First a few quick words on earnings season. We're just over a week into it and "sell the news" is dominating.
Monday evening we had IBM (IBM) and Texas Instruments (TXN). IBM is doing fine on the bottom line but the top line is struggling. This is not really an American company anymore but a true multinational with 60%+ of its business overseas, so currency shifts affect it greatly. That issue, along with some weakness in future order flow, appears to be the culprit. Why do we care about IBM? In the (stupid) price-weighted Dow, the higher the share price the more effect the stock has on the index; hence IBM is a massive weight at 9%, or about 3x as much impact as a more practical equal weight index. Therefore, IBM's performance is going to have an outsized effect on today's action. As an aside, the Texas Instruments report was actually quite fine, but "sell the news" is hitting it just as did Intel a week ago. This must be respected.
As for our holdings, Indian bank HDFC (HDB) continues to perform quite well. As always the main issue here is what are you willing to pay for this type of growth and regional financial exposure? The company released it's earnings Monday and actually rallied despite the sell the news atmosphere. I've not done much with the name other than sitting and holding a very modest position for quite a few months, as I am hoping for a larger swoon and/or time to consolidate the huge run it made in the past 18 months. The stock has simply been dancing within a large range for quite a few months, so only traders have been making money, but considering the market's poor action during that time, flattish is a sign of (relative) strength. (Click to enlarge)
- HDFC Bank, India's No. 2 private sector lender, reported its strongest profit growth in more than a year, and highlighted more gains for the booming industry on robust loan demand. "The signs of core loan growth are clearly visible in the strong earnings of the top banks and we see this picking up in the coming quarters," said K.K. Mital, head of portfolio management services at Globe Capital.
- HDFC Bank matched analysts estimates with a 34% rise in April-June net profit as companies and consumers take advantage of a fast-growing economy.
- The bank's net interest margin, a key gauge for profitability, edged up to 4.3% from 4.2%, and Sukthankar said margins would remain in a 4-4.3% range in the near-term.
- HDFC’s gross advances, during the quarter, expanded by a little over 40%. Its retail book alone grew by 24.4% over June 30, 2009 to Rs 76,068 crore and currently constitute 51.5% of total advances. Nearly Rs 21,000-crore of retail loans is auto loans, Rs 9,500-crore housing loans and around Rs 9,000-crore personal advances, the bank said.
- The bank expects strong demand from mortgage borrowers and improving asset quality to help it exceed the sector's 20% credit growth estimated in the year ending March 2011.
- The lender has seen a steady improvement in its asset-quality and managed to reduce the level of net non-performing assets to 0.3% as against 0.6% a year earlier, Sukhathankar said.
- Its capital adequacy improved to 16.3%, up from 15.4% a year earlier and much above the 9% mandated by the central bank.
- Bank credit in India grew an annual 21.7% in early July, according to the central bank's data, in line with a rise in business and consumer confidence, from a low of 9.7% in October and compared with 16.7% at end-March.
- As of June 30, 2010, the bank's distribution network was 1,725 branches and 4,393 ATMs in 780 cities, compared to 1,416 branches and 3,382 ATMs in 550 cities as of June last year.
Of course, with the high growth rates come central banks trying to apply the breaks... India's has begun.
- Analysts said a sharp rise in interest rates could derail demand for loans, especially from mortgage borrowers.
[Apr 26, 2010: HDFC Bank Beats Estimates but Valuation Getting Quite Rich]
[Jan 15, 2010: HDFC Bank Earnings Rise 32% Year over Year]
[Oct 15, 2009: HDFC Bank's Earnings Propel Upward 30%]
[Jan 7, 2009: Bookkeeping - Starting HDFC Bank on Satyam Scandal]
Disclosure: Long HDFC Bank in fund; no personal position