Trivantage Capital

An independent, specialist asset management boutique founded in 2015 with a singular focus on India’s rapidly transforming financial sector.

[Trivantage Capital @TrivantageCap]

Pleased to share that 2 of our strategies feature among the top 5 performers in 2019.

#TrivantageCapital #Trivantage #FinancialSectorSpecialists #PortfolioManagers #PMS

[pms bazaar @PmsBazaar]

💫In CY 2022, 44% 𝐨𝐟 𝐏𝐌𝐒 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐞𝐬 𝐫𝐞𝐜𝐨𝐫𝐝𝐞𝐝 𝐏𝐨𝐬𝐢𝐭𝐢𝐯𝐞 𝐫𝐞𝐭𝐮𝐫𝐧𝐬, out of which 51 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐞𝐬 𝐲𝐢𝐞𝐥𝐝𝐞𝐝 𝐨𝐯𝐞𝐫 7% (Calculations based on 298 Strategies monitored by PMS Bazaar)

✅Check out the Top 10 PMS Performers of CY2022!

[Nikhil Johri @JohriNikhil]

But, started expanding in 2022 post-Omicron, Ukraine & Fed rate hikes. Spreads reached a 1 yr high of ~140 bps earlier this month. We expect this risk aversion to abate in the months to come as the Fed responds to peaking inflation & risks of a recession.

2/2

[Nikhil Johri @JohriNikhil]

SBI’s 5yr credit default swap spreads indicate a moderation in risk aversion of global institutional investors towards India. In the past 3 yrs, spreads rose to a high of >300 bps in Mar 20 & narrowed to just ~80 bps in Sep 21.

1/2

[Nikhil Johri @JohriNikhil]

10/10

[Nikhil Johri @JohriNikhil]

We think that the market has been right in pricing 4 of these 5 bank stocks over the 5-year period. Seems like the market wholeheartedly rewarded ICICI Bank in the erstwhile Corporate Banks category & overlooked the progress made by its nearest competitor Axis Bank.

9/10

[Nikhil Johri @JohriNikhil]

IndusInd stock delivered a -ve return. It improved mkt shares of deposits & advances but the higher credit costs overhang caused return ratios to deteriorate. If the process of normalization in profitability metrics continues, the stock is bound to reflect that over FY23.

8/10

[Nikhil Johri @JohriNikhil]

The market has been harsh on Axis Bank. With Q4 FY22 results, it appears that, like ICICI Bank, the asset quality concerns of the previous credit cycle have been largely addressed. We don’t know what the trigger would be, but the stock appears set for a re-rating in FY23.

7/10

[Nikhil Johri @JohriNikhil]

The above-mentioned bank stocks delivered performance in line with a change in fundamentals.

Axis Bank, however, improved on all metrics except NIMs, but the stock only delivered 43% - almost half of the mkt. More surprisingly, at less than a quarter of ICICI Bank stock.

6/10

[Nikhil Johri @JohriNikhil]

Kotak Mahindra Bank delivered 98%. Decent growth in all metrics other than RoE. 31% increase in market shares of both deposits & advances. It is also a larger play on financial services with 100% holding of rapidly growing asset & wealth mgmt, capital mkts, insurance etc.

5/10

[Nikhil Johri @JohriNikhil]

2) The erstwhile bellwether, HDFC Bank, saw reduced NIMs & ROEs while maintaining best-in-class growth in mkt share of deposits & advances. Combined with a very significant change in bank’s leadership, the stock delivered in line with mkt returns.

4/10

[Nikhil Johri @JohriNikhil]

1) ICICI Bank has improved across all 7 metrics. Highest improvement in Net Interest Margins - up by 27% in this period. Consistent growth in market shares of deposits & advances, profitability metrics & return ratios. No wonder the stock delivered 194% (~2.5x of mkt).

3/10

[Nikhil Johri @JohriNikhil]

If we look at how these banks have performed on 7 key performance metrics over the period, then we come to a few conclusions.

2/10

[Nikhil Johri @JohriNikhil]

Leading Pvt Banks - Stock vs. Business performance
Nifty 500, a proxy to Indian stock market, delivered 80% (absolute) in 5 years ending Apr 30 22. We compared it to stock performance of leading pvt sector banks for this 5-year period.

1/10

[Nikhil Johri @JohriNikhil]

#ICICIBank stock has bridged the gap quite impressively with the better regarded peers such as HDFC Bank and Kotak. Whilst the ten year gap remains, the stock has outperformed the other two banks in both 3 and 5 years. Despite this, the ambivalence towards this stock continues...

[Nikhil Johri @JohriNikhil]

The only bank stock in the chart that is positive is Morgan Stanley. They have a negligible share of revenues from lending and a significant one from trading, investment banking, asset and wealth businesses. Our banks are mainly lenders & this lack of diversification is striking.

[Nikhil Johri @JohriNikhil]

JP Morgan’s earnings indicate a 95% decline in payment deferrals since peak in April. 52% of home loan and 34% of auto loan borrowers have made one or more payments during deferral period. Interestingly, Auto loan applications in June are up 20% yoy, the highest ever ...

[Nikhil Johri @JohriNikhil]

A very divergent stock performance among non-bank lenders since pre-Covid levels. The market seems to be very optimistic of gold finance businesses and much less of housing finance ones despite residential property demand looking up in the “work from home” scenario.

[Nikhil Johri @JohriNikhil]

Indian investment grade issuers are following a similar trend. Such a positive for Equities as Investors begin to find investing in bonds unattractive with negative real rates.

[Nikhil Johri @JohriNikhil]

#muthootfin gold lending business is an envy of other lenders for the high RoE~25%, marketable security and thus good asset quality and strong credit growth. What surprised investors that even in Covid times no borrower has asked for moratorium. Stock is up over 100% since March.

[Nikhil Johri @JohriNikhil]

BoA's survey shows that over 75% money managers see mkt as overvalued and over 50% see the up move in stocks as a "bear market rally". A WSJ report says that investors are sitting on biggest pile of cash ever. The combination of so much pessimism and so much cash sounds bullish🙂