India Morning Report: Another election day, more robust earnings

sunranbaxynoMeanwhile, F&O trades have squeezed in the range to the likely 7000 mark from just OTM bets on Monday. With lower active Put strategies moving up to 6300 and active Calls moving out of 6700 to 6800, the increasing confidence of the plays is obvious even as individual stock corrections dwindle down. Stocks like Canara Bank, Bajaj Auto and maybe Lupin today could become strong supports to the rally legs on having achieved fundamental benchmarks of sustainability, in the case of Canara Bank after a pretty lean 18 months. The bread and butter of the rally still awaits sustenance from ICICI Bank and Axis Bank making Monday’s move on PSU recovery a soon to be erased play which Tuesday duly achieved, sliding down Monday’s secular gains

HDFC results were the eye opener again, witha healthy Dividend payout ratio keeping the stock ina different investor favorite category not to be touched by speculative only traders ion this rally but remains good for accumulation. A new flag I have to ‘put’ in due course is that despite selling down portfolios, it still has 71% of its book in retail loans. Spreads have bettered again as the consolidated growth of near 15% in advances and profits augurs well for those following the business, likely untouched by regulator or new government scrutiny.

Wednesday does creep into the end game for the Election stew rally that has kept the markets ranged, but we stand by the new bottom of the market around 6700 for now. All Bank and Canara Bank will likely improve prospects for a new all time mark on the Banknifty.

Powergrid could be in play today and REC’s new highs with the recovery of sentiment in YES Bank at 435 robust indicators also for infra plays like IDFC which also do well in getting Dollar financing through a wide net of means and have been subdued on grant of a bank license complicating changes to the Op structure for an almost new conglomerate holding on to diverse Financial services interests thru acquisition

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Mutual Fund businesses will obviously continue going thru churn at these new levels all of 2014 as the markets continue to rise further, the highs having come after a gap of 5 years and DIIs will remain residual buyers with FIIS also hopefully looking to increase bets in two weeks. It’s a wonder Rupee has n’t moved back into 59 levels but the FX and Fixed Income markets remain huge longs and even retail can add positions there without fear thru September post new government machinations being completed.

Seriously, Twitter’s promoter selling led breakdown has nothing to do with speculative turndowns in post IPO tenor in India (watch out Nikunj) as just Dial coasts to new levels with institutions still looking to buy the stock in the future,another Dominos’ led Jubilant Foods honeymoon in the making as 2010 IPO plays like Talwalkars, LL, Page and Prestige remain in play for being quality consumer stocks and CRE plays

India Morning Report: Portfolio investment highs let India story dominate

Investment percent gdp
Investment percent gdp (Photo credit: Wikipedia)

As investment flows confirm net positive investments in India on a regular daily basis, making the total for March closer to $3 Bln or close to $150 mln per day (INR 900 Crores) , India and Indonesia keep hopes alive for Global equities and EEM flows remain negative with exits from China, Japan and Korea closing out on any hope for recovery in North Asia with China remaining dull and Japans deficit imports coming at the cost of lower Exports being kept on deficit mirroring the phase of growth investments without concurrent investing flows.

 

6590 levels obviously proved daunting for India Inc and markets returned the gains out of the morning trades after a buoyant day for equities all around, looking for new levels not belying the sad events of 2012 for Corporate India Markets stay away from Banks as markets had a big open on Monday and new levels in private sector banks seem to wait for PSU banks that continue to be neglected for their larger than life NPA sores and aches.

 

Reasons for cheering the performance of Auto and metals however still seem t o be further ahea d on the road to recovery and have hardly earned their stripes. Bank License hopefuls that still include the Aditya Birla Group and a couple of other corporate houses are probably caught unaware by the extra scrutiny imposed by the Poll panel ahead of a new government in steed at the Center. RBI has enough reason to deny corporate houses a chance to play with the banking system but it may be difficult to deny claims of available NBFC models like Aditya Birla Money ( Diversified Financial Services ) AND M&M Financial Services ( Retail unsecured/Auto Lending ) after satisfying the NOHFC structure requirements, giving the CEntral Bank a tytough decision as it probably wants to hand over no more than 4-5 new opportunities

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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: 6250 engages, but no higher levels in sight (Tuesday, continues)

The most important addition to the day’s manifestations is the 30-70 split for a 10% divestment in IOC as planned for ONGC and Oil India. That gives OIL India an extra large hole in its cash flow, the INR 35 bln it is required to cough up for IOC inordnately harsh according to them and likely the markets, making cues with the coming anti incumbency vote bearing in corporate and PSU minds ahead of June 2014. The other Khan did a great favor to Modi too, the PR machine working perfectly for BJP’s final attempt at the Crown

A great debate online on CNBC TV18 witnessing Pawan(Piyush) Goyal trying to squirm out of its anti progress stance as Opposition probably with the INR 90 Bln pending transfer fro CST coffers hanging big (Damocles’ sword, something) over the introdction of GST. Similar concerns plagued DTC and ensured the Cong  UPA government was one of the most unpopular regimes in the UPA2 mode.  AAP’s Vishwas is a great orator, with a Samachar plus clip going around very instructional for me to the fabric of a true politician, raised in a lower income/middle class family hitting it off with the masses.

YES Bank reports later in the afternoon, unlikely to have receded on its spotless record on Asset Qualities and with growth in Deposits returning in retail, probably would outperform expectations and we a great trade this afternoon/next week with the full impact of its having survived a crisis of NPA since 2011 and a crisis of Treasuries(and wholesale funding)  very much since August 2013 when the rally kicked in. Axis Bank reports tomorrow. The CNBC expectation set is 16% Topline and 11% PAT y-o-y. Indusind made a geat come to, moving the post earnings forward to today, his morning prognostications well received. (Reactive traders banking on a retaliation are well advised it isn’t mature for such predilections in the market, making India obtuse as it can’t already afford)

Kotak remains a good short even as Banks recover in a big results week promising a concurrent drop in Yields before the WPI report today. Glenmark has finally got the Volume breakout and is surging ahead. India Inc Earnings in Q3 are unlikely to be flat and the sentiment helped by low expectations as shorts ( helped along by Kotak Institutional) tried to break the market rally segments and BJP was again seen unlikely to make it. WPI scores should never have rided so high but the more than 25% fall in veggies will thnkfully also not be followed by other categories like Meat or Milk products and fruits where it started to correct the ‘clawback’ in price expectations

IDFC has returned back to the 100 mark ahead of results and outperformance by LIC Housing in the quarterly (subdued, but still) extravaganza is also certain. Bharti is leading the bull segment today and though it does not mean anything averse for ITC, the ITC scrip is unikely to get too much attention. Biocon seems to have finally come out for a good hit around as the Auto sector remains the Death of Miss Daisy(pucca middleware in sic! ‘uns)

Coal India jumped back 10% as a Dividend is announced after having remained below the IPO price for the public listing. Infy however is unlikely to break the 3650(3675) barrier as 16X is more than well discounted for the stock even if  MoST (CNBC TV18) estimates of 230 in FY15 are reduced to more conservative levels.

I missed the BofA and other foreign brokerage daily notifications today so if you logged in to your workstations, you could check for yourself. Axis Capital is playing for a mix and mash of Rural with the spine of Large Cap winners, to me that means trying to make HUL and ITC in the same lines?

Andhra Bank will definitely kick long for  dividend tomorrow but BOB announcements are due today

Aslso apolgoies to Aptart (Sandeep, F&O show::ETNow), I agree and have agreed with him always and he was bang n that it would be really stupid to short the markets at 6200, the rally from which however is even likely to peak out intra day..and India, where is the data!!

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 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 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.

India Morning Report (June 26, 2012) – Angry Investors to come back?

Irrespective of a slow moving day, bond yields have moved up to 8.1% because of thin trading / under supply of the new 10 year benchmark. RBI will be holding a Inr 150 B auction on 29th to introduce a new 5 year bond (40 B) which will ease trading in Indian FI markets. The supply of the 10 year benchmark is less than INR 10 B apparently. The benchmark released in November traded upto a stock of INR 900 B before the new benchmark was released.

India has added $5B to the Gilts limit with a lower residual maturity apart from $25 B for Infrabonds, permissions for QFIs to invest in Indian Mfs and another $10B in ECB limits which are unlikely to be taken up as only high quality companies can operate under the limits on cost spreads on such debt

Rupee Impact: Why the Euro can’t fall enough for the Rupee

The Euro of course is at 1.26 and the Rupee, happy kept its level to the Euro as benchmark for Dollar’s movements against the Rupee has gladly tempered this rise of the Euro to 70.40 in morning trades ( Interbank rates at 70.4, nse can run at a retail premium to 20 basis points – not just points)

The Dollar’s weakness in the week of more QE ahead of Greek elections has been shortlived hopefully because the QE rumor is a shortlived one, however, the Fed would extend its support thru Central Bank swaps ( see advantages.us – It’s for sure another LTRO, but QE? ) Anyway it means the system would be awash with liquidity and Gold, Silver and Oil are back on the (upward) run. That is another week of respite for the Dollar index hardly corrected from its peak in the first 3 days to 82.5 and no falling rapidly, with the Euro 1.26 levels likely to be a strong support in a liquidly able banking system funded from Europe, other G20 or the US

The Rupee is likely to breach 55 on the long side if the trend lasts long enough and the fall for the dollar may not be a one way street in the Indian FX markets as the USD is defacto the only currency traded including cross rates to Euro and JPY good reference for currency moves and the Revenue account

Indian Rupee Symbol
Indian Rupee Symbol (Photo credit: vishuhospet)

having limited avenues for Dollar speculation, Hot money flows still find a way to keep the Rupee excessively week

MidCap IT is ebullient at the improvement in Margins but unfortunately for the lean prospects of IT the Rupee is unlikely to help more than the 26% depreciation at its ‘peak’ of 56.50  to the US Dollar

India Inflation Reports (May 2012) : Last series for WPI data?

World map showing inflation, updated for 2009....
World map showing inflation, updated for 2009. Grey means no data. (Photo credit: Wikipedia)

The use of monthly CPI data for now more than 14-15 months with Y-o-Y inflation comparisons available for 2 months on the trot, it may now be a matter of time before the WPI data becomes secodnary in the Indian scheme. Consumer point inflation though has been refashioned and some may want to verify it further and the WPI trends at sub series level across Core, Primary and Fuel as well are available for estimation quite discreetly and forecasts may not get market confidence for some more time.

The Core inflation is expected to be the biggest encouraging figure in the May data at 4.7% almost half of the data till no in the past one year, which encourage bonds to move down to below 8% in anticipation of a positive RBI Monday. Fuel inflation though likely to go back to near 13% is s till belo the 2011 benchmark of 14.5% and the Primary Articles data of 12% is actually understandable and does not require more policy action as commodities trend down steeply in many cases despite China’s buying having begun in earnest in May

The rate cuts may be 50 bp as pointed out by current 20Y yield movement but then RBI will be not expected to do more than 150 basis points in the whole year and a 50 bp cut removes the flexibiliity from its hands having committed then 100 bp before JAS and OND quarters even begin and that likely means the markets will prepare for a slow(25bp) of fast ( 0 bp) descent on Monday

The inflation data is a little late but safely bullish for the RBI Policy day at 7.55% Primary inflation at 10.88% was still less than 11% and fuel inflation did not get most of the fuel rise in the last week at 11.53%. The Core inflation was below 5% at 4.99% primary and Fuel inflation ere at 9.71% and11% in April 2012

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.

Happy Thursdays! A good day for economics

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

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

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

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

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

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

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

 

Playing on India’s FX rate? RBI is monitoring your treasury again!

English: Diagram of triangular arbitrage in th...
Image via Wikipedia

In a ‘blow’ to liberalisation as old as old wives tales from Delhi ki bhatti, RBI let out a warning from its bag as old hands from Foreign bank desks set out to build treasury positions in Rupee with out Import / Export obligations on behalf of compoany treasuries throughout the country. Right now it may be simpler derivatives, even forwards and cash to play on the weakness in the rupee as the finite returns have quite an attraction for corporate treasuries wilfully blocked from Money maret lending to banks or excessive ticketing in money market mutual funds.

the citi scam of 2010 used such monies thru personal accounts of the bankers concerned in the Equity Capital Markets segment


Business Standard
 via moneycontrol.com

The rupee has depreciated nearly 16 percent in 2011 against the U.S. dollar.

“RBI was aware that many foreign banks were encouraging speculation in the market. But it could not take any action as most of these trades were done offshore outside its regulatory purview. There was a meeting last month where RBI issued oral warning to some of these banks,” a source privy to the discussions with the regulator, told the paper.

Most of these trades were done taking advantage of the difference between the forward premium rate in India and the offshore non-deliverable forward market rates, the report said.

The RBI, on December 15, reduced the net overnight open position limit (NOOPL) of authorised dealers in the foreign exchange market with immediate effect, potentially reducing capacity of market participants for taking trading positions.

India Bond Impact ( Fixed Income Report) : RBI sticks to CRR, likely no cuts in CRR, SLR

India GateRBI stuck to its plan for India’s monetary policy not bowing to FI market commentators and probably internal pulls as it refused to consider reserve requirements cuts like China in the period it waits out a bottoming of inflation expectations before considering interest rate cuts

The CRR is 6% currently except for CBLO, ACU (overseas USD holdings) , Offshore banking units NDTL and inter Bank liabilities where a 3% CRR is avered. The MSF lends to banks already including their SLR liabilities as allowed collateral at the upper limit of the rate corridor set by RBI, at 9-9.5%

RBI has already conducted OMOs to stabilise liquidity int he market and may be on the watch for unwanted liquidity influx from new QE in US/Europe and UK in that order

Market pressure on yields pushed them below 8.4% as the Electronic trading platforms traded thrice the daily average in the new year at INR 278 bln daily or INR27,800 cr daily, still avery low amount compared to inter bank trading volumes

Moody’s rating upgrade to P-3 allows india some leeway in apportioning its Reserves again as short term liabilities for Corporates keep increasing

Why liquidity should not be banks’ poison (alone)!

Central Banks worldwide, our RBI included are busy providing Reserve Requirement cuts and Emergency liquidity mop ups to ensure inter bank market fluidity and avoid a situation like for Italy and Belgium, Spain and others last November in Europe. 

The ongoing Euro crisis is not just the cause of this drying up, but in fact few would probably bother to remember that 2008 was a result of this extreme loss of liquidity. why that happened and why banks are wrongly considering themselves only for the liquidity charter or seedings is that inordinate rush to fund the entire banking assets with inter bank overnighters. RBs included 70% of Capital from short term sources when it went down in 2007, Lehman did not get a Fed licence to add liquidity as Capital for its next balance sheet when it ran out of collateral in September 2008.

Deutsche Bank and BofA are still selling assets to add capital back not because the bar wad raised by the governments to Tier I capital but in these cases just because they relied entirely on overnight markets ( BofA means the investment bank with a banking licence in Merrill Lynch too) and after sales of $50 bln in assets, the bank still needs another equal amount from non available Capital to survive.

Deleveraging thus is as much a response to clampdowns on use of inter bank notes as long term capital for Bassel 3 requirements as anything else. Above all behind a well regulated bank, pointed out by Menaka here, is the new realisation that you can’t leave on the neighbour’s bread all year and need to absolve yourself of the charter to provide continuous liquidity to markets. Banks should focus on long term lenbding and matching sources of funding to the tenure of the funding they do than just sit on liquidity windows pressuring themselves and the banking system

India IPO: No retail, no gains

Even as QFIs allocation and direct investment by foreigners become India’s crowning glory, its IPO markets seem to have rutted into a big logjam ahead of action by SEBI to revise regulations for verificaation of IPO mechanics and catching 5 promoters and investment bankers for manipulation.

According to Assocham, separately the 26% FDI in Pension funds could add $166 bln in investments and management participation by established funds could also increase the local funds for Pension schemes by

Mutual funds in India
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an equal amount. The $320 bln odd would be 30% of India’s GDP and would greatly add to the 14% of GDP coming to mutual funds currently, another market which has plateaued early

The IPO markets could thus remain liquid but with a record of 2 out of 3 IPOs losing 50% of the investment, it is unlikely that retail will wean away from bank deposits and the great capital appreciation in Fixed Income as and when yields fall off the cliff and bank conditions are eased in a couple of months. Already yields are down 50 bp since November.

IPOs helped mobilise $16 bln in 2010 and only $3 bln in 2011 ( based on ET data, pg 9)

This year will again be a much higher amount albeit due to PSE divestment  even as buy back guidelines get finalised for this month

Securities and Exchange Board of India
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Happy Thursdays! A trading thursday before the new series

Inflation & Gold
Image by Paolo Camera via Flickr

As 2012 begins on a low note , market levels are encouraging enough for investors to make a commitment to India for more than a few million and they laso have been able to play the non FII traders in the market who continue to roll over (angel brok) short positions in short of the eternal 4500. Inflation figures were encouraging witha 6 year low on food inflation

Onions were 40% cheaper last week, 60% this week while potatoes are also down 33% as warehouses start collecting stocks and rot starts while waiting for good exports prices.

Primary inflation came under 3% meraning good numbers for basic goods and primary articles supporting the falling nose of inflation with fuel stubbornly continuing but lower at 14.5%

There have been subtle changes in the Dollar – Euro – Commodities links ( see article ) in this month despite the year end low volumes and lack of interest which evidence a great year for equities from next week! Happy new year,e veryone and thanks for staying around!

Are India’s Derivatives Norms sufficient and battle ready?

Bank of America Plaza
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While india’s central bank has been rolling out reforms at a slow pace even without significant market acceptance as desired, from Fixed ?income Derivatives to the current CDS approvals, it has also been concurrently cajoling foreign banks to stop overextending non funded lines and off balance sheet exposure among other actions that are a sure sign of a shallow market on ransom for each Golden Dollar that continues to hold us enthralled because of the asymmetrical flows.

The last in this series of a dissatisfied regulator was a series of penalties imposed on SBI, ICICI Bank and others  for not having any norms for their derivatives desks in place. Shortcomings include a non-existent risk management system, and inability / no desire to conduct due diligence on suitability of these products. 19 banks were penalised and have been served show cause notice.

Thus on top of already scarce demand and skin thin trading in derivatives, we have also had our top line banks being accused of not understanding their products and we do not even see any speculative profits or

English: Kundapur Vaman Kamath (born December ...
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even losses from the alleged transactions as no disclosures were required for the products, probably engaged on an OTC basis and contract documentation never completed in tradition of the big desks at London and New York 10 years ago.

Really, we need to invest in the human resources and the infrastructure to make these thriving businesses for banks before we go looking for retail participation and this depth will not come from one off trades like India’s Olympics medal haul by the Kamaths and the Kochchars.

India Bond Impact (Fixed Income Report) : Inverted yield Curve accentuates mismatch

The classic inverted yield curve is caused by a liquidity / solvency crisis and one could very easily be caused in India if attention is not paid right now. As we worried last two weeks, short term liquidity drying up despite auctions has taken the short yields to 9.3% a new premium for these two reform decades for India since (1997) while the first Fixed /income yield deflation has hit the shores like a Tsunami fromt he west to 8.3% from 8.75% last month

Ideally the mid term yields (3, 5, 7 yr terms) responding to inflation however can harness the inverted yield curve we have done on multiple occasions though never when Oil was rising along with the Dollar and it remains to be see if India can cross the rubicon and beat inflation with this stick than get grungy deflated like Europe.

India should probably avoid the 20 year or 30 year terms for bonds as they seem to have supported deflation in the Wild West, bu tcan get matching terms for Infra projects with 15 year concessions matching 15 year financing to at least make sense to investors and raise some cheap money to outgrow the deflationary impact on the long end.

Foreign Banks in India: European Banks deleveraging in Asia Part II

English: Skyline of Mumbai from across Back Bay.
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According to the news flow, borrowing costs across Asia have risen upto 50%, that’ is a sizable loss on balance sheets too

where Asian swaps would have been incomplete rings and with this situation of freeze in financing however expected, those betting on Asia’s growth despite the picture of the slowdown ( not when you considered Asia in subdued growth but when you – and many did – bet on contrarian growth or that the globe did not matter )

There is no denying however that Asia will still grow at 4% and Central Asia & Africa as a region would grow albeit at its speculative trade/underdeveloped paradigm rate which was Europe’s version of an Emerging market European banks have to exit faster though if they want to be not caught in the flurry of exits. TThey will not get a penny’s worth in 3 months if deleveraging continues. Expecting banking assets to be illiquid is a readjustment that will cause such reactions in the market esp with Asian banks already suffering at the hands of repo financed Europe for a decade in Swaps and derivative contracts.

I remember AIG spent two years trying to get anyone interested in its business last time  despite profits in Asia. Credit Suisse needing to deleverage its market book is not a good sign for its advisory business. nor UBS focus on private banking / wealth as its future. Credit Agricole is shutting shop in 21 countries after losing EUR 637 mln in the latest quarter and quitting 1000 jobs in Investment Banking businesses after 850 jobs in France and 650 jobs in Consumer Finance and Factoring

In India, the costs have risen on par despite the strong ECB performance till October by the sheer drop in the rupee not the whole 20% but the one from 50 – 55 ( 54.50 today) a further 10% even as only 3-4 FCCB borrowers are out of the race. Opacity in news flows continues to trouble those with exits firmly completed though, and that is the raison d-etre of having a TV channel to shout from as the index takes the wrong ones to 45 despite R Power, Welspun , Orchid and a couple of others having exited the Dollar debt that was to be a pain and / or matched with their Export inflows

Bharti has a $12 bln of External debt in Dollars on its balance sheet which it has not swapped or hedged. Suzuki gets an import bill of almost $1.6 bln dollars. Indian Oil companies’ entire Oil imports are a huge loss to the exchequer as they have the purchases of $5-10bln every other month again unhedged and miscommunication and bank managements will have to share the blame for these treasuries’ inefficiencies
It is not clear if the INR 80 bln announced by REC as external debt is converted at current rates another $200 mln is to be issued this year maximum from dollar markets apart from a current $250 mln issue. REC Ltd has otherwise worked with very low rates and is repaying $200 mln worth Its book is Rs 1 Tln (930 bln) and new $1 billion at 8.25% may be at least a percent higher

Banks: Indian CDS trading at ‘default’

English: Kundapur Vaman Kamath (born December ...
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ICICI Bank CDS suffered the most in the first few hours of India having approved CDS trading . Though only one insurer wrte CDS on ICICI Bank at a high but manageable 180 basis points a couple of weeks ago, the first few trades have pushed bank CDS’ to a high 471 points for ICICI Bank across the default watermark of 450 basis points. Even SBI trades at finite default probabilities of 361 basis points above that of  France in November trading when it rose from a spread of 200 bp to more than 350 bp.

That means cost of insuring $10 mln of ICICI debt is a $471,000. However in India’s case a CDS rate of below 200 bps would never be possible given its low ratings at BBB- for the sovereign and most of its banks can trade higher than the sovereign benchmark easily. even the soevreign should trade at nearer A rating levels in times of normal liquidity inthe Financial markets

India Bond Impact: Inverted yield Curve, inflation turns nose down

With inflation falling, the inverted yield curve ( 10 year yield a point below the short term 8.7% yield) could well be a good thing for india. the rupee depreciation could however keep imported inflation hot for India’s traders and manufacturers, esp as the Fuel basket is still up on the high ledge at 15.5% . The livemint Friday report has good data to back its inferences too, but even if we do not follow the RBI copybook ( playbook elsewhere 🙂 )  and set our own inflation target it could well go under 6% as and when Fuel also tackles the base effect. Prices have stabilised and bond market liquidity healthier as seen in the 8.7% yields at the short and long end a good 25 basis points below the yonder peak of two weeks ago.

For investors yields coming down on the inflation ride mean large inflows into bond and then gilt funds to shore up the neglected funds industry where AUM has dropped from 7.5 Tln in 2009 /2010 to 6.75 Tln this year a slow deterioration as all the bank rolled money for money market mutual funds was exited. For banks and large treasuries however, with the money market fund closed and RBI auctions likely to be discontinued, there would be a limbo while they decide where to deploy their idle cash for quick gains, perhaps in longer term Floating funds eventually

Rate cuts could come sooner, therefore the talk of recession as Capital4 author Deepak Shenoy highlights back in June could well be baloney. In our case inverted curves mean that banks can use that extra tey keep with RBI even if CRR cuts are not effected and bring back the short rate as and when IIP improves based on lower inflation. Believe me, no one else has the luxury of 40% of the banking system’s funds lying with the Central Bank anywhere int he world even if you could go back a hundred years thru the hyperinflation cycles in Germany and LatAm or the recession cycles in Brazil and Venezuela and Russia

China has a more well defined shadow banking system, our own professionals torn between the brand of organised businesses and stock markets and the penny pinching savings they need to build a home nest. We still have a cash based economy like Italy’s south which will apparently keep adding to our tax basket at its own pace regardless of how many investigative journaliusts or how many amnesty schemes are created and expired 56 new tax treaties later there is no inflow from that system into the economy and our taxed remain the lower percent population of the country. Typically, these factors influence the fixed income market which moves on the supply and demand of money, but that shadow cushion in China and elsewhere ( incl in Europe where it has yielded  a15% tax on Swiss deposits) is much more in control

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