India Morning Report: GDP forecasts look for their pound of flesh, india inc reports (This week in Asia on The Banking and Strategy Initiative:

The old RBI Building in Mumbai
The old RBI Building in Mumbai (Photo credit: Wikipedia)

The Reserve Bank of India pulled up the bank lending rates for its MSF (the emergency lending by RBI at the top of the rate channel prescribed) from 8.25% to 10.25% yesterday and networks are agog with the presumptive lockdown on India’s money markets esp inter bank liquidity finally pushing the short end of the term structure up a couple of hoops to 8.15% at the open as visible in one year forwards.

In sum, though equities will keep a small range around a ower bound 5900 and above, strangles are already priced near 0 at 138 for the short 5900 puts, 6000 calls showing trades to be unremunerative for this week and the profit making probaility of this depleted range is tenuous both fro m the tightness of the range and the inherent balance engineered in the markets giving way to any bull/bear at the slightest pretext

RBA had earlier shown in its minutes released that they considered the rate cuts to be done with, triggering a conventional run on the Dollar in that currency bringing it up by 1% . The Rupee has opened 1.5% stronger in morning trades but as pressure from Economist desks builds up to a crescendo and GDP forecasts are cut 75-100bps at Morgan Stanley among others to near 5% for 2014, we are witnessing a characteristic one time correction as policy locks in to the only possible market view while hoping for a trade led recovery down the line and acts on the limited dollar trade that continues to cause disruptions in our Economic cycle especially related to our dependence on imported fuels

Traders would hardly have been in place for the correction on Thursday and Friday as the markets are still positively rewarding good results which when they com are as big as over 20% sales and bottomline growth on a regular basis. However , the downward move also lacks momentum and like the rupee in the other direction, equities will only trade up the rest of the day after opening 100 points down on the Nifty. Some longer term shorts may stay in as characteristic hedges performed over the weekend and Monday when indices opened down today in differential performance terms to trading positions and long investment portfolios. ETF outflows from Emerging markets were just under $10 Bln in June with $6 Bln exiting the iShares MSCI EM fund but that is still 1 in 10 of the funds and funds will continue to be sticky in India where the growth paradigm is still relatively safe on th ground despite the consumption led industrial production going negative marking the toughest bottom for Indian prospects. Manufacturing makes less than 20% of India’s GDP but is on par with Exports and Global trade lacking growth claws would unhinge the one sided growth story that has always precluded a deeper range of opinions on India from global commentators instead shined by China.

India’s equity markets being deep makes it impossible for hot money to follow on this morning’s run and even as the spike in Fixed income markets unhinges bank business models the problems will likely be fied with a continuing positive bias before the end of the week unlike such runs in other Asian markets like indonesia, Korea or Thailand However a bottom in bank stocks is yet not known or targeted and ther emay be no directional trades in the interest sensitive sectors in India


Defining the new YES Bank

Finally, the cat is out of the bag. 
Yes Bank albeit a little late or cautious, 
has decided to step into the Institutional market. It will be asking investors to pick up a $250m QIP stake to shore up its capital. In the meantime, as reported earlier, they have also put on hold their diversification and market development plans on the board for the last 2 years now as they get into some serious consolidation in its core banking business. They have a good sleeping brand and their recent cost cutting efforts would also bear fruit. However, their focus on SME business might change now as the current ticket size is very unremunerative for them. There was some recent murmur when Rabobank announced its plans to enter the country directly, but that is a non-starter since Yes Bank would not go for the stake sale by Rabobank without making sure the house is in order as a deeper recession is equally likely in the next 12 months.

Yes would need a little serious selling with big ticket business while continuing to present simple and generous options for retail and SME customers. Their non presence in asset management and broking would hardly raise any eyebrows as the business entirely survives on institutional volumes and even a Kotakstreet and a sharekhan are essentially struggling with their current “low” period.
I wonder how any bank with a brand like Yes can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC.
Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seemingly extended to the rest of the world. It remains to be seen if that home brewn recipee of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?
The scrip remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank.

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