India Morning Report: Markets negative ahead of expected rate action

Inflation rate world
Inflation rate world (Photo credit: Wikipedia)

 

Most economists and bankers are in consonance  that RGR may well post a higher repo rate number from the Central Bank Quarters today and thus Markets, teetering at 6100 levels since yesterday along with our expected markdowns on currency and bonds coming in play are negative on bank stocks and the market is ready for a pitch South of the 6100 mark this morning.

 

More than $4 Bln or INR 250 Bln have entered the markets from Foreign accounts in the two months of August and September according to ET Data and October will probably see an even higher number having come in as ETF inflows were exceptionally strong.

 

WE on the other hand still do not find such a motivation in the current inflation data except for the small spat on Onions. If the new Guv of course thinks he cn meaningfully control food inflation as India enters a critical period of recovery , it might well be, but it is unlikely to make a strong case as there are other reasons in the Supply chain and the continuing need to support farmers for food inflation to wave through food, veggies, milk & animal products

 

We also think Dabur results ae a good portender with Consumer Staples being an important watch category and if RBI policy is favorable the markets must rise with ITC results being seen in that light as well. The exceptional 10% postive reaction to Maruti’s results are of course just a sign for quick profittaking int hat scrip as trades eluded the banks in the cliffhanger again

 

Glenmark Pharma reports on Thursday with DRL and Torrent and Sanofi report tomorrow, so the Export earnings fiesta is well and truly alive exp on Glenmark. The Master investor’s Jai Corp reorts today

 

A couple of NBFCs do report today incl Chola and JM Fin (Vikram Pandit) but the market interest is ripe for pickings in the Power NBFCs as again shorts try to climb the wrong tree with REC already trading at 180 levels, REC, PFC and even PTC might react better post policy. IDFC reports on Thursday with Magma and Muthoot. Also, REligare and the PSU troupe with Union Bank and BOB joining BOB report Thursday. LIC Housing reports tomorrow. Each of these will see more than scrip specific impact

 

DLF, Bharti and bank hopeful Edelweiss also report tomorrow and will be key

 

 

 

 

 

India Morning Report: A technical correction to make space in the move

Nevertheless, whether the lost steam of the rally is recovered or if markets correct this series a little more steeply long enough to stem selling by Domestic institutions and some investors, profit taking would have been good for your business last week in both the Rupee and Indian equities (NSE Nifty 50, BSE 30 Sensex/BSE 100 or the MCX SX40). There has apparently been a natural disaster in Hang Seng Exchange ahead of the China data release today (Flash PMI) and next and the exchange is closed because of the Typhoon for two hours before the afternoon session. China’s manufacturing jump has gone up from last months record 50.8 to above 51 this month, but it is unlikely that Copper will indeed respond too positively if you are trading commodities. If it is equities, yes markets outside India incl OECD markets are likely to jump at the news , especially the European session ahead of Nifty’s late afternoon sessions. Doing well in China – Mining an Real Estate s something may well be wrong and come out so before next month but definitely trade data will be up as well for August. That optimism may change the course of the Indian markets mid day itself

 

OECD Countries Blue
OECD Countries Blue (Photo credit: Wikipedia)

 

SGX Nifty however leads the Indian investors correctly for a change ( a Feather in the cap of CME and Nifty teams) and the markets will definitely dip below 6000 before deciding whether banks are strong enough or the rebound before the repo rate increase was justified. A Repo rate to 7.5% upset the rally completely? Surely we are better than that. Banks not being given that vote of confidence could indeed decde the quantum of the down move(two thirds of the reason), as also to the other one third of the reason would be any volatility in he Rupee correcting from 62 levels down instead of continuing the up move to 60 levels. A good sign is if banks get new OI encouraged by build up in Put volumes sold at now definitely amongst the lowest levels for the Banknifty, so the Edelweiss analyss recommendations on ET Now could be right on the money

 

Infy has responded well to the Rupee appreciation, avoiding a reaction still correcting to below 3000 levels, but the HCL trade continues to put the wrong risk takers in the lead as even consolidation of the company with HCL Info is only a face saving device for the hardware business and not value accretion expected in the merger

 

The troubles of Ranbaxy keep the scrip in the spotlight and fortunately it never put the Indian Pharma sector under the wrong spotlight despite their brazen actions and the continuing cascade of FDA actions plant by plant at other suppliers as well fueling the anti-India anti-Quality prejudice traditional in OECD investors

 

Urban India also probaby thinks NaMo’s commmunal licences can be similarily ignored as a quirk and the resultant fractured mandate is not just India’s biggest fallibility bu also sign of the inadequate proficiency of Political Sciences in a land otherwise profuse with globally renowned academics and probably the situation in these arts and sciences is more deficient than the lack of educators in IITs and IIMs

 

The Nifty however may not leave the range of 5950 to a new number on the upside, which is still likely and which may see FNO action by midweek

 

 

India Morning Report : Rally snarled by a lack of fundamental strength (seen earlier)

English: World GDP growth rate and GDP growth ...
English: World GDP growth rate and GDP growth rate of total OECD countries. Data source: World Bank Group and OECD. (Photo credit: Wikipedia)

Though the Indian growth rate will be beyond the reach of most emerging markets and outside the projected future rates for any OECD countries, the growth in GDP below 5% and the return of food inflation is scotching confidence in the markets as it waits on edge for  the Tapering news to go by and Emerging flows to return allocations to India.

Unfortunately today’s report come after closing of day’s markets, a day when the Rupee also snaked down unnecessarily biting its nails on the supply bottleneck hit food inflation which will also probably become the legacy of the Food Security Bill later. The stakes – to get India’s growth rates back to 7.5% and keep inflation in check. With core inflation below 2% the onion inflation index cannot be allowed to influence further investments in India

Our note however can still remind investors that not just Consumer Durables but the consumer staples sector, offers a unique opportunity in India among the listed scrips and current 30X multiples in the sector may be no sign of investor saturation as bellwethers like ITC and Bharti are rare publicly listed behemoths in the sector which have also successfully avoided the defensive tags unlike the Pharms biggie Cipla where investors move after things come full cycle at Ranbaxy and European CPG pioneer HUL, now an old story for India Inc. Others in the sector are either privately owned or multinationals and pricing power remains in this sector, with its packaging strategies and working capital cycle flexibility in brand selling working them the advantage required to absorb supply chain inflation and raise prices at the right time.

The other story of the morning was the inelastic August Demand for Full fare airlines as the price increases amounting to more than 60% on the Delhi Bombay sector even in he best fare book-ahead rate plans could not stop passenger traffic from returning to a positive 3.3% growth in August. Such ricing power is important in this market where Oil is a major component of the import bill.

As usual it may als be prudent to realise also that India of tomorrow is unlikely to return to the same power ahead growth strategies that worked from 2001-2007 , the meat of the post reform era growth and that the required infra and other capx growth has to wait for the May 2014 elections to complete and that will not stop inflows to India, making the brakes in the market to 5800 a mere hiccup as long as the Taper is an expected number and flows return to Indian sovereign debt as it attempts to brake the shackles keeping it from the Global Bond index  and to Indian equities on reallocation

 

India Morning Report: Go pork on your investments said the offended unsaved friend..

Rajiv Gandhi International Airport: interior view
Rajiv Gandhi International Airport: interior view (Photo credit: Penn State Libraries Pictures Collection)

 

..not that the traders had any worthwhile savings. Both Savings and investments have been down for india inc in the last 4 years and the trend has not recovered despite India standing out as a n island of prosperity relative to the global carnage. However, the whole Dickensian/Edwardian or Premchand ridden spectre ripe for a Saki short is really just in the wind because of not Services Economy GDP being down on the bend disparaging India’s lead but DIIs or others who missed the bus in August are not the only ones aiting now. Most traders have been out of deployable cash including the first edition foreign brokers’ clients who were the original invested Capital at 5000 and 5300 level but nothing a normal profit taking and reinvestment cycle would not solve.

 

Those retail investors are not likely to come again as even if they did some profit taking it was not available in their accounts for reinvesting and that also holds for any infracos / construction companies and their promoters or mid cap promoters running their banking on margin economics and unable to plough back if any of their plays have recovered. Yet, any sign of a short is likely to get quashed, tha’s all will happen in this market probably over the next 3 months till a bout of finally too untenable 2013 projections will drop the bottom out of the correction around still likely 6200 levels.

 

Blight

 

However, close calling on the indices every minute not being required, is still probably 4-5 years to go as trends are big and easily discernible (to the naked eye) and investible additions to Mutual Funds and Insurance savings are unlikely to be anything but concurrent to that except for active tax nationalism guiding a few more investment rupees to the insurance cos who thankfully report more new business from SME and MSME /Prop businesses and salaried employees who realise the enormity of the nest egg requirement now in 2012 even compared to 2002 when a big rally and a 8-9% boom of annual real GDP growth had barely kept India in the hunt.

 

Valreson

 

The leather hunt we are now part of, definitely is a sign that we are precluded from all those portfolios that are banking on inspirational growth or a viable threat to China while policy agendas from the nineties will continue to have items unrequited till now and enabled by weak governments standing on a strong constitution and thankfully apolitically activating bureaucracy that is also able to handle and changing mandates from the people but which mandates have literally all been ridden to the borderline of it cannot matter in all possible ways with or without coalitions and third fronts.

 

saving and spending
saving and spending (Photo credit: 401(K) 2012)

 

Save Money
Save Money (Photo credit: 401(K) 2012)

 

 

 

India IIP Report: (September 2012) An incipient recovery may not take monthly comparisons

Though providing monthly updates may have its advantages, quarterly tracking of the monthly IIP itself solves most of the cyclical trading and investment decision needs of the data as the organisations involved mull another ‘restructuring’ of the data series that relies on 31% Capital Goods and 38% Infrastructure production in the series. Ming and Utilities are reverbing as the more critical pieces having benen down from their averages longer and deeper. WPI data follows on Wednesday. CPI was reported a lower 9.42% instead of 9.76% for Octoeber almost concurrently to IIP announcements as overall CPI is 9.75% static over the September data while rural data has tipped to almost 10% at 9.98%

Electricity series has recovered well to 3.9% . Of course year on year figures are really not indicative after the big jump still keeping sentiment at its depths re performance but is up from 3% on August and negative in June 2012

Counterfeit jewelry
Counterfeit jewelry (Photo credit: Wikipedia)

Consumer goods data has gone negative again at -1.3%  from 5% in August and Intermediate goods are almost flat at 1.8% on month and 1.6% in June 2012. In June, Consumer Goods data was stronger on durables growth of 9% at 3.5% and Festive season has been good enough despite the discouraging data for September (Durables -1.7%, non Durables -1.1%)

The overall PMI Composite for India stood at a high of 55 in September and is only 53.5 in October but still among the highest globally. The September IIP data is a degrowth 0.4% after a degrowth of 1.8% in June 2012

June data was sharply negative on Capital Goods at -27.9% The September series continues at a double digit negative clip of -12.2% but policy hurdles seem to be out of the way from the brakes still on in June

August IIP has been revised downward to 2.3% as well, showing up the incipient recovery in the face but Mining sector’s chugging back to normal is reflected in the statistics well at a positive 5.5%

Basic Goods growth was a positive 3.5% in September over 5.3% in August and the overall Manufacturing Sector is a negative 1.5% against a negative 3% in June and positive 3.5% a year ago

Services and Utilities data have been very strong in India’s version of the crisis in IIP since 2009 but have finally hit a big disruption canyon in 2011 which has continued ravaging India’s growth prospects into 2013 as it returns to the fabled Hindu rate of growth of near its least 5% even as China transitions into the Developed World ready to strike at per Capita benchmarks set by Europe and the USA

 

 

 

India Morning Report: And the markets realise the “limited release” reform is severely limited

 

The Epic reforms in Insurance and Pensions started off the day adversely affecting the existing Insurance plays from Max India to Bajaj Alliance and other likely as markets were still excessively optimistic of action despite temperin gof expectations over 6 months. The cleared Companies Bill ith a 2% PAT surprise “social tax” is unlikely to not add to the bottomline challenges for the Nifty 50 firms whch are ready to rebound in profit growth by next week when results start pouring in.

Q2 will provide more impetus to the running recovery board and then the inevitable reaction from higher levels as we come to terms with Economic armageddon as it continued from August and thus pretraces another reality check for the markets which will unlikely try to get to a reaction before the last week of the year.

Indian insurers have been relatively more comfortable with 26% FDI as that keeps stakes higher for them and thence control. However the 49% limit may be subsumed by FIIs with portfolio cash

 

A breather of such length usually means a desperate short that does not work ( Markets open 30 points lower)

 

A shallow correction to start the trading day

This one though is futile as the market reaching too low a level will disappoint investors who came in more than three months ago and have stayed with another $2B coming in July and August in just a couple of weeks.

The markets are itching to trade down but have no idea if even t expect any new buyers at this stage and the correction is unlikely to be deep unless there is another inopportune exit from unsettled investors which could trigger the move to 5200.

Coalgate’s juicy details have admittedly missed me but the anti incumbent air in the coming bout of state elections would be a blow for the country and commentators would be watching

A leader in mint adds spice about firm funding for political partes in the India election scenario with BSP bypassing 2004 and 2009 poll events without a single donation (above 20k*) Companies fund parties thru Electoral trust singly or jointly with others. Another report on Page nine shows Maruti keeping its market share in August car sales with its 54000 cars still a sizable %centum of the 118000 cars sold excl those in Export markets taking the monthly low to below 160k runrates recorded in 2010.

TV18 commentary has hit a new low with LV taking morning market open duties and destroying more market momentum ( positive or negative) than she imagines(!)

 

Happy Thursdays! An inflation sun for everyone, and we’ve had too much sun please..

By Nikhil Kulkarni
Image via Wikipedia

I feel like a college kid again ( My alma mater’s reports of PPOs and PPIs are heating the business papers this morning too) as the banking regulator in desh clarifies on Bloomberg that the Banking Regulation Act, voting rights of 15% for promoters and another legislation after that mean that new banks can possibly not make up time and set up shop before 2013. I’d say 2014.

Just what everyone knows already?

And I am sure if I was holding that IB job, that’s what would swing me everyday, that there is 3 years to go before it makes a big bank out of last month’s (August) guidelines and the sparse deal calendar would bother me ony till it bothered my employer. Which it does not.

However what would similarly break in the Bankers’ minds on credit desks would be the sweet realisation that the festive fortnight would not really bump up credit. It is kind of intuitive, As I get busy with really shopping and decorating the home and hearth and corporates basically get too busy computing any bonuses and holidays for their staff.

‘Coz thats the only reason that will fly for Oct. 21 credit figures and deposits to remain the same as Oct 7 highs at INR 40.81 Tln (40.85 Tln) in Loans and Advances and INR 56.19 Tln (56.24 Tln) Deposits, figures in brackets showing the Oct 7 high

Also PM Manmohan Singh’s appointment diary now looks like he is from India (huh!) and not big cousin China who can refuse to bankroll the crisis

Talking of Gamechangers, Cognizant related to its hyper growth with a seemingly 5th quarter ( It should be around 18th or 19th) with a 30% growth, Op Margins nearly 20% and Net Profits growing by 11% yoy despite the ground licking deals on offer. I thought the entire industry was out to do that as Outsourcing, but only Cognizant succeeds everytime. Now with a $1.6bln quarterly turnover, CTS can probably aspire publicly to beating TCS on Topline, Infosys a touch away for the Q4 itself

And you  would think HT! will forget talking abt the weekly inflation but we don’t. The morning’s

By Nikhil Kulkarni
Image via Wikipedia

been too busy and the data released around 12 (IST)

Inflation has crawled on to the wires, but it has surely been burning the midnight oil, growing to Primary articles inflation of 12.08%, non food indices are down to 6.5% which is very encouraging, food from 11.43% to 12.2% (Finance Minister) and fuel at above 14%

Primary Articles seem to be ready for the structural chop as even US reports basic inputs going down by 10-20% in terms of costs (ISM)

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