Bank Policy Tuesday: Keeping lasting promises

The SLR slough off has finally come. It was in the works for years, while Raghuram Rajan was still working out the logistics in U Chicago 15 years back and will finally bring down India’s required reserves to 23% levels over the next 5-6 quarters. That promise is not something that happens every other day. It is also a recognition that India can keep its superior positioning for growth only so much more without exports that lack quality and loans that still seem to be going bad well into the take off period for growth and also a recognition that India needs to be very careful.  The repo rate is down to 6.75% and will probably not have many more rate cuts but likely still the Repo rates will touch 6% at the top of the cycle giving impetus for bank rates to come down steeply and India 10 year yields should now come down from that 7.74% plateau that is not helping anyone plan growth.

The repo-reverse repo corridor is the narrowest as bond rates refuse to catch up with the lower inflation and a tamped down forecast in line with RBI plans for a target 4% inflation in the near future (Urijit Patel recommendations) setting a decade of solid growth but with FinMin refusing to do much else but wait on the RBI guv to do the needful apparently. This time again the RBI has gone ahead and led the markets to the direction of change with a steep rate cut and if banks still feel queasy about manipulating lending rates and bringing credit back, it would hurt everyone.

Amazingly enough even with the sense of urgency in the steep cut, most indicators are healthy including the fisc forecast for FY2016 with a buoyant market for IPOs. India of course is as always at the growth take off point , better off than all other emerging markets including China, Sensex according to the ET only down 6% in one month compared to 16% cut in the MSCI Emerging Markets Index.

Goldman Sachs’ retail bank ideation is alive and well

After a furtive foray in insurance they had to back out of and some CDs floating in the market, GS has bought over deposits from GE, taking on a new avatar as an online bank apart from a lending business for online lenders earning 8% NIMs proved the advantage of retail funding regardless of the rates environment.

Breakingviews: Goldman bets on the bank, Thomson Reuters: Reuters Insider

Reuters’ breaking views:

Goldman Sachs has agreed to buy GE capital’s online banking platform and sixteen billion dollars of deposits. Now this deal, on one level he seems to make some sense but it’s also swapping one too big to fail risk for another.  Well let’s look at why it’s a good idea for Goldman to do. Since the financial crisis everyone has been worrying about how to fund standalone investment banks so those that usually rely on wholesale funding (bond markets).Right, capital markets. But the more deposits you have, the less you rely on Capital Markets funding

Bank Policy Tuesday: There is one more rate cut in this Fiscal

After the rate cut on Jan 15 and a SLR rationalisation taking RRR to 25% the Central Bank in wake of CPI and GDP data holding up a nascent recovery ( GDP modified to 6.9% on new base year hiding a few but showing better traction to results data from the last three quarters) and lending rates may precede south earlier than the next rate cut before the policy announcements now scheduled in the next fiscal on the first Tuesday of April.

Stock picks wise, I still prefer ITC and Bajaj Auto in FMCG/Durables and IDFC in Financials as October 2015 is the set date for it converting into a bank with ICICI Bank looking like the first to post a lending rate cut int he private sector as the banks increasingly become more responsible for the continuing spate of restructuring and NPAs because of the higher lending rates

India Morning Report: Markets go below 8500, again the DLF push ? & !

DLF judgments seem to really decide speculator and investor sentiments together and adverse judgments against the erstwhile Market Cap leader for India is sooner or later liable to become a transparent weakness of the India story though one shudders to think that someone in Gujarat may already consider another smaller group to be dLF’s equal in this light ( from the days of India’s jugaad) Meanwhile, it might be good to catch up albeit delayed on the new supporting role in India’s super power story with China suffering badly in exports and being at least 2-3 times more sensitive to import fluctuations , with their direct link to consumer stories we have avoided despite an equal interest of global Consumer majors. That also translates to our slow consumer story in India as we have frequently detailed in 2010 and 2011.

However that may be consumer cyclicals esp non discretionary incl FMCG and autos are definitely hoping for a better deal on the bourses and the end of this correction is also not more than another 150 points ont he nifty which nowadays should have reduced to 200 points on the Sensex from the early expected 250-300 which in terms of indices supports and resistances will decide whether the next support is broken too.

Stay invested in ICICI Bank, HDFC Bank, Yes and IDFC. (There is no real trade yet in Yes when it settles lower , too few shares and decided by one guesses too few brokers – market makers keeping it in play) A big short on Maruti from us for a new year celebration..

In relation to China, a.m., China equities continue to dominate FII attention and that does not take away from the economic argument we led with as equities do well only on low volumes despite integration and virtual opening up of Shanghai markets through HK and the real Economic snafu for the Yuan and China will be the continuing to slow down growth, while it actually hopes to grow higher imports as growing consumption is key in keeping growth steady while it corrects the reform direction, lending credence to India gaining a comparative advantage and another chance to catch up with big brother.

India Morning Report: Markets to consolidate 8500 levels into a ‘thing’ till the next break

The new Infosys starts the week below 2000 even as the Nifty tracks downward from the weekend levels and keeps its nose above 8500, Hero Honda paying for an intemperate rally as ITC hits 360 levels while ICICI Bank is up to 1480 levels. We have probably already mentioned we worry about the indiscriminate fillip to Maruti at a grade or two below investment grade at just 100k cars a month

The Sensex is stil below 29k at its highest away from the 30,000 peaks which will be reached at the firsat few evidenced statistics of the Recovery, inflows having stablised to a slow trot and also waiting without further profit taking and Coal and Power, Highway and other infrastructure ministries ( incl Railways) seem to be activated to the imperatives of garnering quick financial closure for stalled projects, again only IDFC a quality listing in the area with leveraging having destroyed GMR , Reliance Capital and JP associates listings. Any equity loading of infrastructure projects will definitely suffer from investors’ impatience for return on their risk capital and long term debt is more likely thru shadow banking channels than conventional bank loans or traditional risk equity

Bank acquisitions also seem a mile away and the energy stocks’ rally has been stunted by public ‘profiteering’ to finance extraneous fiscal deficits in new taxes even as demand hits a new level on lower prices. Really stock rallies on a 267 crore order (SPML Infra) is not a n opportune way for investorsor even speculators with many market accidents in the recent and not so recent past testimony to fall outs from such orders including our polaroid driving licence contracts and others while the Bangalore and Delhi metro seem to be the only good examples in EPC



India Morning Report: At the cusp of “Superpower-dom”, The new India Inc..

A land of loan waivers, high energy taxes and still a Rupees Trillion  in Divestment, Crude prices still falling and the markets waiting for another 6 months for a recovery probably does hint at a vital flaw why only Banks are left with potential to invest, being at the right place to take advantage of a cyclical uptrend. I am going to focus on the fact that less than 10% of representative Consumer companies are listed and only a few more together cover the branded market in India, and in verisimilitude, our infrastructure heroes have banked either too high on private debt or too early on equity and the lack of depth of these institutions could be troubling India also, given that markets already feel the lack of downstream Tertiary and Secondary segment businesses on the deep Financial markets of the country.

India debt remains in demand and yields are well on their way to the southern edge of the corridors, it is still time for investors to buy more yield in the Indian market, and consumer finance’ early rush bump on the statistics probably clouds the real potential ahead too pointing to a lull in the business models of these darlings of the market for a few months. India’s Defence spending challenges and the infrastructure quandary should probably be discussed together esp as the Rupee seems to hold its own , and this time not on advance investor flows and despite weakening export growth story having played out post high depreciation instances in the recent past. I would like to buying opportunities in banks with all pair trades taking Kotak/Indusind at the short end or all other trades taking SBI and PNB at the Long end of the trades

India Morning Report: Markets hope to close below 8500?

From where I stand, the next week seems more important to traders right now, so instead of a closing out on a good note sentiment, the markets should prefer to close at near bottoms as the two days of post poolicy trading have been nudging downwards, leaving some unfinished business before stocks start their upward march next week to new 8750 and 9000 marks or the first 30000 for the omnipotent sensex.

Bajaj Auto seems likely to join the up tick from 2500 levels with new launches and return of normalcy in exports probably required before the ticker trends back up. Bharti’s strongarm ways as the incumbent operator mkeep it on watch even as they seem to have more options in which they keep their paid spectrum at old rates and when they are asked to pay a difference the strain will show on the stock price.

ITC is back up with consumer brands and the good old tobacco business making a splash SBI is still at pre policy highs and IDFC is actually good for more buying and of course markets as indicated in the call auction, may still prefer to come back atoday and tomorrow to pre policy jitters with RBI having upgraded their policy stance in time for the recovered economy to boost credit at a 4% inflation target in the long term


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