UPDATE ON UCO BANK LTD.
All calls of ours in derivative segment since Jan 2016 did
exceptionally well, bringing windfall profits in few  hours/days to
all those who followed our advice.
Only exception has been UCO Bank ltd which fell subsequent to our
advice of SHORT . However, it did not achieve our TP and subsequently
share price of UCO Bank has risen, causing anxiety to our fellow
investors. This rise has been driven by massive jump in Nifty as well
as in bank nifty.

1. Earlier there were talks of floating Bad Bank and we were very
clear that idea of Bad Bank is Bad Idea. Now, no official announcement
or press release on the subject which means that idea of Bad bank is
dropped (investors were getting the impression that Bad Bank will
relieve all PSBs of their massive NPAs)

2. Thereafter, idea was floated that RBI should chip in capital in
PSBs. Again we had categorically pointed out that this idea also
unlikely to be implemented. Although CEA had floated this idea, but
there were no takers of same and hence, RBI will not contribute to
capital of PSBs.

3. Fund infusion by GOI:  Govt has proposed to infuse 25,000 crores in
2016-17 although Moody had reported that fund requirement of PSBs is
around 1.75 lac crores. So, 25,000 cr fund infusion is peanuts for
PSBs and these funds are not coming immediately. PSBs may get these
funds only after 4-6 months

4. RBI has permitted banks to revalue their  real estate assets to
enhance Tier 1 Capital. Total impact of same on ENTIRE BANKING
industry will be less than 40,000 crores. Although in books, such a
move enhance Tier 1 Capital but it will not help to reduce NPAs and it
will not help to reduce their losses. These real estate assets will
not be sold/liquidated. Just a book entry

5. Finally, everyday entire media and rumour industry has ANNOUNCED
that 50bps rate cut coming from RBI in April (not immediately). Such
presumptions/rumours have given further momentum to present ongoing
speculation in bank nifty.

Our Take:

We are very clear and there is general opinion (outside
investors'vested interest of bank nifty) that health of PSBs is not
going improve for next 2-5 quarters at least. PSBs are in deep mess
and above measures are not big enough to infuse fresh life in PSBs.
Yes, after such huge NPAs, PSBankers will be more careful in future
loan sanctions. However, past sins will continue to haunt PSBs for few more
quarters

Q4 results of PSBs will be much worse than Q3 and UCO Bank results
will be so bad that NPA (Gross) may touch 14-15% with larger losses.

In short term, share price of UCO Bank is higher, causing tension in
mind of investors. However, we have always maintained that making
money in equity market is not so easy (although all investors made
real easy quick money in our ALL OTHER recommendations). When we gave
SHORT call of MARUTI @4180 with sharply lower price TP for May expiry.
But our MAY Expiry target was achieved in Feb itself. Even BHEL fell 25% after our Sell recommendation.Hence, we can
only advise our followers to hold your positions as there is no reason
why stock price of UCO should not plunge to Rs 16-18 level when Q4
results are announced