India Morning Report: Just a new Cabinet in play, Markets joust at 7200

There is virtually no reason for markets to hold the new 7200 levels on the Nifty or 24200 levels on the Sensex so there is always  chance that 7100 is reached again in the coming 2-3 weeks, but global markets are agog with the news of a new government in India and there are even some stray rumors of FDI being redirected from China to the Indian basket. However as a few that have rerated markets to 8000 levels would appreciate and Nomura does not in rerating of the growth target to 6.5%, the new Modi trade as yet does not encompass any change in fundamentals of the Economy as it awaits the qualification of India strategies with real strategy motifs from the new PM.

The FII sell trade on the index however as we explained already is a likely deepening of their bets on India as they exit naked index bets and return to stock specific bets while exiting cyclicals ( Citi – Pharma, Consumer Staples, Metals) . Goldman Sachs again, a good index revision to 8300 however no retail investors should be encouraged to enter the markets at these levels, those in play already inside whence the index crossed 6700 levels.

Markets as expected, open slightly positive after a rush to Mt. 7200 on Friday and now sustaining the range between 7100-7400 before fundamentals and a real government allow the move out to 7500 and then only one can say what the new peak for the markets shall be and where it will end in 2014 likely above 7700 and 25000 on th Sensex an easy target . Markets reached 25k mid afternoon on Friday. Global markets in the meantime see the FTSE stopped below 7000 as it along with the European plays changes the fundamentals of the Bull trade from European growth at home to Global growth and the bond trade exits. European markets will now rise on the weakness of the Euro having peaked out their slow growth memes at the 1.40 marks on the Euro. The SU markets after a scary ride down all week closed near 16,500 and still retain a bullish meme or too but only if the Bond trade stops doubling down every week, ten year yields still headed south even as retail reports a buoyant quarter this week.

The currency is headed below 58 with another 30 paisa gain at open to 58.50 even as Arun Shoruie gets another chancce at an Economic portfolio. It is a little discouraging ( intellectually) that the voting masses do not appreciate anyone with real qualifications, though one does not yet mind a man of the masses taking reign as he brings promise of long term stability and thus at least hope of turning the regular recovery to 6% into a big decade for India and India inc,

It almost seems superstition ( see our predilection series’ of 2011) for markets to stand on a 9:2 Advance Decline ratio after having lopped of the steep head of the trade on Friday when the markets understandingly rose 5% mid day to above 7500, allowing analysts to comfortably bat for India bull markets even after the great seeming froth in equities ont he back of a 336 seat win for the NDA. Banknifty hit 15k in Friday trades and the bigger better banks including the 2000 vintage Yes Bank too will continue to reap the gains of renewed investor confidence , allowing Yes Bank to trade around 600 levels and ICICI Bank perhaps 1500 levels as HDFC Bank is already at 800. Market earnings should be taken at around 375 for the Nifty and 1400 for the Sensex as the markets have moved on since August last year and India inc continues to perform.

A great bull run will probably stay stopped in its tracks for a couple of months as consumer staples stop rising even as inflation remains high with consumption the oonly growing GDP component. However as growth takes hold, it is desired (as Riddham Desai makes a case for it on CNBC tv18) that the %of GDP attributed to wages decline in favor of % of GDP attributed to Profits. That would also imply that consumption share of GDP that may keep growing will have lesser role to play as real investments finally make the GDP shine for India a sterling part of selling the new Modi model of global business. However , my takeaway remains that it may be difficult to undermine the role of Pharma, Exports and even FMCG/staples/Non durables in future Indian growth and performances from the sector may well continue to lead sentiment into 2016 giving the market consolidation a reason to not change baskets but remain stock specific after having chosen their favorite banks. China in fact continues to bat for a new dispensation that allows deeper domestic consumption markets where Japan has already moved after a first few futile months, and though analysts and funds start chasing China and Japan almost simultaneously with much bigger commitments, India will scor ehigher than its own previous benchmarks on Foreign inflows and markets will continue to lead business here.

India Morning Report: Global investors go long on India’s new regime

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Even without the new government in place most would benefit from a big long tomorrow. I agree with SS that the NDTV poll was a definite watermark for those waiting on the fence and Nifty futures and long calls / short puts would pay off well tomorrow with the markets settling down at 7100. In case the 279 mark is achieved, the bang is anyway likely to take a rain check at 7200 mid afternoon on worries of government formation as the so called Modi vote is finally for stability, the one worrisome miss for UPA2.

Thus in either case global markets are long on an India recovery and though this may not translate into any “reduction” in the frozen anti India sentiment(sediment?) and other emerging markets would retain their weights being at a virtual bottom from here, global allocations would easily make this a record breaking year for FII and probably FDI inflows (the latter for Fiscal 2015) Also, the banks and other metal and minerals sector interest prove that currently investors have not come in to the market which is dominated by punters looking to jump on to the subdued PSU brigade.

The networks (CNBC TV18) also saw a ranking of under invested PSU banks like IOB, IDBI Bank and UCO Bank which to prove my point haven’t seen any resulting increase in stock sentiment thence in morning trades. The Rupee predictably, celebrated the relative certainty after the NDTV Hansa exit polls back at a firm 59.50 level instead of worrying about Friday In bank stories, Bank of Baroda easily fooled the most investors with their troubled couple of quarters last fiscal (FY2013) making many worried about their outlook. The bank has however stemmed the rot within 6 quarters and Gross NPAs have come under 3% after Q4. The scrip could have benefitted from better guidance earleir as well, but has celebrated investor faith nevertheless with a steep rise in the last few days. PNB on the other hand with smart provisioning that got it re-rated earlier is likely to lose the crown ( best besides SBI 😉 ) again with NPLs making it really weak and late provisioning rather hurting the profits despite treasury profits that could have won it over. BOI reports today and may further marginalise the PNB play if it reports the turnaround.

HDFC Bank in the meantime benefits from having made a clean breast of it in the markets earlier even as MSCI brings down weightages to 1.89% and confirms the possibility of deleting the bank stock on RBI restrictions due to FII limit being reached. Hat tip to Ashwini G. ET Now, for remembering the PSU rush this week, and a reminder to Nikunj of the reason why HDFC Bank will not worry about the MSCI pronouncements)

 

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Those instead believing in Tech Mahindra are likely to be disappointed, like in Genpact 3 years earlier which remains a GE business driven company and stylises the fact of inactive uninteresting Indian listings on the NYSE and the NASDAQ  even as Banks listed overseas shake it up a little. M&M however recovers a little and may be a good buy as consumption stories return and Auto sales buoy up from the bottoms reached in April. Sun and DRL seem to be riding the wave even s the A/D line again confirms 3:! after dipping to 1.7:1 yesterday, a very comfortable score for equity investors to end up choosing the wrong bets in arally year as the markets end the discrimination and stock specific phase.

Gold prices in India look to celebrate instead of following the global cycle of getting subdued on news of an Economic recovery and Global markets esp look to India to let the commodity price firm up further even as China disappoints after becoming the largest industrial user of the metal. PIMCO continues with large outflows for the year (trailing ten months now in excess of $10-20 Bln) but has made another smart macro recommendation on China, where growth rate may all to 6-6.5% the levels also expected of us in FY15

Infrastructure stories are also good for the last mile, but may consider prolonging the rally to confirm NDA action as it seems to be relying / planning on focussing on railways ( A diamond quadrilateral) and current infrastructure pipe needs to be taken up on priority instead to make the story work. Tomorrow selling 7200 puts would work well given the markets are unlikely to fall off the saddle anytime soon, but 7100 calls may start off earlier today afternoon and for retail investors offer lower risk equations as 7200 puts would keep rising in value thru the month. No post-counting scenario is likely or even improbably look at a Nifty score under 7100 or Sensex under 24k

Lastly, I’d request the NDA policy making teams “Please do not appoint MM Joshi or Yashwant Sinha to the Finance Ministry”. It may not be that bad an idea to give it to a young Amit Shah as we have a very able team to help him.

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: Love in the times of cholera for Airtel, India

Airtel rode the Data market jump as revenues for data doubled as for Idea in mobile data (94% and 110% respectively) allowing Bharti Airtel to showcase once again that ist is the best business and the best business group to run for India and in India. Of course, firming up of prices is a mixed blessing for consumers but the explosion of the data pie esp in mobile data augurs well for companies in this otherwise mature market just waiting for a whiff of good natured mojo for the overall economy to blast off.

Modi’s government is not yet in through the door, his ominous cries for Dil maange more in dissonance with the campaign for mostly informed voters going to the polls in phases 7 and with exactly 16 days to go. However, it is unlikely that the polls will herald any other government in India than a full fledged Modi government that will last 60 months and most of the reforms will not be rolled back abruptly or at least most investors do believe that and look for reassurances for the same.

Markets finally break a 2 day losing streak and return to green making Nifty 6800 an iron clad resistance and support thereafter for the India markets re-rating currently. Merck reports in India tonight and the results will underline why Indian traders should not go for stocks like Alstom and Astrazeneca on global headlines that do not impact the listed business, so often mistaken as pull for the global corps in question. ING Vysya’s results reported yesterday again showed some weakness and have to be inspected for renewed commitment required from their parent in Netherlandas spreads /jaws contract for the Indian sub and the Income growth does show a better traction in new loans

Ashwini and other network commentators have again been baited/baiting shorts after markets almost flattened out at 6720 , some of the confusion spreading over from a long earnings and election season but the selection of midcaps again shows the limited interest in the markets on the long side except for returning to 6800, staying positive on good earnings ( there are no real bad earnings reports coming, bu t that is not being factored early by the markets) and standing waters are unlikely to make enough trading capital queasy to force a down tick in the markets making 6650 probably a safe bottom and sold puts will continue at 6700 levels from Traders and investors alike waiting out the final tally.

I am busy packing my bags in Bangalore and tying up loose ends as I get ready to join campus for a Ph D at Lucknow / Trichy ( thanks for being around)

Infrastructure spend and IPL like sports franchises remain Indias most potent steps as they await an empowered government

India Morning Report: The rest of the week is bullish again

indiaGiven Pfizer and US Authorities continuing crackdown on drugs from India ( Pfizers fake drugs lab featured Ranbaxy on Bloomberg yesterday, 100M users (see ET)  did not vote for Ranbaxy and founder Dilip Sangvi definitely has an uphill task trying to convert his $4 B revenue acquisition of Ranbaxy into a paying deal. The price even at Rs 447 was probably a face saver for Indian Phartma as Indian pharma contitnues the quest for bigger stories in the $200 mln – $500 mln molecule categories and even more and the US generics story also relies on academia to cut the costs of innovationand drug delievry with and without Obamacare.

As of now however, prices of Sun Pharma continue their rally as Ranbaxy finally stabilises at 447 (offer price) and markets look to complete their pre poll rally with benefactor Modi piping up some hot Indian curry to Foreign investors around the world. Recovery in consumption is not converting to better Auto sales apparently and poll time spend also seems to be down witht he fortunes of the Congress known well in advance.

In Financial Services and Banks, the IDFC story has multiple positives even as the markets nurse a big bruised ego from RGR’s matter of fact disposition of other applications and the Infra Financing story for India inc seems to be back on track, the Indian welfare state a survivor of other political questions as BJP promises to bring back rural employment and education schemes.

Stories like Bharti and ITC are unlikely to lose because of the changes in Political fortunes while the Pharma and It story probably come under the scanner being at market peaks and the Rupee responding in the NDF market to more than inspired business inflows and remittances from labour abroad.

The movements in JP Power., JSW Power (Nasik and Maha areas arnd Jabalpur?)  and obviously Adani Power ( Amit Shah connection) are interesting and likely to be back int he limelight as news on the business channels remains on target for a big 7000 breakout and is safe for a 6800 score by far, markets continuing to test the levels after each 100 odd points of rise, studying the ramifications and choosing a select dozen every 100 pointswith shorts back in Kotak and Hero Motors. BHEL and SAIL seem to continue to be short favorites and their fortunes and that of IDBI Bank are unlikely to be affected by market direction now.

The best derivatives strategy remains to sell puts at this point for probably 6500 levels on the safe side, markets likely to signall enough if the breach below 6450 levels in 2014. Buying risk may seem tobe in, but new investors are likely to be priced out by the constant rain checks and risk buyers from early 2014 will continue to be rewarded till end 2014 if they stick around.

JP Associates is unlikely to move upop from 56 historically a support for the stock as it continues its tortuous strategy of deleveraging its listed stock

Bank credit growth remains steady at 12-13% and deposit growth continues to outpace, leaving the changing GDP target forlorn at new higher levels and the GDP performance for 2014 and Q1 2015 unlikely to hit above 5%

Market highs around 7000 levels are however already justified by continued double digit earnings growth by top performers.

 

 

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: 6250 again, naturally! O-O O-O

Asian markets do tick down slightly probably because of no Commerce in the financial sector as US markets are closed.

Even without anything much happening locally, The Chinese GDP underperformance at 7.7% was unlikely to be the markets’ concern here our export markets in China safe and the 9.6% production improvement and signs of bullish trades in Copper and other metals. India’s 6% forecast is hopelessly over optimistic and thanks to the networks avoiding the entire China update the fact of FDI non interest is unlikely to bear on market sentiment, and today, and in all 2014, this is a good thing! WPI hit a sharp floor at 6.1% and may breach much lower lewels with core inflation already below 2% Core inflation was basically flat.

In the midst of results season, the positive surprise markets did not expect and despite attempts will continue to be marginalized, is Wipro’s back to back second quarter of gains of 27% on year on profits but F&O markets are trading that and the last weeks IT news pretty feverishly /robustly. However, this interest is mostly maintaining shadows of activity while the Bank stocks get reassessed yet again. The realization that Markets were going to hold 6250 was all too evident in the one way candle of Friday, the 6 hours of sloping down, accelerating wantonly almost after 1430 hrs to achieve 6250 marks

Interestingly, a well-developed hedge fun industry would certainly have seen a short strategy for IT esp on WIPRO from some entrepreneurial trader after this bout of strong results, esp with WIPRO tempting fate and unlikely to beat history ( like Morgan Stanley did, Friday night)

Bajaj Auto and IDFC are my longs this week and will probably score very high as new funds enter the market and get earmarked to the new universe of stocks added in the buy lists ( ET’s Volume breakout series is a helpful ready reckoner, but I doubt you’ll easily find those mix tapes /snips on the ET Now carousel. Go figure)

Actavis may be a strong boost for Aurobindo with almost $8 in earnings in the last four quarters. However Aurobindo is buying its European operations with a EV of $1 Bln apparently ( $320 mln in annual sales) and obviously an easy divestment for ACT and the news has seen a $14 or 8% jump in the week’s trading in the US. After hours trading added $2 on the news . The synergies come from the operations tie -up with the 200 strong pipeline at Actavis

Gold’s busy start in this year’s trades, enthuse Indians but they have traded less of the metal under clampdown driving prices down in 2013 and the story is likely to repeat from a higher watermark below 30,000 this week

Comm stocks lead the indices back after a quick crash mid week on ticker news. Isn’t Debt trading news looming from the Central Bank?  Meanwhile if IRFs had been actively traded the rates started the great slide from 8.8% levels and would probably close  a 100 bp lower in due course whence RBI will return to relaxing the 7.5% Reporate ( excluding the 7.75% last tick forced on by the new Governor) Floating Funds would have a few investors more and any survivors of regulations may have new FMPs to this sector, but will likely be late again. Meanwhile the 10 year can well trade below 8.5% this week.

Energy stocks looked good for this week as well, but it seems there is a new LPG subsidy likely on the ticker for them. Kotak and a host of mid-caps report tomorrow and Dabur and M&M(Fin) follow HDFC with Biocon also reporting on Wednesday.

Midcap indices will probably harness a lot of gains in the week, none of them ready for a harvest of Sell on news tomorrow or Wednesday Avoid the L&T trade tomorrow unless you are fairly clued in to a tepid results expectation in the market

Edelweiss also reports Friday but the crown in the jewel should be Glenmark, that has already up since last week from 500 levels

India Morning Report: Markets may have a great week from 6200 levels

Sesa Sterlite is the only bad news in the market despite what the SGX Nifty might have you believe. The silver linings playbook again plays out the unearned expectations market economy built into the logit mind of the Indian markets with enough logic to propose either candle to the trader at 9, now bothered no end by the SGX Nifty only on Monday. The rest of the week will see the good tick in Maruti with a flurry of small car launches to regain share in the local auto markets and concurrent good news for the industry too.

Japanese automobiles spurred by the Yen aside, Banks are ready to gloat on good results as the NPA circles are now wholly identified scab NPA marks admittedly on large parts of the sector but totally mapping out a clear sharper growth trajectory for the Private Banks and even the foreign owned banks ( there is one that is listed, however that may not get the benefit of the industry) Rupee will make another great turnabout from 62.5 levels back to even below 61 in inra day candles as FIIs return for earnings season

Lupin continues to shine and Infy has again reached the stratospheric levels from which it xan be a good short as cosmetic changes to the EC structure do not mean much for earnings prospects and the Sector remains on watch with the Rupee likely trying to make a big move up and not facing much resistance, Export Demand lull more a factor of Chinese and European dream fallout as both awaken to another despondent forecast in 2014 and TRade is unlikely to pick up till the second half of the year

The 6100 build up wll likely strengthen though with Calls written but the new OI may end up being a hedge. Markets will of course head south first and one should await the consolidation to finish before diving into the green (white) Candles. Shors should avoid sector s and focus on Tata Motors, Sesa Sterlite and even Infosys as cautionary wellness levels will be established (baselined) before discussing and mooving in on expectations from reslts and infact in the case of Infy perhaps the wait would last till the real results and 3400 /3450 levels cannot be ruled out for it in the run up

To underline stylised facts the markets are keeping (more like memes of a post crisis market) , apart from the big positives in Pharma ( incl. Sun Pharma), Banks would keep the positives for the day  and Monday reports that include India’s Services PMI may not contribute much to the market recovery but form a basis none the less

The IIP redesign around Capital Goods is long pending and probably another will be chalked up soon to get bigger weightage for Services. Meanwhile Capital Goods continue to account for an inordinate amount of the volatility despite a less than 10% weightage becaause of the size of the orders when they come, ensuring November was a really low score reported. TaMo’s 17% jump in US JLR sales similarily mean nothing to shorts on the stock. It is no time to measure and speculate on range Strangles esp short strangles so early in the series, but towards the end of the week you could probably sell in to harvest time decay.

Anyway, markets are not moving below 6200 significantly, Bharti ranges from 310 – 34 0 and so shorts on the stock may sustain existing shorts and build ups, ITC is ready to move up but will wait as profit taking is still suggested but will be brief given the cornering of the top prices in Thursday afternoon by a single operator (cartel)

Pre Open shows energy cos moving back up and note that a significant speculative interest has been started into the market with a build up in JP associates at its lowest levels for another attempt on Mount Everest by powered trading rooms

11am update: Unfortunately, markets have caught the correction inbetween and sitting on it, making this week at 6200 especially dicey till a south move is done into the market nomics. Also the move on Aurobindo is probably done. Any such new top off and profit taking now could trigger the move to 6000 levels. I am warning the watch tower only as there will be no editin of the report on Tuesday and maybe Wednesday before 11 am when I expect to be back , idling for this deed again.

India Morning Report: A new bank, not Citi, 8 not 4 and numerous other slips to the mile..

Vikram Pandit’s new efforts in India with Kampani’s JM Financial may get JM a 10% bump in stock quotes but it is unlikely that his 50% buy of the subsidiary and 490 million warrants worth 3% of the listed company with Hari Aiyar and wife in the new bank application at this stage will build on anything like branch infrastructure in at least the next decade, so watch out for questions on the application being followed closely in the media?

Otherwise of course the Chinese continue to prefer the number of wealth ‘8’ in their phones and registration plates for the cars that are sold and you should avoid gifting them anything with the number ‘4’ thats sound like the word for ‘death’ and Morgan Stanley leads the list of suitors looking for a bear to hold as Indian markets sit pretty on last year’s prudent calculations still not outrunning the underperformance in sensex companies in the quarter gone by. Markets are headed to all time highs probably but the next target is 6350, steady as she goes..

A wonderful FNO pick on Tata motors reversed my earlier opinion of the TV18 guest who chose Tata motors again but as stock vols (option vol in current month series) closed above 40 the bid to range the 280-310 stock trade with a bought put at 305 on a strike of 290 as recommended should gladden many a margin accounts. The strategy is brilliant only if when it opened this Friday, the bids in the normally not so liquid stock family  would not have quoted the ratio spread at a profit. Buy three puts at 290 at today’s open and sell four 280 puts in a minor tweak to the strategy played on the network but you could leave it a t 1:2 as well

Do write to us above and link in with your blog / facebook page in the comments. 2013’s dull exports and consumption story for India in the meantime cannot stop cosmopolitan urban India from turning Jiading(F1 track) and Pudong (Shanghai) and Lavie and “Caprese” luxury bags with Gucci stores springing up here now much after China’s $15 b market accepted them despite our protestations to the contrary .If not the Chinese predilection for lucky numbers, one could still catch a fancy to under-reporting ages , the ilk spied upon by Jug Suraiya on Page 3 in his TOI op-ed of today

ITC results should be eagerly anticipated and with infracos back in demand together ITC and IDFC will garner a lot of new outstanding demand volumes ( open interest) esp as JP Associates has completed a first rush yesterday to 80 on the futures. Sun TV is much better than Satyam though but both are equally risky on corporate fundamentals after the corporate governance in churn in either of the scrips. Sales of $1.6B at ITC in the quarter reflect the last of the big consumer companies making a sustained comeback after the jump in Q3. Europe based consumer goods giants including Nestle, Diageo and Unilever have already been singled out for investor attention in growth deficit hungry Europe for their stronger Asia businesses (ref FT.com, subscription required)

The New Drug policy is out though impacting margins at Pharma MNCs and Cipla & Lupin will also trend down on the repricing of margins across the board.

The main topic on this busy day could still have been the new RBI trend policy established by the WPI falling below 5% and the CPI having come in earlier. Though loath to check the sub indices this morning i see a Core inflation at 2.77% near all time lows and I do not believe we have seen the last of food inflation though April did not get to be a major run on the home makers’ wallets.

10 Y yields on the new bond have already responded vertically to near the 7.25% mark and thus RBI will take the whole term down immediately in the next three-four months before growth actually responds, likely leaving the rates below 7% forcing banks down on deposits despite the flagging demand and without more than a signalling cut in CRR. The news of more cuts was however the most important one behind Thursday’s heart of a rally.

 

India Morning Report: Private Banks paying for PSU heresy

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Bank nifty private bank leaders were again targeted as investors refused to let the index give up its gains. Those locked into long PSU strategies remained headed for negative gains in the 2013 cycle and switching trades also not being available, as a measure of respite seemingly, unwitting profitable counterparts were targeted by those prefering the short side of the target at nifty near 6100 and banks are unable to resist these sharp cuts with most other new longs since April not including banks. To wit, Indian Bank is trading in positive territory being one of the few whose positive uptick in Q4 results fully recovered the profit habit in the eyes of investors. Canara ‘s NPAs for examply stayed above 2.6% headed for a 3% cut in assets and negating any other income of the bank.

New positive offshoots from Infra and results from Karnataka elections that firmed up chances of a stable regime the next five years till 2019 also indicate a firming up of price levels for a success to be feted by equities in Indian markets. All Capital markets look to move unidirectionally in the first few months of confirmation of recovery as fixed income markets celebrate a new 10 year bond and yields move closer to 7.25% levels Strange opinions from Goldman Sachs take over the small screen though as the broker’s opinion tries to spread /believe recovery has spread to stocks like L&T and Apollo Tyres, which both seem to look askance yet and well may lose steam to winners forom metals and minerals first as those look more positively geared up for a recvovery than these GS recommendations

Meanwhile IDFC has hit a late stride on the bull run and DIIs including bulk buyers like LIC look to be stuck with purchases at these or higher levels except for a later correction to 5900 and not more than that

Germany’s IIP data meanwhile only helps our belief that the Euro has taken the proverbial high road, any lack of recovery in the 17 Euro countries unlikely to disturb the currency’s upward trend beyond 1.36 ( hsbc target0 or other higher targets near 1.45 even as any meaningful recovery in the 17 country economic zone or progress on closer union may also well be ruled out after German elections till 2018.

Disinvestment mandates to achieve promoter compliance with sebi requirements (GSK Consumer, HUL) seems to have rung the cash registers at HSBC as the banks good results earlier this week, also showed its great pipeline in Asia, theonly one including both China and India.

 

India Morning Report: Sorry Bears and Cartels, Bulls are still hiding in the Indian woodwork

Yes Bank
Yes Bank (Photo credit: Wikipedia)

 

Network analysts sitting on lower support levels and betting short on most new blue chips having seen the infracos slide, are in for another shocker as the march series looks to inch closer to 5600 on expiry day before closing out comfortably ahead of August 2012 levels. Both Sukhani continue on the second month of watchful short betting SS targetting YES Bank further from today while Bharti and some others responded in kind to the lack of interest to back the market interest to significant lower levels but the buls seem to have won on real strength of fund inflows for the time being. Markets will correct but not by much in April and while the upside was capped to 5850 levels by the weakness that just means the lowside is still as high as 5550 even for safe investors and 5500 puts should be real rich making sells for bullish investors. (We personally are not conflicted by any position here)

 

Five Rupee Coin
Five Rupee Coin (Photo credit: Dinesh Cyanam)

 

BRICS Development Bank aside, which we look to fund the Indian Infrastructure gap in due course, India inc starts off results season in a week and its profitability scores that already improved on identified sectoral leaders in Q3, are the ones that will be identified with the successful India story and not the politicking as enough stability and forward looking governance is guaranteed by incumbent ministers if not the party flags.

 

The Rupee keeps most of its strength in the new series and the may series may give pointers on the new range for the currency as Fixed income yields cross back into the 8+ range having lost the rate cut and pushed the bank to the reverse repo rate on the corrridor

 

Given the strength of equities and currency going in, profitability concerns of consumption and auto plays should be watched closely for bear victories even as IT forecasts and IT results will remain damp and not affect sentiment. Healthcare could lead stocks nose down but not up even if it maintains good profitability and revenue growth and any weakness in bank performance including Q1 FY14 forecasts will be a deal breaker.

 

Infra debt funds have indeed taken off and execution perofrmance of projects still hanging will come intpo play on the bourses also in Q3 FY14, QIP fund raising shifting out from infra and bank fund raising to NBFC or Capital expansion plays across manufacturing and services businesses with CDS holding sub 200 levels , a great performance for an isolated Asian performer.

 

 

India Morning Report: Unfolding Political Drama alienates Capital investment opportunities

English: Map of the British Indian Empire from...
English: Map of the British Indian Empire from Imperial Gazetteer of India (Photo credit: Wikipedia)

 

The surprising and unfortunate saga of the returning bout of political stability that landed last week has caused India inc some serious heartburn as market mirrors waning confidence levels of corporate India which was looking at raising cheaper money and deploying into new industry and infrastructure this year. Though observers still stand on the sidelines trying to peg Economic forecasts to the agri output as monsoon season also prepares to make its pronouncement and the comeback in core metal and mining sectors will be long lasting and is already underway.

 

 

The consumption cuts after a brief comeback in December January are almost inconsequential as global equities will correct and even out only some of the withdrawing Emerging market ETFs with India being a safe haven yet for equities, valuations at 5600 pointing to an almost extreme low on current profitability set to improve in the last quarter of the fiscal. But the 10 year  yield is already nose up after having forced the RBI’s hand and is likely to land near 8.1% another 14 bips in the next month or more. Japanese capital investment flows are probably striking Asia again with Myanmar starting Rice exports to Japan after a good 40 years and that is good news to the region strapped solely by Chinese FDI. Though unrelated, the India story will also depend on these FDI flows as its own Corporates battle the post rate cut bad scenario.

 

 

Further relaxation on FII investment limits in bonds are only likely to bring in more investments in the 3-5 year horizon as precious MTN products become a possibility to increase available choices for those evaluating Indian company CDS’ in the Asian trades. Indian ratings could improve in the next 5-7 years if such depth is indeed possible as another batch of QIPs though distinctly less than the volumes from Indian ECB in 2009 and 10, remain likely in 13 and 14 banks and infracos being the hitherto winners. The steepening curve in the meantime as India’s long term yields falter and demand comes to shorter maturities could infact be a boon to low lying infra SPVs as their structures shift to quasi one year rolled over paper and trap sub 5% short term pricing of debt. Their overhang of 30 year debt continues to be a big rating concern and government is likely to be unable to backstop more of it.

 

 

The political uncertainty in the meantime will only bring Nitish’s Bihar to the fore in the governance camp and DMK itself will be softer after the change in Foreign policy stance. Our own UNHCR confrontation on Kashmir, long hidden might still get political ambitions strewn but on the whole Capital investments will withdraw to a wait and watch mode in India 8 months before due election unevenness could have otherwise been expected to strike India inc’s investment habit. In the meantime, markets offer attractive valuation opportunities with most identified sectoral leaders including YES BANK, IDFC and ITC holding on to new levels. Jet has struck another wet lease deal with Etihad to channelise its quantum of investment adding the Brussels routes to the Heathrow parking spots already in the sale and lease back with Etihad.

 

 

Stanchart’s prognostications for the Rupee may have hit a rough patch in their own term forecasts but JP Morgan and Deutsche Bank sell side units continue to invest in timing the Indian recovery with other foreign brokerages from UBS and CIMB to CS itself still holding local expertise in sectoral mid caps and even banks. Helion and Samir Arora ofcourse stand a little more guarded in light of their closeness to these political forecasts on the nation but they and other India bulls remain exclusive specialists, a breed strange enough for its loyalty as is India’s own secular growth rate still nose upward from 5% last year.

 

 

 

India Morning Report September 17, 2012: A New High For Nifty As India’s Reforms Story Rushes Get Canned

 

The usual climactic rushes surrounding India’s reform measrues have effectively been canned with the coalition stuck Congress able to push thru reforms from UPA2 while keeping the support of the SP, BSP and even Mamata Di.

The usual protests and demonstrations apart, just in retail it’s going to take more than a year before the existing players from Bharti’s EasyDay to Reliance and Future Group reorganise their operations along statewise lines so individual permissions for JVs can decide their partner’s equity in retail

In aviation, there will be no takers for the 49% stakes except for promoters in Jet or new investors in Spicejet while one is praying for air India and Kingfisher.

But, why waste a Monday morning in recrimination ( and last time markets would have crashed on the mere whimsy that the sky is not sunny all the time and it is not raining everyday) hen fibnally everything ont he reform agenda has been finished in time. Well, there is still the case fo a new Divestment target which is unlikely to fructify as PSU CEOs put their foot down but then a Diesel and LPG hike could have made any balanced intelligence see the folly in a downgrade (which as brinksmanship would have it, takes India to junk status)

The markets will hit the path to 6000 today but as outlined above it is likely a messy positics that ill muddy that scenario for indian bourses soon as dollar inflows make markets so steep on the uptick that a deeper fall is inevitable. However, having invested in, none of them ill be planning to leave at this stage, the waiting time being immaterial for the returns expected.

 

India 3.0 – A question of balance (A Calendar of Economic Events)

Trading strategies are more the norm at this time of the day but the markets have finally regressed the entire cycle of events from the mid 90s to retrieve a year or at least a month of flat no move left stock markets and the rupee after a valiant afternoon early last week, follows into submission.

By our calendar, India Inc and indian polity have more twiddling of thumbs despite the Parliament out of the way till New Year festivities start in earnest and the Opposition crosses probably into a near win zone against the losing Indian government, a sinking ship, ripe for deserters and hence the time for foreign media to make a tattle tale red a**ed monkey impact on things.

One still thinks ofcourse that India Inc will survive the remaining year as the financial markets have, propped by liquidity though consumption is likely to be a dampenedr in the coming festive season with means stripped of all respect in the Ways and Means advances of a government, 33% of plan spending and 52% of non plan spending exhausted in one quarter and personal consumption enjoying the hit from inflation every week.

Ofcourse the Indian polity has been early pioneer and we the commentators have been as usual late in adapting to India 3.0 which like 1.0 and 2.0 before simply refuses to budge from positions, movements and growth rates established last after a severe drought in the early 20th century and a westernised relief program by the then British sponsored Congress governments in the principalities of Indian maharajahs.

The Anna movement has fizzled out without a viable political color, NaMo and Nimo apparently not good for a national calling and Rahul Gandhi not coming out to take charge, the old generation moving on has also provided pause for those of us born in the 70s as more entry line recrutiting takes salaries , if any , to 20 somethings and no growth industry replaces againg telecom infrastructure stories banks amnaging to gro credit to NBFC, Real estate (Affordable Housing) and other services industries.

FDI collars for old sectors, new banks and growth calls for the pack waiting for work yet still snagging salaries at IPL linked marketing companies, erstwhile growing BPO and IT companies or NPA hit PSU banks are yet a year or more away. Not much is expected from IIP data and Manufacturing Output growth data on Wednesday while Friday’s WPI data and that of FX reserves is unlikely to move decisively either, yet not be in the rut, WPI having improved for the last three-four months. European inflation data is likely to be worse today when most nations report than tomorrow when Italy and Sweden are scheduled to report while key South Korean, Russian and Aussie data speeden the recovery by the currencies against the dollar.

India Late Monday Morning Report – September 10, 2012 – Billed the next Superpower, India likes to trudge alone.

 

Image representing SAP as depicted in CrunchBase
Image via CrunchBase

 

The One hour saturday session did not help nor the coming Liikanen report in the EU scare banks and investors on the Asia story as Monday began apparently without due cause or available discretion. Not to give in to rabid bursts of disgusted incompetence but, india remains patiently in wait to distinguish itself from the Asia story and though stocks will trudge up to 5500, Banks from Europe could be otherwise occupied in the coming opportunity of the Spanish liquidity event as unlimited bank buying replaces and supercedes all current monetary supports and back in Bangalore Infosys catches the scenic express from

 

An HDFC Bank Branch in Hyderabad
An HDFC Bank Branch in Hyderabad (Photo credit: Wikipedia)

 

Zurich buying SAP and product house Lodestone. The Swiss Lodestone ‘s 850 consultants do not work for bugger or private banking clients but in manufactuing and automotive verticals with it also missing the in fashion healthcare business of the scenic Alpsdespite being in Swiss.

 

The Liikanen review needless to say, adopts a lot of the Volcker and specifically it pays heed to the Britishconstituency and perhaps brings UK closer to agreeing with the EU on Financial sector reform for all in one size fits all as the struggling EC wants to. Vickers had recommended and had been approved for a new proposition in UK banks limiting trading assets and non business banking assets from participation of retail banking capital However anyone with trading assets less than 5% of (RWA?) assets could keep the trading business in the same company

 

Meanwhile a new staying power has apparently been reached for the Jobs exodus as a less than 100k nonfarm payroll addition in the August report from the BLS did not cause much accidents while we were away unless the Euro shuts down in European trading n a couple of hours.

 

The Saturday session was evetless and the Index has hardly moved shape or sectoral preferences from

 

Bank of America Plaza
Bank of America Plaza (Photo credit: Frank Kehren)

 

Friday. However, banks completed a little ceremony where Dun & Bradstreet asserted HDFC Bank as a overall no. 1 bank for Fiscal 2010-11 and ICICI Bank and SBI split 3 awards each across categories with SCB winning the best Foreign bank ( parameters incl Quality of Assets) and Citi the best Foreign bank in retail ( old hat, new takers?)

 

 

 

InDIA MORNING REPORT SEPTEMBER 07, 2012: Global Liquidity Moves and a crunch in China

English: Bharat Swati (BHEL Swati) is an India...
English: Bharat Swati (BHEL Swati) is an Indian two-seat training monoplane designed by the Technical Centre of Directorate General of Civil Aviation and built by Bharat Heavy Electricals Limited. (Photo credit: Wikipedia)

As GSAM and a few others will willingly admit over the air, there is no return on your investment in China for a few more months. Of course the most important news of this market and it is affecting pre open rates as we speak is the Central bank liquidity thrust which has started in earnest even before the last obstacles toa Spanish bailout have been removed from ESM approvals to Spain’s own assessment and formal request. Bond buying in the 1-3 yr range by the ECB was announced at the monthly ECB meeting yesterday and was good news fo those already picking up 7% and 5.5% bargains in Spanish and Italian bonds. The resulting liquiddity esp as China is crushed under its own policy weight of the last twenty years is more investments in India.

However sooner or later more backing will be required for this rally as the BHEL and SAIL disinvestments look ticklishly unlikely despite Chidu’s best face on it. Bank nifty should be an important gainer if not today, tomorrow as 9850 was an important point of support.

Related articles

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
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: http://georgewbush-whitehouse.archives.gov/news/releases/2008/03/images/20080324-6_d-0665-2-515h.html 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.

 

 

 

The :LATE :LATE MIDCAP REPORT: Where promoters wreak havoc, is there a reason to formalise insider networks?

Securities and Exchange Board of India
Securities and Exchange Board of India (Photo credit: Wikipedia)

Indian promoters as Anil says so often on CNBC India (On Menaka’s The Firm) promoters control so much of Capital that trading in the so called Mid Cap segments here the Daily Volume is in a few thousands is an exercise in futility as the promoters manage in a bid to secure their Rupee funded investment which does not track global investment valuesin Dollars consistently. More than that domestic investors would probably like more investment opportunities but can be stopped out any time by short interests or market makers’ floating stock on whims and fancies market participants are so eager to drive home. One wonders with such a prescient SEBI and a tough act for others in terms odf trading regulation and ground conditions, is not there a way to formalise insider information on those not unlike the Russell 1000 in the US which has a pretty accurate information bag to play to facilitate long only trades in such counters and list specific qualification for opening short trades on a counter esp if it passes muster on a score of negative buzz. Eminently doable if one decides to do it. After all, these are investments and everyone ants investments to grow. Apart from unreliable balance sheet data, fine line items on export and import regulations, and somewhat transparent FCCB/ECB obligation sets which are yet among the most opaque, promoters like Ajay Piramal for example are not balanced by yet unieldy and larger controlling powers of the retail investors in the Indian market than comparable trading only investors in the OECD world

To note: The author dissociates himself from well wishers and ill named friends who use proclivity as a

network to illegallly monitor and destroy relevant and irrelevant information and decision making equally.

To note: The author dissociates himself from well wishers and ill named friends who se proclivity as a netork is to illegallly monitor and destroy relevant and irrelevant information and decision making equally.

Promoters that try are probably equally to blame

JYOTHY LABS (SPIC)

MAX INDIA (33 B inflow inc 9 BLN from unrelated sales not unlike DLF – A split could make businesses worth 50B int o two orth 150 B) and not ready because ‘insiders’ would know but likely promoter stake diluions etc as it did not start abull move at 188 ( CMP 194)

PIRAMAL LIFE

ORBIT

TALWALKARS ( expansion plans are 3 times slower than offer document, always known so yyyet stuck..because of a standoff with operators/institutionals)

PRESTIGE ESTATE

M&M

MAHINDRA RESORTS

GUJRAT GAS

India closing report : Rupee Rally to continue, Stocks to jump to another gap opening

English: Signatures of Manmohan Singh. Top in ...
English: Signatures of Manmohan Singh. Top in english, lower in Hindi. (Photo credit: Wikipedia)

As Friday wound down in equities, the morning’s gap opening held up and Wall Street was celebrating the summit as well leaving little doubt to Monday open marks on the Nifty. My personal trading strategy has been to hold on to my good investments and recommendations and buy into the bank nifty by selling a few puts and buying the ATM/OTM calls at 5300/5400. Selling the Put keeps the money off your mind with margin paid and you get instant credit. Of course selling Puts in a rally like this is because there is no chance left to take and thus you will have to buy it back later at you chosen peak ( I would not suggest a number at this juncture as this is a fresh rally for all intents and purposes )

Rupee’s rise will aid the rally sentiment though a perfect correlation is unlikely. There is no shortcovering in this rally the market having stayed up above 5110. Of course a couple of corrections along the way are only too possible and thus Monday afternoon will be a key test of whether the index retraces to 5180 or stays at 5250 levels for some sessions and there are no recent marks in that range. Whence the Infrastructure and Healthcare sector sentiments would be critical as they have been holding back for the big jump and Sun would need to take a breather in Pharma stocks

Bank Nifty is likely unstoppable, banks having shed all their bad data in the last few quarters and results are due in another two-three weeks after Infosys kicks it off here in India and JP Morgan follows after the Alcoa earnings on the calendar

Rupee fell to below 56 levels and NSE Currency segment stayed above 56 but mostly for salutory purposes or hoping for enough exits for another satta on the dollar but come Monday they will largely follow the reform news flow, again a reason for equities to rally if we can just keep up with Manmohan Singh’s dream team for India.

Morning Trading Strategies – India June 28, 2012

July
July (Photo credit: kurafire)

Expiry Thursday means buying would not have picked up in July series and some are not quasi currency forwards for a change. IDFC Calls at 160 levels for example are cheap and buying should be done today and yesterday. Those avoiding options can sget into July series infrastructure futures in ICICI Bank and IDFC, ICICI Bank looking like a candidate for 900. SBI could run to 2350 similarly and HDFC Bank left alone for the next run after the market corrects from 5350-5400

Yes Bank is likely to see an important correction as HSBC exits Yes and Axis Bank holdings of $500 mln each at 3-5% discount t o market

Auto companies would be great in the july series, Star (Stride Arcolabs) good for purchasing at lower levels if it comes back after usinfg $300 m from sale of Ascent for the $110 FCCB repayment

State Bank of India Logo
State Bank of India Logo (Photo credit: Wikipedia)

HDFC is my all time underdog favorite at this time of fast rising indices and there could be action to start the bear in Sterlite and SESA soon as their VAL load becomes clear ahead of the board meeting hich will still likely approve the actions

All the usual recommendations for this week apply as per sectors recommended especially if you are not day trading within june. kingfisher got shorted already, JP Associates, one feels may get left behind again and BHEL and L&T are buys only till the trend is up

Jubiland and Titaln shorts should also be avoided while the trend is up PSU Banks like BOB and PNB should be very good picks. Many hedgies picking up PSU bank strategies in the last quarter

India Morning Report (June 27, 2012) : Dollar loses steam

Prime Minister of India Manmohan Singh in Arun...
Prime Minister of India Manmohan Singh in Arunachal Pradesh. (Photo credit: Wikipedia)

Another of Dollar’s correction days is upon us easing the day trend for the Nifty qithin the flat zone and making the trading day verbose and Recommendation/Tip friendly across experts in market, analysts off market and stock market investors contributing to volumes of INR 2.2 T daily the last two days of nervous boundary wall smacking diatribe from fence sitters not able to get tv slots or investable surpluses before the last bus leaves.

The market will soon be back of course and probably not below 5000 but expiry is safe near 5200 than lower as Sir Prakash Gaba also confirmed on the first day when the policy action snuffed out many fragile hopes.

English: Signatures of Manmohan Singh. Top in ...
English: Signatures of Manmohan Singh. Top in english, lower in Hindi. (Photo credit: Wikipedia)

India PM Manmohan Singh taking over the reins may not change the situation on the ground but it is a material plus, the one on Tv making the posit for him being the Citi APAC MD, Pawan Vaish in end May in “THE WORLD ACCORDING TO CITI”.

The material plus from Sardar Manny taking over is in all the non political attempts filed over the last one year by the Plan Comm, the PMEAC and perhaps even the RBI to redeem the current situation which in various forms had come earlier for India Inc and which is why still sub 6% growth rates are unchallenged by India detractors who actually watch India’s ratings (including Indian citizens)

stock market
stock market (Photo credit: 401K 2012)

FDI got a big bonus with $5 B announced by Coca Cola over the next 2-3 years. It is already involved in social empowerment programs to cling to its early mover advantage and find ways to expand India’s stale but potentially rich soft drinks/beverages sector wwhere it enjoys 25% share thanks to an early recovery by Kinley as Parle’s Bisleri still manages another 25% of the fluids

The Global 5 by 20 program targets increasing the role of Women run businesses in its 100% groth by 2020 and was started in 2010

Trading strategies follow.

Where’s everything headed, then?

We as india writers have pushed out everything with insight in the last three four years, short of  the unworthy Indian infrastructure which could not attract even $100 bln in Gross investments yet with two debt funds of $3 bln each and some older established PEs like Macquarie and 3i and the Govt of India grants of INR 750 bln. Short because Indian Infrastructure sector with all the public enterprises involved is very short on the details and as it works without meaningful graft like the Telecoms, the Roads, Power, Aviation and Ports infrastructure continue to work with construction companies like our FMCG sector works with $500 mln brands from HUL, P&G and ITC and we are the wrong ones because we criticise something as if it was the end of the road for the sectors in each case and nothing else going to happen because it is not.

At least that is also what the Dy Governor of the RBI, Subir Gokarn seems to feel if we read into his new timetable to plan out Capital Convertibility for India. FDI in India has always been able to attract the bigger dollars irrespective of investors’ fascination with issues like the retroactive introduction of taxability of transactions and the impossibility of investing more than tokens of currency in our banking sector with restrictions of M&A or the recent failure of FDI in multi brand retail/ defence, healthcare and aviation.

The true problem comes in India’s cultural intractability compared to China or Signapore or others total rolling out of the Carpet for the bbigger dollar including the State sponsorship of the project, and not an immobilised set of half dozen land reform and Tax reform bills, and the Private state and comsumer acceptance of that way of life that the investment unwittingly imports itself with. Being open to cultural transfusion, this is a real anachronism always heaped on  the middling old politicians who could not run coalitions but it runs deeper as the next few generations will find out.

Probably what we need to bring in each sector is like the perfect storm, at least two representative investor in each such sector, like probably Yum with KFC and Pizza Hut and Tata Global – Starbucks and or Dominos with the Bhartiyas where there are unlikely to be any hiccups with all three biting the bullet and all government departments, consumers and politicians able to sell and compare. I would even aver that the 2g  experiment is still very much a success for the FDI story right now. A similar base exists in Banking where the world’s Top Banks are increasingly looking to Asia and India in particular to roll out bigger base staff or the magic wands that the local and global Harry Potters need to win the magical sorcerers over at state and center.

Whether it is International Quality standards for Highways or structured products in Banking, Indians more than other s are Comparison shoppers who like to think their Point-Of-View is appreciated and part and parcel of the product/standard unlike others who let FDI build a parallel Eco system, much like empty highways and cities outside Bejing while the Eastern corridor esp  around Beijing keeps cars stuck in Traffic queues that take three days to move from end to end, or even more

The simplification stated in that, is to be taken with the usual detailed quid pro quos and the details of a contract like bringing the capabilities to service rural consumers becoming a new reality for banks, auto and credit card and durables/discretionary sector plays from Pizza to That larger personal loan than the $500 on my Kissan Credit Card.

THE INDIA BUDGET 2012: Healthcare, Education and the Rest?

New National Urban Health Mission mooted, NRLM (Rural Literacy ) allocation increased

AAjivika women self help – bank credit -> extended interest subvention ( eff rate 4%)

NRHM allocation INR 208 bln

Addendum: India to get its own Huijin as holding company for Bank Capital 

National Credit Guarantee Fund for Youth, Rural Development Fund!, National Social Assistance increased by 37%, INR 255 bln allocated for Right to Education, INR 200 bln for Rural Infra Devlpt Fund

Kolkata water purification and Kerala Agri separate allocation, Hissar allocation allocation (, Hyderabad ..NCAER INR 1 bln and lesser INR 0.15 bln for NCAER and a Pali language research center ( India is diverse, definition of weaker sections is even more diverse)

Avlblty of residential qtrs for Central Police Forces (8000 units) and separate allocation for Office bldgs ( INR 10-20 bln each)

AAdhaar platform – compulsory Id for all above 18, used for beneficiary accounts…

Black Money Control: 82 DTAA, 17 TIEs signed, 33rd signatory of Mutual Assistance in Tax Matters,

Defence Outlay of INR 1.95 Tln or $39 bln higher significantly

Benami Transaction Prohibition Bill to replace 1988 act

Narcotics control provisions to be also updated

Rest Tax performance after study, review and analysis

The Rail Budget 2012-13

Internal funds /revenues of INR 2 tln

Extra budgetary support of INR 2.5 tln

Dividend ploughback ( if accepted) INR 200 bln

and small rail funds contribution of INR 8 bln

and no funds left for modernisation and safety.. Stocks like Kalindee Rail and BEML react unfavorably even as 19000 kms renewal and upgradation is again put on the table! (5 year) Bartronics up on hopes of GPS implementation contracts

$10 bln in Market Borrowings this year, not much retail, The $12 bln in modernisation spread over 5 years, probably just 20% of the required.

INR 1.7 tln or $35bln to be spent on rolling stock incl wagons, engines and also expenditure on signals and other equipment

Some new corporations have been proposed incl Logistics Corp. Present Financing from IRFC. 4 new Coach terminals are proposed presumably counted in the Investment requirement calculation with a Funding Deficit of $350 bln over the next 10 years.

Faster shatabdi trains between Metros as a reason for track upgrades..

New capacity requirements of INR 450 bln provided with half the amount at INR 240 bln or $5 bln and The Rolling stock funding in FY13 for INR 182 bln more than 30% of the Annual Plan outlay!

And an ambitious plan to develop 100 new railway stations with the PPP route. the tone her emay bely our frustration but maybe India is like this only

700 kms in new tracks in one year and 1100 kms in Electrification!#!$!

INR 18k crores windfall for PSE banks

18000 Crores capital added by government

$3.6 bln has been promised by MoF to fund state-owned banks immediately after the budget to facilitate ramping up the Tier I common/capital ratios on the FY2012 balance sheet. SBI was promised INR 1.6 bln or INR7800 crores

ECB/FCCB funding welcome

The Israeli branch of the "State Bank of ...
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Meanwhile, the changed fortunes of the rupees could not stop ECB/FCCB borrowing as $4.46 bln was mopped up in December on top of $1.58 bln in November.of this $2.7 bln is project based on automatic route across 90 projects , small QIPs of less than $3000 mln from mid cap and large corporates

2G Licenses

The entire $2 bln ( INR 92.6 bln) funding for the 122 canceled licenses was funded by syndicates led by SBI and PNB, both will thus claim the $2 bln refund fromt he government. Telcos pledged the licenses with banks to raise the money

India Infrastructure: HSBC, ADB funding to bring up $ 1 bln debt fund

India’s first infrastructure debt fund is well on its way with the $1 bln corpus mooted by IIFCL successfully

Infrastructure improvements
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siloed for a launch of the fund in February 2012. the first fund will include IIFCL participation to 26% or $260 mln only as Asian Development Fund and HSBC chip in with $250 mln each for a 25% stake. LIC and IDBI get to participate in the fund with $140 mln and $100 mln each

As a mutual fund the Infrastructure Development Fund, first proposed by the MOFFIN in the 2011 Budget, will invest in debt of the infracos , allowed 90% by its mutual fund charter

The government is infusing the INR 10 bln required by IIFCL the first of India’s public infrastructure funding vehicles set up by the Indian Budget of nearly 6 years back and has failed to tak eoff while Pwer finance companies also set up by the govt and IDFC in the private sector have

500 Rupee note with Gandhi on it
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picked up the funding requirements and turned in a few successful projects each with a good interest margin on each sale.

The debt fund is part of the 12th plan charter to ensure at least INR 1 Tln (Rs One Lakh Crores) in infrastrcture funding primarily via PPP projects if required and ensuring Private participation to close the Infrastructure Financing gap for the country.. India’s overall financing gap coul dbe as large a INR 2.5 Tln or 4% of its GDP

Top 5 Private Equity Deals in India – Exits

In exits, the Patni exit came after a 10 year wait for a paltry $1.5 bln valuation ( $1.2 bln at Year end exchange rates) The BPO giant Intelenet also found it difficult to close the deal, finally settling for $600 mln for Blackstone’s exit by selling tio Serco. Serco has thence not ramped operations in India too much either.

Warburg Pincus made some good profits in its sale of 4% of Kotak mahindra for a good price on the exchanges with $245 mln in its kitty. it still holds another 6% but has exited most of its other investments like Vaibhav Gems and even Max India

As the Indian Telecom story merged int ot he global mainstream saga of despair and degrowth, ChrysCap was able to get out of Idea Cellular, its 2.7 percent stake fetching $170 mln

Last in the list, Siemens had to bide its time for its venture to exit BIAL selling 14% of the airport to ROFR holder GVK after a wait of 3 years for Rs 6.14 bln or $120mln.

Siemens Project Ventures, which typically puts in $130 million-$1.3 billion in a project, has invested in 14 international power plant projects, with an overall capacity of more than 8,000 MW, as well as in three telecommunications projects, two medical centres and an airport, with a cumulative project volume of $10 billion.

Top 5 Private Equity Deals in India

The year’s top 5 deals include the Hero Honda sale of Honda stake when GIC and Bain, funded Hero thru an acquisition of 26% in Hero Investments Pvt Limited set up to ensure the promoters could go through with the sale without affecting their prospects forthe future without their erstwhile technical collaborator/ JV partner

They could have paid market prices for their $848 mln investment but the growth prospects of the company. Meanwhile while Patni PE and promotyers waited 10 years to sell out, iGate promoter Phaneesh Murthy was able to get a buy in from Apax Partners for $480 mln to fund his $921 mln acquisition of Patni

India’s infrastructure story continues to offer a lot of midcap players every yera, an anachronism in terms of the size of projects required and other challenges, but PE firms an din this case JP Morgan signed on to a stake in SKIL Infra for $400 mln. The IPO would have been $225 mln

SKIL gets JP Morgan stakes in a shipbuilder in Pipavav and Everonn Education

Apollo Global signed up for $350 mln in Welspun, a majority in the groups Pipe manufacturing company and the rest in Welspun maxsteel, for rolling supplies to Welspun Corp

Renewable Energy also got a headtsart in 2011 deals after the big thrust in Power and 4g in 2010 with Goldman Sachs AM buying $200 mln worth majority ownership in ReNew windpower that plans to build a 1GW Wind farm footprint by 2015

Lesser Deals but good PE Deals and Exits

2011 was as much about making business happen as any other year despite deal business going down by 30% to $460 mln in the year in India and as usual we had a consultant reporting on growth from the India corneer of the world in Investment Banking as global focus shifts to fee adviisory business. India’s share is a less than 8% of the Asia pie which itself yields a 4 1 mln lower than each corresponding deal in the US on average. US leads in investment banking deals this season as well

The largest component of the deal business in India continued to be Private Equity with VCC listing the Top 5 deals and the Top 5 exits in the big ticket deals that went down.

Earning nearly $500 mln from fees may be still much lower for investment bankers to satisfy staffing for growth 5 years out esp as the region’s deal yields depend on Pe which is currently fighting funding and legal wars in their global franchises as regulations circles around to make it tougher for them to ensure profitability on deals following numerous failures in high fashion and early / blocked exits in existing deals.

It was especially happy for the bankers and the PE teams for gettin gthrough these deals in 2011

India infrastructure Health & Welfare: European Development funding for India thru the SWF route

India has long relied on welfare funding and low cost development funding from non World Bank and IMF

The World Development Report 2011
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sources like Sweden and UK for its welfare, health and construction / infrastructure spending, relying almost totally on the same during the phase China over sped on infrastructure to create highly leveraged municipals and new ghost towns where no migrants moved from rural areas

The entire DMIC project is highly leveraged on funding by Japan to the extent of more than $ 4 bln, and European counterparts have been fallin gbehind because of auditing concerns and local political maelstroms even before the crisis.

More than 60% of China’s sovereign investments from one of its 3 funds is invested internationally. That means China already has $360 bln in investments including equities like McDonalds and Coke which are doing well in China itself

UK, while cutting back on its development aid commitments to India, has committed for the next 4 years channeling the $2 bln program budgeted at $420 mln a year thru its SWF the Commonwealth Development Corporation fund of dunds for upto $200 mln a year or half its 5 year commitment. CDC being a SWF will be answerable to U staeholders on safeguarding of UK taxpayers’ investment and return parameters and thus will go further to grow UK’s debilitated international franchise as it has all but walked out on the Euro after 20 years. Germany gets 60% of its market for exports of machinery and consumer goods from within the Eurozone , a little ahead of UK and France

The reorientation of the aid as been summarily done in London as Tory MPs do not think a nation disqualified from IMF development aid parameters should qualify for developmental aid

India Infrastructure: Indian Banking and Infra / construction NPAs

Infrastructure projects typically financed by 80-20 debt equity ratio are suffering as government equity is

NPA
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scarce and private financing on equity markets and bank funding made to suffer for private equity lock ins lasting more than the 5 yr desired and/or beating on the bourses

NPA marking after 6 months, apart from its long tenure and thus unsuitability for bank books, none of which have stopped banks and infra projects from announcing financial completion and consequent delays in land acquisition, escalation of project costs and delays in project execution, even after operationalisation, ground results and financial projections are yet divergent as adoption of pay as you go by retail consumers is slow at best, some challenges that dog india’s epic yet comical $2.5 tln infra financing story.

Of the $1 Tln expected from the 12th yr plan in spending on infrastructure, 50% is expected from private players. Already markets have been punishing operationally efficient players like Reliance Infrastructure, GMR and GVK for the large scale perception of a bad debt industry pampered conveniently by banks. Of the incremental $4 bln lending by banks this year to real estate companies, two thirds is made to unlisted real estate companies for new projects as listed companies battle with public debates on their untenable debt and costs of servicing ECB and financial sell offs by DLF and others to get the balance sheet good for inspection. Whether listed or unlisted, project delays and NPA qualification is the same and more than 10% of this new $4 bln or $1.6 tln till date(2011) are likely to become NPAs soon on real estate projects waiting for better climes in consumer spending on the housing and durables segments

India Infrastructure: Changi gets in

Changi is also a Temasek/GIC investment of the Singapore government that wanted to prioritise its entry into

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india’s aviation infrastructure projects. Having lost 2 bids ( at least) with tatas in a JV it has finally agreed to buy 26% of GVK’s aviation business. given that GVKPIL itself is only worth $320 mln odd on the exchanges, the stake’s valuation of $800 mln for the aviation business should lead GVK out of a potential debt trap even if condition on syndication of infra debt is not corrected esp with respect to NPA considerations for debt to the sector.

NPA marking after 6 months, apart from its long tenure and thus unsuitability for bank books, none of which have stopped banks and infra projects from announcing financial completion and consequent delays in land acquisition, escalation of project costs and delays in project execution, even after operationalisation, ground results and financial projections are yet divergent as adoption of pay as you go by retail consumers is slow at best.

India Infrastructure: Tax Free Bonds from NHAI

Detailed map of Indian national highways.
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NHAI has 70,000 kms of highways to be awarded under the National Highways Authority of India umbrella, targetting progress of 15 kms per day by end March 2013 (FY 2013)

NHAI avers that to reach the target of 20 kms per day, it needs to have 20000 kms or 30% of its inventory awarded. For FY 12 they have awarded 4,300kms projects. The company is raising $1 bln with bonds of which 40% is reserved for Institutions and 30% for HNIs. 15 year, and 10 years bonds yield 12.45 and 12.3%  (8.3% and 8.2% coupons) NHAI puts up the public portion of the funding of the highway and retains a 100% oversubscription ( likely institutional) for its 25% share of any project(tentative)

NHAI already has operational projects of nearly $800mln revenues and has recd $400 mln this year as premium from 19 projects

Air India’s 787 purchases – Can India get a Aircraft leasing corp now?

1940s-2007 Air India logo
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There is definitely a case for an independent agency to warehouse the leases for big Aircraft carriers and / or facilitate a sale for Boeing and Airbus by taking on a Sale and earning on our books from the Lease to Air India and even private Aircraft. I am probably just shooting from the hip and details can work out to prove or disprove the project.

However, such an agency will make an income stream permanent, serve the national cause with the right budget in the right hole and find an income stream for eithe r Banks / or State companies as a aircraft leasing corporation

Currently 27 aircraft ( Dreamliners albeit not the 8 series) are on oder with Airlines/international agencies using the Sale and Leaseback option for Air India with the carrier paying the rentals. It is definitely convenient for Air india and serves the cause of modernising the fleet. According to DNA, even as the government stands ground , still waiting to approve the deal, 11 aircraft are scheduled into Air India’s roster next year for 4500 hours each from Delhi / Mumbai..For at least one return sector per day ( flying 12-13  hours per day)

India’s economic contradictions show up, infra investment remains slow

Equities trading near lows, derivatives including the PCR has moved on to a low 1.05 showing that the down move in equities will be limited. However after Friday’s trading at 8.55% yields are already further down to 8.47% very encouraging to the RBI Governor to begin rate cuts in earnest  and there in lies another potential breakpoint for the market after policy announcement on Friday as rate cuts are unlikely to play into the Indian story for another 4-5 months., inflation drops well in progress otherwise.

Moodys’ and goldman Sachs ( Jim O Neill) have already sounded dire Forex payments warnings  with retail FDI having counted as negative. India’s fixed income exposure outside continues to look healthy with recent outward and inward transactions of sizable value completed per expectations so we stil have time to repair our outlook.

Apart from revisiting retail FDI , whence the six months figure of $20 bln in FDI could move faster in the

English: Logo of The Goldman Sachs Group, Inc....
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remaining fiscal, we also need to get our power sector investments going again. 2012 will be better for Fixed Capital formation as the new 5 year plan makes fresh proposed investments in its first year and briniging the growth imperative back could bring back the same additionally.

Fortunately, India’s banks are sitting on good capital reserves to accelerate credit where it is in the right stage whether for outward FDI or domestic projects thru domestic and International/PE equity. Infra structure projects’ longer gestation from the various Bombay Metro projects to the Harbor Sea link (Sewri) to be bid by Mukesh ambani and investors’ rejection of the same show the challenge ahead of us in investments in infrastructure as both fixed income markets and equities need to vcover short term returns to recover their higher costs for the scarce capital. 30 year capital can come to projects from private players only if longer debt is assured of better financial infrastructure apparently,else funding India’s $2.5 tln infrastructure gap and thus maintaining the growth imperative was well within our reach in 2011

Negative Gross Fixed capital formation after a dull 8% growth in the June quarter has skewed India’s relationship witht he credit agencies. It’s uneven relationship and the last minute slowdown when China is steadying ships is a confusing signal for the market watchers.

Unfortunately RBI cannot do much more right now except sing paeans to the success of inflation being in control

We are not alone in the slowdown nor we ever had any reason for our equity markets to be so optimistic in the last six months, but somehow we missed our growth imperative in 2010 and 2011 before being caught inthe slowdown, looking at the fall now negating our previous accomplishments rather than allowing us a wait and watch period.

IIP breaking your back

The Ascent of Money
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The Index of Industrial Production has really been the straw on the camel’s back. A Capital goods sector degrowth of 25.5% can not even be explained by the volatility of the sector specific expense volatility month to month. ( Our traded eficit goes up and down by a few billion every month becasue of booking of Cap goods and the fuel bills every other month)

The overall IIP degrowth is 5.1%, mining sector degrowth 7.2% Electricity still growing 5.6% Consumber durable goods would have suffered the likely miniscule contraction after heavy festival buying in October

Similarily with inflation coming down now, it is no surprise that manufacturing tilted towards 6% degrowth as it avoided last minute build up when it could produce at a lower cost later

A State sponsored SWF

Bharat Heavy Electricals Limited
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While the planning commission has apparently detailed all sector expenditure till now, the forex crisis is likely to continue for the state as the Indian rupee looks for levels like 65 and 72 while hanging on to 50 rupee levels.

India’s 117 bln deficit ( for the first eight months) structural disconnects from the global scenario and the inability of monetisation as a tstrategy to fill shortfalls in even a single head of expenditure means that the government is trying everything in the book to avoid the fisc crossing 5.4-5.5% against a target of 4.6% Excess expenditure on food and fertiliser subsidies amount to $10 bln by itself, and the bill goes on to include many other subsidies incl the one on energy (fuels) Stae Electricity Boards and infrastructure providers like BHEL have long employed barter in economic trade domestically and internationally as well as sale and lease back. States are running higher interest bearing $1.5 bln and more of bonds to pay for their deficit this year

The impact on our forex reserves of $310 bln ( Currency reserves are more than 90% of the reserves) can easily be imagined and thuis automatically there is more pressure on the rupee to go down rather as warranterd by the transactions required much like any of the midcaps trading in our own market with hardly 1% volume in traded shares

Bombay High, South Field. Undersea pipelines c...
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All the above reasons cannot preclude one from using some of those reserves for the state sponsored infrastructure debt fund and thus the SWF india still does not own. Those investments will fill critical gaps in Indi’s social and physical infrastructure and are a required head for planners to cement and excute in the period till 2017. The fiscal deficit in the mean time will be funded by such interesting propositions as cross ownership of equity of PSE already employed extensively in traditionally developed economies of Europe and unlikely to cause much more discomfort than having state enterprise managements on their toes. even if ONGC, SAIL and BHEL are taken first and buybacks in COal India also considered we will more than cross the over spend on food and fertiliser subsidies and reduce the burden on OMCs However PSEs might want to wait to find like minded PSEs for cross holdings like the OMCs int he same sector with ONGC and if such patchwork can be arranged in the next 4-6 weeks, I daresay people would be willing to wait. NMDC already employs cross holdings ina  lot of erstwhile mining companies and the plan for buybacks and cross ownership is as old as the concept of BRIC economies

Healthcare remains free – 100% FDI

India Gate

India’s Pharma market is a paltry INR 565 bln currently, Just cardiovasculars and diabetics constituting less than $ 2 bln each across a universe of global MNCs and Indian diaspora supplying generics globally. In a nation of 120 bln people or 25 bln households, 10 bln households of which are below the poverty line, it is a quandary not many can resolve. The pharma companies already see only one strategy to increase the per capita usage. increase prices so much that even if they bought half the medicine they bought last year they would end up with a higher per capita consumption. The CCI is apparently reviewing this unnecessary price increase in the system, A Food Security Act in place may further improve longevity ( at least for the common man / analyst leaning on logic to make an infererence)
English: GSK Factory Glaxo Smithkline manufact...
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However any larger study will show that by back of envelope calculations if we looked at the 98% uncovered population of the country without medicare as spending a per household 15,000 on medicines for the year for children, OTC, prescription and the stereess related disorders for the husband and wife the 24.5 bln would end up spending INR 367.5 tln or $7 tln on medicines and I dare say hospital care would be an extra amount more than this consumption expense. Of course the 10 bln poor families would depend on state sponsored insurane and low cost care for these requirements.

100% FDI has been persevered with in this sector. Both for greenfield projects thru the automatic route and brownstone projects thru the approval route

However, Lupin and Cipla do not seem to have a buyer after being on the market. The global situation could well be to blame for that and the fact tat sales of $1 bln barely are hardly the scale someone is looking for to enter the market. Like in automobiles, the lack of scale just whets the appetite for global players to explore independednt plays from scratch and market realities stop them from taking the plunge as such a large market does not forgive mistakes easily

On the Hospitals side of the Heathcare sector, players such as Fortis are still trying to take advantage of the amorphous nature of an emergent industry , valuation and transfer pricing issues likely to continue to plague the industry as a whole as for other sectors with Vodafone again taking the fall in one of the first decisions by the Tax man

MNC players have hung back till now in poharma, but they do not have any more reason to do so, India by itself could be a bigger market than Africa as a whole and while GSK and others have moved on to growing NGO initiatives in Africa (GAVI) for the immediate scale possible, the India market is likelier the more profitable market with and without NGO participation and sponsorship.

English: Wordmark of Cipla. Trademarked by Cipla.
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State funds however are unlikely to come this way till Food, infra and defence are paid, both healthcare and education eternally waiting for the state and the planning commission to realise their importance with higher more tangible contributions. India’s state owned low cost health infrastructure is one of the most well spread across the 3 lac odd villages with many still outside the ambit of affordable healthcare comparible only to banks without India’s ‘large unbanked population’ still ominpresent in towns throughout the country, not even accessible for weeks at a time in certain cases

Vodafone Logo
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National Manufacturing Policy / Zones

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

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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 Q2 GDP 6.9%, First Half GDP growth 7.3%

FINANCIAL SERVICES CENTRE
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A Q2 GDP growth in Services of 9.3% led by Transportation and Hotels  (Travel) growth of 9.9% (Q1: 13.5%) and Financial Services of 10.5% as well anchored expectations of growth in the future on Services itself. While industrial production was 3.2% in line with IIP estimates, construction was stable at 4.3% and Capital goods though lower still grew, manufacturing was a low 2.7% growth (Q1: 2.9%) and agriculture was not that far from the 3% mark either.

Interest rate environment is hardly going to get a reprieve in the stretched liquidity conditions as only money investments seem to be trending to output. The social services growth of 6.6% is also good and as spending in a challenged fisc environment barely going o budgeted lines, this is good for the welfare economy

Unfortunate noises on GST, DTC and now retail and aviation FDI show more challenges even as FDI for the first half has climbed to a comfortable $20 bln with state deficits unlikely to be met by service tax collections alone and government spending programs will now have a coordinated effort on increasing yields in the fixed income markets

Q4 growth will be more of the “shock and awe” variety with dull business in Q3 and Q4 a matter of fact. Top line sales in the US in Q4 (December) is a tough 3%and a similar crunch will travel American to India as well, unhindered by hitherto 20% topline growth beyond what could happen till here

Till now Corporate growth both in India and the USA was leading growth on the ground and while in the US it could have continued without growth in GDP in India loss in topline after mining contraction and basic inputs settle down would correspondingly now impact the Services growth where new orders have been drawing a blank since September, though India is still sitting on an expanding Services sector esp in Travel , Utilities and Financial Services and that could pull us past the magical 7% mark for the full year. Utilities ( not counted in Services in the GDP) grew by 9.8% in line with other travel and Finance, Insurance and real estate services

Q4 growth will be more of the “shock and awe” variety with dull business in Q3 and Q4 a matter of fact. Top line sales in the US in Q4 (December) is a tough 3%and a similar crunch will travel American to India as well, unhindered by hitherto 20% topline growth beyond what could happen till here

Revisions in the GDP basket have been made from this quarter, GDP deflator at 8.8% Cap Goods weighted to 17% from 31% and other changes driving Q@ 2010 to 8.4% from 8.9% else the Q2 2011 numbers would have been closer to 6% (6.4%, TV18)

State Bank of India revamps Air India again

SBI revamped AIR India’s loans to an average 15 year tenure as per a recent plan approved by RBI the company alone accounts for more than half of Indian aviation’s debt overhang and over $1.5 bln of working capital and $3 bln in term loans were restructured in the latest exercise. The bank accepted CCPS issue against the working Capital loans allowing the airline to pay the bank thru redeemable cumulative preference shares, the bank still not becoming an equity holder for the sole reason that it is a government owned airline.

Air India is also getting Govt equity of $5 bln over 10 years with $1.35 bln issued this year ( we still use USDINR=50 as rupee tries to make a 48-53 range)

Something tells me that will only pay for the airline’s immediate default and its daily operational losses will continue nothing changing about the management and operational staff habits that make for the demise of the airline. In the mean time fare hikes by private airlines will happen as highly efficient companies like Jet and Indigo bleed and or resort to sale / lease back despite being anointed full service airlines liable to charging “full fares” for their service. Low fare airlines like Spicejet and premium experience jugglers like Kingfisher remain stuck in the middle, having adopted most global best practices and created sumptuous fare without being able to carry home any profit

Foreign Banks in India: India a good FDI destination in 2011

As HSBC , Citi and SCB continue to target large private banking accounts in India they are unlikely to step up

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price wars in retail as all 3 are struggling to break-even. Others hardly have retail operations at all, Deutsche Bank also having sold its cards division to Indusind. Savings bank rates in the meantime have been upped at the new premier competitors, the  crop of private banks given licenses earlier this decade and last, with Kotak and Yes offering 6% on the daily savings balance computation alongwith Indusind esp on deposits above $2000 (Rs 1 lakh would translate to $20k in PPP terms)

SCB’s 100 and HSBC’s 46 branches (incl any RBS branches allowed in 2012) as well as Citi’s 15 branches are about to break even in retail after the 2008 purge. Corporate and Transaction Banking continues to bely hopes in the September and December quarters as the falling rupee makes syndications in ECB/ FCCB impossible to justify for most India corporates hurting from the forex risk already on board With Barclays and

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BofA non serious contenders to expand in India and corporate and advisory squeezed, Foreign retail banks wll grow in the depleted ‘supply’ scenarios outside the cosmopolitan centers where there is enough extra “premium ascribed to banking with MNC banks” esp as they offer integrated MF investments and competitive online accounts/ salary accoun tpackages but without disturbng their fee streams from balance charges, debit fees and lower savings bank rates.

As FDI investments exceed $20 bln in 7-8 months, FII interest is already returning to India and as and when it does, larger global businesses will come through these foreign banks only, while the competition is with the growing Yuan and Dollar business in China and Hongkong

However growth in personal loans and other unsecured lending in the festive season as also the jump in debit card spends is likely to sustain With structured transactions their coup de detat in the Indian market their retail CASA ratios and “real lending” remains a lower priority with a CASA of nearly 45% in all 3 cases

SCB also lost minute amounts being bullish on the rupee in September 2011. Dealmakers have been shifting  mandates and jobs at foreign investment bank units with revenues down 40% for the year and the Indian market fee reduced to less than $500 mln in 2011-12

However, the talent is likely to stay with India / Asia given the new FDi regulations in retail and expected soon in aviation. the interest from foreign PE firms also remains only temporarily suspended as FDI operational concerns and issues with standard safety clauses / control clauses awaited for resolution ( nomination of independent directors and ROFR could trigger requirements for 26% open offer)

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..

Rupee Impact: We need immediate liquidity

The FM was fiscally positive in tone earlier today reiterating that a lot of pressure would be released on the

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government from reduction in Energy prices and subsidies due on Fertiliser, Oil and Energy. To expect inflation to subside to 7%, unfortunately it looks little more than the ineffective posturing politicians have to resort to as the mouthpieces of a government working with is hands tied. What is immediately needed is good liquidity in the money markets and the inter bank markets otherwise yields could climb even further from 9.1% of last weak

RBI has immediately opened a Floating Rate Bond sale that would help but probably needs to look at reducing CRR/SLR options as well and probably release at least 500 bln from banking reserves of more than INR 45 Tln that banks have handed over to it.

Reserve Bank of India is poised to issue floating-rate bonds (FRBs) — for the first time in two years. Come this Friday, and the country’s central bank will reissue Rs 3,000 crore worth of FRBs that are set to mature in 2020.(BS)

10 year bonds, in the new series issued last week are already trading lower at 8.74% after the announcement but much more needs to be done as the pressure on the rupee is unlikely to be let up

Predilections: The Organised Mindset of a bear

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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

Happy Thursdays! The India Inflation reports (October 2011)

India reported its October figures for inflation still near the September’s 9.72%. The 9.73% figure was stuck

Fort Area, Mumbaiwith a high food and fuel component of 11 and 14.5% The core inflation figure remains equally tense at 7.7% India has lived with historically higher rates than most economies, its nominal growth always outpacing inflation by 7-8% since the 90s and even before at higher inflation figures and short term borrowing rates of even 21% .

India’s shadow banking system has also been in a perpetual declines unlike its counterparts in China or elsewhere  is Asia and Europe. However, bank rates are currently capped at 8.5% and borrowers do not have to fork out more than 10-14% across the 5 different credit worthy rating baskets. Credit growth is however slower at less than 20 %with RBI targeting 18% and consumption sectors have again slowed down after 11 straight months of 9+ inflation

Also linked to the monetary and fiscal systems is the fact that less than 5% of Indians fall under the tax code and/or file returns and GST has not been implemented across the Federal structure and /of fiscal measures monitored along with welfare scheme as systemized data is usually at variance within and not connected across different silos

RBI-Tower
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Food and Vegetables have not dropped below 10% in the year most times, a category of vegetables or pulses landing an annual rate as high as 25% and never lower than 15% for 6-8 months on the trot as supply measures and inadequate remuneration of farmers disturb the welfare mechanism. Almost 2 in 3 of farm advances are classified as bad loans but remain recoverable for most bankers by experience

Tighter liquidity has taken domestic yields in the 2-5 yr range to 9.1 – 9.2% recently and banks have stopped subscribing to new Govt auctions , small amounts of $220 mln devolving last week on the new 2023 security as banks are already loaded up on SLR securities as well as the 6% CRR

Rupee has also broken on the downside decisively across 50 this month after the 15% down move last month

Indirect Tax collections mark the relief for Fiscal deficit

In another structural repitition of our impregnable GDP growth rate ( at 17% nominal and nearly 8% in a down year) the Fiscal deficit overrun because of expenditure on Oil and Fertiliser subsidies and / or revenue shortfalls from divestment may be compensated by robust tax collections despite protestations to the contrary despite porotestations to the opposite from economist desks affiliated with the media.

We oursellves have found pragmatism necessary in the face of stalling growth but the Indirect Tax collection reports for April – October as well as the Advance Tax collection reports till now have been crossing the required 15% uptick in revenues. This year the small Service Tax tab has already generated INR 500 bln in seven months till October (April-October)

Also, Customs and excise collections have netted INR 820 bln and INR 875 bln well on way to the combined target of INR 4 Tln for the year from indirect taxes, stupefying hawks. That is $16.4 bln customs, $17.5 bln Excise and $10 bln in Service Tax collections till date. Advance Tax collections have to be netted for refunds later near the end of the Fiscal year Collections have grown at a rate of 19% ahead of the ‘optimistic’ target by a few points

the Exports continue to stupefy the hawks too, RBI making it clear that the numbers till now seem to be verified for correctness and India looking at a $300 bln collection but a $160-$180 bln deficit conservatively from the first two quarters of the fiscal year.

Predilections (ONGC)

Predilections 2 (FDI?)

more..

India - Madurai - 026
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September the dull month for IIP

With credit picking up in end September, the IIP figures for September trolled to an unimaginable 1.9% with consumer non durables reporting a -1.5% contraction(growth) and mining reported contraction of -5.5% The base effect and nature of bulk orders etc played truant with Capital Goods at -6.8% down over 1020 basis points from 3.8% growth in August Exports in October grew 36% only but will not limit bounce in IIP next month(October)

MarkiT HSBC had reported a good tracon in the PMI figures at 5 wqith even services PMI falling but staying above 50. The August IIP was 4.1% but observers had expected a jump in tilities / even manufacturing numbers to a 4% IIP rate as per PMI indications and leading indicators tracked. Exports growth has slowed in october but remains a large $320 bln run rate to March while the trade deficit governed by the jump in Oil imports to a deficit of $19.y bln for the month

Infra output reported growth at 2.3%in the month September manufacturing PMI was India’s lowest at 50.3 PMI growth in October points to IIP recovering again in October wi a good jump again in Capital goods..(no one likes the Capital goods series anymrore. one wonders if another redesign is planned)

India’s Trade Deficit See saw

Exports continued their healthy growth in September growing 36% but even as the trade deficit came back to $9.8 bln in September and imports grew by 20% only, the trade deficit is galloping to a $42 bln gap for the year at a $10 bln over run per quarter

The growth in exports, verified to an extent by data on port shipments (RBI:Governor’s Interview on B-UTV) is a welcome addition of $6 bln to India’s topline everymonth, coming to $24.8 bln in September after a $18 bln September 2010 

Going by Q1 ‘s example, as also Q2, 2 out of 3 months in the December quarrter may end up reporting a $15 bln deficit in trade each

India now expects to triple its global trade by 2025 and even pip China as largest trading partner in the

Taxi in Abu Dhabi / U.A.E.
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Middle East (Abu Dhabi) according to a HSBC trade conference in Abu Dhabi. Trade with Abu Dhabi is expected to grow to 100 bln and India’s overall trade bill $977 bln / $1T

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

PRESS MEET:

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

Happy Thursdays! Weekly inflation pulls the horses

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 rur 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: http://economictimes.indiatimes.com/money-banking/with-high-inflation-and-weak-currency-india-not-like-other-bric-countries/articleshow/10060355.cms


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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September Bank Policy review : Rate hike again!

Gold Key, weighing one kilogram is used to acc...
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Update: CRR has been cut 25 bps and there may be more CRR cuts. The channel being fixed the repo rate of 8.25% means a MSF rate of 9.25% and a Reverse Repo rate of 7.25% still be paid out by RBI . A SLR cut of some kind and a SLR deposit rate increase may also be happening while CRR is 6%

RBI says:

– Global Eco environment has worsened

– Pace of Exports unlikely to be supported as weak demand

– Inflation much above comfort zone

– Policy transmission is still weak but inflation is being transmitted to retail POP

yields are now trading higher at 8.37%, hawkish stance takes markets down on news. More details after rBI conference is held

Here’s the case for a rate hike in a nutshell:

a. Rates up 475 bp since march 2010. this means the Governor has to start SLR cuts now, which RBI has indicated as possible this time. It does not mean rate cuts or that thee rate hike cycle has topped off because

b. non food inflation at 13% is not in control and the new inflation target of 7% may already be too old as rindia’s crude basket for one remains one of the most expensive in the world at $110 and even in September $106( indiainfoline.com, UBS for the crude basket data)

c. food inflation control has meant plateauing and not fall in inflation

We are here and would be posting the bank rate update

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

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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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Forecasting the India Bull cycle Part III : Bank rate hikes and value picks

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The conundrum we have all lived thru has surprisingly not that many on corrporate watch predicting both ends and living through it with most India bulls going all out with the first 4800 breach on buy calls for seectors including banks and auto while derating IT and then of course banks in the high rate regime. Still there are a lot of bank watchers who gave in to value in PSU banks rather than wait for the slow creation of new benchmarks of value. On the oter hand the few who did are ubiquitous like Standard Chartered Research team and maybe one other as  both stuck to the falling apart at 5600 and the bottom at 4800. Others on the network include Traders and Technical experts who know when its too early to put a buy call.  Standard Chartered today reiterated the oe obvious fact that the recovery is not here and “it will take time for the investment cycle to bottom out” Ofcourse a lot of the intermediate recovery already seems to be topping out at 5150 and the weekend may not offer anything spectacular.

Interestingly, recruitments at banks have picked up but as IT / ITES slowdown did not impact recruitments that much in August the incipient online emploment index has a lot of analysis for the funny nbone between the lags for job seekers while employers do need to keep a watch on the changing hiring trends usually a sign of the consolidation and a different set of strengthened ssectors may emerge from there as well, Banks will take their time though as rae hikes ar ealso not quite done and instead of the famed one last 25 bps hike going around between economists and wealth management desks, I am going to aver there are going to be 2-3 hikes where I rather agree witht he HSBC Global commetary. Thus with Speptember 16 rate hike almost certain, alikely spike in the market will only vcome frm that hike not being 50 bps, or at least not being resupposed to be 50 bps by the markets. The problem is with Food and Fuel inflation singing the high notes consitently and continuing to stunt the Indian Economy’s on stage performance. DSespite robust sales, September is going to underline a stad corporate performance by India as input prices continure to rise steeply and more than undersline higher prices in the Economy. Home loan tenures are crossing 40-50 years where therey are allowed to but there is no respite from inflation and no way rate hikes can trn down readily at this time

Also where India remains consistent is in growing toplines at Corporates and Expense registers at households increasing by more than 20% plus, thus such a green salad analysis for all you out there reading our research products

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