Weak Credit Growth And Rate Cuts to Squeeze Profit at India's HDFC, ICICI Banks
Margins face pressure from the Reserve Bank of India's rate cuts — 100 basis points since the start of the year — and a reduction of the cash reserve ratio to boost liquidity and further reduce funding costs in order to buoy the economy.
The moves came as lending growth weakens, with gross bank credit growth hitting a three-year low in May. India's finance minister Nirmala Sitharaman asked government-owned banks to boost lending in order to fuel economic growth, according to Mint. Her ministry is also said to be considering issuing new banking licenses for the first time in almost a decade.
Efforts to shore up the economy are under way as the country is gradually recovering after a consumption slowdown last year. Firms like Nestle India Ltd. — due Thursday — should show an acceleration in revenue growth led by better product volumes.
Tariff concerns will cloud Infosys Ltd.'s Wednesday update after rival Tata Consultancy Services Ltd. said many American clients were cautious about tech investments given ongoing economic uncertainty. Shares in Tata Consultancy Services, HCL Technologies Ltd. and Tech Mahindra Ltd. all dropped after reporting earnings.
Highlights to look out for:
Saturday: HDFC Bank (HDFCB IN) and ICICI Bank (ICICIBC IN) profit growth is seen limited by thinning margins, as loans typically re-price faster than deposits when interest rates change. HDFC Bank said earlier in July gross advances grew 0.4% on the quarter, trailing deposit growth of 1.8%, as it continues efforts to bring down its loan-deposit ratio. HDFC Bank will also consider issuing bonus shares for the first time. Meanwhile, ICICI Bank is expected to set aside higher provisions as unsecured lending rises, raising asset quality risks, according to Bloomberg Intelligence.
Monday: Eternal's (ETERNAL IN) first-quarter profit is expected to halve on losses at its quick-commerce business Blinkit. The unit is investing in expanding its 'dark stores' network, where it services quick-commerce orders, and analysts will watch for updated guidance on when profits are expected. Strategic steer on its new 'Going Out' business will equally be in focus.
Tuesday: No major earnings.
Wednesday: Infosys (INFO IN) could lower or pull its revenue growth guidance as demand for new projects deteriorates amid worsening economic conditions, BI said. Watch for commentary on whether clients are canceling projects, especially in industries hit by US tariffs, Kotak Institutional Equities said.
Thursday: Nidec's (6594 JP) sales would likely be affected by uncertainties in the auto market, as demand for electronic parts and motors slow in Japan, according to BI. Founder Shigenobu Nagamori said the firm's appetite for takeovers remains intact, following its earlier decision to withdraw a $1.8 billion hostile bid for Makino Milling Machine Co.
Friday: No major earnings.
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