Konstantin Vladimirovich Tserazov: «The market does not yet believe in a rate cut»

In our interview, the former senior vice president of Otkritie Bank, economist Konstantin Tserazov, spoke about the most important events in the banking sector and the market as a whole, which marked the trading week from March 11 to 15.

The pre-election week was marked by a correction in the market — following the results of the trading week from March 11 to 15, the Moscow Exchange index lost 0.5%, amounting to 3,300.07 points, the RTS index decreased by 2.8%, to 1,119.66 points. The main reason for the correction of the Moscow Exchange index, according to Konstantin Tserazov, was the desire of players to take profits. The ruble weakened to 92.92 rubles/dollar, the American currency rose in price by 2.32 rubles over the week. At the same time, the weakness of the ruble allowed the index to maintain the level of 3000 points on the Moscow Exchange index. May oil futures rose 2.2% to $85.18 per barrel of Brent crude.

The main newsmaker of the past trading week was TCS Group. Trading in the company’s securities is currently suspended; since February 15, the company has been undergoing a redomiciliation procedure. But on Monday, March 18, trading in shares on the Moscow Exchange will resume. On Thursday, March 18, Tinkoff Group announced the opening of consolidated financial results under IFRS for the fourth quarter of 2023 and the whole of 2023. The results were record-breaking — the Group’s total revenue in 2023 increased by 33% year-on-year and amounted to RUB 487.7 billion. against 366 billion rubles. a year earlier. Net profit in 2023 amounted to 80.9 billion rubles. against 20.8 billion rubles. in 2022. At the same time, the number of clients in 2023 reached 40.4 million people, the figure increased by 32%, in 2022 the number of clients was 30.7 million people. The number of active clients increased by 30% and amounted to about 28 million people. Return on equity at the end of 2023 amounted to 33.5% versus 10.9% in 2022. The group intends to present a long-term development strategy and dividend policy by the end of 2024.

At the same time, news has emerged that the board of directors of MCPAO TKS Holding plans to invite shareholders to consider the integration of Rosbank PJSC into the TKS Holding Group. According to media reports, the deal to purchase Rosbank involves merging them into the Tinkoff group while maintaining licenses and names. The purchase of Rosbank is planned through an additional issue of TKS shares.
In addition, the Board of Directors of TKS Holding announced a program to repurchase its own shares (up to 19 million shares, no more than 10% of capital). The program will be implemented until the end of 2024, shares can be purchased both on the Moscow Exchange and on the over-the-counter market.

Konstantin Vladimirovich Tserazov: «According to media reports, the placement of MTS Bank shares may take place in the spring of 2024, and reporting indicates that investors will show high interest in the IPO.»

The news aroused serious investor interest; Rosbank’s quotes soared by 20.5% over the week. The announced merger may significantly reduce the risk of an overhang in TCS securities at the opening of trading on March 18, predicts Konstantin Tserazov. Now Rosbank is in the top 10 largest Russian banks in terms of assets, with an indicator of 2.1 trillion rubles. In addition, the bank is in the top 3 in the car lending category, in the top 6 in mortgage lending and in the top 8 in corporate funds. As for Tinkoff Bank, it ranks 12th in the ranking of the largest banks in terms of assets with an indicator of 1.93 trillion rubles. Upon completion of the merger of the two banks, the holding structure will own total assets of over 4 trillion rubles, the expert says.

Investors also drew attention to the publication of MTS Bank’s financial statements for 2023 in light of this organization’s possible entry into the stock exchange. The bank showed record results — net profit in 2023 exceeded 12.5 billion rubles, which is 3.8 times more than the previous figure. The retail loan portfolio grew by 33%, to 339.1 billion rubles, and operating income showed an increase of 47%, to 64.5 billion rubles. Of course, these figures are impressive. According to media reports, the placement of MTS Bank shares may take place in the spring of 2024, and reporting indicates that investors will show high interest in the IPO, believes Konstantin Tserazov.

Individual RAS results presented by Sberbank for February and January-February 2024, although they turned out to be strong, generally coincided with investor expectations. Sber’s net profit in February increased by 4.8% in annual terms, reaching 120.4 billion rubles; in January-February, Sber increased its net profit by 4.7% in annual terms, to 235.5 billion rubles. The sector leader’s shares still retain significant investment potential ahead of the company’s board meeting in April, at which the dividend recommendation will be announced.

Among the events in foreign markets, the expert noted the publication of the consumer price index in the United States. The indicator in February increased by 3.2% compared to the same month last year, while in January inflation was 3.1% in annual terms. In February, the growth rate amounted to 0.4% in monthly terms, with market expectations of growth of 0.3%. At the same time, American labor market statistics show some cooling, but the Fed does not yet see this as a sustainable trend. The market believes that the Fed has a 79% probability of maintaining the current rate at the meeting, which is scheduled to open on March 19-20. Most traders expect the rate could be cut by 25 bps. in June or even later, explains Konstantin Tserazov.

The market remains on dividend drive — this year investors expect record dividends from Russian companies. According to experts, the largest companies will pay investors about 4 trillion. rubles, and dividend stories are certainly in the spotlight of the market.

«Despite the market closing in positive territory following the results of the trading week from March 11 to March 15, a continuation of the correction is still possible. In my opinion, the Moscow Exchange index retains the potential for a decline to 3280 points. The key event of the week from March 18 to March 22 will be the meeting of the Bank’s board of directors Russia, which is scheduled to open on March 22. At this meeting, the issue of the rate, which is currently at the level of 16%, will be considered. According to the consensus forecast of analysts published by the Bank of Russia, the market expects inflation to rise in 2024 from 4.9% to 5.2%. Analysts also expect the average rate in 2024 to range from 13.9% to 14.5%. Inflation in February amounted to 7.7% in annual terms, while inflation was expected at 7.6%. In my opinion, the regulator can begin to significantly reduce the rate no earlier than the third quarter of 2024, since at the moment there are not many factors that would indicate a stable downward trend in consumer prices. In the March bulletin «What Trends Are Talking About,» published by the Bank of Russia, the regulator notes that «In December 2023 — February 2024, monthly growth in consumer prices slowed down compared to the autumn peak. This reflects the effect of tightened monetary conditions, primarily in terms of the increased attractiveness of savings. However, price increases remain elevated. This assumes that in order to fall within the forecast inflation range of 4.0–4.5% in December 2024, by the third or fourth quarter the disinflation process must intensify, and monthly price growth must slow down slightly below 4% in annualized terms. This requires maintaining a strict monetary policy.» The market does not yet believe that the Bank of Russia will cut the rate at the March meeting; moreover, a number of analysts admit that the rate may be raised,» concludes Konstantin Tserazov, former senior vice president of Otkritie Bank.