HDFC Bank, Hindustan Unilever Squeezed As Indian Middle Class Struggles
Falling wages and high inflation in India will have dented earnings at HDFC Bank Ltd., Kotak Mahindra Bank Ltd. and Hindustan Unilever Ltd. as the lenders brace for an asset quality deterioration and consumer firms grapple with penny-pinching customers.
HDFC Bank and Kotak Mahindra Bank are expected to report increases in bad loans, which should lead to higher provisions and weigh on quarterly profit. Unilever's India unit is expected to show slowing sales volume growth despite the festive season.
Slow wage growth and strained middle class spending are to blame for the consumption slowdown, analysts at Elara Capital said. India recently cut its annual economic growth forecast to 6.4%, the weakest since the pandemic, while the central bank highlighted rising impairments in unsecured retail loans.
The government may cut the personal income tax to help boost consumption in its February national budget, Reuters reported.
The banks also face challenges in drawing customer deposits to maintain loan-deposit ratios at levels acceptable to the central bank. With people increasingly opting to park their savings in equity funds over bank deposits, lenders face constraints in expanding their loan books.
Further east, SK Hynix Inc., Disco Corp. and Nidec Corp.'s earnings could be bolstered by robust demand on artificial intelligence-related products. The outlook for Nvidia Corp. suppliers SK Hynix and Disco could be positive thanks to the newly announced Blackwell chip product line.
Taiwan Semiconductor Manufacturing Co. projected quarterly sales exceeded analysts' estimates, fueling hopes that spending on AI hardware should remain resilient this year.
Highlights to look out for:
Saturday: Kotak Mahindra Bank's (KMB IN) earnings were likely held back by the central bank's ban on adding new customers online and issuing new credit cards. Its acquisition of Standard Chartered Bank's personal loan portfolio in India should help.
Monday: One97 Communications (PAYTM IN) probably slipped back to a loss in the third quarter after it recorded a one-time profit earlier, estimates show. It's gradually recovering from regulatory curbs after the National Payments Corporation of India allowed the firm to add new users to its unified payments interface. Ebitda could turn positive by the fourth quarter with further cost measures, Emkay said.
Wednesday: HDFC Bank (HDFCB IN) is projected to post slower profit growth as it prioritizes the loan-deposit ratio over lending growth. Advances grew less than 1% while deposits grew 2.5% from a quarter ago, it said in a pre-earnings update.
Hindustan Unilever (HUVR IN) is expected to post around 5% net income growth, estimates show, helped mainly by price increases as volume growth lags revenue growth. Margins probably shrank as raw material prices rose, including for coffee and cocoa. The federal government's budget has led to expectations of a consumption boost in India, which should support future earnings.
Thursday: Nidec's (6594 JP) third-quarter operating profit likely expanded 16%, consensus shows. The hype around its AI-related business is a potential risk given the lofty expectations, SMBC Nikko said. Investors will monitor whether the firm meets the fiscal-year guidance as its targets trail consensus.
Disco's (6146 JP) third-quarter operating profit likely jumped 39%, consensus shows. Consolidated sales probably rose about 20%, Bloomberg Intelligence said. Generative AI remains strong, while new demand for related memory chips remains unseen, said SMBC Nikko. Its shipments on a parent basis grew 37% to a record high, boosting the outlook for the fourth-quarter sales, BI added.
UltraTech Cement's (UTCEM IN) third-quarter net income probably fell 28%, less than in the previous quarter, as cement demand and construction activities in India gradually picked up in the post-monsoon season. The company remains susceptible to a weak pricing environment as the industry undergoes aggressive capacity expansion, Nuvama said.
SK Hynix (000660 KS) quarterly growth was likely supported by increasing average selling prices of DRAM chips and robust demand for high bandwidth memory chips, Citi said. The Korean company earlier discussed ways to deepen AI efforts with Nvidia, including speeding up its pace of development to keep up with Nvidia's demands.
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