Morgan Stanley India bullish on Tata Motors, Axis Bank, Lupin, ICICI Bank and Maruti Suzuki

Using a confluence of six different factors, Morgan Stanley India’s latest report is bullish on Tata Motors, Axis Bank, Lupin, ICICI Bank and Maruti Suzuki. However, there is fine print that investors should be aware of

Morgan Stanley’s India (MSI) Equity Strategy report states that it is bullish on Tata Motors, Axis Bank, Lupin, ICICI Bank and Maruti Suzuki. On the other hand, MSI is bearish on State Bank of India (SBI), Ambuja Cements, Hero MotoCorp, Hindustan Unilever (HUL) and Jindal Steel. Their findings are based on six key drivers namely: sell-side consensus opinion, institutional ownership, relative valuations, consensus earnings expectations, long-term relative trailing performance, and finally, trading volumes relative to history.

1. Sell-side consensus opinion

Assessing the bullishness and bearishness, according to MSI, the more bullish, the less likely the stock performs. Does this mean that companies, according to this chart, like BPCL, Power Grid Corporation (PGC), Cairn India, ONGC are unlikely to perform?

2. Institutional ownership

According to MSI research, stocks will find it difficult to move if there is high institutional ownership possibly due to a lower float and thus lower liquidity. But, according to the chart, the stocks that have increased FII ownership are the very same stocks which MSI are bullish. ICICI Bank saw increased FII ownership by 5% relative to MSCI India Index. Similarly, Axis Bank saw a 2% increase in FII ownership as did Tata Motors.

3. Relative valuations

According to MSI research, if a company is valued highly, then it is an “impediment” for share price movement. Therefore, stocks having a higher trailing price-to-book ratio are unlikely to move up further. According to their chart, Hindustan Unilever, Asian Paints, ITC, TCS and Hero MotoCorp are highly valued, having price-to-book ration of 13.7x, 4.9x, 4.1x, 3.5x and 3.2x respectively. Concurrently, MSI is bearish on Hero MotoCorp and Hindustan Unilever.

4. Consensus earnings expectations

According to MSI research, it is not wise to fight against consensus expectations. The report said, “We point out that sometimes the consensus is right, so taking a counter-consensus view does not work.” Thus, according to their chart below stocks like Tata Steel, Ranbaxy Labs, Tata Motors, HCL Technology, Coal India have seen upgraded consensus earnings. Sesa Sterlite, Ambuja Cements, Jayprakash Associates, ACC and DLF had downgraded consensus earnings.

5. Long-term relative trailing performance

This is the most commonly used indicator and simply a rear-view mirror into a stock’s past performance. According to MSI, some of the best performers, in the last five years, in terms of CAGR growth, has been: HCL Technologies, Tata Motors, IndusInd Bank, Bajaj Auto and TCS. The worse have been BHEL, DLF, NTPC, NMDC and Tata Power. As one saying goes, past performance is no guarantee of future success.

6. Trading volumes relative to history

According to MSI research, traded volumes is signifies interests in a stock. The report says, “falling trading volumes that signify waning interest and vice versa.”  According to the chart, there is a lot of interest on Power Grid Corporation, Punjab National Bank, Bank of Baroda, Sesa Sterlite and Ranbaxy Laboratories. MSI research seems to have taken a contrarian view by picking Tata Motors in this.

Is this is another of those research reports written to align views with business interests. In its disclosure statement, MSI expects to receive compensation, in one way or other, from the some of the very companies it is bullish on. For instance, within the next three months, the disclosure statement read, “In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from AXIS Bank, BHEL, ICICI Bank, Jindal Steel & Power, Lupin Ltd, State Bank of India, Tata Motors.” Moreover, as of 31 December 2013, it also “beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: AXIS Bank, ICICI Bank, Jindal Steel & Power, Tata Motors.” Jindal Steel & Power is the only stock which MSI is bearish on in which it owned & provided advice.



Nataraj Kailasam

3 years ago

I had long back said that Aadhaar for credit of subsidy would be an impossible proposition and would result in a huge scam, bigger than any we have seen. Is what's now reported. Just the beginning of all that? It's tantamount to touching your nose with your hand reaching around the back of the neck to do so. This silly, impractical move should be forthwith abandoned. If the government wishes, let them slash the subsidy altogether to do away with the problem, but let it not play games reducing the subsidised cylinders to six, then raising it to nine, and now with elections round the. Corner raising it to 12. Shun these populist measures, and resort to good governance and a clean administration. Please don't fool the nation.

Asian Paints Q3 net profit declines on higher costs, subdued demand

Asian Paints net profit for the December quarter declined marginally due to higher raw material costs despite 11% increase in net sales

Asian Paints Ltd, India’s largest paint manufacturing company for decorative and industrial uses, reported a 1.5% decline in its third quarter net profit at Rs307.5 crore from Rs312 crore a year ago. However, the paint maker said its total sales during the quarter to end-December increased 11% to Rs2,807.66 crore from Rs2520.64 crore same period last year.

During the quarter, Asian Paints said its cost of material increased 21% to Rs1,525.11 crore from Rs1,265.49 crore, while total expenditure, including costs of materials, increased 13% at Rs2,365.29 crore from Rs2,085.74 crore, a year ago period.

In a statement, KBS Anand, managing director and chief executive, Asian Paints, said, “The decorative paints business in India did well considering the challenging and uncertain macro environment. Raw material prices were marginally higher in the third quarter. Industrial paints segment continued to be impacted by sluggish manufacturing environment in the economy, with no major capex activity. Automotive coatings growth was affected due to the subdued demand in the automotive sector.”

Asian Paints has declared an interim dividend of Rs1.10 per share. On 20 December 2013 operations at the Asian Paints’ Tamil Nadu plant has been affected due to strike called by its employees and workmen union. 

On 25 November 2013, Asian Paints closed down Himachal Pradesh situated coatings plant of its wholly owned subsidiary-Asian Paints Industrial Coatings Ltd.

Asian Paints closed Monday marginally down at Rs490 on the BSE, while the S&P BSE Sensex closed 141 points up at 21,205.

For more stock results, check out this page


Nachiket Mor Committee recommends convergence between banks and NBFCs

While some of the recommendations of the Nachiket Mor Committee are similar to those of Usha Thorat Committee, the key would be to see how many of these come to effect and get implemented

The Reserve Bank of India (RBI), in September, 2013 had set up a ‘Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households’, under the Chairmanship of Dr Nachiket Mor, Member on RBI’s Central Board of Directors. The main objective of the Committee was to prepare a detailed report on India’s vision for financial inclusion and financial deepening and to review existing strategies and develop new ones to achieve the objective of financial inclusion and financial deepening.

The RBI on 7 January, 2014 released the Report of the Committee on Comprehensive Financial Services for Small Business and Low Income Households for public comments on or before 24 January, 2014.

The Committee advocated convergence of certain regulatory aspects between banks and non-banking financial companies (NBFCs) based on the principle of neutrality in lines of the Usha Thorat Committee recommendations.

Convergence Recommendations of the Committee

The Mor Committee, while giving rationale for the convergence of banks and NBFCs, noted the regulatory similarities between them in terms of capital adequacy rules on credit risks, risk-weighting of assets, provisioning and non-performing asset (NPA) norms and the applicability of fair practices code. They pictured a scenario where NBFCs operate not merely as ‘shadow banks’ but as an integral part of the large banking system. It gave example of the French banking legislation where irrespective of how credit institutions fund themselves, they are considered banks, and, as such, subject to all banking regulation.

The Committee suggested that the priority sector lending norms and the lender of last resort facility should not be made applicable to NBFCs.

The following table gives an overview of the regulations for which convergence is suggested between NBFC and Bank:





Duration to qualify

for NPA


Non-repayment for 90 days



for 180 days


Case for convergence.

Risk-based approaches to be followed for both types of institutions.

Definition of sub-standard asset

NPA for a period not exceeding 12 months

NPA for a period

not exceeding 18


Case for convergence.

Risk-based approaches to be followed for both types of institutions.

Definition of doubtful asset

Remaining sub-standard asset for a period of 12 months

Remaining sub-standard asset for a period of 12 months

Case for convergence.

Risk-based approaches to be followed for both types of institutions.

Quantum of provisioning for Standard Assets


For direct advances to agricultural and Small and Micro Enterprises (SMEs) sectors at 0.25%


Case for convergence.

Risk-based approaches to be followed for both types of institutions.

For agricultural advances, this would imply at least 0.40%.

SARFAESI eligibility



Case for convergence subject to strong customer protection


As can be seen from the above, the Committee has suggested convergence of the regulatory norms with regard to classification of non-performing assets and the eligibility under SARFAESI Act, 2002.

Summary of the recommendations

  1. NPA recognition and provisioning requirements: As in the case of banks, different customer-asset combinations behave very differently from each other and it is recommended that the regulator specify NPA recognition and provisioning rules, including for standard assets, at the level of each asset-class and require that all NBFCs conform to these mandates. Similar to banks, the Committee suggested that on standard assets provisioning levels as well as asset classification guidelines specified by RBI would need to reflect the underlying level of riskiness of each asset class (combination of customer segment, product design, and collateral) and not be uniform across all the asset classes.
  2. SARFAESI Act, 2002: At present only ‘secured creditors’, which includes banks and public financial institutions, can approach the Debt Recovery Tribunal (DRT) for recovery of its debts. NBFCs have not been notified by the Central Government to fall within the definition of secured creditors under SARFAESI Act and accordingly were not eligible to make an application to the DRT for recovery.

In view of the parity between banks and NBFCs, the Committee suggested that NBFCs be notified as ‘secured creditors’ under the SARFAESI Act as to allow them access to the DRT Forum for recovery of their debts.

Other general recommendations of the Committee

In addition to the convergence of certain regulatory aspects of banks and NBFCs the Mor Committee has also put forth certain other suggestions with respect to NBFCs.

  1. Multiple definitions of NBFCs should be consolidated into two categories – CICs and another category for all other NBFCs. However it specified that benefits available to specific types of NBFCs to continue even after consolidation, on a pro-rata asset basis. The Committee believes that having a number of categories of NBFCs creates room for regulatory arbitrage, and hinders the evolution and growth of NBFCs.
  1. Addressing of wholesale funding constraints faced by NBFCs in a systematic manner by:
  1. Developing a clear framework by RBI and SEBI for QIBs and Accredited Individual Investors to participate in the debt market issuances of NBFCs so as to deepen capital market access for NBFCs. It also suggested that investors such as mutual funds, insurance companies, provident and pension funds and private accredited investors could complement bank funding to this sector.
  1. Providing benefits of ‘shelf prospectus’ for 1 year to all issuers including NBFCs. Presently SEBI (Issue and Listing of Debt Securities) (Amendment) Regulations, 2012 prescribes a limit of 180 days for any issuer going for private placement of debt and the Companies Act, 1956 provides that only public sector banks, scheduled banks and public financial institutions are eligible to avail the facility of shelf prospectus. Such a recommendation will be in line with Companies Act, 2013 which provides that entities as approved by SEBI are eligible to take advantage of ‘shelf prospectus.’
  1. Permission for raising ECB in Rupees for all institutions. For non-rupee ECB funding, eligibility should be linked to size and capacity to absorb foreign exchange risk rather than specific NBFC categories. Presently norms on ECBs are rigidly defined and eligibility varies across different categories of NBFCs.
  1. The criteria for availing refinance from NABARD, NHB, SIDBI and credit guarantee facilities should be based on nature / area of activity rather than the institution type. Currently such refinance schemes are restricted by institution type rather than activity, thus violating the Neutrality principle as far as NBFCs are concerned.
  1. Current capitalisation slabs on foreign equity funding should be relaxed and money laundering concerns should be mitigated by levying additional reporting requirements on Banks/Authorised Dealers (AD).
  1. For better on-going risk measures, NBFCs shall disclose their stress test results both at an overall balance sheet level as well as at a segmental level at least annually.
  1. NBFCs should adopt core banking systems so as to enable better off-site supervision.

Comparison with Usha Thorat Committee

The RBI on 12 December, 2012 placed the draft guidelines on the recommendations made by the Working Group on the Issues and Concerns chaired by Usha Thorat, former Deputy Governor, RBI, on its website for public comments. Though the draft guidelines are yet to be notified, they are in line with the recommendations made by the Nachiket Mor Committee with respect to asset classification and provisioning norms. The following table will give an overview of both the recommendations:


Usha Thorat Committee

Nachiket Mor Committee

Classification of NBFCs

NBFCs should be classified under 2 categories –

  1. Exempted NBFCs (based on asset size); and
  2. Registered NBFCs




Suggests consolidation of NBFCs into 2 categories:

  1. CICs; and
  2. All other NBFCs

Liquidity Management

Recommends all registered NBFCs maintain high quality liquid assets in cash, bank deposits available within 30 days, money market instruments maturing within 30 days, investment in actively traded debt securities equal to the gap between total net cash inflows and outflows over the 1 to 30 day time bucket as the liquidity coverage requirement.


SLR requirement for deposit taking NBFCs to continue.

Recommends the SLR requirement to be done away with.

Asset classification

Classification of loans to NPA should be brought in line with that of banks i.e. within 90 days of default – for all registered NBFCs.

To be implemented in a phased manner.

Asset classification of doubtful assets, sub-standard assets and NPA should be brought in line with banks, as provided above.

Provisioning of Standard Assets

Raise the provisioning for standard assets from 0.25% to 0.40% w.e.f. 31st March, 2014

Should be brought in line with that of banks. However for agricultural advances the provisioning requirements at 0.40%.


While some of the recommendations of the Nachiket Mor Committee are similar to those of Usha Thorat Committee recommendations, the key would be to see how many of these come to effect and get implemented.


(Shampita Das works as an Associate in Corporate Law Group at Vinod Kothari & Company)


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