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Rapid reforms in government policy not good for economy, says BNP Paribas

Political turmoil is not the only consequence of rapid reforms in government policy. It is not good for the economy or for corporate earnings, says the BNP Paribas equities research report

The UPA (United Progressive Alliance) has lost a key ally in the coalition, the TMC (Trinamool Congress), as an immediate consequence of rapid reforms in government policy last week. But BNP Paribas equities research in its report warns that there is more trouble to face for the country, the economy and the corporate sector in the light of the hasty approach of the government.


  • Big bang measures: good for sentiment but not immediately relevant for earnings or the economy

The government’s recently-announced reform measures—increase in diesel price, FDI in multi-brand retail, etc—reduce the “tail risks” to the Indian market. Apart from a 0.15% decline in fiscal deficit of GDP (gross domestic product) for FY13 and some upward pressure on the rupee, BNP Paribas sees limited near-term impact of the government measures.


  • Further “nuts and bolts” measures are required

According to BNP Paribas, the need of the hour is to kick-start the investment cycle. Many projects in the electricity, metals and chemicals (refinery) sectors are stalled because of issues related to environment clearance, land acquisition or fuel supply. The proposed National Investment Board, headed by the prime minister, to fast-track projects above a certain threshold (tentatively Rs10 billion), could help speed project execution.


  • Some short-term weakness possible in certain stocks

While the recent measures are sentiment positive, BNP Paribas believes that their impact on corporate fundamentals will be limited. The recent rally of some stocks was driven both by “risk on” sentiment post easing by G3 central banks and positive sentiment after the flurry of reform announcements. The rally is overdone and provides some profit booking opportunities. BNP Paribas analysts highlight the rallies in JSPL (Jindal Steel Power), RIL (Reliance Industries), DLF, SBI (State Bank of India) and BHEL might lead to short term weakness. Two-wheeler stocks, particularly Hero MotoCorp, are also suffering from low retail demand and high inventory, which the market seems to have overlooked.


  • BNP Paribas sticks to its year-end Sensex target of 18,500

India has been one of the best performing markets over the past few weeks – outperforming regional peers and the benchmark MSCI AxJ and EM indices. After the recent run-up, the Sensex 12-month forward P/E (price-earnings) valuation is at 14.1 times—just 7% below its long-term average of 15.2 times. This will be a near-term ceiling given ongoing deleveraging pressures. As such, BNP Paribas retains its year-end Sensex target of 18,500, derived using justified P/BV (price-to-book value ratio). At the BNP Paribas target, the Sensex would trade at a 1-year forward P/BV of 2.2 times and PE of 13.7 times.


BNP Paribas sums it up as “We are not worried about government stability as a consequence of this development. The numbers are simply too overwhelmingly in favour of the ruling coalition.” Still the advice to the government would be “slow and steady wins the race” even in reforms in government policy.




4 years ago

Rapid fire Reforms? !!

Policy Paralysis to Policy Delirium !!

Bank of Baroda plans to hire 20,000 people in next four years

BoB is planning to add 500 branches and would require more manpower to cater to these bank branches, says MD Mallya

Chennai: State-run Bank of Baroda (BoB) is planning to hire around 20,000 people over the next four years and will add more than 500 domestic and international branches and offices in the current fiscal, reports PTI quoting a top official.


Besides, the Australian regulator had issued licence to the bank, paving the way for it to open an office there, MD Mallya, Chairman and Managing Director, BoB said.


The bank is planning to hire around 20,000 people over the next four years, he added.


BOB has a network of 4,000 branches in India and 96 foreign branches and offices, Mallya told reporters after inaugurating "Baroda Pride," the new Zonal Office here.


"We plan to add another 500 domestic branches by March 2013, and four new foreign offices are coming up -- one each at Uganda and Kenya and two in Dubai -- taking the total international network to 100," he said, adding that BoB had presence in 25 countries.


The bank also proposed to open 500 ATMs to its existing chain of over 2,000 facilities by March 2013, he said.


A slew of security enhancements including installation of CCTV cameras in ATMs were in the offing, Mallya said.


He said the bank has been posting good growth over the years and its total business was around Rs6.72 lakh crore, with international transactions accounting for 28%.


The Bank had posted growth rates better than industry trends "despite the ups and downs of the economic cycle and mainly due to our prudent policies", Mallya said.


With a net non-performing assets (NPAs) rate of 0.54%, it was the "lowest" in terms of NPAs among peer banks, he claimed.


He said the rate of assets restructured is 5.5% but this is "not significant and compared to peer banks, we are in a favourable position. We have strong, robust assets quality in books".


Responding to a query on the bank's credit portfolio, he said it is "well-balanced," and projected a 19% year-on-year growth in this area.


The bank was offering concession on vehicle and home loan rates as part of festive offers.


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