India Morning Report August 07, 2012: The return of the prodigal

More for the Economy

P Chidambaram;’s recipe for the Indian Economy shows restraint and realism and at first instance nothing else seems to be materially distinct, the minister being another face ogf the Manmohan Singh led UPA government. however, a closer look reveals the difference in the details including the media blitz covering the event of PC speaking about the Economy. Secondly, the difference is in the nuances of his speech even as he commits to a relook at GAAR and other restrictive tax legislation, points to the preeminence of increased investments by Foreign investors and even the foggy “calibrated risk” to stimulate invest,ment which the Times has infact taken to be a hint at coming simpler decisions in Interest rates. All PC has said however is that he is more amenable to working with the RBI than independently and Fiscal consolidation would now work in step with monetary policy with clear measures to minimise the spectre of drought ith the same select imports and other supply measures to contain inflationapart from converging some government welfare schemes and PSU investment  bot h policy measures having met the wall of public disenchantment expressed by the concernd implementing bureaucrats and Politicians at state levels earlier. 

Try a low involvement strategy but not 30000 ft

However , the Rupee is already responding to a welcome weakness in the dollar and the price of Oil may also start falling back to help  the new FM achieve the more coherent and tightly knit policy statement. Parts of the country ahave avoided the Drought tag with rains still not bringing the welcome respite in the North and Western parts. The Fiscal consolidation panel may not be suspected to achieve much but yet he would be given a chance. 

Meanwhile sector specific trading strategies remain the backdrop but only select scrips and certainly not index strategies will rule in this week’s market. Wipro for example may lose more than Infy on the news of Cognizant overtaking Infy in quarterly revenues. Even with the out performance cognizant is only betting ona 20% revenue groth and the ector including Indian Mid Cap It will suffer esp with active discouragement of its non SI non consulting suspect skill base against the coming juggernaut where the cost advantage could have been much more if indian providers had been able to establish themselves, and are currently not equipped for the race. 

Healthcare wins similarilly may focus on a underpriced Biocon and Energy wins on Cairn as markets are very careful about overpricing sectos esp as banks remain dominant producers and thus the centerpieces of any up move. 

The Foreign Bank conundrum

The StanChart results and others like HSBC have shown a distinct derailing of retail prospects in india , however even when StanC did not grow its Wholesale book and retail was weak, it produced return on assets that is twice the Global Ops. As RBI made it known yesterday, the superior ROA for Foreing banks  hin India ( 1.90% for SCB, 1.5% for HSBC and 1.3% for Citi) means that the Central Bank is unlikely to roll back the new requests for Priority sector credit. Asia remains the banks’ only chance esp fror European Banks which have known the continent for centuries and are equipped for Trade Finance/Transaction Banking. 


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