Teji Mandi: Three things investors should know on January 6, 2021
Teji Mandi

Contrasting commentaries :

India's two biggest lenders, HDFC Bank and Bajaj Finance, have released their business updates for Q3 of this year. These updates provide insights into the fortunes of their respective sectors.

There has been a sharp contrast in each lender’s approach towards market conditions. While HDFC Bank was more bullish, Bajaj Finance adopted a conservative approach in this quarter.

HDFC Bank outperformed the banking industry with 16% growth in advances. The overall credit in the banking system is expected to grow by 6% in the December quarter.

In sharp contrast, Bajaj Finance reported a 1% decline in its assets under management. However, the performance is in line with what the management stated.

Sharply contrasting approaches of these two giants should be seen in the context of their respective sectors. While Banks have ample liquidity available, NBFCs are struggling for the same. The credit cost is a major differentiator between the two sectors. The NBFC sector is at risk of substandard credit quality.

Hence, the sharp contrast in their approach is justified. Being an NBFC, it is more important for Bajaj Finance to preserve its asset quality. The management has already guided for the same and importantly, they are able to stick to it.

World Bank keeps India forecast unchanged:

Despite the better-than-expected recovery, the World Bank has kept India's GDP forecast unchanged. It has projected India's GDP to contract by 9.6% in the current fiscal. It has kept India's real GDP growth estimate unchanged at 5.4% for FY22 despite the lower base.

Given the speed of the recovery, most of the agencies have made an upward revision to India's GDP forecast. In this context, the World Bank's projection is surprising to us.

Most of the domestic and international agencies have expressed contrary views. They have made an upward revision to India's GDP contraction estimates. They now expect India's GDP to contract by 7-8% in FY21 from 11% projected earlier. They have predicted India to clock double-digit growth in FY22.

Service sector growth slows down in December:

India's service sector registered growth for the third straight month in December. The Purchasing Managers' Index (PMI) of India's service sector came in at 52.3 in December. PMI above 50 indicates growth. But, the pace of growth has slowed from its level of 53.7 in November.

This is the weakest expansion since October. The output and new order growth have eased to a three-month low. Meanwhile, employment fell in the sector after increasing in the previous month.

The pace of growth is expected to slow down in the service sector. A spike in COVID-19 cases globally is the key factor behind this. New work opportunities in the service sector are expected to shrink going ahead.

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