Profits skyrocket at Indian banks

The Indian market was very strong in April. The fund rose 9.3 percent this month, to some extent due to stronger currency.

As we reported earlier, negative macro news and political developments meant that India’s stock market fell during the first quarter. The headwind continues to blow in the form of a record-strong dollar (thus a weak Indian rupee), an oil price of 74 dollars and the further interest rate hikes expected from the Fed this year. All in all, there is a risk of higher inflation in India, while Prime Minister Modi wants to maximise economic growth prior to the 2019 election.

Despite this, the stock market mood turned in April because companies are showing an ever-better profit trend. The reports for full-year 2017/18 so far show a significant improvement over previous years, indicating a cyclical recovery of profits.

We should bear in mind that the best companies start the reporting season, while companies with weaker performance prefer to report towards the end.

The private banks are in a class of their own. Carnegie Indienfond has 30 percent of its portfolio in banks and finance companies. Indusind Bank increased its lending by 28 percent and its earnings rose by 26 percent. Profits for HDFC Bank increased by 25 percent. Yes Bank’s profit rose by 29 percent while it continued to expand its market share, and lending increased by 54 percent, mainly against corporate credit. Profit for Kotak Mahindra Bank increased by 26 percent.

Sterlite Technology, which sells fibre optics for broadband installations, increased its profit by 44 percent. Ultratech Cement increased its sales significantly thanks to the acquisition of capacity from a competitor. Weakening price growth, however, meant poorer earnings than expected. Automaker Maruti Suzuki reported a good volume increase but lower margins, and weaker earnings development was disappointing.

Reports for some of the fund’s larger holdings are still to come. The expectation is that Voltas, Titan Industries and Balkrishna Industries will also deliver good results.

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