect with us. You can mail me on [email protected] or visit our website www.thecore.in and subscribe to our newsletter which will bring you all our business content with a major focus on the traditional economy.
Bye for now