The BSE Sensex and NSE Nifty are likely to open in green on Thursday tracking SGX Nifty. (Photo: PTI)

The BSE Sensex and NSE Nifty are likely to open in green on Thursday tracking SGX Nifty and a statement by the International Monetary Fund (IMF) that India near-term growth prospects look favourable.

At 8.27 am (IST), SGX Nifty was up 21 points, or 0.27 per cent, at 7,761.

Near-term growth prospects remain favourable in India but some macroeconomic imbalances still exist, IMF said on Thursday ahead of the meeting of finance ministers from G-20 countries in Turkey.

Asian shares struggled to recover on Thursday with volatility remaining high, while emerging economy and commodity-linked currencies softened as investors worried about the global repercussions of slower growth in China.

Nikkei was up 1.42 per cent at 18352.98 while Hang Seng and Nikkei were down 1.18 per cent and 0.20 per cent at 20,934.94 and 3,160.17, respectively.

Wall Street stocks jumped almost 2 per cent on Wednesday, which traders saw as a natural move after big falls.

Back home, benchmark indices declined for the third consecutive session on Wednesday. The BSE Sensex and NSE Nifty slid 0.95 per cent and 0.88 per cent at 25,453.56 and 7,717, respectively.

(With inputs from agencies)

Non-food credit growth as of August 21 remained in single digit at 9.77% y-o-y, according to data by the Reserve Bank of India (RBI).

Outstanding loans in the banking sector stood at Rs 65.63 lakh crore as of August 21 compared with Rs 65.70 lakh crore in the previous fortnight — a fall of Rs6,641 crore.

The single digit credit growth in the banking system can be attributed to the fact that investment cycle is yet to pick up significantly and a considerable amount of borrowing has shifted to the corporate bond and the commercial paper market.

From April to July this year, companies have raised a whopping Rs 1.69 lakh crore through the corporate bond market which is over three times the funds raised through this route in the same period last year.

The non-food credit has actually shrunk 2.93% from the beginning of this fiscal with the outstanding amount seeing a reduction by almost Rs2 lakh crore.

The prime reason for this mass exodus to the corporate bonds is the difference between the bank base rates and corporate bond yields.

The lowest base rate in the banking system stood at 9.70% until HDFC Bank reduced the rate to 9.35%. Contrast this with the AAA-rated public sector unit that can be borrowed in the corporate bond market at a rate of 8.40-8.50% through its long-term bond issue — a difference of at least 120 basis points.

The loan growth driver for banks has mostly been their retail portfolio aided by the SME segment as well.
Sanjay Arya, executive director at United Bank of India, says credit growth has remained  below the double digits for some time and is a reflection of  low level of new investments in the economy.

“Whatever little credit growth is there, it is either for the additional working capital loans, for which the capacities are already created or for enhancements of the already operational projects. Activity is seen in case of financing cost escalation for delayed projects also. New projects are yet to be seen in the economy,” Arya said.

He also said that a credit growth pick-up could be seen in the next one year if investments in defence production and smart cities pick up. “Also, (if) the government plans to take up road projects and infrastructure sector, we could also see credit expansion taking place there as well,” Arya observed.

In contrast to the sluggish credit off-take, the banking system, however, is witnessing a healthy deposit growth at 11.91% on a year-on-year basis. The outstanding deposits in the system stood at Rs89.59 lakh crore as on August 21 compared to Rs 80.05 lakh crore a year ago.

We maintain overweight on Housing Development and Infrastructure (HDIL) with a price target of Rs 140 a share.
Our March 2016 price target is based on 8x cash Ebitda and inline with the multiple used for other residential property developers.

Downside risks to our overweight rating include: Progress (or lack of it) on debt reduction, pick-up (or not) in launch activity and pre-sales and clarity on eligibility norms for airport project.

HDIL is one of the cheapest stocks (P/B) in the sector on our estimates. Debt concerns for HDIL have eased over the last 3Qs. Cash generation from core operations has been improving.

Progress on asset sales would be the key to watch for and would help sort the cash flow/ execution issues. Approvals for new launches are progressing well and the company has a good launch pipeline going into FY15.

HDIL’s ongoing project portfolio embeds a cash flow of R5,200 crore (pre tax) over next 3-4 years vs current net debt of Rs 2,900 crore.

Accelerated TDR monetisation can be an additional positive in terms of cash generation. Given the focus of the company currently is to monetise ongoing portfolio rather than looking at new launches, we think over the next three years the net debt in the business could trend to minimal levels. HDIL’s focus as of now seems to be on completing its ongoing projects (11msf) rather than looking at launching new sales. Pre sales hence are largely driven by monetisation of existing under construction projects.

We downgrade Ashok Leyland to neutral with a target price of Rs 93 a share. We maintain our target EV/Ebitda multiple at 9x FY18F, which is in the middle of its expected trading range of 8-10x during up-cycles. We discount the value to August 2016 @ 12% cost of equity. We also add R7/share as value of investments.

We value the standalone business at ~Rs 6.5/share based on 9x FY18F Ebitda, which is rolled back to Aug-16 at 12% cost of equity. We value the company’s investments at Rs 6.9 a share.

Ashok Leyland’s MHCV volumes were up 47% over April-July15. Consequently, its domestic market share has improved to ~31%FYTD from 28.5% in FY15. This is the highest market share that the company has had in more than the past 10 years.

The company has benefitted from higher growth in higher tonnage segments, where its market share is higher. We estimate that volumes will increase at 26% CAGR over FY15-18F to ~133,000 units by FY18F.

We expect a strong revival in domestic MHCV volumes over the next two years. However, if volumes are weaker than expected, there could be downside risks to our estimates.

We also expect profitability to improve going forward led by 1) lower discounts, 2) operating leverage benefits,and 3) positive impact of higher mix from Pantnagar plant. If margins do not improve, there could be downside risks to our estimates.

Infrastructure development company Sadbhav Infrastructure Projects’ initial public offering (IPO) sailed through on Wednesday, assuring the company of at least Rs 425 crore. The issue — largely structured for institutional investors — received nearly 2.3 times, or 6.4 crore shares, in total bids.

The qualified institutional buyers’ (QIB) book was subscribed 3.04 times on the final day. Institutions applied for
4.4 crore shares against 1.4 crore shares reserved in the offer, data showed.

The non institutional book comprising high networth individuals (HNIs) received 1.66 times the bids. More than 1.158 crore shares were bid against 69.7 lakh shares on offer.

Retail individual applicants, whose investment should not exceed a total Rs 2 lakh as per Sebi rules, bid for 77.4 lakh shares against 46.5 lakh on offer. Up to 10% of the issue was reserved for retail investors unlike a 35% quota in accordance with Sebi rules, showed the company’s prospectus.

In 2012, Sebi had tweaked IPO rules by lowering the retail investor issue size to 10% from 35% for public issues of companies less than three-year ‘profitability’ track record. The changes were introduced to protect retail investors.

The company’s shares in grey market were quoting at Rs 5-15 premium per share. Grey market is a pseudo over the counter market where IPO shares are bought and sold before officially listing on a stock exchange.

Sadbhav Infrastructure’s public offering was subscribed 0.2 times on day 2 of the three-day IPO, stock exchanges data showed on Tuesday. Last Friday, the Ahmedabad-based subsidiary company of Sadbhav Engineering had raised Rs 210 crore by issuing a little more than 2 crore shares to anchor investors, including Nomura, Morgan Stanley, HDFC Mutual Fund, Tata Mutual Fund,  Amansa and Tata AIA Life.

Sadbhav Infra’s IPO is 14th public issue on the main board this calendar. So far, 13 companies have tapped primary markets this calendar year and cumulatively raised close to Rs 6,000 crore – a three-year high.