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Bank Stocks Set Market On Fire As RBI Cautions On Governance

On today’s episode, financial journalist Govindraj Ethiraj speaks to Anuj Poddar, Bajaj Electricals MD & CEO about consumer diversity and to G. Chokkalingam, Founder of Equinomics Research, about the recent rise in bank stocks.

By Govindraj Ethiraj
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Bank Stocks Set Market On Fire As RBI Cautions On Governance
On today’s episode, financial journalist Govindraj Ethiraj speaks to Anuj Poddar, Bajaj Electricals MD & CEO about consumer diversity and to G. Chokkalingam, Founder of Equinomics Research, about the recent rise in bank stocks.

SHOW NOTES
  • <01:00> Bank stocks are racing away to levels never seen before, even as RBI governor says they have caught governance lapses, with G. Chokkalingam
  • <08:21> Theme: How north and south Indians have different pressure cookers and fans and the challenges of building scale with such consumer diversity with Bajaj Electricals CEO Anuj Poddar
  • <15:37> Hmm..An airline offers generous salary hikes to its pilots. Just one hitch, it has been grounded for almost a month.


TRANSCRIPT

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it’s Tuesday the 30th and I’m Govindraj Ethiraj with The Core Report, coming to you from Mumbai, India’s financial capital and most rocking city in the world.

Here are our two quick reports and theme, the ‘Hmm’ section and ‘Conversation of the Day’, where we get an interesting insight on pressure cookers.

Bank stocks are racing away to levels never seen before, even as RBI governor says they have caught governance lapses.
Theme: How north and south Indians have different pressure cookers and fans and the challenges of building scale with such consumer diversity; my conversation with Bajaj Electricals CEO Anuj Poddar
And Hmm..an airline offers generous salary hikes to its pilots. Just one hitch, it has been grounded for almost a month.

Bank Stocks Go Through The Roof

A few months ago, a CEO of a fairly large private sector bank told me that they were doing so well, they were worried something would happen. “This has been an amazing run in the last couple of years,” he said.

To put things in context, Indian public sector banks posted a net loss of around Rs 85,000 crore in 2017-18. Last year or 2022-23, they posted profits of Rs 104,649 crore with a 57% jump in the last year itself, according to a study posted by the news agency PTI.

Broadly, since last year, despite rate hikes, banks have benefited from good net interest margins, strong credit demand including from companies who in turn have spent on capital expenditure as well as sought working capital.

Not surprisingly, bank stocks are running away. The Bank Nifty hit a fresh all-time high of 44,483 on Monday with almost all major bank stocks zooming ahead.

Interestingly, just as bank stocks were setting Dalal Street on fire, the Reserve Bank Governor whose office is a 10-minute walk away from Dalal Street said the RBI had come across gaps in corporate governance in certain banks and cautioned banks that they should not allow such gaps to creep in.

"During the course of our supervisory process, certain instances of using innovative ways to conceal the real status of stressed loans have also come to our notice," the Governor said at a conference of directors of banks organised by the Reserve Bank for public sector banks.

He added, thankfully, that the gaps have been mitigated but that it was necessary that Boards and the management do not allow such gaps to creep in.

Was he referring to public sector banks or private sector banks or both…well, we don’t know. But a statement like this at a time when the party is at full throttle is ominous, to say the least.

But bank stocks are also soaring away with the rest of the stock markets which have now touched a 5-month high. On Monday, Sensex rose 524 points to hit the intraday high of 63,026 and closed at 62,846 while the Nifty ended at 18,598.65, up 99 points.

More significantly, the Sensex is now just 737 points away from its all-time high of 63583 and Nifty is 289 points away from its all-time high of 18,887. And India is back in the top 5 markets in the world surpassing France and with its market capitalisation touching $3.3 trillion.

To return to banks and bank stocks and understand what is going on, I caught up with G Chokkalingam, Founder of Equinomics Research and began by asking him the reason behind this exuberance and its implications for the broader market.

Now to pressure cookers and Indian consumers

Does your pressure cooker in your house have its lid inside or outside? What colour is your fan? Before I explain the reason for these questions, some background.

The Mumbai headquartered Bajaj Electricals reported a topline of Rs 5,429 crore and profits of Rs 216 crore for the year ended 2023. For the year before, the numbers were Rs 4813 crore and net profit at Rs 124 crore.

The company has three key divisions, consumer products which include a wide range of kitchen and home appliances, lighting and EPC or engineering procurement & construction.

The company surprised analysts with better-than-expected results in its last quarter with a 32% jump in net profits in a tough market thanks to higher sales of consumer durables like fans and air coolers.

Interestingly, a fan is not a fan everywhere in India, nor are pressure cookers for that matter, all of which have a play on the company’s ability to scale and grow. I spoke with Bajaj Electricals MD & CEO Anuj Poddar and began by asking him to narrate the pressure cooker story.

Hmmm

GoFirst, the airline owned by the Wadia Group, who also own Britannia biscuits and Bombay Dyeing clothing, today offered to hike salaries to its pilots. Captains and first officers would be paid an additional Rs 100,000 and Rs 50,000 from June 1, 2023.

This will be paid to pilots who were on the airline’s payroll as on May 31 and willing to withdraw their tendered resignation letters by June 15.

There is one small hitch though.

Which is that the airline is technically bankrupt and grounded and has not flown since May 3rd.

GoFirst has been admitted under the voluntary insolvency resolution process which is still on. “If things shape up as per the present progress plan, it won’t take long before we will be flying again which will also enable us to be regular on salary payments,” the airline is believed to have told pilots in an email seen by Bloomberg News.

Meanwhile, a report in the Business Standard said around 200 GoFirst Pilots have joined Air India with 75 of them even starting training yesterday. Around 200 pilots of Go First, the cash-strapped airline that suspended operations on May 2, have joined Air India.

Air India held walk-in interviews for pilots in Bengaluru, Delhi and Mumbai within days of Go First cancelling flights. Air India said then it had got more than 700 applications for its recruitment advertisement, says the report.

Just to put it out there, a few years ago, the situation was exactly the opposite with Air India floundering and pilots heading out.

Other airlines meanwhile have been having a field day in the last month, with fares shooting up sharply in sectors that GoFirst was flying, including the high-traffic Mumbai - Delhi sector.