ICICI Bank a Good Stock Bet - but take the long view!

The Indian economy has been exhibiting strong growth and the country’s stock market has surged to unprecedented highs (except for this past week of course). Although concerns surrounding the US slowdown play a role, investor sentiment has remained bullish. The banking sector is now in the limelight. According to a report by report by McKinsey & Co, Indian banks generated a CAGR of 36.76% in returns to shareholders between January 2000 and October 2007, versus 24.03% for the entire Indian stock market and 17.57% for Chinese banks.

One of the Indian banks that is aiming big is ICICI Bank Ltd (ICBK). The nation’s largest private lender has an ambitious target of being among the world’s top ten banks within five years. The Economic Times quoted the company’s MD and CEO KV Kamath as saying in an interview that the India growth story is unlikely to fade for another 15 years and that, if the country’s GDP were to grow at 10%-11%, it would not be surprising to see banks and financial services sector growing at 30% annually. Moreover, ICICI Bank is all set to make its presence felt in the global arena. While the company already has foreign assets worth $19 billion, it aims at its overseas business accounting for at least one-fourth of its balance sheet in 2008.

The company said last week that it has plans to list four of its units, its brokerage arm, a housing finance unit and two insurance subsidiaries. The company plans to begin the process within six months, with the listing of ICICI Securities, which would be followed shortly by insurance units ICICI Prudential and ICICI Lombard.

The company has recently been making a foray into the domestic healthcare market. ICICI Venture, which is the largest domestic private equity fund, has said that it would be getting a foreign partner to invest $80 million in its 100% owned subsidiary, I-VEN Medicare. ICICI Venture has invested $80 million as equity in I-VEN Medicare and plans to raise $90 million in debt. The total capital base of $250 million would be used to invest in regional healthcare companies. RFCL Ltd, which is wholly-owned by ICICI Venture, has acquired the business division of Godrej Medical Diagnostics for an undisclosed amount. The acquired operations are expected to achieve 25% growth for the next 3-4 years. RFCL has also agreed to acquire Chennai-based veterinary company Alved Pharma and Foods in a stock deal. Alved Pharma and Foods is expected to record sales revenues of Rs18 crores for fiscal 2008 and has significant exports to the Middle East and Africa, RFCL said.

So, ICICI Bank has ambitious plans and wants to aggressively extend its oversees footprint. The Indian market also offers immense growth opportunity and robust growth in sectors like insurance and real estate offers significant potential. However, the company’s shares have been on an uptrend since mid-September and have climbed about 70% over the past year. While the shares are trading uncomfortably close to their 52-week high, the recent surge in provisioning by the company is a concern area.

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Don't You Dare Downgrade Me When I'm Upgrading You

By Vipin Agnihotri

When the Sensex fell from 15,795 on July 24, 2007, to 15,505 at present its effect can be seen sharper in a few major sectors. It has come into the notice of The India Street that there is a re-rating of few sectors taking place on the street.

It is worth mentioning that a defensive sector such as FMCG, which is largely ignored in the present market boom, is showing signs of bouncing back. In my opinion, the market’s forward valuations are not over the top, yet not cheap either.

According to one estimate, Sensex is expected to clock an EPS of about Rs 840 in 2007-08, which results in a one year forward P-E of 17.7, down from its peak of about 18.8. Most of the experts are of the opinion that the subprime market woes will peak by the end of this year. Taking this into account, the next 3-4 months could witness more than abnormal levels of volatility. But one thing is for sure; the effects will wear out over the long haul.

In terms of statistics, the US subprime market is valued at $750 billion and the total outstanding debt in the global economy is $100 trillion. In other words, the subprime exposure works out to less than 1 percent of the total outstanding credit. In my opinion, it’s not significant enough to trouble the global economy and the time is not far away when the markets recover.

At this time, I recommend investors should increase the cash levels in their portfolios and improve the quality of the stocks they invest in. FMCG major Hindustan Unilever in my opinion will post steady revenue growth as core brands sell with a better pricing power.

No one will argue with the fact that subprime market fears have pushed banking stocks down, but at present they are quite a good option for investors. Large chunks of Indian banks don’t have any significant exposure to the subprime market. India’s second largest bank, ICICI bank is a good investment now.

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Hot or Not? Private sector banks on a roll!

By Sundaramurthy Vadivelu

Disclosure

The banking system in India is more than 200 years old. The General Bank of India was founded in 1786 (now defunct) was the first ever bank in India. The oldest surviving bank in the country is State Bank of India (SBI), which was established as “The Bank of Bengal” in 1806. Subsequently more banks were in operation, like Allahabad Bank, Punjab National Bank, Bank of India etc.

After India’s independence, the larger commercial banks were nationalized in 1960s to enable the government in controlling credit delivery. By 1995, the liberalization policy of the government allowed private sector participation in banking industry. This was followed by foreign direct investment (FDI) in banks. As of now, there are 28 public sector banks (with Government of India holding a stake), 29 private banks (without Government stake but listed in stock exchanges), 31 foreign banks and plenty of medium and small co-operative banks. The Reserve Bank of India (RBI) is India’s central bank and it is the ultimate authority for control of banking operations.

At both BSE and NSE, several public sector banks (State Bank of India, Punjab National Bank, Indian Bank etc.) as well as private sector banks (ICICI Bank, HDFC Bank, Kotak Bank etc.) are listed.

Let us now discuss the financial and stock performances of some listed private sector banks. Bank of Rajasthan is listed under ‘T’ group in BSE and is not included here.

The following table shows 6 month, one year and 5 year percentage return of these stocks.

For detailed information about close prices on various dates, please click here.

Scrip	6 month return	1 year return	5 year return
AXISBANK	18	68	1,489
CENTBOP	5	58	336
CUB	15	60	610
DCB	45	113	113
DHANBANK	25	196	158
FEDERALBNK	42	71	1,128
HDFCBANK	15	32	434
ICICIBANK	1	50	532
INDUSINDBK	10	16	222
INGVYSYABK	39	83	155
J&KBANK	6	69	658
KARURVYSYA	16	47	367
KOTAKBANK	56	120	1,903
KTKBANK	1	60	413
LAKSHVILAS	7	52	277
SOUTHBANK	36	93	287
YESBANK	14	99	183

It can be seen that NONE of the private sector banks have yielded negative returns in the last 6 months. Axis Bank, Federal Bank and Kotak Bank have appreciated more than 10 times in the last 5 years. Dhanalakshmi Bank, Development Credit Bank, Kotak Bank and Yes Bank have doubled in the last one year.

Bank Nifty (NSE) and Bankex (BSE):

The private sector banks in Bank Nifty and their weightages are given below:

Scrip	Weightage %
HDFC Bank	12.35
ICICI Bank	28.78
Kotak Bank	6.44
Axis Bank	5.52

The private sector banks in BSE Bankex and their weightages are as follows:

Scrip	Weightage %
ICICI Bank	41.91
HDFC Bank	13.35
Axis Bank	5.96
Kotak Bank	4.48
Centurion Bank of Punjab	1.62
Federal Bank	1.23
Karnataka Bank	0.96
Yes Bank	0.65

This amounts to weightages of 53% and 70% for private sector banks in Bank Nifty and BSE Bankex respectively.

Let us now analyze the medium term outlook for Bank Nifty.

http://groups.google.com/group/theindiastreet/web/BANKNIFTY_WEEKLY.jpg

In the weekly chart displayed above, the BANKNIFTY is currently on a corrective decline (wave 4) from a peak of 7209. The first wave had a retracement of 193% i.e. 3414 to 6596. According to Elliott wave theory, the previous high should act as a support when the stock corrects during the five wave pattern. It can be seen in the above chart that it was exactly the case. Bank Nifty managed to close below its previous high of 5074 once and it had bounced back. Similarly the previous high at 6596 should act as a support for the current decline, though it has managed to close below it on two occasions. The Bank Nifty should reverse in all probability soon. The target, when calculated from a low of 4837, works out to 7826 which is a good 1350 points away.

The monthly chart of BSE Bankex is shown below. (Chart courtesy: BSE web site www.bseindia.com)

http://groups.google.com/group/theindiastreet/web/BANKEX_MONTHLY.jpg

There are no reversal signs in the long term chart of Bankex either. The Bankex too, is bullish now. The long term target for BSE Bankex works out to 9784 when calculated from a low of 6047.

Let us now compare two major private sector banks, HDFC Bank and ICICI Bank in terms of Financial performance in the last few years.

http://groups.google.com/group/theindiastreet/web/HDFC_Bank_Performance.jpg

The two banks have performed consistently. HDFC Bank’s income though, is about 1/3 rd of ICICI Bank’s.

http://groups.google.com/group/theindiastreet/web/ICICI_Bank_Performance.jpg

Medium term out look for private sector banks:

We discussed about ICICI Bank in my previous article “5 India stocks to avoid (medium term perspective)”. A “double top” formation in weekly chart means that the stock will struggle to cross its previous high at 1010. The only encouraging factor though, is that it has still not closed below 791 which is its previous low. So, unless we get a confirmation of bullishness we cannot possibly look for investment opportunities in this stock.

Development Credit Bank (DCB) has not broken its previous resistance at 120.55 on a weekly close basis. It has lost about 14% from its highest close and still there is no sign of any reversal on the upper side. Read more about this stock in “The India Street Analyst Upgrades and Downgrades – Review”.

Indus Ind Bank (see weekly chart below), has not broken its resistance at 64. This stock is looking slightly weak in the sector.

The other private sector bank stocks are bullish in medium term charts, though some have lost more than 20% from their highest close. The trendline supports hold well in these charts; there are no major reversal patterns or candlestick patterns either. So we have to conclude that these stocks would be heading for higher levels.

http://groups.google.com/group/theindiastreet/web/INDUSINDBK_WEEKLY.jpg

Indus Ind Bank, as shown above, is struggling to break its previous resistance at 64. But it is forming higher highs and higher lows though.

Conclusion:

Except for ICICI Bank, DCB and Indus Ind Bank, the rest of the private sector banks remain bullish; Medium term investors can hold these stocks for some more time.

Sundaramurthy Vadivelu

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Top 5 India Banks ranked by Online Traffic

In conjunction with www.compete.com, The India Street has compiled the online statistics for India’s top Banks. In terms of Online usage in visits, ICICI Bank clearly leads the pack while Citibank is close behind. Noticeably, State Bank of India’s traffic has decreased 21% year over year while ICICI Bank has risen an astounding 76.9% year over year.

It’s interesting to note that banks like Canara Bank, Bank of Boroda, and Punjab National Bank that have some of the highest deposits, don’t even come close to making the list.

Timeframe: 07/2006 to 07/2007 (Click image to enlarge)

Date: 07/2007	People	Month Δ	Year Δ	What is this?
statebankofindia.com	5,368	26.1%	-21.2%	The number of people visiting a site.*
hdfcbank.com	16,385	20.1%	34.8%
citibank.co.in	44,463	-4.7%	22.2%
standardchartered.com	8,672	70.8%	54.4%
icicibank.com	64,890	62.6%	76.9%
*People Counts are also known as unique visitors - they only count a person once no matter how many times they visit a site in a given month. People Counts are typically used to determine how popular a site is.

In terms of daily growth Standard Chartered is really make a move, while the remainder are gaining users at slower pace. A small mention, it appears that over the last month, Citibank’s online growth is actual negative.

Date: 08/14/2007	What is this?
hdfcbank.com	Velocity reports the relative change in daily Attention. Velocity is used to determine the relative growth of a domain over a particular timeframe or compared to other sites. Velocity is an effective way to measure the impact of planned (or unplanned) events, such as new advertising campaigns, product/service launches or general site growth. Simply choose an event date as the starting point to see how it has affected a site's attention over time. See Full Description
citibank.co.in
standardchartered.com
icicibank.com

Some other key findings of the study of India banks, pertaining to the period FY06, are as follows:

• Total assets for the 82 Scheduled Commercial Banks (SCB)s stood at Rs 27,785,739 mn in FY06, of which PSBs had the largest share of 72.5%, followed by Private Sector Banks with 20.2% and Foreign Banks at 7.3%.

• The total income for the 82 banks stood at Rs 2,215,280 mn in FY06, of which the Public Sector Banks held the highest share of 72.7%, Private Sector Banks at 19.5% followed by 7.8% for the Foreign Banks.

• In terms of break-up of total income, non-interest income was the highest for Foreign Banks at 31%, followed by Private Sector Banks at 19.8%, thus highlighting the contribution of valueadded services these banks offer. For Public Sector Banks, non-interest income was 15.3%.

• The net profit for the 82 banks together stood at Rs 248,281.5 mn for FY06. The top ten banks (6 PSBs, 2 Private Sector and 2 Foreign Banks), based on the net profit classification, accounted for nearly 58.5% of the total net profit of all the 82 banks.

• The overall deposit growth was at 18.2% y-o-y for FY06, with Private Sector Banks posting the strongest growth at 39.2%, followed by Foreign Banks at 31.7%. For Public Sector Banks, total deposits grew at about 13%.

• Total Advances of all 82 banks grew by 32% year-on-year; Private Sector banks again witnessed the strongest growth at 44%, followed by a growth of 30.7% for PSBs and 30% for Foreign Banks.

• The ratio of operating expense to total expense for the PSBs was 26.5%, for Private Sector Banks was 28.4%, while for Foreign Banks the ratio was nearly one-third of their total expenses in FY06.

The Indian banking sector is poised for healthy growth in the forthcoming years. D&B India is confident that India’s Top Banks 2007 will provide the right platform to enable the banks to prepare for the upcoming opportunities. We will continue to track the growth of this sector and enhance this publication as an authoritative reference guide.

• Source for key findings Dunn and Bradstreet India

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5 India stocks to avoid (medium term perspective)

Disclosure

In this article let us discuss some stocks which look technically bearish for medium term. The analysis is based on weekly charts.

Allcargo Global Logistics Limited:

In my earlier article 5 India stocks to avoid (short term perspective) we discussed about Gateway Distriparks Limited, a logistics facilitator company. Allcargo Global Logistics too, is a logistics service provider. This company’s key areas of operations include multi-modal transport, container freight stations, project cargo handling, airfreight and transport logistics. It declared a net profit of Rs.17.11 crores for the quarter ended June 2007.

http://groups.google.com/group/theindiastreet/web/ALLCARGO.JPG

This stock was issued at an IPO price of 675. After it got listed in June 2006 the stock touched a high of 1355 in January 2007, twice its issue price. Watch the descending triangle breakout in the chart. From the high of 1355, it made a low of 950. Some sideways movement occurred and it just broke the support in June. However, it managed to bounce back a little but the rally could not be sustained. It has once again breached the support at 950 and closed below it for two weeks in a row. The triangle height is 405 and the bearish target works out to 545. It however may get some support at 675, being the issue price.

Hindustan Sanitaryware and Industries Limited:

Hindustan Sanitaryware and Industries Limited was set up in 1962 in collaboration with Twyfords of United Kingdom. As the name implies, it specializes in manufacture and export of sanitary equipments and materials. The product range includes sanitaryware, bath fittings, tubs, shower enclosures, whirlpools and kitchen fittings, shower partitions and panels, kitchen appliances and sinks. The company’s net profit for the first quarter ending June 2007 was Rs.6.44 crores.

http://groups.google.com/group/theindiastreet/web/HINDSANIT.JPG

This stock has already fallen from a high of 195 in May 2006 to a low of 85.50 in June 2006 i.e. a loss of 56%. The stock has not been able to cross 127.50 on a close basis (61.8% retracement from high of 195). As in the case of Allcargo, a descending triangle breakout has occurred with a triangle height of 45. The stock has managed to close below support for 4 weeks in a row. The bearish target works to 38.

ICICI Bank:

The India Street analyzed ICICI Bank IPO. I had mentioned that:

“In the monthly chart displayed above, clearly, the stock is in its 5th wave. It will find strong resistance to cross 1010. According to the wave theory, a correction should start after the completion of 5th wave, which of course needs a confirmation.”

http://groups.google.com/group/theindiastreet/web/ICICIBANK_WEEKLY.JPG

Indeed, the resistance at 1010 could not be penetrated conclusively by the stock. Moreover, the stock has just broken its support trendline and closed below it last week. Ideally, this would be a “double top” formation. A weekly close below 791 (which also happens to be 38.2% retracement) would confirm the formation of double top pattern. Watch the volumes soar as the stock breaks the support trendline. As of now, the momentum, volume and directional indicators also favour further bearishness. The last support exists at 656 i.e. 61.8% retracement level.

Raymond Limited:

Raymond Limited has about 60% market share in worsted fabric industry in India and one of the largest integrated fabric manufacturers in the world. It has textile, engineering tools and aviation divisions. Its range of brands include Manzoni, Park Avenue, Colorplus, Parx, Be:, zapp, Notting Hill etc. Its group companies J.K. Files & Tools and Ring Plus Aqua Limited are engaged in the manufacture of precision engineering products such as steel files, cutting tools, hand tools, agri tools and auto components. Raymond is one of the first corporate houses in India to launch air charter services in India in 1996. It has declared a net profit of Rs.5.37 crores for the first quarter ending June 2007.

http://groups.google.com/group/theindiastreet/web/RAYMOND.JPG

It can be seen that the stock had fallen from a high of 630 in mid May 2006 to a low of 286.50 in mid June 2006 or about 55% within one month. It somehow managed to close above its 50% retracement of 458.85 on two occasions; but never closed above 61.8% retracement. Recently it has broken its strong support at 286.50 and closed below it. Watch the volumes going up as the support levels were reached. Though extremely oversold in medium term charts, directional and volume indicators favour further downside.

Ucal Fuel Systems Limited:

Ucal Fuel Systems Limited manufactures automobile fuel system components like throttle body assembly, fuel rail assembly, high pressure fuel filter, carburettor, oil/water/vacuum pump assembly, piston cooling nozzle etc. Some of its clients are Maruti Udyog, Hyundai, General Motors, Cummins, Bosch, TVS Motor, Bajaj Auto, Yamaha and Hero Honda.

The company posted a net profit of Rs.1.69 crores for the quarter ended June 2007.

http://groups.google.com/group/theindiastreet/web/UCALFUEL.JPG

In May 2005 it made a high of 291.70. After the double top formation, it has become extremely bearish. It achieved a low of 90 in June 2006. Now it has broken that support and closed below it for 3 weeks in a row. No real buying support is available from the market for this stock at the moment.

Sundaramurthy Vadivelu

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