The surprising and unfortunate saga of the returning bout of political stability that landed last week has caused India inc some serious heartburn as market mirrors waning confidence levels of corporate India which was looking at raising cheaper money and deploying into new industry and infrastructure this year. Though observers still stand on the sidelines trying to peg Economic forecasts to the agri output as monsoon season also prepares to make its pronouncement and the comeback in core metal and mining sectors will be long lasting and is already underway.
The consumption cuts after a brief comeback in December January are almost inconsequential as global equities will correct and even out only some of the withdrawing Emerging market ETFs with India being a safe haven yet for equities, valuations at 5600 pointing to an almost extreme low on current profitability set to improve in the last quarter of the fiscal. But the 10 year yield is already nose up after having forced the RBI’s hand and is likely to land near 8.1% another 14 bips in the next month or more. Japanese capital investment flows are probably striking Asia again with Myanmar starting Rice exports to Japan after a good 40 years and that is good news to the region strapped solely by Chinese FDI. Though unrelated, the India story will also depend on these FDI flows as its own Corporates battle the post rate cut bad scenario.
Further relaxation on FII investment limits in bonds are only likely to bring in more investments in the 3-5 year horizon as precious MTN products become a possibility to increase available choices for those evaluating Indian company CDS’ in the Asian trades. Indian ratings could improve in the next 5-7 years if such depth is indeed possible as another batch of QIPs though distinctly less than the volumes from Indian ECB in 2009 and 10, remain likely in 13 and 14 banks and infracos being the hitherto winners. The steepening curve in the meantime as India’s long term yields falter and demand comes to shorter maturities could infact be a boon to low lying infra SPVs as their structures shift to quasi one year rolled over paper and trap sub 5% short term pricing of debt. Their overhang of 30 year debt continues to be a big rating concern and government is likely to be unable to backstop more of it.
The political uncertainty in the meantime will only bring Nitish’s Bihar to the fore in the governance camp and DMK itself will be softer after the change in Foreign policy stance. Our own UNHCR confrontation on Kashmir, long hidden might still get political ambitions strewn but on the whole Capital investments will withdraw to a wait and watch mode in India 8 months before due election unevenness could have otherwise been expected to strike India inc’s investment habit. In the meantime, markets offer attractive valuation opportunities with most identified sectoral leaders including YES BANK, IDFC and ITC holding on to new levels. Jet has struck another wet lease deal with Etihad to channelise its quantum of investment adding the Brussels routes to the Heathrow parking spots already in the sale and lease back with Etihad.
Stanchart’s prognostications for the Rupee may have hit a rough patch in their own term forecasts but JP Morgan and Deutsche Bank sell side units continue to invest in timing the Indian recovery with other foreign brokerages from UBS and CIMB to CS itself still holding local expertise in sectoral mid caps and even banks. Helion and Samir Arora ofcourse stand a little more guarded in light of their closeness to these political forecasts on the nation but they and other India bulls remain exclusive specialists, a breed strange enough for its loyalty as is India’s own secular growth rate still nose upward from 5% last year.