Mumbai: Non-banking finance companies (NBFCs) are expected to report stable profits for the April-June quarter, aided by strong loan momentum, stable asset quality and firm consumer demand.

Analysts expect a 20% year-on-year increase in assets under management (AUM) of NBFCs on average during the first quarter of this financial year, led by growth in affordable housing companies, a recovery in micro finance and steady momentum in commercial vehicles despite issues related to fuel availability amid the US-Israel war against Iran.

The growth momentum appears strong and collection efficiency sticky despite the first quarter being traditionally slow, said Shreepal Doshi, analyst at Equirus Securities. “Not only for the first quarter but things are also looking up for the immediate future as bond yields have come off sharply, which is positive for NBFCs’ cost of funds. We expect a steady performance with a 20-22% loan growth and much faster growth for smaller companies,” Doshi said.

The benchmark 10-year bond yield has fallen sharply to 6.72% from a recent peak of 7.12%, helped by falling oil prices and a surge in dollar inflows after the Reserve Bank of India and the government eased foreign portfolio investment and tax rules.

Large NBFCs have shown robust growth in their preliminary first quarter numbers. Bajaj Finance, for instance, reported a 24% year-on-year (YoY) growth in AUM to ₹5.46 lakh crore, as of June 30, with new loan bookings up 20% YoY.

L&T Finance reported a 28% expansion in its retail loan book at ₹1.27 lakh crore. Retail loan disbursements increased 36% YoY to ₹23,800 crore for the quarter ended June. L&T Finance kicks off the NBFC results season on July 10.
IIFL Capital analyst Viral Shah said a favourable base for affordable housing, absence of typical first quarter microfinance stress this time and improving asset quality in other consumer retail segments supported NBFC growth during the quarter.”We expect growth momentum for NBFCs under coverage to hold up well, with AUM growth of about 19% YoY with momentum broad-based across NBFCs/sub-segments, enabling in-line/above consensus growth for most NBFCs,” IIFL Capital said.

“We expect aggregate NIMs (net interest margins) for NBFCs under coverage to be flat quarter over quarter with minimal impact from elevated market rates on overall cost of funds. We expect the underlying asset quality trends to remain healthy, in line with our alternate and high frequency data signals, reflective in 15 to 45 basis points yoy reduction in credit costs.”

A basis point is a hundredth of a percentage point.

Gold loan companies could be under pressure, though, due to increased competition and fall in gold prices during the quarter which would have restricted their ability to lend. Gold prices have fallen about 30% from their peak in January amid weaker demand and expectations that interest rates will continue to stay high.

Anmol Das, head of research at Swyon Advisors, an alternative investment fund, said commercial vehicle (CV) sale trends point to a strong performance by NBFCs linked to financing them.

SYDNEY: Asian share markets were mostly firmer on Monday, as Wall Street futures started the week with gains on hopes for an upbeat earnings season, while easing oil prices promised relief from inflationary pressures.

While there were no new developments in the fractious U.S.-Iran peace talks, ships are passing through the Strait of Hormuz with 160 vessels reported from Monday to Saturday last week.

OPEC+ also agreed a further increase in output targets by 188,000 barrels per day from August, on top of similar increases for June and July. As a result, Brent slipped 0.6% to near four-month lows at $71.70 a barrel and U.S. crude ‌lost 0.5% to $68.38. [O/R]

The cooling ⁠in energy ⁠costs combined with a softer U.S. payrolls report, led markets to scale back the risk of a Federal Reserve rate hike in the near term, with futures implying a 78% chance of a steady outcome at the July 29 meeting.

Minutes of the Fed’s last meeting are due on Wednesday and should offer colour on the hawkish turn by some board members, though that preceded the recent slide in oil.

“Even if you thought there was a risk the Fed might move soon, I think we’re safe at least for another month,” said Richard Yetsenga, head of research at ANZ.
“Our view overall still is the Fed won’t do anything, but clearly we’ve been above target on the Fed’s preferred inflation measure ⁠for five years,” ‌he added. “There is some risk that the Fed just runs out of patience.” The diminished risk of a hike this month should allow investors to focus on the looming earnings season, where the AI boom is set to deliver bumper tech ⁠profits.

This week has just Delta Air Lines and PepsiCo as tasters, though Samsung Electronics is set to make a splash on Tuesday as analysts expect an 18-fold increase in profits.

PROFIT BONANZA FOR CHIPMAKERS
The world’s largest memory chipmaker by sales is likely to flag an operating profit of 86 trillion won ($56.35 billion) for the April to June quarter, according to an LSEG SmartEstimate.

South Korea’s red hot market cooled a little last week but is still up 92% for the year so far as AI demand and tight supplies boost chip prices. The index added another 2.25% on Monday, while Japan’s Nikkei eased 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4%.

In Europe, EUROSTOXX 50 futures were flat, while DAX futures rose 0.2% and FTSE futures fell 0.2%. S&P ‌500 futures firmed 0.5%, while Nasdaq futures climbed 1.4% on top of a 2.1% gain last week.

The data calendar kicks off with the U.S. ISM Services survey later on Monday where forecasts favour a slight pullback to a still-healthy 54.0 in June.

A clutch of central bankers are speaking at ⁠an ECB conference later in the day, including Fed Board Governor Christopher Waller, while ECB President Christine Lagarde is also due to speak in Paris.

New Zealand’s central bank is due to meet on Wednesday and markets are wagering it will raise its 2.25% cash rate by a quarter point, the first hike since mid-2023.

Policy makers have foreshadowed a tightening for some time, though again that was before the tumble in oil prices and there has to be a chance it will surprise by holding rates steady.

In currency markets, the dollar index had steadied at 100.880 after dipping in the wake of the disappointing June payrolls report. The euro was flat at $1.1445, just above the recent 13-month low of $1.1325.

The dollar held at 161.45 yen, not far from 40-year peaks of 162.84 as speculators remain wary of Japanese intervention.

In commodity markets, gold was little moved at $4,177 an ounce, having bounced 2% last week. [GOL/]

This week’s $29 billion US stock-market listing for SK Hynix may be the biggest-ever first-time share sale by a foreign company, but it isn’t just about raising cash. It’s also about competing in the hottest corner of the global stock market-memory chips used in AI computing.

For years, the South Korea-based semiconductor manufacturer has traded at a discount to its chief US-based rival, Micron Technology.

Tapping into the world’s deepest equity market and its frenzy for all things related to artificial intelligence could help change that at a time when the companies that make memory chips and other equipment used in AI data centres are driving the performance of the S&P 500 Index.

“We are in a time of extreme enthusiasm about chip stocks,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which owns Micron shares. “It’s a good time to go and get the US involved in your shares.”

Betting on SK Hynix has been difficult, if not impossible, for the majority of American investors. Like Micron, the second-best performer in the S&P 500 this year with a scorching 242% gain, the company is benefiting from soaring demand for high-bandwidth memory chips. But owning SK Hynix’s South Korea-listed shares outright means off-hours trading in the US.

The other alternative is buying unsponsored American depositary receipts, or ADRs, over the counter. Not only are the unsponsored ADRs performing worse than SK Hynix’s South Korea shares, but liquidity is also severely limited, making trading them a challenge. SK Hynix’s Nasdaq listing, expected on July 10, should change that and improve the company’s lagging valuation.