JM Financial

BANDHAN BANK (BUY)

Target: ₹260

CMP: ₹180.10

We recently hosted Bandhan Bank for a NonDeal Roadshow (NDR). Bandhan is gradually reducing share of unsecured loans in the overall mix (44.5 per cent secured and 55.5 per cent unsecured currently) and will continue to pursue the strategy to reduce unsecured loans further (50:50 mix) over next couple of years.

As a result, NIMs are likely to trend lower gradually over the mediumterm, though it will be offset by lower stress and possible lower drag of RIDF portfolio (₹6,500 crore currently). In our view, Bandhan’s credit costs have remained sticky and manangement believes that significant changes w.r.t to portfolio monitoring, collection focus should reduce slippages credit costs sustainably. We believe Bandhan’s prolonged stress cycle (in the aftermath of Covid19) has come to an end and it is moving towards more predictable growth and profitability profile. However, the change in loan mix will also mean lower profitability (than historical trends) albeit a steadier profitability profile.Bandhan awaits outcome of the audit of the CGFMU portfolio (pertaining its claims). Also, Bandhan board has recommended renewal of Ghosh’s term as MD & CEO for threeyear term beginning July 2024 and is awaiting RBI nod. We believe while nearterm stock price is likely to be guided by outcome on CGFMU audit, stock remains attractively valued (1.0x FY26e P/BV).

blmarketwatch@gmail.com

Justifying the increasing pitch for passive fund investment, more than half of equity largecap funds have failed to beat the benchmark.

As per the S&P Indices Versus Active Funds (SPIVA) India scorecard report for 2023, 52 per cent of actively managed funds have underperformed the benchmark S&P BSE 100.

Further, 74 per cent of actively managed mid and small cap funds have underperformed their benchmark of BSE 400 MidSmall Cap Index which was up 44 per cent last year. Over the 10 year period, 75 per cent of these funds lagged behind the benchmark S&P BSE 400 MidSmall Cap index.

Benedek Voros, Director, Index Investment Strategy, S&P Dow Jones Indices, said the market’s vigour is unmistakable with the S&P BSE 100 and S&P BSE 200 indices posting gains of 23 per cent and 24 per cent last year.

This performance underlines a pivotal year for Indian markets, sustained by a macroeconomic environment that has seen interest rates and commodity prices stabilising, added Voros.

In a small relief for investors, just 30 per cent of ELSS (equity linked savings schemes) funds underperformed their benchmark, the S&P BSE 200 and is the only category where the majority of funds outperformed the relevant benchmark last year.

The S&P BSE India Government Bond Index increased by 8 per cent last year and less than a fifth of active managers beat the benchmark in this category, bringing the underperformance rate to 82 per cent.

An interesting aspect that came to light was how over a 10year period just 1 of 116 Indian Composite Bond funds outperformed the index, corresponding to an underperformance rate of 99 per cent, the highest underperformance rate across all categories over any time horizon.

The SPIVA Yearend 2023 finds India among the leaders of the global stock market rally with all observed equity benchmarks posting gains of over 20 per cent for the year. Indian bond markets also had a strong year, with annual returns at 8 per cent, it said.