HDFC Bank, Hindustan Unilever squeeze amidst middle class struggles

By Harshita Swaminathan, Reina Sasaki, Rachel Yeo and Justina T. Lee

 

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 per cent, 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.