Indian Lenders’ Margins Hurt By Rising Credit Costs As Rate Cut Hopes Fade

Indian lenders’ rising credit costs as they struggle to attract customer deposits will continue to be closely monitored when Bajaj Finance Ltd. reports earnings this week.

While banks struggle to attract deposits to finance loan growth, shadow lenders like Bajaj Finance are also feeling the pinch of higher credit costs. The company said in July that cost of funds should peak around August, and then move sideways until rate cuts start flowing in. But India’s central bank governor Shaktikanta Das on Friday said a cut at this stage would be “very, very risky” and he’s in no hurry to join the wave of easing by global policymakers.

Bank margins are also narrowing, as seen in HDFC Bank Ltd.’s and Kotak Mahindra Bank Ltd.’s earnings on Saturday, due to the lag in the repricing of deposits. Kotak’s profit missed the street view and bad loans surpassed estimates, which led the stock to drop as much as 6.3% in early trading Monday.

Meanwhile, Hong Kong Exchanges & Clearing Ltd. may post higher earnings from an improving outlook for initial public offerings and a stock market rally driven by China’s stimulus measures.

Tuesday: Bajaj Finance’s (BAF IN) second-quarter net income should rise 16%, estimates show, supported by higher net interest income. The shadow lender’s second-quarter update led to concern about margins falling. Citi said Bajaj Finance’s net interest margin may decline by 14 basis points on a sequential basis because of higher funding costs.

Wednesday: HKEX (388 HK) may see a sixfold increase in IPO capital, while average daily stock turnover in Hong Kong rebounded during the quarter, said BI. Consensus is for 5.4% profit growth in the third quarter, led by revenue from its cash equities, commodities and derivatives.

• Hindustan Unilever’s (HUVR IN) second-quarter volume likely grew faster than in the first quarter, benefiting from a recovery in rural demand, with analysts at PL Capital and Motilal Oswal expecting 5% growth. Still, a rise in palm oil, cocoa and coffee prices likely weighed on margins, and consensus estimates predict a 1.3% drop in profit.

• Nidec (6594 JP) should see slight increase in second-quarter operating profit. Automotive business profit, excluding one-time charges, probably grew sequentially thanks to improved margins for electric vehicle motor systems. Small precision motor business operating profit likely rose, driven by hard disk drive motors and cooling system for artificial intelligence servers, BI said. The firm is expected to keep its operating profit target of ¥240 billion ($1.6 billion) for fiscal 2025.

Thursday: SK Hynix (000660 KS) is expected to post a third-quarter operating profit of 6.91 trillion won ($5 billion), up from a loss of 1.79 trillion won a year earlier, consensus shows. It should meet expectations thanks to improved average selling prices, BI said. The firm’s dominant market share in high-bandwidth memory chips contributed to a solid operating margin, while demand for standard DRAM chips used in smartphones and PCs may be slowing down, BI added.

Friday: Kweichow Moutai’s (600519 CH) third-quarter earnings per share and sales should rise by mid-to high-teen percentages, helped by robust demand, BI said. A decline in wholesale selling prices is also unlikely to make a huge dent in its earnings, given that the distiller sells to wholesalers and distributors at ex-factory prices, it added.

• Luxshare Precision’s (002475 CH) third-quarter adjusted net income likely rose 22.4%. BI said it saw order wins from Apple Inc. with the Vision Pro headsets and AirPods. There are concerns about its efforts to diversify in the next few years, as it currently gets more than three-quarters of its revenue from Apple.

(Updates throughout.)