India Morning Report: Correction day, follows Indian Markets predilection with “Modiphoria”

Hat Tip – FT’s demure casual and below the belt rough Indian journalism that helps them along as they staff other shallow EMs

Though others have been very supportive of this rally, shorts may not be able to get in to this section of the rally’s correction for much either. The Bull rally continues of course bu t the intra day mark of 7500 was lost in rather a hurry in a single session, revealing empty profit taking induced price bids and probably leading the markets on to a stronger hope for a sharper correction to tear down the bull phase per se, as evidenced in the 7500 Call OI build up. ( which means 7500 is now being sold down)

Thus except for the couple of PSU Banks being unshod ( Karnataka Bank, Hat Tip Tulsiani) which are being dropped from buy trade lists in F&O ( hence, unshod) not many other scrips will have any tradeable targets down and will just trade wat their Friday/this rlly ‘s stable marks than lose momentum or give way to short traders waiting in the wings with or without a DII mandate for lower prices. Kotak has another announcement from the RBI requesting it to pare promoter shareholdings to 30% by December 2016 and it joins HDFC Bank in waiting out current regulators for what they believe is a temporary hiccup, with the whole market waiting with them for the next few months as the new Cabinet digs into the high chairs in North and South Block

The Cabinet, we agree with most watchers was a best effort and not a radical change from normal polity, though it is obvious that Narendra Modi has a defined agenda some of it targeted at the outgoing government style of the Congress to drive in his advantage with the electorate. PM Narendra Modi will have to walk a thin line when he expands the Cabinet in 4-6 weeks, though with large portfolios being shared at the Cabinet level, the exercise is still a unique attempt in the direction of downsizing government and likely to be lauded in the first year and more as he plays out a defined point by point action plan from his own Office.

That would bode well for our recovery as well, though it is probably safer that markets begin from 7300 levels and that means most great policy pronouncements will not get another standing ovation from the markets as they get down to the serious business of maintaining fair value markets. Eventually performance only will be able to allow the markets to beat 7500 marks ont he Nifty and the 25k on the sensex. When it does cross the mark again, it is obvious that that would be steamed by existing shorts now back on the index options,  and would easily cross 7800 or 26500 on th Sensex to the court of broker dealers betting on the magical 30k pronouncements and will likely end the year at all time highs comfortably above 7500

F&O strategies at this time could thus easily avoid the short strategies and go back to a new straddle every week starting with a looser straddle bullish at 7300 to 7500 using the existing leverage in 7500 to build the smaller range from 7200 and 7300 sold puts.

One does not again see anyone missing the chance to go long in cash equities all day today and the fall in indices should fool no one. The best outcome ofcourse which could define such simple price discovery all day would be if DIIS step in to buy even in salutory quantities on longer range buys in Pharma and Domestic cyclicals which have hitherto been tom tommed by us as Bajaj Auto, Bharti ITC and even Non discretuionary consumption builds like Colgate, Britannia and Dabur Marico with the HULs as the private banks get back into the saddle on the Banknifty, YES Bank probably continuing without a break alongside Financial services companies closer to yesterdays high marks as they are still likely to look undervalued in the recovery strike. Some DIIs are probably even waiting for Cipla and Lupin again but many will move on to building positions in Glenmark Pharma and Cadila, waiting on Sun Pharma, Orchid, Aurobindo Pharma and Stride Arcolab (DRL and Ranbaxy are that might falling arrow sign i.e.down all the way)

More than earnings data it would be worries about the real agenda meeting reform as Energy stocks start with questions on if subsidies would indeed be tricked out again instead of being wound down as per plan as the NDA finds its Welfare feet in the magical Mansarovar of deficit financing.

Also, sooner or later the honey moon with the markets is likely to wind down for the Modi government as it refuses to be led by Markets like all institutions in Emerging markets are wont to publicly end up showing in their winning hand. Also cuation reigns on the performance of India in governance given the political pitfalls of sharing a Rajya Sabha in Congress majority

Yesterday’s quick exits probably resulted in FII outflows pressuring the rupee back to near 59 levels on Tuesday’s open mark. SBI on the other hand may not see any moves out and continues up from 2650

The step to combine Finance, Commerce and Corporate Affairs under Jaitley is probably the most positive and ambitious move by the new government that should be a commitment from PM Modi and Jaitley will have to walk the plank to cross a real issue or two of mis coordination in evidence of late. Rather Nirmala Seetharaman should work closely with FinMin Jaitley to make it work. Also, MSME has a separate Minister all by itself (KM) and Modi has kept pension affairs with personnel and science departments in his dhoti. Inderjit Singh’s portfolio of Programme Implementation would additionally have been something I would have moved to priority levels in a new aggressive India that should probably look at more 2030 and 2050 targets with a renewed vigor in Planning ( anathema yet to the NDA government?) The implications of that are not lost on a Chief Minister coming from leading a progressive state still relying on Central Planning as much as Private investment. The Ganga rejuvenation programme will probably be closely watched too for someone iwth a record of execution having given the portfolio to a sangh loyalist. We will probably continue to pop surprises to the world from Defence and Ext Affairs mandates with India deciding on a long term commitment to Modi aided by a performance beyond just an earnings beat from India Inc

India Morning Report: Really, you’d want to short the markets right now?

Traders might face active discouragement with home cooked trader tools available on the wider price range in the markets today, very much unlike those HFT and algo inspired automatic anti-trades outlined in the new Michael Lewis book. (Narnia was written by CS Lewis ;)) Seriously, though the business of going bullish on India hasn’t begun much and some segments of the market could not be blamed for looking for an early correction. however markets are likely too low at 7250 and today’s moves would depend on all important results for Murli Manohar Joshi, State Bank of India, BOI and ITC. While the first two are likely going to have a neutral to negative impact, the latter two would take the markets as a whole higher. Sun TV also reports earnings as the Media sector is likely on the hot button list of plus movers right now as the short list on Consumer discretionary gets exhausted. Bajaj Auto is still hot on news of exports resuming with the shiny metal stocks running out others yesterday. Pharma and Healthcare businesses still offer fundamental value on explosion of size in the Domestic market.

I think Indian markets are mature enough to signal their dissatisfaction, if MM Joshi sneaks into the young cabinet, even as they remain tolerant of the new dispensation, because like the vote, they are today populated mostly by a younger generation, unlikely to fathom a failed patriarch in the midst of Modi’s scheme. LK Advani getting Home and Defence portfolio for example would have been a neutral action.

Back on the Financial news trickling in, SBI has probably overreached itself as has been the stock’s wont recently and would get primed down to 2400 levels post-earnings in late afternoon as it posts a flat loan book or increasing NPAs or both. ITC’s sales are expected to rise on retail and consumer businesses while BOI has turned the corner and markets will probably get an expected 20% increase in topline and a flt if not positive growth in Net Income with some NPA sales to the business.

HDFC and HDFC Bank priced itself out of the MSCI index as the bank scrip exits MSCI on continuing resrictions on HDFC Bank being declared a foreign entity and limits probably reached in HDFC as well. The expected double digit dip in SBI Net Income is unlikely to be neutral either given the PSU banks competitive comeback this quarter. Thus the Banknifty is short intra day but if larger positions increase attention on the Banknifty we could see cash flowing into the flagship movers of this bank rally in ICICI Bank, Axis Bank and YES Bank/Kotak.

In unlisted business, the expansion of amazon in India now has a competitive baseline with a INR 20 Bln deal from Flippkart to buy Myntra. Flipkart has already jettisoned 20% of its staff to get leaner for the fight but with bpth players relying on a marketplace model with independent shops and businesses creating a dispersed ecosystem, both are likely to grow independent of each other almost having usurped ebay’s model and business in this new ecommerce fortress/market among India’s Gen X and GenY( under25).

Power NBFCs and other Financial Services (Auto loan) businesses remain an investors delight any corrections good for further position increases but the current levels may hold for some time. Markets are likely to close above 7300 for the week but if a fast rise stops on lack of steam near 7325-7350 there may be a sharp correction in the coming week after markets open on Monday. IDFC is headed to 150 levels slowly and steadily


Indian Morning Report: Markets catch the bad eggs early, Modi sworn in on Monday

Markets caught the listed Morning Report villains early yesterday with PSUs getting a big early correction and markets sustaining the up move rather than jump to 7400. SBI however, probably with reassuring noises from Modi and Shourie insiders, caught fire again and closed at 2600 levels on being treated as a jewel in the crown and getting the required recapitalisation on priority. As of now however, technically no one from the new government is actually in position to deal with these issues as sh Narendra bhai Modi decides on his first team over the week.

Markets will continue up from 7300 and there may be a small correction in SBI too but shorts should exit the stock till it reaches new stratospheric levels beyond 3000 (when they will still risk getting trapped as Sensex targets have crossed to 31000) In the meantime the bank will be jettisoning more bad eggs to ARCON and other bad asset buyers. PNB also got an early reprieve yesterday on the same counts and followed SBI to an above 1000 close. PNBis a great short ( confirmed by Ashwini in the late morning picks)

Pharma companies, also as noted yesterday, came back with a big bang and IDFC provided momentum to the positive side of the market move while the PSUs including Coal India were rerated down after  a mindless rush on the upside over the weekend. Glenmark and Orchid Pharma are probably positive as Auro Phara remains subdued. Divis labs starts back from the bottom while IPCA joins in late s both follow Torrent and even Jubilant Life identified late in the rally.

In two wheelers we are still betting on the Bajaj Auto – Hero pair trade, Bajaj Auto remaining near 1900 levels after being ignored in the rally at its traditional top at 1948. ITC seems to be the one to be accumulated by institutions in the non IT businesses.

Mid Caps continued to rule their positives being easier access to financing as the growth memes take root again and markets , according to us , still looking ata  big risk as many cannot support the coming phase of steep growth fundamentally and choice of speculative multi-baggers opens the proverbial well (kuan vs khai in Hindi, the frying pan and fire being the universal translations of the metaphor) of despair led by over leveraged real estate and infra picks like IRB which have not completed asset sales to deleverage their current businesses. GMR continues to rely on aviation to get out of the rut.

Sun Pharma as always followed up on good news on Gleevec with the release of a warning letter from US FDA, consistently defying its backers for the last 20 years even as rival DRL lies in disarray

The stem in the rise of the Rupee brought gains back to IT as well and the same might continue a mindless exertion to the plus side today risking the fundamentally stronger banks and the down in the dumps auto/two wheeler stocks for the switch as indices will like to stay close to 7300 like yesterday till late afternoon. The top of the rally is above 7400 where markets would like to build a new level instead of keeping a bull rally correction, which is currently the expected result.

Chris Woods, continues to bat on the edge of rationality at CLSA, making smart comebacks as the easy rally remains simple to define and choice of available sectors is broad. Consumer Non Discretionary sector remains strong inthe indian GDP charts and may not be ignored in this rally. VIP and Zee Entertainment are likely to bat expectations of great results and at least the rally in Zee likely to survive in the longer term. Jubilant Foods may be out of favor but another short on it probably will cost the hype trades

Advance Declines may continue to try and balance out after a week of lopsided bullish ratios but opens at near 5-1 levels Energy companies and OMCs continue to face profit taking with Hindalco after DIIs confirmed they would wait for dips to buy.

That means the day will see Financial Services compoanies and Power NBFCs carry the burden of the bulls after a subdued week.

Off the bourses, the @PMOIndia shutdown may not be unwarranted as PM Manmohan Singh’s state representations are definitely not transferrable to the incoming PM but I guess Twitter can work on a generic solution. Till them I have no issues looking up @PMOIndia Archive instead but wonder what the official account handle should benow. I guess we won’t be chaning PMs in a hurry again!

India Morning Report: India’s “coming of age” a likely takeaway of 2014

Nifty moves on to 7200, the Sensex to 24000 on the bright sunny Tuesday morning even as the Banknifty runs out of moves and the Nifty looks around cautiously after the open at 7100. Foreign investors will double down on India bets as the currency again starts under 60 at 59.70 and Bond markets will likely oblige with a secular move down in sync with the growth rate picking up and a likely upward rating for India in credit, bond and equity markets as well as a lovely reprieve for Foreign Banks invested in the Rupee this year. Global investors are likely to oblige with larger allocations as the US trsrys get crowded and finally start up from 2.6% levels towards the end of 2014 , Bond investors finally moving into other avenues after neglecting the taper and crowding out the High yield markets to the extent that even Junk Bonds pay under 5%.

In the meantime Nifty option traders continue to enjoy a expanding range and the 8000 Calls have come into fashion with a big slam on Monday translating into an exit poll 272 led continuing of the rally in the intervening 3 day period before counting on Friday.  FIIs have also sold a few positions in Options in the meantime , to make the out of the money end of their deeper long bets as they chirp up on the news and get into their choice dozen and if CLSA is to believed some not so fundamentally sound “typical” India stories like Ultratech, L&T and SBI

As mentioned above, Bank stocks may be running out of moves in the melee esp as PNB gets ready to report another quarter of increased restructuring and slippages while others like Canara seem to have come out of the long dark tunnel into the light. BOB reports today as well and with its woes already a big negative, it may on the other hand even with bad results , become the pillar of expectations for the average Joe Punter out in the “virtual” pits , electronic trading making instant analysis easily available

HDFC (for HDFC Bank) and ICICI Bank continue to lead sentiment, Axis taking on the almost traditional role of substitute as the large cap stocks start capping out on slowing momentum after a precipitous rise in the prodigal rally as the Electorate returns a decisive result with a likely encore for the new government, improtant for power and other infrastructure sector investments.

Positing on Maruti in these climes looks the unfortunate thing that will grab and crush a few balls if indeed markets continue without succour and so interest is likely to remain superlatively in affinity with the new winners in the dozen like Yes Bank and IDFC even as we wait for real results from the Auto sector and the rally continues after the government formation is over and consumers return to an atmosphere of certainty albeit in a new government with equally dictatorial memes as the autocracies in China, setting up for some interesting dog fights in the public media within India inc and within the government with or without having to buy the last few members into their coming NDA 3.0

A word of caution for baiters among Joe Traders out there, “MODI TRADES” are unlikely to offer short opportunities even in inopportune and pretty ramshackle choices like Jain irrigation and may hide a few upcoming gems like Zee and Adani which will likely also shine because of fundamentals making them FII darlings down the line apart from the ratchety cling from government patronage. Reliance will be interesting to watch esp with the new claims on an old government’s pricing policy while it also enjoys the fruits of India’s recovery and an expanding corporate and retail consumer business to finally back its expansion in Energy and now retail, Banking and broadband.

I would continue to back Bajaj Auto, Bharti and ITC for now among the non infra, non financial services sectors. I see no hurry in rushing Power NBFCs from where they have already reached at 9.30 and no undue reason to enter markets now even as indices definitely look to close 2014 above 7500-7800. Markets also look deeper into the IIP and CPI data as the Core CPI data includes Services which continue at around 8% higher and food inflation is looking at “new windows of opportunity”

Goldman Sachs and others also back the doubling down in the Bond markets even as the Rate Cut analysis is likely to become prime fodder in the debate with the Guv who is likely to hold out on rate cuts given the consumer markets staying subdued with sharp inflation pressures. Fixed income yields will have to lead from the markets for the macro to heal even in the confidence on the new dispensation. The currency trades will automatically give a fillip to both bond markets and long standing illiquidity in the CDS markets as the availability of the attention variable allows easy comparison and tracking of India yields globally before its eventual consummation into any EM or Global Asia index. If Exports start and continue a rhythmic recovery , the currency may well return to 54 marks where it could not sustain in 2010-11, last in 2012.

India Morning Report: Will 6800 mark a heartbreak for the rally?

The markets are evenly poised again after a quick Monday morning move to 6800. Indices like the Banknifty however went thru a minor break in the week past and recovered only on Friday to 12850. SBI for example is the key to many hidden not so good fundamentals stories the markets wanted to slide past older marks in a no holds barred rally and will likely continue to cede marks even as Bajaj Auto remains positive during earnings month and joins bets like Bharti Airtel and LIC Housing ( upgraded on date by Nomura) to keep the positive momentum of the markets even a san extended wait to counting day keeps investors on edge. China is back in the Investors rangefinders as they look to snipe gains backed by the new stimulus engaged by China. India remains second to Taiwan in FII inflow charts and investors are already on hold with hot money purveyors and lower quality FII relationships proving key as Participatory notes become the order of the day again.

Power NBFCs look like having crossed major hurdles on price charts with REC ahead at 250 and LIC Housing seems to be looking a t good earnings again. The Good earnings stories will slowly crowd out the market favorites again this week and markets will likely use the time to exit bad stories like SBI that are unlikely to make a comeback or IT and Pharma as they top out with the Rupee stabilizing at 60 levels again, without threat. It is good to see the Domestic Institution turn buyers before the FIIs leave and it is also good to see a burst in market volatility that seems to have favored positive moves in the market overall in the last two weeks in what would be a unique advantage for India markets

Reliance seems to have been at the wrong end of the new deal again as Investors hope for a back braking laden quarter from the old bellwether as investors remain hocked and look to make up for interest payouts from the stock move, leaving it actually stranded at 860 levels(result day, 960 on Friday) as it reported moves in its INR 330 Bln Telecom and the INR 150 Bln retail investments. ITC on the other hand could join YES Bank and IDFC again in moving up positively throughout the week even as HDFC’s Foreign status hits HDFC Bank’s move to increase FII Limits and IDFC goes about setting up the NOHFC/New Bank structure and pares FII holding to 49% at 120 levels on the stock.

HDFC Bank is up for rerating of its weight in the MSCI index from 5.78% in May by two thirds based on the Free float calculation for the FIF factor. HDFC remains FII owned to 73%

The Global deals seem to be more than clouding the markets again even as the Diageo offer for INR 120 Bln for United Spirits makes the USL investors good with a 10% rise on open. A similar move in AstraZeneca in the call auction looked a trifle premature unless markets know of any more firm moves by the global parent for the Indian listing. Pfizer bid a $102 Bln for AstraZeneca and that would be a wrong story to back in the markets given the tangential impact on Emerging market and India plans from the deal. A good market practice would be to be a little more circumspect about blue sky deals and announcements in the global markets, like the Hero move to invest in Latam which is likely to be cash negative for time to come and the way we have subjected Bharti Airtel to strict checks and balances thru its buys in Africa four years ago.

Tata Global looks unlikely to score again as it flirts with old 155 levels barely out of the zone at 158 and SBI seems to have recovered investor faith till news of a bad result push them away for a brief time at 2050 levels

India’s Forex Billions (Reserves) hit a new $309 Bln high on Friday.

India Morning Report: Markets start the day at all-time highs from 6400

Though, it could have been better for the fundamentals, markets have not caught up to earnings increases over the last decade and will probably keep the gains in this weeks rally as the Rupee finally responds to buying and moves back to 61 levels without showing signs of tiring. As it moves further along to the top of its range to the 60 mark, consolidating yesterdays gains over another week, the currency does have a limited headroom as the Dollar Index is trading below 80.

Banknifty and IDFC are keeping their gains and moving north even as the indices savor a moment at the top and a lot of the individual stock memes switch , with Energy and Pharma both offering unique ignored opportunities that may well be taken up, without ruling out the better consumer scrips consolidating to new price levels or for ICICI Bank and HDFC Bank ( including a final decision on its cross holding by HDFC , still pending for renewal of its Foreing investor limit)

In Consumer we continue to back Bharti , ITC and Bajaj Auto. Yes Bank seems to be popping the champagne again, while the real estate pack will lead the way back for a quicker correction if interest in the sector runs up a bigger tab

ITC may again start up from 320 levels , if you are a trader and need to offload the stock currently. Bharti seems to have a new partner in sight for its retail JV( which I will tell you later why is not the ideal reason for backing the stock, like its financial foray earlier) but there are more fundamental reasons for owning the stock

Exiting DRL is a good idea at these levels

A lot of cash stocks have steam trading much below their lifetime highs despite good fundamentals like GAIL while the PCR is also a bland less than 0.9 with PUt OI still being extinguished , probably a precursor to Puts being written as confidence in new levels increases in the Indian markets , as they lead a global equity rally with the Dow a little behind as it is already at record highs. Markets have a long week ahead next week before 6400 Put writing becomes economic and the markets rewrite 2014 forecasts.

India Morning Report: Agricultural subsidies are a Global Constant, bullish trend remains

U-Car 2014

Sugar Export markets ar unlikely to ruffle any other segment of the market as the issue of agricultural subsidies was settled for good in the latest renewals by Asia and EMs led by India and continuing noise on farm subsidies are likely to be brushed off by most including customers of Indian sugar. The government has approved a INR 3.3K subsidy for 4 mln tonnes of Exports of sugar in February and March.

Of course, India’s battle with Export competitiveness is past most winnable battles and we are just increasing our tendency to be a worthless ( in terms of premium) commodity exporter, as is the wont of most resource Economies as well with far more disastrous Economic consequences like Brazil and Indonesia.

India will never be confused with the likes of the same despite setting at 4.5% and 4.9% growth in two consecutive years of GDP growth and a 25% decline in currency repeated twice in a block of 10 years, a far mitigating circumstance than Brazil or Turkey’s Economic history and one could have also included China in that list but for the almost independence of policy and execution in a democratic form of government.

India equities maintain a bullish trend ( to 6100) as a cognition of far reaching reforms did barely enough to pick outstanding dozen or so large Cap companies, usually more than enough for any broad market to survive.  The missing depth cannot come overnight and Investors are more than satisfied with the new crop of 2010 IPOs in the Consumer sector including Thomas Cook now dealt with, and Page and LL continuing older trends. That also means scrips like ttk , Titan and others that do not represent the broader market will not recover interest and those with very wide off the mark correlations to sectoral growth will not be propped up despite weak governance and order book issues at L&T and BHEL. Crompton Greaves trade is likely to sustain as the Investments and Capital Expenditure segments of the GDP stay in focus.

The Rupee started early yesterday catching the advantage of depth and domestic markets back to the Indian Debt and Equity capital markets, as a US long term bond auction also registered a new faith in reduced tapering promised by the Fed, allowing Global investors following the risk money to come in without the wait and watch chip reducing their participation

Citi is betting this will transpire in India having come out on the CAD front after extended delays and qualifying others dependence on Foreign debt skewing the CAD dependence factor, however it likely to be secular Dollar dependence worries for such resource Economies which will again qualify India ahead of the “EM Basket” and China as well in this year, though on a smaller order of magnitude of FDI flows.

I would also think the Tata Motors bull trade is vulnerable to falling off sooner. However, immediately Cipla’s results have extended the trade in both Hero and Tata Motors apart from individual stockpicking decisions.Cipla reported margins that are 600 basis points lower.

India Morning Report: Markets listless orphaned by a Superbowl

Superbowl sold tickets for cheap in the snow

Asian Markets are closed today and lack of Foreign investor interest on Monday Morning leaves an India open totally listless at 6100 levels and falling again, struggling after a brief respite at 6050 last week. IDFC results were inconsequential along expected lines with no fresh disbursements in this financial year but the stock has only upside left at 93 levels where it closed last week post results as it remains the only empowered player not dependent on infra approvals and a fresh book of loans in the pipe likely. Loans continued to make a better ratio of all NII at the Bank as spreads showed up resilient despite a bad interest rate environment in the nine month period reported.  Retail interest aside, the stock will remain on Institutional buy lists for time to come. It’s large provisions also make it a great equity investment with the Provisions unlikely to be called and can always be reduced prudently. Non interest income remains slave to PE principal and proprietary trading business

The Rupee starts the weak on such rumors where the deciding NDF market actually feeding on the panic mindset in low trading volumes and the onshore markets trade down but only for the morning after as the Superbowl even that draws a 200 mln audience in the US and around the world has ended minutes ago and investors will be back to a market fairly under priced by the recent pitai (hustle-bustle/buffeting not to be confused with the sage of Omaha’s investing interest)  Bank Rate will remain higher for the majority of 2014 , the prospect of rate cuts being pushed back and there being no prospects of improved transmission of monetary policy with yields pushing for higher dollar depreciation despite the RBI efforts to clamp liquidity which has time and again proved more amenable to intuitive policy than a counter intuitive rate hike move to tackle measures outside Central Bank policy. However corporates borrowing in ECB might actually be able to break the ice in terms of getting older level low rates and break the impasse eventually with increased investments (starting to flow in consumption sectors) and RBI , maintaining a new inflation hawk stance would likely have to hike rats further after the 200 Marginal channel cation and announce a veritable change in stance on rates first.

REC had started up Friday and Powergrid should join in after mi d-day if the sentiment indeed looks up. The Equity rally in the Global Markets hit a big snag in January and that is holding markets back awaiting  a confirmation of investor interest with FDI having exited Emerging markets like Turkey, Mexico, Argentina and Indonesia in a hurry with Turkey coming in midweek last to raise rates by 4% to near 12%. Goldman Sachs is in trouble again having started their own EM investments in losses having chosen MINT’s obfuscated markets and a deep and dead in the water China over India’s liquidity given the cross winds. The Rand(South Africa)  also closed above 11 to the Dollar for the first time in January.

However Emerging markets sentiment is likely to get into it in a couple of quarters from here and India will remain one of the best performing destinations having been unaffected in the post taper trade in January if it maintains 6100 levels or at least stays above 6000 levels

PNB scored great results having come in counter cyclically on raising provisions in a known strategy and NPAs under control in a rapidly deteriorating market sentiment for Banks shoring up investors to its ferry/rafters and trades 10% higher at 550 levels still a strong buy. Banknifty starts the week near a low at 10150 and is good for the trade up but one should be watchful with ugly quotes (in both the 10000 and 10500 series) in the bid auction market still holding an initiating trader to ransom with option writers playing ultra safe.

IT stocks are still overbought and Infy should retrace 3600 levels and even TCS should come down to realistic levels (but already at 2200 levels) as the IT/Outsourcing axis is not coming out as the GDP’s saviour this time either. Volatility levels are hardly material at 16 in the current rally agains 14 in the previous segment in December ’13

Energy stocks should start the climb back as and when markets stabilise, GAIL having  started the year smartly. Glenmark and Cipla/Lupin lead the Pharma rally that continues despite an ugly breakdown in Ranbaxy and Sun Pharma. We still do not believe in a robust Arvind Ltd comeback on USPA and other new limited franchises inroduced by the team since 2011. Tata Global Beverages remains a hold but the magic is still in 100% go it alone investments in India ( which are still a far cry from the carte blanche leading to exchange rate breakdowns in LatAm and SE Asia in recent EM history) Aurobindo Pharma on results and Lupin on announcements today provide good portolio picks along with Glenmark which has only $500 mln in overseas debt and among companies tapping a continuing generic opportunity in 2014 with a new pipeline

Interest in the IPL in the meantime continues strong esp evincing interest from global players in the playing XI and a fresh re-auction for all the 8 franchises picking up steam soon after the spectrum auction closes. ING and OBC related good Q3 tales as were also employing covering strategies but have not started lending/stopped losing on NPAs. Yes Bank may not fall back to 280 levels and accumulation is advised at current 300 levels. The BOI /BOB story broke down in January itself as we foretold with both banks still addding NPAs in droves. ICICI Bank’s INR 45 Bln ( including INR 30 Bln pie in restructuring) included the bank can survive the pressures with relative ease having also been proactive on definitions than the PSU penchant for playing it by the ear and losing continuously losing investor confidence and investor money as far as its favorite proprietary traders are concerned who lose another constituency in an unplanned bull attack with construction stocks Dlf and unitech still in a free fall after the ill advised run

Energy Markets react positively Midday

Gas stocks reacted positively as Petronet LNG produce became free to sell to industrial users and IGL and other domestic distributors esp IGL getting commitments to cheaper Domestic LNG in the new pricing regime. This also means domestic CNG in all markets including Mumbai where already 100% domestic gas was supplied prices of CNG and PNG were reduced by 30% and 20% while increasing IGL margins. Petronet imports LNG and will no longer be getting custom from IGL which Delhi used upto 33% imported gas

The move was a n expected one with a new Minister coming back (Moily ) in a sensitive election year . Moily is also expected to facilitate large project clearances with changes at th e Ministry of Environment (EPA Act bottlenecks)

GAIL shares the good news as renewed pressures on its subsidy costs will likely subside as it supplies to city gas companies and others at new revised rates and the policy is deemed stable after LPG quotas to residences have increased to 12 cylinders per year and gas TX likely to increase volumes with good results reported Thursday

India Bank Earnings: Is time standing still for ICICI Bank ( Q3 2014)

FY 2014 saw another quarter of rising NPAs profits standing still ( up 1 %  )sequentially at INR 25 Bln even as Net NPAs closed in on the 1% mark at 0.94% and new restructuring pipeline still another INR30 Bln though the bank does not expect any restructured loans to come back into Bad Loans. NIMs on the international portfolio remain poor 1.7% with 3.67% Domestic NIMs a 2 basis point move up on 2013 December scores. Domestic Retail portfolios jumped at 28% were dampened by the expected shutdown in Corporate Loans at 7% (calibrated approach) Reducing Provision cover also contributed to better profit. Even with similar NIMs, profit growth should have come in sequentially and even on year comparisons show continued 10-15% grow in Profits only.

NII is up to INR 42.55 Bln but apparently fee income is still potentially up for larger gains at INR 28.55 Bln and NIMs represent a larger share of the total loan yield. Insurance profit of INR 4,380 mln from Life and INR 770 mln from general. Retail Portfolio for the bank is 22% higher with 35% growth in Auto loans. Unfortunately Financial statements releases in India continue to be delayed with only ADR investor conferences transcripts and detailed analysis will wait at least a fortnight from today

Gross NPAs have come down as percent of advances but fresh slippages to Net NPAs counted another INR 12.3 Bln. Branches are 3588 (highest) and 150 new ATMs were also added. The bank has adopted a new one line objective of bringing up Efficiency with Cost below 40%. CASA deposits have also grown 17% keeping it ahead of industry

Rupee impact: The Free fall continues, small snag on equities

A world map of countries by gross domestic pro...
A world map of countries by gross domestic product at purchasing power parity per capita in 2007 from the International Monetary Fund. (Photo credit: Wikipedia)

Unfortunately, with India inc again adding only probably less than 10% of its External Borrowing Capacity in debt, the Rupee and the equity markets have consequently snagged on the  Asian free fall, and now pro bably rupee has a trading target of 4-5% in this move to achieve the new 2014 equilibrium. While the stabiity is currently lacking it is primarily because for the Rupee it is not a daily volatility that is germaine to the currency markets and the trading range is much smaller than the other asian markets while it is still not picked upa s foil to the ultimate managed currency the Yuan which is a precipitating event of greed in the “Currency Wars” mechanism

Having said that, if one were to herewith propose a new rupee exchange with its limited degrees of freedom, the government cannot and should not bother about stepping in till even 65 levels and find meanwhile a longer run solution to the CAD, while the markets will take the Rupee down to 65 and fundamentally destroy the entropy required for recovery to resume in the aftermath and while it may be a jurassic/triassic notion of yore , destory the eigenvalues of Purchasing power parity much before the global market engagement is  increased   to a true equilibrium.

Mumbo jumbo apart 58.50 should hold because of the stability of governance and the defeat of inflation but if it is whirled through the week, it will tip to 60-61 levels and thence may not ever return to anywhere near Friday exchange levels because the fifth of GDP that is exports will straddle the rupee for the remaining term of FY14 for Global trade agreements for the year

Graph of the Gross Domestic Product GDP (at Pu...
Graph of the Gross Domestic Product GDP (at Purchasing Power Parity-PPP), per capita, as a function of per capita Toes. Year 2004. Data available online at (Photo credit: Wikipedia)

On the equities front, today’s event of correlation in moves actually mirrors the hidden correlation in capital moving out primarily from debt and in probably a stabilised form of market prediction from JP Morgan asking that the recovery bottom has not happened and will happen till now. While the RBi therefore is discouraged from rate action next Monday, it has put in motion a cascade of rate cuts which it must follow through and avoid running into damage control esp as Fixed income Markets will continue yielding lower on higher demand despite FIIs leaving Indian debt in the first pike exit of QE linked withdrawal from Asia as the lowest volatile investment and thus unlikely to produce ‘abnormal profits equated with Asia’. The PPP map of the world in the meantime as reproduced here from a long left to be updated web provider of images shows the fast losing relevance of this indicator and probaby needs a trading measure to it to harness its gains.


Late Morning trading strategies India July 18, 2012

Tata Global, Torrent Pharma and Dabur also report on Monday and are hot for a pre results upmove. (Torrent Power is the bad boy and may drag torr Pharma only later)

If you know Merck and Container corp they could actually be post results movers.. again results are slated monday and Tuesday Merck has alrdy been moving up but unlike others may not have abig level.

Dabur (Photo credit: Wikipedia)

Page Industries reports Tuesday and should be continuing strength or that stock becomes an old story long gone

Zee News and Zee Entertainment report separately, DNA reports under Zee News

BAJAJFINSERV ist the big mover and offers intraday score. LIC HOUSING should jump further to even 277 for a sell on Reults next week. ING, YES and KOTAK wait for a move from kotak’s results tomorrow.

COALINDIA is hunkering up and 360 is today;’s level regardless of Nifty ‘s direction. I am worried about the market because of Reliance results looming tomorrow but despite expected beaten margins in Oil refining , Singapore itself at $5 [pper barrel, the scrip seems to be set for an intraday move up .

In sum, get long in ICICI BANKA nd IDFC, run with AXISBANK ont the rebound, and if youare invested in Merck thenthat should be enough but  otherwise Bajaj Finserv and Tata Global are set for the bigger pop.

GMR and JP ASSOCIATES could outperform as once he infra run starts in the afternoon. BAJAJ AUTO will  move up on results as 1433 is its lowest price levels, if dumped it could go down now to 1200 levels.

India Morning Report July 18, 2012: O if only Pranab Da was the Sensex!



English: Source: http://georgewbush-whitehouse...
English: Source: President George W. Bush meets with India’s Minister of External Affairs Pranab Kumar Mukherjee. (Photo credit: Wikipedia)

Mr Pranab Mukherjee can possibly land a 73% vote in the Presidential election later in the week as Mamata Bannerjee capitulates for a fellow Bengali. Early monsoon worries caused a big hole in the states of UP, Punjab, Maharashtra and even Rajasthan with more than 50% deficiency but Foodgrain production is already 257.44MT for the year ending June if government estimates are believed with Record production in Rice(104MT) , Wheat (93MT), cotton and sugarcane keeping prices down in the meantime. this last estimate has been revised upward by 5MT from April.

However Nifty’s rangebound worries have initiated more correction calls and already stopped out some shorts at 5200 where it lies in wait, as the most undervalued emerging market and also as the fastest growing Coke market where Coke and Sprite both grew by more than 30% The MF reforms are going to come in with commissions restored but the usual halfway house on the bridge of expectations draws a line in the sand for what uptick you will get from further policy pronouncements. The macro Indian story has to celebrate but next year is going to see contraction in agri production with Sowing in crops down from 10-30%. Even in hot commodities like sugar and cotton, the downtick is there though just 2-4%(in sowing)

India is still 15 points ahead of China in the Nielsen consumer confidence. However IMF seems to have given it the thumbs down despite keeping growth estimates north of 6% with India’s Fisc targeting a number the same as Ireland and higher than Spain , vying for the 8.9% mark in 2012 behind Japan’s tsunami restructuring funding and not likely to improve in 2013 either , making mockery of india’s budget estimates brazenly, giving Moody’s and S&P fodder as they are set to evaluate the india rating in the next 8 weeks. Guar seed is the only commodity doing well though the shutting of the Straits of Hormuz mean Oil could march ahead again. India’s trade deficit data for June found Oil buying missing ahead of a probably ban on Gold imports to $10B from $16 B in the month of May

Bajaj Auto reports today and Hero Motocorp follows tomorrow while non discretionary consumer companies ares showing health in Sales and in marketing spends at 12.9% for Marico

Dr Reddys and HT Media report this week with JP Power closing out on the weekend with Q2 numbers. JP Infra is poised to report the Yamuna expy opening as well. Monday opens to expectations of good results from Colgate and HUL. TV18 also reports on Monday followed by the Pizza guys and Dominos franchise holder  Jubilant Foods on Wednesday when the IT saga unwinds with par for the course HCL Tech results

Smaller banks Karnataka Bank and Bank of Maharashtra report this week then ING, Canara, LIC Housing  and SBBJ set the stage for the big Yes BANK reports on Wednesday (24th). Kotak Mahindra Bank reports tomorrow.




Morning Trading Strategies – India July 12, 2012

Sell INFY in the morning even if you get high 2380 levels as the cut would go deep

Buy BIOCON and buy the banks esp stay in your holdings in HDFCBANK. Auto shorts are unlikely to give too much in returns, Healthcare and Consumer stocks should be buy on dips. CIPLA my stay up and SUNPHARMA shorts work for the street though keep a tight stop loss on the same.

Buy a few Nifty Puts at open regardless of any strength you see, do not buy Banknifty puts and if you are tempted to sell a few puts to lock in the banknifty levels it could actually work but then it is temptation

Hopefully by 10 AM you have started biting Nifty Calls

Fixed Income Report: India back as flavor of the year

Global sentiment has again turned in favor of India as a leader of the trend of survival led growth, thaat is bleeding the best of developed world markets dry with expectations of QE fuelled growth that are increasinglytemporary growth humps on the chart and trending down like a dampening whale’s breath on each injection of liquiidity.

हिन्दी: ताजमहल English: Taj Mahal, Agra, India...
हिन्दी: ताजमहल English: Taj Mahal, Agra, India. Deutsch: Taj Mahal im indischen Agra. Español: Vista del Taj Mahal, Agra, India. Français : Le Taj Mahal, à Âgrâ, en Inde. Русский: Мавзолей Тадж-Махал, Агра, Индия. (Photo credit: Wikipedia)

Put in simpler terms the yields from $100 in first round of QE is probably as much from $230 in the second round and now that most have more than $1000 invested and are getting half the strength expected to continues in housing and treasury markets, the Indian yields are good to be shopped leading a trend down, though RBI was also mopping extra liquidity out from the markets in today’s run

Indian spices
Indian spices (Photo credit: Wikipedia)

The Indian Auto Sales Report (March 2012)

Tata Motors seems to be a big winner of the March sweepstakes ( Is that Primary sales and build up of inventories to support a lost cause or true sales, will become apparent by May or June) Pass. Car Sales are up to 36,854 up a third from last year and at least 7000 units from February alone. Nano alone crossed 10,000 units in sales.

Many carmakers expected the prebudget spike in Sales for coming increase in duties. Also the increase in duties may not necessarily hurt retail sentiment in April 2012. Honda was back in March with more than 11,000 cars sold on back of the Brio. Etios and Liva took Toyota to more than 18,000 a 12% increase month on month and doubling from 2011 numbers. Innova still sold 6750 units in the month.

Audi reported a 1000 units sold for the month, probably tax planning for some. Maruti sales were up 6% on month again to 113,000  plus another 13,500 in Exports as Nissan overtakes Vento to #3 in Sedans and City maintaining a 26% share of the market in big cars Maruti exports equalled Hyundai exports at over 13,000 taking Sales to 126k from a 77k low during Q3 2011. Diesel trains continue increasing int he sales mix

Hyundai not to be outdone reported a little under 10% growth from February to more than 39000 units. Ford, GM, volkswagen and Nissan which no not have a single export stat in them lost their various leads and hiccups to bunch around at a little below 10,000 _ GM grew to 9,300, Ford lost momentum over last year to 9,000, Nissan caught iup to almost 6000 in a little less than 3 months and VW almost aught up to 8,300 and normally you would add Skoda to that number.

The weekend has probably extended reporting times for the month’s auto sales at end of the fiscal.  GM has not been happy either in India or China and Ford ready wit h a new plant inaugurated last week for adding 275000 powertrains ( petrol and diesel) to its India Capacity. Nissan has already started exports last month

CV Sales at M&M and Tata Motors also continued to show near 17-20% growth on the 2011 numbers. Volvo/Eicher selling 6000 units, M&M 47,000 incl its 23,000 odd MUV sales and Tata Motors 58,000 passenger units in a 103,000 odd for the month.

Two wheeler sales also likely to hold at 565000 for Hero, 365000 for Bajaj and 200000 for the new #3 Honda. Hero reportedly losing confidence over Honda’s aggressive promotions in the economically affordaable segments while the Bajaj estimate is a good 3% over its highest score yet.

India 2012 FDI Reports – Curtain raiser

Though details are yet available till January, the rearly momentum in FDI and the now value equation in India’s Financial Markets has again meant renewed inteerest in India FDi though the buck stops at retroactive amendments and the recent clarifications on FII portfolio investments thru P-notes a s a measure of investor confidence. In the last three months of November, December and January more than $5 bln in FDI was reported despite the ongoing saga and domestic credit growth also belies expectations of a slowdown at more than 18% growth.

January FDI of $2 bln mostly Added to Services sector for $1.3 bln and Infrastructure construction projects of another $600 mln while there was also a solitary software project investment for $100 mln

That means there was no FDI in sectors like Automobiles, Power and Pharmaceuticals / Healthcare unless new projects have been added in February and March buit these sectors will also contribute further in FY2013 alongwith Financial Services and Transportation/Travel and the ongoing impetus in Infraastructure witht hte first two India infra debt funds, one with Citi and another with HSBC in play.

Ten month FDI totals have hit $37 bln and Feb and March would at least take it to $0 bln for the Fiscal.

India’s Fiscal Deficit in the meantime hit a few flood signages on way to INR 4.94 Tln for 11 months in FY12 from a INR3.68 tln for the full year in FY11 which was a humongous 68% of the Budget estimates against this years likely overshooting the Revised Estimates of INR 5.15 Tln CPI Inflation was a high 8.8% in /february and thus WPI will also climb from March and April risking the rate cuts planned in early part of the fiscal by RBI

UB SALE to Heineken, and other voyages of the Indian spirit

Wow O la la la leeeey o! My Kingfisher beer is safe thanks to Heineken getting to buy a13% stake in UB from Vijay Mallya’s 23% stake. The other 14% or more stake in the spirits major lies with UB holdings. Vijay Mallya’s personal fortune adds nearly half a billion or INR 25 bln ( $500 mln) at the market price of 545/-

And of course lot of leis from the Hawaii layover ( just la la !)being added to my map but then Heineken had been trying for 5 years now or am I a little tipsy! There is no aloha here in India, desh even in New York or anywhere else except Hawaii! Maybe Vijay Mallya and Lalit Modi can set up a new League there and let it be! Mallya’s KFA is unlikely to survive with anluy 20 planes and now half the operations shut down.

Similarily, another indian experiment lying low, on a series of bad puns, is Tata Motors with Landrover sales obviating sales figures of any Jaguar models or cars back home even though the new Nano is selling nearly 6000 units a month and has a 800cc version in the works

The “sell out” (OUCH!) gives majority control to Heineken and access to 66% of india’s beers and probably more share of its Whiskies and other white & colored liquors capacity W&M stays on the chiopping block in its overseas holdings for a minority stake.

So are P Notes in or out

CoA of Mauritius Français : Blason de Mauritiu...
CoA of Mauritius Français : Blason de Mauritius Deutsch: Wappen von Mauritius (Photo credit: Wikipedia)

Well, i understood it thus. There were first the Anti avoidance rules called the GAAr rules which were intended to catch those who benefit from the treaty in Mauritius without belonging to Mauritius per se , with a token presence not backed by assets or business i.e. Offshore investors. These offshore investors have been targeted.

Two, in the clarification on Overseas M&A transaction involving india assets, the intention is not to cover P Notes because underlying equities are Indian Assets. So that piece was unnecessary walk in the park while the trucks were running up and down and you could have all avoided the noise.

The real rule details would thus clarify how Portfolio and FDI investor would be welcomed and how revenue leakage from Maurtitus a s a treaty participant, which remains the key example, would be taken care of now that the new treaty signed has included only token changes at the behest of the Mauritius government. And no clarifications are available yet. We are looking.

The miss India missed to nail down again

Rather to the detriment of the Indian purse strings which are a little stretched as always, we were unable to even attract real portfolio FDI in this current run on Equities, with $7 bln hardly enough for the kind of momentum we talk to. China definitely has the edge on infrastructure but more so and back on the same drawing board, it is our spin control and inability to adopt a senior group of such investors and give them what they want that is the problem why we at our best our no more than a 5-7% in the MSCI Asia index.

Indra Nooyi
Image via Wikipedia

We need to cultivate mroe than the process and more than our seldom far out daspora like Sameer Arora and indra Nooyi / Vikram Pandit but more so, we need to sit with just one group of a dozen FDI and FII investor advisors ( just the latter is required with a commitment to bat for both FDI and FII) and not just feed them the public press but go all out to make them commit at least one fifth if not one third of their global investments to this new #2 in 2050 as reports mark our future growth. It is what the ASEAN and more importantly the Chinese have done right.

English: Vikram Pandit, Chief Executive Office...
Image via Wikipedia

The mandates, and they are not banana republics or banana billtons any of them, just the mandates hwne given have been complete and thus the investors were able to roll bigger cash into the Taiwans, the Turkeys and even China, poor at $10 blna month in FDi and considerably much more in Portfolio investments at the low end of the cycle with local governments, fund management companies and despite pecuniary duties on imported auto which does not stop th others from brining int he big investment to China

And why did Amazon come by underground sea cable?

Image representing Amazon as depicted in Crunc...
Image via CrunchBase landed in India ahead of its First fulfilment center as its own internal business models are delightfully more complex than the country’s FDI,. sales tax and excise regulations. While packaging centers may get into excise inspector brouhaha with the Supreme Court adjudicating ( Freaky Friday Speculations)  adventurous Amazon executives may also be wary of getting subjected to multi Octroi, Sales tax and local taxes ahead of GST roll out in the country.

At least those are the typical silly stuff one avoids by starting a totally desi business in e commerce thence it can be sure of getting what Fabmall and now flipcart are getting in terms of taxes and accounting.

the testing of waters with is however more likely to backfire till it comes with its full range of shipping made available at a safe and reliable Indian customers a re a ticklish lot and though they suspect nothing in government and business is above board they by and large do not expect to partake of that in their daily lives. We did not welcome the Apple stores till the latest iMacs and iPhones (iPods) were available simultaneously and we will not let Amazon get by on ebay like

Amazon founder Jeff Bezos starts his High Orde...
Image via Wikipedia

FDI wise , trying to escape a multi brand regulation framework is going ot be impossible for amazon and waiting for til 100% FDI is allowed would be one option that India phobes have shown favor for but likely that will only lose them more business in the World’s #2 English speaking Consumer market. The loss is all yours as Chindia trundles along. itself came and left back in 1996 and now will feature 12 million products from 14000 brands to keep the portal available, but consumers are likely to wait till Amazon can get a clear decision, esp if it can introduce Prime here, international shipping is a bore and a real swindle on a retail shopper’s budget as Jeff Bezos would understand

Fitch Banking Report on Asset quality

Cyclical downturns in Textiles, Steel and Real Estate continue adding to asset quality concerns . Power and Infrastructure company concerns could continue and balance sheet rported asstes as per new PSE systemisation to 3.5% and Total NPAs coul d be as high as 10% as per Fitch.

Going forward Fitch reports on better days in light of the growth returning to the economy and seets position would not worsen for the larger banks esp not in agricultural sector but others where stressed assets have already fructified.



LVMH makes a commitment to India

Sanjay Kapoor’s move from food forays to luxury chain Genesis has worked well from him. After the failed multi brand FDI proposal,  LVMH brands operate under a single brand luxury store model in India while Genesis operates Canali, Just Cavalli, Paul Smith and Jimmy Choo stores. The current round of funding had competition from Reliance and Parcos.

Genesis is already sitting on funding from new to the field L Capital which owns 25.5% of Sanjay Kapoor’s luxury lifestyle investment. L Capital is also a LVMH venture in luxury PE with Arnault of France The new investment will be routed thru Sephora another Moet Hennessey Louis Vuitton subsidiary

Genesis Luxury Fashions will operate the new Sephora stores operating cosmetics under a multi brand portfolio of skin care, fashion, bath care, perfumes and hair care Groupe Arnault is LVMH owner Bernie Arnaulte’s personal vehicle for funding and control over global luxury investments

English: LVMH Building (Berluti, FENDI, Louis ...
Image via Wikipedia

Genesis brands Paul Smith and Jimmy Choo are still likely targets for Bernie Arnault for investments. It licenses Just Cavalli lines globally. Jimmy Choo PE Towerbrook put it up for sale thru Goldman Sachs and Morgan Stanley in early 2011

Sephora’s multi brand selll model is duplicated by another Bernia Arnault operation in DFS which is bdding for a new airport project mall in India India’s Luxury market was estimated at $280 mln and growing at 22% by AT Kearney in 2010

Godrej gets a Temasek vote of confidence

Baytree’s investment into Godrej consumer underlines the long pending second line of investments to be made by the Asian SWF in India and other growing economies of the region.

Godrej is issuing 10% equity or 16.7 mln shares in a preferential allotment to the Baytree arm of Temasek at a good $8.2 price or less than $6.30 if you consider Indian rupeee’s expected levels of INR 65 to the Dollar $$) The equity makes Temasek a 4.9% investor in GCPL, Godrej Consumer. The new Rupee 1.00 par value shares will help the company fund and stablise their acquisitions in hair dye maker Cosmetica in Chile and last year’s acquisition of African hair care firm Darling.

Cosmetica for example cost GCPL a hefty INR 10.8 bln for its $36 mln turnover but will add INR 2 bln in profits

Temasek Holdings
Image via Wikipedia

every year after the acquisition is completed. African Darling is thru one phase of marger integration as per Adi Godrej and likely to complete integration by 2013. GCPL grew revenues at 36% from December 2010 profit growing faster to INR 1.67 bln for the entire company growin g12% volumes in the Indian business

Adi Godrej’s interview in today’s DNA is available here

The company has acquired domestic brands like Genteel and Swastik, haiir color Rapidol and accesories Kiny in South Africa as well as Tura in Nigeria and an insecticide company, Megasari in Indonesia

English: Adi Godrej at WIEF
Image via Wikipedia

The company has made a comeback with its pure soaps in India, growing volumes in soaps at 18% in the latest quarter and Magasari’s innovation will likely be introduced to compete with Good Knight in India. Godrej also likes to talk about its 1-2% R&SD spend and may want to grow the advertising on its brands in line its new mores , probably for its proefessional hair brands in which it has increased spends and M&A purchases.

While Malaysian Khazanah has just changed its charter from a Energy rich SWF to a diversified fund and may be more interested in smaller/monopoly plays in smaller Indo China economies, Temasek continues to farm the big money in China, Singapore and India.

Korea will probably make its own surplus SWF investments but still needs some inward interest from other SWF funds while india’s Top 20 in the Private Sector have been a matter of considerable Interest for Temasek since 1999.

The use of so many subsidiary vehicles for Temasek however incl Cedar , Baytree and directly as well as the bigger sibling in GIC is likely to make governance complex however for the coming generations of investment from Temasek as well.

FDI hungers for India’s growing consumer markets – What are the challenges?

Baytree’s investment into Godrej consumer underlines the long pending second line of investments to be made by the Asian SWF in India and other growing economies of the region.

While Malaysian Khazanah has just changed its charter from a Energy rich SWF to a diversified fund and may be more interested in smaller/monopoly plays in smaller Indo China economies, Temasek continues to farm the big money in China, Singapore and India.

Korea will probably make its own surplus SWF investments but still needs some inward interest from other SWF funds while india’s Top 20 in the Private Sector have been a matter of considerable Interest for Temasek since 1999.

Temasek Holdings
Image via Wikipedia

The use of so many subsidiary vehicles for Temasek however incl Cedar , Baytree and directly as well as the bigger sibling in GIC is likely to make governance complex however for the coming generations of investment from Temasek as well.

As more non staple entertainment products like Hollywood blockbusters have noted india’s liberalised market offers extreme challenges for inflation sensitive products and upsizing/super sizing of SKUs and price realisations there on. In such conditions, Godrej’s new structures are a tentative experiment and an early vote of confidence from Temasek must have been a long standing argument for the country managers and the Godrej management per se.

Neither Dabur nor Godrej are guaranteed any success, Airtel branded soaps and agarbattis may have a better chance even in africa ina few years as Proctor & Gamble with global brand recognition stays in consumer discretionary spends in its predominantly staples portfolio and remaining counted in super premium brands in their value Tide portfolios

English: Logo of Godrej.
Image via Wikipedia

L’Oreal’s Body Shop chains and super premium men’s range have a better chance from the sheer profitability of their ‘slower’ product lines in the luxury market as India’ s penchant for super brands and luxury hotels translates into a supersized lifestyle premium “for those who can afford it” and thus its $1.4 bln JV with Lotus is a much more sizeable investment as Jawad Habib’s and Bounce like salons grow into the mindset of the new salaried executive hungering for a sumptuous weekend fare outside just dining experiences and mall entertainment.

Can’t read these men, Can’t read what us indians want women will probably welcome Oprah’s OWN on indian territory as these second line of FDI investors from global organised consumer industries from retail and media to consumer aviation and luxury automobiles are much better positioned to make real efforts to break into the India n market, their first line having blamed everything fromt he unhygenic Mumbai to government babus yet not really having the policies to blame and having turned around villages with a few dollars of investment .

Do Consumer Pdts have the ability to grow the scale?

Staples (Canada)
Image via Wikipedia

Consumer Staples have been in the less than 20% branded category and probably retail supply chains will take more of the branded yet wholesale share in biscuits, candy and soap in modern retail . However the growing consumption boom has always left the Hindustan Unilevers, The P&Gs and even the ITCs in the cold.

Despite category development and brands worth INR 750 mln in quarterly sales as also a gross $1 bln brand value in Consumer staples, ITC itself has seen a need to bleed in the sector and the growth of the unorganised sector is yet not capped keeping a 85% market share in all Foods and personal products as well as home care products for well over two decades that India set otut on the reform path. A critical bridge between Food security and Luxury spends on lifestyle foods at the top of the brand value chain, the unorganised sector , even importers from the middle east may not thrive but manage most of the volumes in the industry.

The question of course comes from the happy developments for Dabur and Godrej, with forays in Africa underlining India’s outward thrust, but the challenges that remain int he emerging markets and in India and China for branded or aspirational categories of atta, soap and dye are limited for indian brands, P&G and even the body Shop or L’Oreals of the world. The challenge may well serve them in 5 out of 40 such proucers and 5 out of 40 such product categories, but India and China have time and again proved they are not in a hurry to go anywhere domestically, unlike cellphone plans for example, like dishes and Television which are a priority for most of india’s domestic 220 mln household s and mby corollary more so in other underdeveloped markets.

Governance structures and mandatory NGO participation with development aid in Africa may change it for Healthcare or Green farming categories but other infrastructure will fall prey to military / energy coups and cheap imported Chinese goods..just first thoughts for our foray into the dark continent outside and the unbranded continent within, which needs a Cadbury;’s name to sell some Oreos in the confectioanry sector a brand of $1 bln for us being the final pinnacle in most product lines in food, personal and home care as HUL has found in the last two decades.

India Earnings Season: ITC did well again, why not enough?

Somehow ITC’s profit growth to INR 17.01 bln inspired the market to invest in its stable model causing a sell of fnear the usual 210-215 mark even though results growth is on call

FMCG business grew 25% while overall sales grew 14% and Net Profits 22.5% Growth in Agri and Hotels remains weak from management expectations Cigarettes also grew at 25%. Hotels revenue is 5% at 311 crs and profits at a 34% margin at 101 crs (1.01 bln)

Net Sales for the 9 months are at INR 181.71 bln or ($3.6 bln) with FMCG sales at INR39.1 bln or $800 mln up

ITC Welcomgroup Hotels, Palaces and Resorts
Image via Wikipedia

25% and Tobacco/Cigarettes at INR 90.74 bln or $1.80 bln up 15% only. Agri and Paper have grown to INR 60 bln in nine months or $1.2 bln

PBT margins on Capital in hotels is just 6% and Branded FMCG goods in the Foods, Apparel, accessories and stationery have not reached breakeven losing INR2.29 bln in nine months (PBT/Equity(Seg Capital) = -15%) Return on Agri in terms of Capital employed is higher at 30% and that on Paper business is a good 15%, leaving Cigarettes to be the mainstay of the company with a 20% return on Capital.

Happy Thursdays! A good day for economics

Hero Moto Corp, HDFC Bank and Bajaj Auto all hit expectations right and made merry of the third quarter encompassing a giant Festival run for India from Dusshera, Diwali nad Id to end with Christmas and the new year celebrations.

Quarter on Quarter comparisons showed up great daredevil performances by industry leaders even as food

Mitchell Johnson bowling a delivery on Day 2 o...
Image via Wikipedia

inflation, negative for the third week in succession, for the new year’s week ended Jan 7 at -0.42% and Primary Articles at 2.47%, fuel still 14.45% and onions still down 75% on the same week last year. the 52 week average for the jan 7 week (nasdaq/ is 9.96% and this number considerably lower near the 7.41% number for December 2011 Fuel weightage is 31%, and non food articles at 20% weight scored a low 2%. Primary Articles were less than 0.5% for te weeek ended Dec 31 last week

The Nifty stayed above 5018 and you should be buying puts now, (check our choice FAO strategy) as the index may not climb further to 5100 from here without a plateau and thence the breakdown. The remaining optimism will remain on call from today’s results however.

IPL auctions come back in February, with the entire South African team and the choice speedsters including Peter Siddle and Mitchell Johnson on the block from down under.

Back in financial results only 47% of the last two months results announcements were above par in the US incl Citi and JP Morgan below the line and headed for more pain in 2012.


India Earnings season: Hero Moto corp expected to grow 16% and profits 28%

In the next few hours Bajaj Auto’s 20% growth will be compared to Hero Motocorp having already beaten its own profit expected with a 22% growth expanding margins to 21.3%

Hero had the largest volume gains in the latest quarter bringing market share back to 40% even as erstwhile partner Honda caught up to a formidable #3 with a 200k per month sales

Bajaj Sales still compare at 68% of Hero’s INR 61 bln for the quarter after Hero grew 16.86% y-0-y, Hero’s profits grew 43% Quarterly volumes were the highest at 1.6 mln units in three months with Bajaj trailing at 1 mln

Its Operating profit margins on adjusted basis counted as low as 12.7% while unadjusted basis still compares at 15.7% against 17.6% for Bajaj Auto strictly on business expenses at both companies

Hero’s sales are higher by 14% over September 2011 but its not known if its shares in the higher margin >125 cc has increased from the low 6% last quarter Bajaj sells 18% in the higher CC categories for its profit margins and has also included growing CV (Auto sales) in these data

India Earnings season: Bajaj Auto below expectations

Revenue was 5% lower than the $1 bln or INR 50.32 bln expected by the street profits lower at $160 mln (from expectations), losing INR 250 mln than the expectations, Derivatives losses were INR 670 mln. November Sales ahd fallen to lower benchmarks of 300k sales per month and the RE 60 launch in December not maintaining the growth it picked up in August 2011

Sales have grown 20% from last year at INR 39.8 bln or 3980 crore then also $1 bln and profits by 22% with EBITDA having growin  despite FX losses

100% FDI in Single Brand Retail, Aviation and Multi Brand FDI also on the anvil

As the drop in investment rate of more than 47% in both investment proposals (CMIe data in ET lead – ) and

English: Logo of Ikea.
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government infra project approvals shows up in negative cap goods and low GDP growth, the FDI saga is likely to be brought back to finish off positively for this government to keep the India growth agenda with itself.

An invitation to Louis Vitton, Cartier, Armani, Rolex and Ikea

The 100% single brand FSDI approval came through in the morning headlines, adding the usual 30% local sourcing rider allowing that sourcing to be from”Indian” providers” and necessitating the allowed limit of $1 mln( It could be $5 mln so easily if enough lobby pressure is applied) to be invested by the brands in developing such SME (Village industry/SMEs) supply chain themselves and there is hardly anyother option available for Ikea and others with the rider in place to develop such supply chain locally and/or limit participation to 51% and come in with a partner whence they can sell 100% imported units/itsems/SKUs for clothes/shoes accessories or furniture as the case may be.

Ikea for example would think of suppliers for joints, nuts and bolts where applicable/possible or some wood panels for specially introduced furniture lines ( highly unlikely!) or an apparel brand would set up finishing units as India is already a known exporter with a definite quality benchmark in fabrics/leathers/readymades or accessories

Multi brand FDI and Aviation FDI face state and coalition pressures from Mamta Banerjee and the

Election symbol of DMK
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designated DMK State Aviation minister, already facing tough corruption action in Telecom.

India Auto report (Annual Sales – 2011)

India auto sales for 2011 ended at 1.95 mln, neighbour to the same number a year ago instead of growing thru a bad year for sales and unlikely to grow further on a good Jan Fenb March 2011 till the end of the Fiscal according to he Industry watchdog SIAM report (Reuters)

The forecast for the Fiscal 13 ( till march 2013) moves to a 10% growth after a 30% 2010 and a 0-3% 2011

English: The Price Is Right Auto Sales Logo
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Commercial vehicles had a better time, December sales of 72k vehicles making the yearly total of 775k , 11% higher than 2010 and enroute to growing by 20% this year , we’d say look for the millionth bus/truck sold in FY13

Overseas FDI by India reaches $45 bln

Indian outbound FDI reached a $43.9 bln mark in 2011 till March 2011. This includes the Q2 purchase of

English: This photo was taken by Nikhil Kulkarni
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Airtel Africa (Zain ) in 2010 in 15 African countries. It also includes the $3 bln and more purchases of Shale by Reliance  across Pioneer, Atlas and other shale owners in the Marcelus and other shale areas in the USA.

FT reports the Sahara acquisition of Grosvenor House as the landmark UK investment while M&M snapped up the SSangyong SUV business in Korea for pennies in 2010-11 less than half a bln, rumored to be headed for Saab from Spykar this year M&M scraped its ventures with Ford (earliest) and Nissan – Renault ( 2008) as it still produces the M&M Verito on production lines set up to produce Logan and Nissan’s India car to be designed by them.

Liquor baron, MP and Force India owner meanwhile is embattled in a fight for the survival of Kingfisher Airlines and Tata consolidating its JLR and Corus steel purchases from more than 3 years ago. Indian Financial services business never reached the required scale overseas either but carries a book of more than INR 8 Tln or  $ 160  bln in SBI and $3 Tln or $60 bln in ICICI Bank following on the heels of Chinese and US Top 4 with over $225 bln in assets each

Midcap Select: Opto Circuit, Adani Ent


Opto got a first device FDA approval in the USA thrui its Cardiac Science Corp subsidiary. It can now invest in marketing of its retail Wearable Holter Cardiac Monitors


Apart from being close to outbid on the LNG unit in Gujarat Gas (65% stake + 26% open offer = 91.5% of $1

A Meghwal woman in the Hodka village, north of...
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bln+ Valn premium on sale) Adani also commissioned a largest of its kind 40 MW solar plant in Kutch in less than 6 months. Kutch is on the northwest coast of India in Gujarat, also where Adani’s port and Tata’s Mundra power plant are located.

Facebook to introduce unlike button for India community (ICICI Bank)

English: ICICI bank in South Road

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Innovation aspirants and early adopters ICICI Bank finally roll out an ambitious project with a Facebook app that allows banking access to customers from the soon to be launched Business page on Facebook. The Your bank account app may not require one to like the fan page to access the bank details.

An FB app could be efficient and less time consuming for the evr multiplying legions of mobile banking users in the country and the fan page likely become a fount to diuscover what all can go wrong with your ICICI Banka ccount. I can think of a few thousands more waiting for the ICICI Direct fan page for addressing their issues with the bankk brokerage

India’s unbaned 82% could eventually accept the platform ahead of other physical and mobile banking options as apart from the social spread , the Facebook platforma also provides a technical architecture that allows for fast transactions on mobile, IPad, PC or even kiosk. Current kiosk operations in the branches at ICICI Banka re notoriously slow and unfriendly, though they use their web implementation as is

Customer Service is the ultimate winner but India’s demographic dividend needs to be reached by effective banking means and this could be a lightweight means to do so unless the security flaws with Facebook are insurmountable

A surfeit of Launches in 2012

The Indian Auto Expo has Tata JLR ditching Detroit to jump into its Asia home with the Ssangyong  M&M combination readying the Korando launch in the country and the GM reintroducing the Sail as a Chevy brand and the Wuling Vans from its Asia portfolio

Ford rolls out Asia plans from Chennai

Ford has scored a great win with its hybrid Compact SUV in its home markets as the Ford Escape in October and November ( head over to to check out today’s Auto sales announcements in the US ) Its market share in December, likely to cross 15% with more than 171,000 in sales. It has planned to expand Indian capacity with a similar compact SUV here titled the Ford EcoSport ( WSJ India )


Ford has planned a second factory in Sanand in Gujarat ( next to the Nano plant) for a cost of $660 mln ( INR 40 bln) and is upgrading its Diesel Engines capacity in Chennai by 33% to 330,000 for another $72 mln, while it has a current capacity of 200,000 petrol units in Figo, Fiesta and its Endeavour SUV specification

The Indian hybrid targets its earlier JV partner in India M&M which has bought a SUV company in Korea and could well face immediate competition from GM which has started doing better than Ford in India as also VW which is almost caught up without support from Suzuki the hybrid SUV is planned for $142 mln at current exchange prices. Ford will likely spend much lesser dollars on this project if it is indeed enacted thru 2012


The RE60 basis for new Renault Nissan Car

Currently an offering from the 40,000 units a month three wheeler stable of Bajaj Auto, the $3000 vehicle may be presented for public governments to replace three wheeler populations, Production is scalable to 500k units a year from existing 3 wheeler facilities and its Carbon footprint is the ultimate selling option for the company and buying governments/auto drivers at 60g

English: Bajaj auto rickshaws in Adama, Ethiopia.
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The On again off again real deal! – TV18 buys Eenadu

Resource centre in Dhirubhai Ambani Institute ...
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In a true Antilla style pronouncement  in the tradition of all things shadow banking, TV18 has actually agreed to pick up the Reliance EEnadu stake to save the Ambani brother from future losses in the business. The vile secret is that TV18 will issue two concurrent rights offers to finance the $660 mln purchase of Eenadu’s Reliance/JM stakes while the rights offers of $1.05 bln would not address promoter Raghav Bahl’s stake (rather Network18 cross holdings in TV18) bringing it to a round $660 mln for the purchase. Once investors have been satisfied, Reliance will pick up the unsubscribed rights to make TV18 full up on the cash required for the Eenadu stake purchase the TV18 debt is only $300 mln and the cap on ETV channels’ purchase is also $350 mln. TV18 will get Telugu GECs, Regional Language GECs and five regional news channels in Hindi from the ETV stable to 100% ( for the Hindi news channels)

The controversy has seemingly moved on to the structure of the securities on offer as Optionally convertible debt  the option strikes being unknown as the marktt is on heightened watch for clauses allowing misuse of public financial markets and investment Banking structures though not lacking in obfuscation definitely lack the sophistication of being properly dressed up fully as Indian investors ( and Reliance ) look to transparent means to flouting regulations without blowback from the government or SEBI.


India Auto Sales Report (December 2011)

Ford Ikon, visão dianteira
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In the month of December, most car makers enjoyed the reprieve in Exports with domestic sales recovery also showing in the numbers. However while Hyundai increased both domestic and total numbers to 29,500 and 48,950, its exports remained below the 20,000 mark. Maruti struggled with only 78,000 units in domestic sales and 92,000 overall as its limited production of diesel units and the break in wholesale demand was attributed for the continued weakness by the sales team at the company. Its exports of 14,000 units were a dull beat 33% behind Hyundai but up 50% on its own count from 2010.

Image by conhunter via Flickr

The A2 segment bills 42,500 units for Hyundai with moer than 6,500 units in A3 sales. The year’s numbers

Mahindra Group V-C Anand Mahindra
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were a respectable 615,000 for the Koreans in India incl. 242,000 Exports.

The General Motors business increased to more than 9,000 while Ford was happier with 7,500 sales for the month and Nissan counting 50% growth at 1,500 units in December 2011. Mercedes underlined the year’s 7500 sales with a 750 units sold in December.

Honda cars remained stuck at 1000 units instead of the 5000 plus sold last year each month. Tata Motors recovered from last year’s fracas with 29000 units sold. Incl Exports, Car sales are up to more than 220,000 units again incl Mahindra and Mahindra’s 19,000 units and Toyota’s massive 16,000 sales.   Volkswagen reported full year sales of 78,000 from the country with 75,000 small cars in Polo and Vento and 1,688 Jettas ( in 5 months) Ford completed 100,000 units in sales in November

In two wheelers, Bajaj Auto’s 305,000 includes its CV sales of nearly 15%, while Hero grew its large base to 524,000 units for the month and Honda came in at number 3 with a good 191,000 two wheelers sold.


English: Bangalore Taxi
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India’s Aviation Blues: Preference shares and write offs to bleed banks instead

Air India sat pretty while everyone cried foul on the aviation industry, airlines’ stopped pying the gas billa t the airport and while vendors have been paid and /. or prioritised, banks continue to suffer, printing credit lines, much like the Eruopeans without any collateral, reusing old paper and where loans are dead certain to be lost to fantasies, issue preference shares to themselves. They should have been adminstering the airlines in bankruptcy court buit as of now, no leasing arrangement for athe aircraft, no stoppage to airlines expansion and no money to pay salaries, contagion spreading to banks instead of cutting losses.

1940s-2007 Air India logo
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A random quote to a ftalphacville post on Flynn scores that also segues to my next post on the general increase in abstraction and problem skills as a way of life. So you know I am not really complaining banks made the deal. Banks should.

Want to miss out on your ATM Branding?

A BTMU ATM with a palm scanner (to the right o...
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State Bank of India has nearly 22,000 ATMs and another 5,000 from its associates, ICICI Bank has 7000 ATMs of its own. foreign banks are in fact recognised in many parts of the country by their ATM locations, as the logo and slogan heavy ATM kiosk, though treated by a utility as many creates and builds the bank brand and shows it for reach than the bank.

However, as ATM operations can be more easily run by a third party with the omnipresent Brink’s Aryas money truck delivering cash to each machine, bankers have been rooting for a white label ATM operation like the Tower companies in Telecom, with their own revenues and necessitating elimination of free ATM transactions as once the model has been approved, charging fees and paying for the location become mandatory for the consumer and cheaper for the bank

Apart from communalisation of costs to all banks for location , it will also mean that operators charge lesse r fee on a larger base and thus a committee of the MOF has been recommending the deed as public Sector ATMs including those of larger Indian private banks ICICI, Axis and HDFC total nearly 100,000 and probably these few do not want to be caught spending on the brand anymore.

Bollywood, India too expensive to make money from dreams?

Mission: Impossible
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Indian Media and Entertainment posted a string of positives though listed bullionaires like Eros and PVR continued to struggle to prove their worth on a perceived high cost base, being measured against some unreasonable expectations.

While Ra.One was a blockbuster but fell on being second to Sallu’s antics despite a $17 mln weekend at opening (domestically at $1=50) , The Don 2 and Mission Impossible concurrent successes of this month are being compared on equally tenuous marks despite $3 mln of daily business as Indian entrepreneurs in their bid to fund the global majors have set a high watermark for profiting from the success of this entertainment. 

To a funny bone it might seem its corporatisation is a s much a dud as that of Foreign banks like Stanchart to harness the Indian Capital markets, with IDRs that do not have the rights for investors to enjoy the company’s performance. 

However the string of blockbusters is leaning on 2d and 3d prints as well as FX studios in LA making scenes between MI4 and Don 2 , both unworthy sequels almost seamlessly part of the same shoot. The international runs are farther with 50 mid east prints in 3D for Ra.One that cost SRK’s studio INR1.5 bln to make and at least 4 metros share screenings at INR 1500 a pop in Gold studios ( incl expense on snack time cuisine from Pepsi and Dogs to Tortilla wraps vying with Shawarma rolls and falafel)

Don 2 collected $15 mln in Domestic markets in Week 1 and $10 mln overseas while collections from Tamil and telugu added at least $ 3mln or 12.5% of its Week 1 collections(12/30)

G.One (character)
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Axis Bank to aim for 1 million cardmembers

Axis continues its late thrust with tied cross selling from deposit desks / relationshi p managers at its retail branches ans India gets into the act for increasing the unsecured (credit card ) loans portfolio. In the US also with regulations well in place, banks have started wooing consumers fed up of retail charges on debit cards etc to new credit cards. Axis Bank plans to explode on card member enrolment even as ICICI Bank and HDFC Bank work with a smaller 600k members each and State Bank of India even smaller at 400k . 

Since October Debit Card spending has shown a higher rise in India as credit card spending though bigger by 10 times than 5-debit spending each month stays dull in the new economic ways of the country. US has been growing Auto loans at a good pace month on month however India had ponly one small bump up in November (in both the fortnightly reports of Nov 4 and Nov 18) and may well fall back as banks look at new ways to get back customers that have not returned since the sun went out in September 2008

National Manufacturing Policy / Zones

The NIMZ cities identified in the latest manufacturing policy area compendium of all identified microsites and

English: A new train, made in Germany by Bomba...
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large successes of India in manufacturing policy over the last decade. Japan funded Delhi Mumbai infra corridor, the industrial zone at Manesar or the village Dholera in Gujarat identified for investment can start in quick time. The Dedicated Freiht Corridor needs $7-8 bln, the DMIC even $40 bln or INR 2 Tln for itself, Japanese providing $10 bln and Private sector to be willing ot invest the rest

With a new Land acquisition bill, which nevertheless does not make it easy for someone to single handedly establish or grow a city in the wilderness( attract good talent for one, attract suppliers and ensure all resources in supply for another)  is still as difficult but where land acquisition and construction for manufacturing can begin like in Manesar, Haryana or Dholera , Gujarat can show the way to others if done right. Unfortunately winners do not include last decades export successes like Textiles and Auto ancilliaries and Services will be denied its place in the sun if it remains a National “manufacturing” Policy. The Buddh International Arena in UP near New Delhi with a NCR, Delhi address tag is a great success showcase for others.

Also, like Indian banks being told off in foreign lands, foreign banks in India like ICBC and CCB that have just opened should not be allowed to club their business with that of the parent country as it will stifle local opportunity esp where such large investments are expected by local satraps and a regular scam-o-rama is keeping the media busy from 2G to Mamta Banerjee Europe , in contrast has global companies and diaspora ( not remittances) that make such partnerships with banks global in thei rvery nature instead. Sadly some of them will leave or forfeit plans of growing in retail if they ever nodded to RBI

A couple of other ‘contradictions’ have to be managed in India, including letting farmers a share of real estate profit with the new bill in hand allowing prices without governemnt interference, delevraging required in the real estate satraps specialised for such acquisition incl DLF, JSW and maybe JP ( not delevraging but has hands fuull) or the new crop wlike India bulls and Adani which have to bear the blame for endless delays in the Power sector or the consumption successes like PVR and mall owners who are making profits only in the super luxury investments. Also India’s labor participation rates could soon be dropping below 65% ( nearly a low 60% in the mediterranean Euro crisis owners) and US that provided a great land of opportunity for educated talent from this country, also suffering a low participation rate of 64%

Interesingly India’s export growth, still keeps machinery in the largest categories, and should soon include

The Rashtrapati Bhawan which is the residence ...
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pharmaceuticals as well. Perhaps Farming can be mechanised, along with Textile cities and Auto ancilliary dreams. Loan mela, anyone?

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FDI failures

Ikea ContestThe government has lost the advantage it created for itself in retail , but with the market trading at value levels,

Walmart India associates arrive in Northwest A...
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it might get one more opportunity with foreign investors in the near term, a minor window of opportunity in which it has to push the home field advantage with DTC, GST, Companyies Bill, and many more waiting to be fully executed weither federally or in law.

FDI in aviation, in retail and in Cable as identified are now critical to be cleared in quick time and the political pressures will anyway cost the ruling team some franchise share nationally. 100% single brand FDI by itself has Ikea and other takers esp with Reebok’s village plans and high end retailers cutting India out in favor of China sooner as China snows on luxury retailAs with the “golden chidiya” proposition of India a couple of centuries earlier, just that instead of plunder wwe can parcel the rights and sell toi the highest bidders now to get crucial capital flowing.

We have missed significant opportunities inInsurance FDI, new banks ( that need to watch for regulation changes till 2015) and infrastructure and retail where China has out smarted us and now runs a bigger and faster balance sheet

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Reliance losing in brand games and policy

Reliance’s gas pricing quandary continues with warehouse owner IGL retailing gas at up to $15 and Reliance following its earlier efforts at increasing its $4.2 supply rates to PSE Oil companies with a suit against the government asking it to pay more for the gas purportedly using the IGL model for itself even as a distribution supplier and not a retail distco like IGL or Petronet LNG

Reliance has failed on maost strategic fronts except in greenfield consumer and sports ventures like the Mumbai Indians team franchise , co branded cards etc where it has yet to begin or dowes not pull significant revenue compared to the Oil brand. Reliance has been almost synonymour with petrochemicals and oil enterprise int he country away from issues of subsidy and government benefaction for a decade or so, with Petro margins and oil and gas discoveries keeping markets happy,. Its last 2 years in the dust have been tough for Indian markets as a whole and there still might be a significant correlation thouhg not an over arching one between its and Brand India’s fortunes.

Reliance I would like to believe has frittered away the market’s dull times in continuing to expect largesse and

Mumbai Indians
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“sympathetic understanding” from public sources and markets. Its consumer brands are in no position to claim leadership and thus have no significant launches to their name. Its LTE venture is  working out a smashing deal at 10X the 3G industry’s competition and while ADA group has not done nay better either, it has at least delivered on time in long gestation projects which others would not even take up including the Power sector where delays and “non performance” are more understandable. Mukesh’s Reliance has not aggressively moved in infrastructure because it knew that investors would not empathise with the “long run” financing requirements of the sector but still, its alternative plans are almost in a state of a “null” ennui without response or favor it so much loves in its dinner plate.

There are no loyal investors left onthe Reliance bandwagon and they have to move fast before the M&M’s and the JP ‘s take over fromt hem with 1/10th the capitalisation and a much larger understanding of the current market and who it can be argued worked with almost the same handicaps and invested in unforgiving propositions

Also ADA’s failures in the financial services area could be a thing of the past soon when even they can look at aggressive growth again, leaving big brother with no work or profits on hand

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India Auto report (Sales – November 2011)

English: DTC Buses in Delhi, India
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Maruti’s numbers have trickled in at 36,000 vehicles more than October. The 92k in sales were yet 18-5% down from the festive season report of last year.  The mood is sombre as markets find solace in car makers coming back with good numbers but it is obvious that  that’s not enough for India to power forward.

Hyundai’s India sales grew nearly 30% with over 22,000 exports and 35,000 units sold domestically. Domestic sales are up 10% At Maruti the sixth yearly sales decrease in November also showed change in preferences as diesel grew 22% and petrol(gasoline) models demand dropped 14%(WSJ)

Ford and GM seem to be stuck near the 10000 and 8500  cars a month number but this is Ford’s first year with 100k sales in the nation. BMW, Mercedes and Audi have been selling nearly 200 units a month getting deeper into India’s moneyed hinterland and export towns. VW Jetta and Passat also sold 499 units in the festive month

Hyundai’s Eon and older steed i10 both sell nearly the same as Ford and GM in a month with 7,500 units each. Its A3 sedans also sold 8,223 units (Verna and Accent)

Tata Motors did grow Nano sales 10 times over dismal 2010 figures to 6500 for November. It sold only 1000 Fiat units in total sales of nearly 29k domestically

M&M sales of 44,000 units included 17,500 units in passenger vehicles (and SUVs) Its new XUV500 is expected to brighten its chances further with its ventures in Korea stabilising and helping it leverage technology and lever its home grown stability in the global market and in india rebranding it from a home again Tata , desi variety spaghetti

Toyota has grown into a tough spot staying comfortably ahead of Ford and GM with sales of 14k cars for the month, trebling from last year November on launch of Etios and Liva during the period

Newcomers VW and Nissan grew astronomically too on a low base to 6,750 and 2,680 units respectively with new models and support for diesel giving them a distinct advantage in the Indian brands of Ford GM, Suzuki and Korean Hyundai. honda has reduced production for the month drastically as Thai floods disrupt parts production for its global auto plants

October sales in 4 wheelers were a paltry 138k units and 185 k including Utility vehicles. November seemingly has gone to 220k units with good growth at Toyota, VW and M&M

Two wheelers had a brilliant month and India reverted to reporting car and 2 wheeler sales together since October. Bajaj grew nearly 30% at 394,000 units for the month and Hero Moto corp had a more than 5% sequential growth at a high 537k units Its erstwhile partner, that still sells its trusted line of motor scooters, jumped to 200k units in sales in November into the 3rd spot

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India Bond Impact (Fixed Income report): RBI purchases ‘ominous’ to another 9% bout

stewart, mena, SCOTT?!Though a late market rally on Friday has taken away the gleam of an easy short for Monday, short covering in the last hour may also add to those planning to cap the trading range with a few swats with the bat.

In bonds however, the easing of yields to 8.75% is not so certain either as RBI’s bond buying program was an even closer 8.69% in yield in the buying of nearly $1.5 bln yesterday. RBI rates are 1% lower by channel defined even though RBI charges a 50 bp spread on its MSP sales in the middle of the channel. the yields are closer to last weeks sales Auction by RBI which were at 8.94% and so the yields may move back to that near 9% mark again before the Rupee tops out.

Smart rally in the rupee though, again speedingup the trend to a big spike, leaving you with less doubt that it will return to lower marks sooner than later. consolidation above 51.50 levels near 51 would help people believing the rupee lost mire than it deserved. Remittancees likely to be heavier through 2012 were heavier only in geographies like MENA from our labor exports and not the managerial variety yet ( if it can be distinguished)

Inflation cannot get better, however China actually got it improved to 4.5% before it eased rates and put the brakes off, risk on stride into the Economy, lasting till December after throttling started in June itself.

Happy Thursdays! November buzzes everyone

English: A 2008 Maruti Suzuki Swift Dzire VXi.
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November buzzes everyone, December is too cold

Sun comes out in the East, but the East is all sold!

All the talk of potential markets in retail and consumption, engendering domestic demand ( in China) and even the imminent collapse of Europe ( not just not happening, in danger of engendering imprudent fiscal expenditure by imprudent politicians, just back from the brink) everything’s come to a nought

US is also going to a nought score but after a $52 bln weekend in Non auto sales and another $36 bln in Auto sales for the month of November, it is rather to get on to a nought in all 2011 inventories by January 2012

India is headed to another ground zero right now, even as China starts betting on expansion without getting a jump in domestic demand. One wonders if stock market investors are correct in deriding Divestment thru buybacks and cross holdings mooted by the government arms, One further wonders if india’s aviation industry will ever get to use bankruptcy protection as a strategy as KFA finds another hole to plug, and one wonders if the yields falling to 8.75% being the end of the move in Fixed Income, if the rupee will ever come back to below 50 on the bat

India’s fiscal problems have batted on a high inflation wicket, with 9.39% in CPI in October and a 8% food inflation for the third week running for November 19, Pranab advertising a fall in the price of Onions by 40% and October Export growth and deficit stunted and expanded by OIL and rupee gyrations Non Food inflation is dead in the water ( includes fibers and oil seeds) at 2.5% but Fuel is still 15.5% and Primary Articles a 7.74% lower but by no means a low number

There are a lot of other statistics including M&M’s jump in November sale sto nearly 41k vehicles incl almost 18k passenger vehicles and Maruti’s falling behind the 100k in Sales despite there being no strike at its Haryana plants and they will all come in due course.

At Happy Thursdays suffice it to say that November was good to pass on for the results showing for any government or corporate but there have been good signs for growth, with Europe solved along expected lines, banks at an all time low globally and the Nifty 4950 a good time to go short on everything, always a better feeling once you decline to wait 10 years for the pay cheque.

China’s landing will not be hard at all, watch for the detailed analysis on, Airlines will not fade away   with US American Air taking a 18 month vacation to recuperate with new pricing and new supplier and cost agreements a good example of the new strategies discovered in this new millennium, the other – central bank pay cheques for every citizen.

India approves multi brand retail FDI

Galaxy Mall
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The ruling congress may yet see a resurgence in its poll prospects if a quick 1 mln jobs can be created by investors before India’s own general elections and by the time the 12th Five year plan ends in 2016-17

India has pushed itself out of the regional race in growth with China with slower reforms in a culturally diversified economy. Each state will independently authorize retail investments in its cities A little delay in implementation may also be expected as Metropolitan consumption spending has been dull compared to demand in the hitherto neglected rural areas esp for Non Discretionary spend items like DTH and Autos where MNC brands hardly sell 10,000 cars a month  or 100k motorcycles in a market that sells 1.4 mln cars a year compared to 1.4 mln cars a month in neighbouring China

Multi brand retail extravaganzas are also funding India’s governments in land sales neighbouring metro projects or revitalising old shut down textile mills and their promoters in Delhi and Mumbai respectively

Apart from rural infrastructure investments, global chains would need to eye prime real estate to compete with global brands and high grade shopping malls in larger cities. Investments in supply chain would need to be really stepped  up to hit a 50% investment mark unless initial investments are planned in the range of $1 -2 bln than the required $100 mln


Read all the ramifications and the current set up here 

Predilections: The exploding turkey

one rupee
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The market sentiment today after the Euro’s integration was exposed to the public as nothing but  a rear guard defense throughout the coming decade, was a perilous wait and watch for any buyers with the indices giving in to another one-sided move after 8 days of unguarded hostility, broken for a brief lull yesterday.  The market also sees everyone else as unwelcome intrusion, just that there are sellers in both equities and currency markets , not to forget bond markets who still like to see the government’s face on the other side before stopping the spree.

Whether in currency markets stemming the Yuan rise or the Rupee breakdown, most would look at the woeful example in Europe and stay away from intervention as nothing good comes out of it eventually. However, the sellers are very clear in their actions and verbal speak that their selling is not based on fundamentals and they do not think that matters. Hence, given our unlimited patience and the propensity of going bankrupt by going shopping for Rupee or Dollar at the wrong time, we would stay away till things settle down. and now, the nifty after breaking 4700 down, may just swing back tomorrow for 5 minutes before staying down till Europe realises how much it is left with after the margin calls and how much it has to print. Unless China gets a new breeds of FIIs. Though, none of the money that enters India typically leaves ( After profit booking, more is inside than it is outside in this entire 2011 spectacle)

Not to say that the markets can’t rise vertically after they do end the fall, but as the exploding turkey in the oven, it is hardly going to be championship fare when this selling gets over. The prognosis therefore is that the markets will stay dull enough and you can wait even more before you do start buying. And, right now shorting any of these would be committing hara-kiri, in equities or in currency As even newly converted India bull JP Morgan mentions, we are still overweight on cash.

Sector wise, no one who is overweight on Comms can be without skeletons to hide and I would not suggest going overweight on Comms or tech. Except that Airtel scrip, which has a lot more going for it too and a sthe only player with muscle,  in its main markets, it will turn out well. I hope my readers have been buying on fundamentals, as there are a few stars out there . Also, apart from the intermittent interest in consumer staples and healthcare, sectorally, the market does not get into a secular upswing till the best sector there is i.e. infrastructure and banking, get up and get going again

Just getting the morning coffee to work..

Reliance moving on from Oil and Gas?

Reliance Industries
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Also read previous art. on India’s energy woes

Mukesh Ambani is also rumored to pick  up a stake in kingfisher airlines which despite his protestations., seems mor e and more like his expression of disinterest in the core businesses of his flagship Reliance industries and his choice to go into more brand reliant businesses from the same flagships cash reserves

India’s aviation blues see more red..

Vijay Mallya’s refusal to call his Air Deccan purchase a low cost airline addition to its portfolio, is not

This is the new United Airlines Logo that will...
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without reason. With sales taxes of 30% and more (depending on state jurisdiction over and above federal taxes) ATf costs are nearly 50% of the airline’s revenues, more for Kingfisher. ATF prices were further increased even as petrol prices were cut nationally and the OMCs reported a huge bleed in Q2 results from subsidising even Diesel and Kerosene and Gas majors flunked the test of bearing the LPG and CNG burden and refused to put up more for the required expansion of India’s energy infrastructure. ATF prices were last cut in September and October at Delhi (

Air Deccan logo
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Just a year and a half ago , Jet fuel prices were 33% lower at nearly 42k per KL including taxes. Internationally too the quarter has been tough for global airlines, ATF prices averaging $3.3 a gallon for American over $2.2 last year but still  these costs were only 35% of its operations and they are at an equal risk from unionisation and staff costs from the same

With fleet rationalisation one can hope for a little economic respite for the otherwise 350 flight srong Kingfisher day schedule, but it needs more Jet Konnect features and efficiencies other than interest rate cuts to show up with a winning plan for that INR 6 bln working capital enhancement/ conversion of overnight lines to LC backed lines presumably for Aircraft lease costs  and the inevitable reduction of debt and interest loads that will let it fly high and join the thin ranks of airlines turning in a profit. United Airlines has testified twice

Business Class, United Airlines
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in the last decade that it can be done, even if Vijay Mallya finds the thoguht of comparing with profitable cousin Naresh Goyal who may have more investors signing up when Aviation policy is released this week allowing 26% to 49% FDI interest in the Airlines incl. from Foreign Airlines.

Do you also realise that steep fare increases make it very difficult for the Airlines to recover their costs as the Rupee falls without end and Oil does not really correct to a material low!!

However, after Kingfisher, there are others and the Airlines sooner than later have to pay up for new aircraft and order 100s more as the current fleets are hardly likely to contain and run with India’s air traffic requirements as passengars continue to grow at double digits every year, enough to warrant continuation of the airport’s expansion plans int o Phase II in Bangalore Mumbai, and even Hyderabad and Delhi to handle 20-30 mln passengars a year as was originally envisaged.

Predilections: The Organised Mindset of a bear

Diwali celebrations in Coventry, United Kingdo...
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Or, What you should be doing when the markets go dropping off that Pirate cliff:

1a. If you are thinking about buying gold, do rethink about that one as Gold has to wait for strong bearish pronouncements to move from here. However did you know that Central banks have bought 150 tonnes of the metal in one week and are still at 10% of the levels they held in the 90s when they sold and everyone else bought gold.

1b. As Central banks count as the most followed buyers right now, Gold’s meteoric rise in the last few weeks may restart Also India becomes a candidate for taking everything down right now as it gets into a tighter inflation high, currency weaker every day and deficit unsent kind of tougher twirls with a higher and higher downside, but then we would still do 7% growth so do not think of a a market below 4500 Nifty, really ( even if it breaks down to 4420 you can beasar with me, right!)

1c. Did you recheck your list of stocks to buy: All time lows everyday present great opportunities for investors out there to verify at leisure. You have at least 2 – 3 weeks to select, drop and re- select winners..

2. Watch that hollywood movie that gets released in India on time during market hours..You could not get a more predictable market direction with no trading bumps mid day since last to last Friday. Also Disney and ESPN are doing much better this decade than their worried little India doobies of a decade back, esp as Pizza and China surge

3. Reorganise India’s infrastructure priorities, find time to review M&M and Unilever (Despite a fundamental change in the fortunes of these two companies from directed strategy, they get good results and attention on a tough down day only, talk about predilections)

4. Teach other knowledgable friends – Who being optimistic on India esp during MSCI re organisation will be full of ‘know all stuff’ you can bear down on with gloating dripping from your eyes and mouth dfor weeks on end..(like the savoures you cooked for Diwali but did not last)

5. Figure out the Economic Indices: Wierd Inflation and IIP volatility, not to mention the staggering deficits not every month but every other month, the winning margins of a UPA government motion in parliament, the no. of public losses Anna is unable to bear and other ..Most of the economic ones we have dissected and detailed over the last three years here

5b. Count and read up the number of laws still required to be passed in Parliament to make reforms work for India, if only just Corporate India..GST, DTC, apart there are two years of laws to make new banks work, countless banking supervision concessions to be worked with to be international bank franchises including voting rights to be passed as clear as day, Capital controls on Forex vis a vis restructuring for a new indian currency instead of pegging to $1=100, are all end of the rainbow ideas that are not at stake either, the laws need a simple fresh Corporate law basis and has to be apart from all the changes to the M&A and competition code, Bilateral and multilateral agreements and treaties, and include Social Welfare, removal of fertilizer and oil subsidies and funding and execution of PPP projects such as the DMIC, (with NMP), new ports and unlimited gaps in education and healthcare not being considered for private participation and foreign participation to the extent required.

6. Tell everyone to “Take a virtual dive”: Right now is the best time to start on something you have never done before..In the AEs (RBI term for US and Europe – Advanced Economies, the latter have become candidates for REMs now – Re emerging Markets) they have even stopped asking people to start blogging, it’s so passe. You could take a dive into a shopping mall too, a good crowd as always

7. Ask people to figure out the probabilities of a recession in India: No one will put a blame at your door now that India is going to get tougher in the next2 years and who knows your chances of a recession in India may have just improved from 1 in a 1000 to 1 in a 100

8. Review your family’s eating and drinking habits: Especially those zombies and moose heads who are still stuck in your head and inner ear without turning you into a schizophrenic, trying to imagine themselves as a fund manager, not investing with you or paying you for your reports or research bothered with becoming a complete spectacle and proving themselves to be ones.

9. Pay attention to India’s Defence budget we are getting everything we need even if so late and even though China’s spin counts in the media we don’t

All’s not well at Kingfisher Airlines (KFA)

The weekend has been super busy for the management of the airline at Bangalore as they rush to make

Vijay Mallya
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amends with various stakeholders, governments recommend their case, FDI in Airlines gets approved. None of the banks have a large chunk of the exposure as one round of recast touched only 1000 crores in April-June 2011. The 65 bln debt then grew back to 75 bln and the airline seemingly never got around to issuing mor eequity.

A t this stage however, the airline has been quick to line up assets for sale, the banks having asserted a requirement of 800 cr or more in equity before restructuring is taken up and lines are extended for working capital(operational costs incl fuel and Salaries) 120 pilots ahd not turned up for duty on Friday and govt oil marketing companies assert that 2 months dues are pending. Lessors for the 120-140 aircraft fleet want their aircraft back as leases are treated as monthly rentals and each day costs the lessor more than KFA, es as bankruptcy administration becomes an option.

Sale of Kingfisher House (Mumbai) and even UB real estates KF World towers luxury residences in Bangalore will be mulled and prioritised  and the airline management has come back with a plan to reduce debt by half. It is not clear however how much of this will be restructured and how much will come from

Guinness for strenght
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asset sales. We also mistakenly mentioned Diageo as an equity partner for UB, the flagship spirits and beer business of the company worth $1.5 bln in Spirits and $750 mln in beer sales annually at 60% and 50% national share of business. (India’s alcoholic beverages industry s at less than 5% of evental market size today as beer consumption comes to less than 1/2 case a year (per capita) USL owns 40% in KFA and 100% of the sports and real estate businesses(group stake in JV with Prestige and others). In spirits, he owns White & Mackay’s brands ($1 bln) and may bid for other premium brands like Teachers owned by Fortune Brands (US). A great biopic of Vijay Mallya is available on Scribd

Unsurprisingly, promoter Vijay Mallya finds govt taxes and regulation to be the basis of all his troubles. FDI in airlines is probably out by next week as an option for the airline. Nevertheless, quick government and management action has reassured markets with 200 cancelations by the airline on the weekend of iots 469 flights a day schedule

Vijay Mallya also recently sold a majority stake in his Formula 1 team to local baddy Sahara grp being tried for corporate governance overruns by the securities regulator. The IPL team, which has been in the Top 3 in the game of cricket (T20) may also command a similar premium for sake sales but the group is unlikely to make any hurried sales in the fledgling businesses. However , the banks are unlikely to back down in their request for more equity as the leverage is quite high and despite the last restructuring/conversion to equity at a 60% premium to then pricing and a 200% premium to today’s price, banks alrdy hold a 23% stake in the airline.

Bank Results Season: ICICI Bank (Q2 FY 2012) shows increased earnings capacity in limited potential

ICICI Bank Headquarters, BKC
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The Topline at the bank hardly grew 10% over last year to INR 25.06 bln or hardly $500 mln and just INR 1 bln up or 4% from Q1 June 2011 of INR 24.11 bln

While Top line and hence Balance sheet size is almost the same ($45 bln @$1=Rs50) the bank has halved its Net NPas to 0.8x% from 1.06% to improve its standalone bottom line to $301 mln or Rs 1506 crores and Rs 1932 crores or almost $483 mln from is consolidated operations as retail wealth (mf and insurance ) improved performance. The bank does look at improving its NIM given the improvement in operating efficiencies but is grossly behind HDFC bank in credit growth esp as September saw Private and MNC banks making a killing in retail loans (Auto and unsecured/NBFC)

The stock is staying up even as FMCG major HUL also posts results and thus the bank will be the mainstay of the markets later when the press meet happens before market close

PAT is up 20% from September 2010 for the quarter for the bank


Bank has met 18% credit growth for the half year despite no growth in Q2 NIMs are safe as they will be determined from cost of funds

Its exposure of INR 36000 crores or $7.20 bln are safe and are being tracked. Coal is being procured from OMOs (7% of advances) No bad debts as for Indusind bank

As advances grow CASA will grow on priority with CASA now 42% the rest only based on demand of liabilities

Not moving away from retail . Both retail and corporate get equal focus but unsecured loans are attriting.

43% growth in cons profit has come mainly from Life insurance business

Provisions have fallen as unsecured legacy retail has completed provisioning and is a small portfolio

Happy Thursdays! Inflation pulls ways and means advances

As Yes Bank signs on to a 600 bps savings bank deposit rate, and food inflation ticks down from 15 to 11%, the refusal of yields to predicate a proposition in the double digits forsooths that the RBI will stop around here if and when inflation trends down. It seems to me that more of the banking sectors participation is at work here in controlling the rise in interest rates. Incessant lobbying apart, the rising IIP and refusal of inflation to tick down below September’s 9.7% could very well still mean a systemic redefinition of interest rate basis in India like in So Africa.

Instead of defining new zeros in overnight and short term rates treasury liquidity like in the US and UK, the new BRICS entrant has simply defined a higher systemic basis by accepting highe3-5% inflation than the US and UK and EZ targets of 2% at the maximum

Some results from biggies Kotak and Dr reddy also make this New Year holiday in India a good segueway to great market speak on the festival of lights.

Kotak outscored by 20% for a new run rate of $800 mln for the 12 months while Dr Reddy returned to its earlier $2 bln run rate with 9.6 bln and 22.5 bln in revenues respectively. Kotak will be with the biggies in keeping SB interest rates down but market sees a lot of benefit for them in the new regime as PSUs are outpriced for the time being and tackle quality issues

Inflation in vegetables remains at 25% but we are in favor of good growth for the hinterland in MSP raises now 2800 for Chana and Masur and increase again in rice and wheat. Also Hamilton must give hope to Ferdnand also to come up in the ranks as the Buddh provides a chance to speed things up on the F1 circuit

India’s Grand Design? or just a Maha – myth

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There’s a brilliant analysis by  Gayatri Nayak, in the Economic Times today. Brilliant because that is something in plain data and in plain sight what every Corporate indian and even every Indian citizen otherwise or any other species observing India on the World stage wonders. We are the I in BRIC like the I in Team, we are the I in interest rates when the world is reducing them with alacrity to avoid a depression. Our oil still costs a $110 a barrel, 2 of the BRIC nations almost get it virtually free from their own energy resources, the third and the first citizen in every economic miracle now is China.  even if everything in the Local Infrastructure run for China collapses, the 25% LGFV default will just reduce its growth to 0 when it is going through its slowest phase in manufacturing. nary a hope of a recession. And there the similarity with India ends, but with others it has much more in terms of dependence on commodities, energy, and hot money flow magnitudes that just do not compare with the rupee trading at its lowest.

Read the ET article here:

The foremost problem is the speed at which the prices are rising — from assets to commodities to manufacturing to services. This could deal a long-term blow to businesses, making them unviable. Prices have been gaining more than 8% for more than a year now. The main reason for the fall in profitability at companies is rising input prices and not finance charges as it is made out to be.

“India is less integrated with the global economy” was the argument then. While it may still be true when compared with many Asian emerging economies, this advantage has narrowed down over the years. While the overseas debt has gone up to $306 billion at the end of March 2011 from $221 billion at the end of March 2008, the cushion of foreign exchange reserves went down to $305 billion from $310 billion over the same period.

As far as decoupling is concerned, the bottom is the same for everyone but thence everyone of the global economies from the G7 to the G20 to even Mongolia would have decoupled on the way up . The great contrast in each competitive resource advantage and each strategy in Brazil, China, USA and Europe will determine very different trajectories of growth seen and supported in the Financial markets.

At stake is the order of magnitude of investment and infrastructure which others have harnessed earlier than India. But while the others may be volatile in responding to global stresses, India just becomes a sub standard risk to carry without the heat of a growth running up that order of magnitude. Others have much more command and control mechanisms as witnessed in Turkey and China, to ensure transmission of policy do’s and don’ts. If we do, it stays confined to one single Corporate group or region The regional imbalances are much greater in China and Russia, even Brazil and the smaller economies are exclusively better risks for the global investor because they are entirely dependent on that investment and deliver  a bang for the buck like Coal in indonesia and iron ore in Mongolia, but smehow that focus continues to deliver a faster sustainable growth while our discussion of imbalances makes evryone a victim in the end?

We could very easily be at the same stage as China if we had better transmission of policy cash and of policy mechanism to channel the growth. We may still be doing much more for our poor than China which has apparently been focussed on just the coastal “districts” ( urban conglomerates) that were already trading with Hongkong and the rest orf the world. But what we miss is the global demand or investor interest which cannot be just delivered to those shouting from the rooftops or those taking to the streets by fast and by suicides.

An administered rate of exchange with 10 rupees to the Dollar can bring it though. It will bring into focus our strategic decisions and investment in growth to a direct returns comparision with global investments. It is also the rate at which PPP trades for India to the Dollar. And it is probably the singular reason  why no one bothers to hear us on the table or give us preference or deference in trade.

Probably why we are so happy at rupee depreciation so we can get more value for our immediate quarter from IT exports when export growth in cotton, tea and even coffee and oil could mean so much more to us. In non It exports we will still remain satisfied with 2 – 3 million tonnes of Rice, wheat, Onion and some other crops but we remain the top 4 producers of those and falling behind every year.

Probably our priorities for infrastructure investment also need that push to file up behind the Exports doing the best and easily sustainable as in agri-commodities and gems and Jewelry

but that is the cliched argument no one has acitoned for the last 60 years. never.

Gross domestic product growth in the advanced ...
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Foreign Banks in India: The HSBC RBS Private Banking Sale

ABN Amro Bank in Dubai
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RBS had committed to HSBC towards the sale of all its 31 branches and 100 retail / wealth staff to HSBC. It is yet questionable if HSBC could have absorbed all 1800 staff which continues to operate as ABN AMRO in the country since License transfers are a throny issue that from the point of view of the regulator should not have risen as the occasion to sell in each case is in question.

Since the deal signing in 2009/2010 when ANZ lost to the HSBC bid in India and Malaysia, there has been speculation peculiar to the Indian regulator’s national requirements. None of the speculated objections have yet been resolved, additionally with RBS and ABN planning to come back to the country RBI has taken a harder stance on this apparent tomfoolery with buying and selling branches and networks . Among the first nonsensical results of immediate interest to RBI would have been the multiplicity of licences for the acquiring bank and the lack of branch approvals for HSBC once it as acquiring bank had surrendered the second licence per law with RBS. Even before the assumed non-event (buyers/sellers) though RBI has now found itself troubled by the fact that RBS wll continue to live in the country in isolation as also ANZ ( in its TV appearance by CEO Mike Smith on Bankers’ Trust – B-UTV) plans to remain only in institutional business in India. ANZ, ICBC have one branch each in the new avatar, the most planned by RBS in its new role as a exclusively wholesale player in the country.

Media reports make it clear that RBI has made a unitary objection on the sale – that of the 32% priority lending commitment which precludes any option without retail branches and in factas the new charter sugggests, new branches in Tier 5 and 6 town.

Priority sector requirements are not new and all the 32 license holders in the country manage the same lending requirement without their own branches in the rural hinterland. Obviously those wholesale approaches are not the objective of the Priority sector lending regulation.

Global evidence of parochial regulation

India’s own ICICI Bank is curtailing international deposits in most geographies as local regulators want such deposits to be ringfenced for local disbursals. This instance is unlikely to be an isolated one and a ringfenced national structure is already mandated for most banks but expensive to execute. The Indian regulator per force is under pressure to clarify  and safeguard India’s interests in terms of adequate capital for local operations which has been found wanting by banks as they feel strained by restrictive voting and limitation on branch licenses among others, as also their inability to compete with Indian majors in retail footprint

The Original Sale

RBS sold the ABN AMRO business it acquired in the country while keeping the Global Banking and Markets Divisions along with the Global Transaction Services it acquired from ABN AMRO headed by Meera Sanyal.

BS of July 03, 2010

RBS’ retail and commercial banking businesses in India house portfolios with a gross asset value of $1.8 billion(nearly Rs 8,400 crore) and have 1.1 million customer relationships, served by over 1,800 staff through

31 branches currently.

According to the terms of the agreement, 90 per cent of any credit losses incurred on RBS’ unsecured lending portfolio in the two years subsequent to the deal’s completion will be deducted from the $95-million premium to be paid over the tangible net asset value of the businesses.


This was later deemed to be a portfolio sale and RBS was not allowed to transfer licenses as the banks were not incorporated in India and were only branches owned by foreign parents The Stanchart offer for the same sale was considerably lower as it expected the regulatory run-ins to be discounted. ANZ that had earlier sold off its business to Stanchart in 2001 and ABN have planned a return to India in 2011 and again received licenses while being welcomed by their core consituency of customers in retail, do not expect to go beyond Transaction services and Capital Markets/Fixed Income / Syndicate lending

Other thorny issues still remaining to be sorted out thus the picture that emerges is the following :

1. Each branch still requires explicit RBI approval and none of the 32 players have been forthcoming in unitarily capitalising the India subsidiary for its leverage commitments as currently we all go by Internal Risk management approaches that count on a single Asia Pacific Balance sheet to sell loans to India corporates esp as the competitive advantae for us in Foreign banks is in arranging cheaper ECB loans and FC denominated swaps

2. Licenses being conditional to Priority sector lending apart , there needs to be dialogue between banks and the local regulator with the Indian operation commiting that it has the authority and the reach to complete all its India commitments and RBI observations. For example Swaps create unseemly leverage and banks do not resolve the same as per their own internal risk management where approvakls are already received?

3. Banks may feel stretched by the current requirements to commit 12 new branches in a year as are automatically approved with the 32 foreign banks surviving on 320 branches for their nearly double digit share in Indian banking assets and having avoided the changeover to WOS formats suggested in 2005 with INR 3 bln capital minimum . That this capital would have to satisfy basel and RBI norms on CAR locally queers the pitch for effective pricing for these banks and also in terms of global business sructures where entire regions operate on economics of large volumes that they will have to independently build in India.

4. The banks do remain commited to growing in India, HSBC for example and till recently Citi heavily recruiting in the country in retail and wholesale. Banks remain the preferred stock recriter of MBAs led by Foreign banks in India

5. A roadmap for ringfencing national operations has not been committed by BCBS ( Basel Committee) and banks have already calendarised ramp up of Capital per new standards till as late as 2016 (Ph II) and 2019 in view of the adverse strains on their global operations

6. Foreign banks have not been able to get RBI’s specific approvals for any request for voting rights beyond the current limitation of 15% though there is no such limitation on purchase of individual stakes by the banks. HSBC had earlier planned to stay with Axis Bank as partner but had to make do with the solitary ILFS Investmart purchase

7. New private banks are allowed FDI of 49% for 5 years and changes on voting limitations may be made in the Banking Regulation act as per demands. Many in pvt sector insurance also await allowing of increase of JV partners’ equity expected to be approved to 49% since the last 6 years but still hanging fire based on reform to holding limits acrossindustry per se

8. The impression of RBI as an archaic regulator somehow persists in the global bank offices as of last count in terms of capital commitments to India operations being recounted as Comfort letters provided proved to be of no later consequence for the banks

9. Even with local subsidiaries, RBI feels that Foreign banks commitment to the country is volatile with over 16% contraction in credit in 2009 and 8% in 2008 after reaching a so called “dominant” position in market share in 2007

RBI paper on Foreign Banks (2005) suggested a WOS structure be mandatory now for 0.25% of national banking assets or mor ein share (IIFL – RBI  paper )

HSBC global locations
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Living with high interest rates: How Banks will follow the script for India’s new growth – Part II

Pie chart of population distribution throughou...
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The RBI proposal for making a 100% WOS structure mandatory for existing foreign licensees is likely to get the tax man’s blessings if the diktat comes through form the MoF letting Banks bring in unlimited Capital for the new banking company without any tax implications. It still leaves to the foreign banks to set up such WOS structures that bind them to 25% branches in rural unbanked centers. In the draft for new banks for example I do not believe rural unbanked is the term used and they may be just llooking at setting up next to the HDFC Bank or PSB in the village/town when they do get down to implementation. Also with Foreign banks have partnered themselves in Insurance the FOHC/NOHC structure will be invoked with nary permutations to let HSBC and Citi operate for the projected bancassurance incomes in reputed cross sell revenue burst yet to be seen here.

However Banks will have a significantly larger play than just habituating Indian customers to high rates (mostly on loans), to mobile USSD messaging, UID enrolling for deposit accounts and mobile payments interfaces With RBi close to the curve on inflation there is much more rate hike in India’s future till we can outrun that inflation or pull it back(not happening till midway in 2012) Social programs in the rural hinterland may become more common and apparently more sophisticated than the public sector loan melas of the 80s

Swabhimaan inititive or rural unbanked villages claims 70,000 villages covered in 2011 till now, while NBFCsoperating int he country are being re regulated to level the playing field in terms of prudential and provisioning norms while deposit taking remains the purview of banks and those already having such a license in the NBFC space while allowing NBFC s access to SARFAESI Acto to allow recovery

It is the urban market increase in consumption which is a fertile grounded seeded by the Private and Foreign banks with renewed vigour. With underwriting norms slikely to be ofllowed diligently at least for some more months to come, the higher rates may not make much of an impact on consumer disposition with Cars and Homes hoping to come back to the top of the shopping list sooner than FY12 end in six months

Contraction in bank branches in the US however and in fact everywhere in the developed world where branch interaction has been a much lower component since more than a decade back, the growth in superstructure may be discouraged by the higher rate structures for the banks themselves. This is exemplified by the transaction charge difference of upto 5 times in a bank branch (40p) as compared to an internet only transaction(8p)  An Asian Banking report recently suggested that Internet transactions in Asia are more than 1 in every 5 transactions including large monolithic markets like China

Investments in risk process and Trading systems and platforms will likely take uo larger investments on the banks’ part yet. However, globally some larger operations in FICC and Equities may be looking for less regulated centers than the freshly reregulated markets in US, India, and China and global expasion to SE Asia’s frontier markets and Africa may well shift  the invesment locus from India and China too and thus Indian regulators would have to sweeten the regulatory pie they have to eat at India’s party for some time to come.

The ideal for banks right now is the renewed strength of income from the Wealth segments in Fee and Advisory income, investment income as well as financing the luxury goods consumption channel that seems to have been fairly robust during 2008 and now. Even if retial was to reach an average of 33% to 40% of the banks’ income statements it could mean large jums for the banks’ balance sheets and for India’s consumption pie. Corporate Banking and the likely revitalised IPO market remains the banks’ most dependable source  of income even with a more conservative range of products for the dle funds that have been the banks’ focus for faster profits to the clients and themselves

An HDFC Bank Branch in Hyderabad
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