Aviva India bets on state-run banks’ recapitalization plan for business boost

Above, the headquarters of Aviva in London. The insurer is betting the Indian government’s $32 billion (SR120 billion) plan to rescue lenders burdened with record bad loans will boost their prospects. (Reuters)
Updated 23 November 2017
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Aviva India bets on state-run banks’ recapitalization plan for business boost

MUMBAI: Aviva’s India life insurance joint venture is raising its exposure to the country’s state-run banks as it bets the government’s $32 billion (SR120 billion) plan to rescue lenders burdened with record bad loans will boost their prospects.
The insurer also likes metals stocks and consumption-driven sectors, especially those that target rural consumers, but would avoid the non-bank finance companies, Prashant Sharma, chief investment officer at Aviva Life Insurance Co. India Ltd, said.
The 21 public-sector undertaking (PSU) banks, which are majority owned by the government and likely beneficiaries of the recapitalization, account for more than two-thirds of India’s banking assets. They also have bulk of the country’s record $147 billion soured loans.
The banks are less profitable compared with their nimbler private sector rivals and were largely not favored by investors until the recapitalization plan was announced.
The recapitalization triggered a rally in the state-run bank stocks, although that has since cooled as investors await clarity on the impact of the fund injections, much of which will be via recapitalization bonds.
“Some of the money has actually come out of the more expensive private banks to some of the PSU banks, the larger PSU banks which, after the recapitalization, would be quite healthy,” said Sharma, who oversees management of about $1.5 billion of Aviva India’s assets in debt and equity.
“I think the recapitalization provides them with the necessary fuel to start growing again.”
Sharma said he still liked private sector banks, but their expensive valuations meant he had to be selective.
The insurer is “significantly underweight” on non-bank finance companies (NBFCs) due to “rich” valuations and because the tailwinds that helped grow the financiers in the past years may be “coming to an end,” Sharma said.
Other sectors on the insurer’s radar were commodities and oil and gas.
Given its cyclical nature, it would be difficult to have a long-term position on the metals sector, Sharma said, although it looked attractive on a one-year to 1-1/2-year view.
“Thanks to China supply (side) reforms, commodity prices globally have bounced back from very low levels and with this kind of commodity price level, Indian metal companies are likely to do well for the next couple of years at least,” he said, adding oil and gas was another sector the insurer was positive on.
Having hit a string of record highs this year, Indian stocks may be due for some correction, but that would be “healthy” and corporate earnings should start recovering now, Sharma said.
India’s broader NSE index is up around 27 percent so far this year.


Oil prices drop on potential increase in OPEC output

Updated 3 min 49 sec ago
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Oil prices drop on potential increase in OPEC output

SEOUL: Oil prices fell on Thursday on expectations that OPEC members will step up production in the face of worries over supply from both Venezuela and Iran.
A surprise build up in crude oil inventories in the United States also weighed on prices, driving the spread between Brent crude and US West Texas Intermediate (WTI) close to its widest in three years.
International benchmark Brent futures were down 27 cents, or 0.34 percent, at $79.53 per barrel at 0300 GMT.
US West Texas Intermediate (WTI) crude futures were down 17 cents, or 0.24 percent, at $71.67 a barrel.
The Organization of Petroleum Exporting Countries (OPEC) may decide to increase oil output to make up reduced supply from Iran and Venezuela in response to concerns from Washington over a rally in oil prices, OPEC and oil industry sources told Reuters.
Supply concerns in Iran and Venezuela following new US sanctions had pushed both Brent and WTI to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.
“The chat is still that OPEC will do something at its June meeting in reaction to the looming prospect of a fall in crude production and exports from both Iran and Venezuela as the year progresses,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
OPEC and some non-OPEC major oil producers are scheduled to meet in Vienna on June 22. The group previously agreed to curb their output by about 1.8 million barrels per day to boost oil prices and clear a supply glut.
“Any signs that the group may be heading toward an early exit from the production cut agreement would weigh on prices,” ANZ bank said in a note.
Meanwhile, commercial US crude inventories rose by 5.8 million barrels in the week to May 18, beating analyst expectations for a decrease of 1.6 million barrels, the Energy Information Administration (EIA) said on Wednesday.
Elsewhere, Libya, which is an OPEC member, cut its oil production by about 120,000 barrels per day as unusually hot weather prompted power problems, an official from the National Oil Corp. said on Wednesday.
Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA in Singapore, said that prices were getting some support from talk that Sinopec, Asia’s largest refiner, would increase US crude oil imports to a record high.
“Recent flow is suggesting short-term traders are looking to sell the $80 per barrel chart-toppers anticipating a possible compliance shift within the OPEC-Non Opec supply agreement,” he added in a note on Thursday.