HDFC Triggers a Peak before Normalcy Returns
HDFC Triggers a Peak before Normalcy Returns
The benchmark index Nifty 50, after eight days of consolidation, witnessed breakout of the range, on the higher side. And then, within no time it went past its important psychological mark of 18,000 on Monday. Interestingly, HDFC twins were the prime architect of this movement as they saw a breathtaking rally on Monday amidst news of HDFC Limited’s merger with HDFC Bank. With this roaring rally and improving market breadth, market participants on D-Street were in celebration mode as it was just a matter of time before the Nifty 50 index would hit a fresh all-time high.
However, the bears had a different plan as they paid a surprise visit and struck hard! Testimony of their strike-back was that the Nifty 50 index ended in red for the third day in a row and it has lost around 2.70 per cent from its Monday’s high. Also, it has filled its upward gap which it formed on April 4. So, what changed for the market in a matter of just three days to have the bears back in the ring? Well, put the blame on hawkish Federal Reserve minutes as well as developments surrounding the possibility of fresh sanctions on Russia by the US.
Minutes from the March FOMC meeting showed many Federal Reserve officials preferring to reduce the balance-sheet by USD 95 billion per month. Furthermore, these officials also preferred a 50 bps increase in the Federal Reserve’s fund rate at the upcoming meeting if inflation remains high or gets even worse. In addition to this, a big leap in the US Treasury yields spooked sentiments on D-Street as the 10-year US’ T-bond yield climbed above 2.6 per cent, which was close to multi-year highs.
Apart from this, a major event was the announcement of HDFC Limited’s merger with HDFC Bank. The merger of housing finance leader HDFC Ltd. with HDFC Bank is expected to create a banking goliath worth about Rs 17.8 lakh crore loan book, Rs 3.3 lakh crore net worth and nearly Rs 50,000 crore in annual profits with strong capital adequacy and asset quality ratios. Though the combined entity will not match the State Bank of India in size as it has Rs 26.6 lakh worth of loans, yet it will slim the yawning gap between SBI and its next largest competitor.
We believe it’s a win-win scenario as HDFC Ltd. on its part has been facing the heat on yields and spreads from banks striving to expand their home loan portfolios. The merger will now aid HDFC to tap into HDFC Bank’s low-cost deposits, while for HDFC Bank, which was struggling with sluggish corporate credit off-take and customer additions, HDFC’s readymade book of salaried borrowers will offer lucrative crossselling opportunities. Initially, the stock prices skyrocketed but in the last three trading sessions both the stocks have given up their gains and are back to square one i.e. the price seen before this news was out.
Amidst all this, there was a twinkling moment for shareholders of Paytm as the stock price jumped over 9 per cent on WTD basis. This was on the back of the announcement that the company expects to achieve EBITDA breakeven in the next six quarters and this would be achieved without compromising on any of its growth plans. Going forward, the focus turns on the Reserve Bank of India’s interest rate decision which is set to be published on April 8, while the street will spy with one big eye on the earning season which is to kick off from April 11.
In the upcoming credit policy of RBI, we expect MPC to change its stance from accommodative to neutral. We expect no change in rates. That said, there might be a space of 50 bps rate hike in FY23 amid inflation pressure. Inflation concerns have aggravated since the last policy as crude oil prices have surged and the pass-through to retail prices has begun. The secondary impact is likely to be seen in the coming months. Despite the recent throwback in the Nifty 50 index, the India VIX has stayed below the level of 20, which suggests that the fear is down. However, market participants cannot be complacent against the backdrop of inflation and the ongoing war between Russia and Ukraine.
