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MOSL: MOrning India (3/September/19): 1. Financials (Mega consolidation announced, but near term challenges remain); 2. Automobiles; 3. EcoScope

MOrning India (3/September/19): 1. Financials (Mega consolidation announced, but near term challenges remain); 2. Automobiles; 3. EcoScope

 

Today’s top research theme

Financials: Mega consolidation announced, but near term challenges remain

• The Finance Minister has announced mega merger of six public sector banks (PSBs) with four better performing anchor banks on 30th Aug’19. The merger will see the number of PSBs reduce to 12 from 18 currently.
• We believe the consolidation of PSBs to be a positive move from a long-term perspective as it will help improve their competitiveness; however, this will come with its own set of challenges in the near term related to credit growth, integration issues, etc.
• We expect the asset quality of anchor banks like Indian Bank to deteriorate due to its merger with Allahabad Bank. Thus, we downgrade INBK to ‘Neutral’ from ‘Buy’ and revise our target price to INR200 (0.6x FY21 ABV). We retain our PT and ratings on other PSBs and await clarity on swap ratios and potential asset quality cleansing.

Piping hot news

Core sector growth stalls to 2.1%, manufacturing PMI slips to 15-month low

Growth in eight infrastructure industries that make up two-fifths of the index of industrial production (IIP) slowed to 2.1% in July, indicating that India’s economic slump may deepen unless the government takes additional measures to reverse it. Growth in July slowed from 7.3% in the year-ago period due to contraction in output of coal, crude oil, natural gas and refinery products, official data released on Monday showed. Earlier in the day, a private survey showed India’s manufacturing output in August grew at the slowest pace in 15 months.