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: Market takes a profit taker’s slice of pie at 6400

English: Juuso Pykälistö (FIN) in his Peugeot ...
English: Juuso Pykälistö (FIN) in his Peugeot 206 WRC during the 2003 Swedish Rally. Français : Juuso Pykälistö (Finlande) à bord de sa Peugeot 206 WRC au cours du Rallye de Suède édition 2003. Polski: Juuso Pykälistö (Finlandia) za kierownicą swojego Peugeota 206 WRC na trasie Rajdu Szwecji w 2003 roku. Português: Juuso Pykälistö (Finlândia) no seu Peugeot 206 WRC durante o Rali da Suécia de 2003. (Photo credit: Wikipedia)

The cake was of course due, it being the market anniversary at 6400, and the sharpness of the cut a reminder of the buyer knowing he was due a big hole when he exited. It is still a relatively recent add back to the Indian market equations, used to absorbing continuing profit taking without such a market wide reaction

Ofcourse, the hint was in the stock selection to the rally to 6400 (achieved) and 6500 (planned) with the markets still believing in Maruti and AllBank , parts of the rally not to move till further into the recovery. Needless to say the profit-taking candle worth a 100 points before 2 pm(250 sensex points), also wiped out any chance of a further downtick as 6200 presents a secular buying opportunity and 6220 is as good as 6180 would bring if there was another day of correction. However, the important thing to note was return of volumes even though it was in breakouts suspect to last the full weight of fundamentals testing strong fundamentally valid scrips. Tech Mahindra, M&M Financial services were up on buying and IDFC and bank candidate LIC Housing were indeed weaker instead of gaining strength yesterday,. Today might see the opposite as Powergrid continues up and to me even IDFC does not look like ready for a correction at 108, let alone 105 which should see buyers crawl back.

Cornered buyers of the rally looking to add Hero, Maruti and the PSU Banks like BOI an others may again cause a flutter once the markets reach 6350. If they decide to take up cudgels , investors and positional traders should move out of harm’s way gong to 6100 Puts, buying out their  6300 position in Puts. Also transaction costs should preclude move outs from 6500 and 6600 Calls especially as the longs have some more to look forward to , allowing them to expire such calls on the hope while buying more ATM calls if they wish to go long. The Rupee was the most hurt from the lack of new picks for the bull run, the breakdown at 64 finding bears waiting in the currency which immediately lost almost half a dollar to open at 62.40 on Friday. Fixed yields remaining at 8.8% instead of riding down to 8.5% probably signify a large shot interest even as the Taper passes by.

The unwinding in Bull Futures seem to be taking place a tick at a time so the new concentration has probably cottoned on to new interest in 6100 series as well as we can confirm after 2 pm. However if you have indeed exited (updated before 11 AM on Friday) Exits may also not reinvest in Defensives like Pharma and IT at current levels though those scrips are maintaining levels

The ICICI TAB campaign will indeed live up to its hype in 3-4 months as Banks come back to lean on retail deposits after cycling thru pressure updating on Salary and Corporate Savings accounts, as a loose ready reckoner for focus, with retail lending probably also going off a cliff in 2-3 months at the inflection in the Economy where Investment has to take over and the consumption uptick will slump hopefully without further rate hikes from the Central Bank Meanwhile with the PMI above 50 in December, Q3 looks like a good number for GDP ( having battled first seven months on negative IIP) and the IIP in January next week will still report for November which should fool no one .

The India Services MI follows on Monday likely to show an uptick as China battles another new slowdown in Export Orders which again is something India has skipped in this month’s report due Monday. We warned you on the Tata Motors trade, December sales underlining the company’s longer term woes and JLR eating up all the Cash flow for its design investments. Bullish trades will again focus on a new spine of infraco and telecom even as Voda pips the public Bharti in the battle for subscribers with a DoCoMo conversion Bharti’s 200 mln base could thus even rejuvenate flagging growth back to number 1 in a few and till then news of a recovery may have slowly trickled in to a mass of ‘hysteria’ buoyed by the coming bull earning reports

Given the continuing bottom up buying approach into the rally as it continues from 6150 levels at worst, this would be the widest base of new fundamental picks identified as winners and more of the traders’ favorites fall by the wayside, making Axis equal to ICICI Bank and HDFC Bank in the coming rallies for example and even Cadila and Glenmark correcting with the rest of the market till the new rush consolidates.

GAIL could be a great add to the defensives as well and should help if you are finally ready to rid yourself of the HCL Tech and All Bank, with me being a little uninformed on Idea and the new defensive volume breakouts TechM, M&M Financial(hopefully the information risk is not going to be staple for the market)

YES Bank and IDFC remain the continuing meme from the 2011 rallies while new fundamental picks could be bolstered by the gold bankers Muthoot and Manappuram mid-caps even as Gold does slide down in 2014 with Oil as a continuous shrinkage from the Fed bites the Gold and Oil trade. I’d still bet on LIC Hsg and Shriram

Hero’s December ‘comeback’ could be another harbinger for the goo pickup in rural trade as Bajaj Auto again underlines that Hero is the loser from the Honda sale with Honda having caught up to 300k in December at 60% of the Hero figure.

Zee could sill be a good pick in this term and Adani Ent and Adani Ports could be good shorts even as their fundamentals improve on a tiny, not just small base. Infy has tracked buyers after diping below 3500 but there isn not mor than 3-5% on the upside

India Morning Report: A tough hand dealt in the Financial Stability Report

Loan
Loan (Photo credit: LendingMemo)

The Interconnectedness of the Indian Banking system, might have become prioritised for a global caveat emptor learnt but the Indian system has much more downside from our desi PSU style profligacy in SME lending as haircuts on even 50% of that stressed portfolio would take the government out for a long walk in the woods. Delving a little more indepth into our favorite subject, most of the stressed portfolios in India Inc’s first stress tests were found to be in Infra, Mining and Cap goods sectors or our core Infrastructure series components and those would anyway need to be treated differently than Ordinary term loans . Such loans constitue 54% of the Stressed assets identified in the FSR.

However as the Financial Stability Report remarks, there is a fundamental risk to about 60% of the credit stock in the Banking system collapsing banks even as they have primarily not created a laconic lee side for the Ghat monsoons in interbank lending primarily one supposes thru traded CDLOs and real lending on larger accounts  than derivatives without a defined underlying as in the global case. The risk as highlighted in the FSR come from defaults in lending portfolios of Banks skewed to single corporates apparently among other details one has to study from the disregard of concentration risk by lenders with the 20% to single corporate and 25% i think for group key limits to be tightened and enforced duly.

India on the other hand has to grow the Securitisation pie  from here and where the Central Bank would be trying to control INR 1.7 Tln in repayments due till 2017-18 from the next fiscal onwards (FY15->2014-15) , India would indeed face an uphill task the markets would do well to ensure they have factored in. HDFC Bank too never got that approval for added FII investments even as Axis Bank application was cleared last week(to 62%).

Back to the mundane diary of the Indian markets for the day, Markets trade leaving the upside intact as shallow trades characterise the last trading session to 2014, much like last week’s record low of INR 740 Bln in the full day of equities and derivatives trading on the NSE and BSE and Cash volumes are likely to stay below INR 30 Bln (the last week low was INR 50 Bln) probably. US and European Markets are closed on New Years Day including Fixed income markets (at least in the USA) The other thing to highlight from the watchful Fiscal Stability Report is RBI’s worries on the Growth – Inflation dynamics not working out as WPI continues above 7%  which we led with sometime in November.

Net foreign inflows continue to sweeten the deal for India inc into 2014 with a 1.5% CAD (FSR score 1.7% and a FY14 achievement score target of under 3%) and the Fisc even if the virtual spending shutdown (as in the last 4 years) from January will soon find another yawning gap even if FY 2014 indeed perks up reasonably. Hopes of a stable post election scenario have almost been crossed out in case you did not notice in the New Year’s eve  celebrations and the infra pack, high on investment hopes and leadership from IDFC, and a deleveraging trio incl GMR Infra and JP Associates with the Relinfra people facing their first AAM Party audit

Apparently new year’s eve also sees an uptick in Tata Power and Reliance , which one doubts will last esp as Tata Motors is receiving its recognition only for its minute share of the TESCO-Trent JV like in fact here was such when Starbucks burst onto the subcontinent scene. The Starbucks venture is well-defined however, and the ware tastes well, drawing in big crowds in now 3(Three) cities in India

Redesigned logo used from 2011-present.
Redesigned logo used from 2011-present. (Photo credit: Wikipedia)

What probably did not get highlighted but was tried earlier by RBI, also needs to be monitored for results as Foreign Banks continue to skirt the Living Wills issues at Global HQ and continue to rethink their strategy with regard to entering India. Apparently Gross NPAs will start trickling down as we long suggested but Fitch and a few others are still hoping the PSU disaster will play out to bigger stakes and at a faster rate to make a return virtually impossible ( especially if larger Government injections are requird to keep them floating – KV Kamath). However, I would just depend on the investment recovery and the credit growth performance by Private Banks and probably PNB as Deposits finally outpace credit in the last bi monthly reports on the Banking sector in Calendar 2013 and the ICDR hopefully comes back to respectable levels without Banks having to constrain such new lending in India’s recovery phase

Also don’t take me to be a cynic but Torrent and Lupin’s timed leaks about Pharma’s assault on a generic version opportunity for Cymbalta may be better timed but is still probably a few months away from translating into Dollars and one fervently hope ( and cannot claim to otherwise yet concretise) that the generic provides an opportunity to us more than the cookie cutter $200-500 mln with or without first mover advantage.

India Morning Report: When the woods are lonely, dark and deep..

English: this is bajaj pusar
English: this is bajaj pulsar (Photo credit: Wikipedia)

Don’t Flip the lid though. Markets are finally moving on last call on Expiry day, to close at 6100 in November but the standoff till yesterday taking deep positions at a sell from 6100-6000 may not transpire, the play being caught and a reaffirmation of positive  moves from 6000 usually good to  start the rally from 6000 levels.

Also, as we usually are easy to predict, Kotak Institutional picks and that of some network analysts are again the wrong crop and definitely not good for harvest. L&T a late harbinger , its results likely to lag India Inc general investment recovery ratheer than be a sign of the same.

Axis and Bajaj are good again though the banking sector must face a few questionable glances purely in market valuation terms as Tatas withdraw on the question of operating ompanies esp outside India not being allowed to make a banking company in the NOHFC guidelines. M&M also did not want to move around its Finance companies as posited in the new structure directive but the structure is sound and not getting the desired response again. Also the Foreign banks had to be given concessions despite which they are not responding to the RBI invitations

Bajaj is favored by the continuing robustness in Rural GDP even as a farmer suicide on the same Sugar support price highlights unevenness in the national picture between rural and urban areas. CV sales are down 20% affecting both NBFCs and Indusind, or the auto industry majors relying on the sector. Tata Motors ahas effectively exited the sector along with a dismal Nano launch in the retail segment

Yields keep dropping back from last week’s 9% levels , starting the day at 8.67% . Buy picks on the Power NBFCs are instead good to go, with REC and Powergrid both alternating strikes on the bulls sides IDFC will also see big buyers taking positions in the new series and the only thing stopping ICICI Bank at this point is the lack of Banks to short further with Banknifty keeping to 11200 levels albeit on expiry day

US Markets will stay out of action till Monday as Thanksgiving day is here and shopping season is seeing a lot of uptick with cheap iPhone offers

The world's toughest fighting man. Yet, deep i...
The world’s toughest fighting man. Yet, deep inside he is just a lonely, homesick kid, praying for letters from home. – NARA – 535228 (Photo credit: Wikipedia)

 

India Morning Report: Lets get some money from call writing quickies – Mid November hubris

Siège nord américain d'UBS
Siège nord américain d’UBS (Photo credit: Wikipedia)

It’s probably the limited upside, but mostly the markets were pretty itchy at 6200 in the middle of the November series and so the shorts have worked out. Also importantly, none of the good to great outperformers/strong buys like YES, ITC, IDFC or Bharti and Bajaj are down except for the Bank trade again weighed by PSUs hurting Private Banks in the dominos game and ICICI Bank remains a leading call writing target . The new 2023/24 bond being released day after has meantime ensured the fixed income shorts for yields look at bonds above the critical 9% mark inciting the sceptical trade on India deepening Money markets and Fixed income trade

However, that move in mind, this market could have easily moved out of the woods at 6100 levels,  and will probably do that before end of day today. Despite UBS and Credit Lyonnaise (Bhanu Baweja , Fixed Income and Chris Wood , Strategit of favor levelsst), markets move to 5900 and not behind 6100 will be that bottomless pit one wants to avoid sticking cash in.

Power NBFCs are good buys again. The Reliance Infra trade probably also opened two way liquidity where one side of the trade is actually close to breaking its margin wall, thus tempting predators with no downside targets in mind, led by Ashwini Gujral  (perhaps unwittingly) and as I mentioned the ICICI Bank trade (SS). Currency is stable at 63 levels. Any hits to 70 levels post elections cannot be avoided as a fresh slate of CAD and Fiscal worries are definitely hard to wipe off the scoreboard without real investments, Europe cannot make and the Taper that will come. Staying invested rather than exiting with Cash and Gold is however the strategy at this time. M&M springs to mind and one fundamental intelligent strategy would be to limit exposure to depreciation stars like IT, esp third tier players like Infosys and Tech Mahindra

Those rushing to Mid Cap rerating up are also fresh out of ideas. The real factor steaming down market levels which one can separate in the meantime is the fundamental variation of the 2080 rule playing out in the mrket. Instead of just the select 20 stocks in the large caps rising we have the other 80(Eighty) being almost disbanded to permanently(seemingly) out of favor levels as evidenced by yesterday’s A-D line. This “acceleration of reform” undertaken by the market segment needing to justify shorts, is misguided and ll only bring the other 20 to shaky two way disrepute as good scrips add on unwanted volatility

Today will thus see an unwanted spike in volatility which will test these new found memes laser focussed on jst the best 12 or 20 scrips that are equated to yesterday’s “Sure things”. And, of course ( with no thought to grammar as you read this as spoken) , the bullish State Bank trade or the frustrated India shining trade post Jet Airways sell out to etihad or the lower expectations from full priced aviation going forward, SIA or Asia Airlines Tier 2 town strategy

Welcome home to India, expats. Less than 10% of our current imports are Chinese

 

India Morning Report: State Bank and Maruti not the best indicators for India Inc

State Bank of India was feted for its increasing NPAs as fresh additions stoppd at a huge INR 80 Bln instead of INR134 Bln in the linked quarter and again markets celebrate banks that fail to provision correctly, while punishing the good PNB for the same. I would switch that PSU bank trade to PNB and take some of the Satte Bank trade as well. Meanwhile after a good ‘pakao’ hour with ASK, Emkay(KK) did well in its 5 minute bits of glory on ET Now as they pointed out to a few good picks a nd a flagging MAruti. We eblieve too, the December quarter would be a big shocker for those putting faith in Maruti as it posted a 295% rise in PAT on the Yen trade in the quarter just closed

Markets could be closed for Muharram tomorrow. The coming Winter session of Parliament will again get washed out in the coalition of noise. Cipla earnings erformance as usual gets lost in it being the funding trade for the market back in the bull sights

Sachin smiling
Sachin smiling (Photo credit: Wikipedia)

Natco pulls off second court upset for Pharma

Natco Pharma scored again in courts, this time against a gag order requested by Teva Pharma for a generic of Copaxone, the appeals court upholding the ruling which ensures the Teva patent expires in 2014. Taro’s contribution for the quarter in the meantime was nothing to be scoffed at, and even as SPARC takes off without Taro and Pfizer contribution, Sun Pharma reports later today. Naco also makes Nexavar, a drug patent denied to Bayer in India under the compulsory licensing regime for 3% of the cost charged by Bayer.

ONGC may pay off Oil swaps in Rupees

Rajan (RGR) in the meantime talked the Rupee Swaps into Rupee as payment currency again and the Rupee is obviously back up below 63 levels. The Fixed Income markets also saw welcome buying but the rate hike is coming as any move above the 7.50% pre October was bound to trigger. I still think the MSF channel could have been 100 basis points without raising Repo rates and with Exernal debt being an overhnga nd domestic debt unlikely choice of Corporate Treasuries used to world class Cash management and Treasury Bankers, India Inc growth is tweezed harder from this rate creep

Sachin in 200th Test appearance

The Sachin 200th Test begins today with West Indies being ut in to bat and the last of India’s renowned Mumbaikars taking the crease at home near Shivaji Park where both Sunil Gavaskar and Sachin Tendulkar learnt their Cricket. The game has also changed tremendously in these years an Sachin will continue in a key role with Nita Ambani in the Mumbai Indians

Meanwhile the KG D6 row has granted Reliance a reprieve in that the 20% left with the firm is being reported the most lucrative and thus market will expect a quick turnaround on that 50 MMSCMD mark promise being touted in the whispers

WOTD: Tata Steel shines in Gold Earnings season, Banks shine 

Tata Steel , however was definitely the shining star even as Banks make a comeback led by State Bank and PNB and ICICI Bank on cue from 1000 levels. As SS pointed out on TV18(CNBC), Axis is definitely in the stars during midafternoon trading. YES Bank and IDFC remain on BUY lists importantly for those willing to invest for the coming 6 month bang

Tata Steel was rerated up at most brokerages, Deutsche Bank taking the cudgels for a push to 525, as the sector rerating turned into real numbers at the Steel presser. Arcelor Mittal remains subdued on European market woes but Tata Steel doubled Gross Margns with rices picking up in China and SE Asia as also domestic demand pick up form Automobiles. Steel prices in the US have firmed up and Tata Steel scored a year on year 20% growth including NAT steel in Thailand when global markets for steel grew by a robust under 5% score at 4.7%. rice realisations apart, Steel markets also favor diversified roducers like Ttata Steel for the value added flat and rolled product ranges they can produce. Apart from new flat capacity added this year the producer will also e adding capacities in Orissa in 2014 while competitors like Jindal and the erstwhile Ruia behemoth stay busy in Crude Steel volumes

Manappuram Flash Earnings Q2  FY14

Markets may go all the way to 6300 in this uptick but are unlikely to go north of that mark as results for which ever camp from state elections, murky up the coming khichdi government prospects for India to ride into the 20s

Power NBFC results yesterday were in the expected direction with 30% increase in Topline while Gold NBFC Muthoot reported a Flat quarter last week. Manaappuram reported a 11.78% margin again this quarter, o fresh disbursements of INR 50 Bln but NII significantly cut back to INR 2.5 Bln this quarter. The IIP hoo haa turned out to be a damp suib despite a 8% growth in the Core 38% as the IIP for September was a slow improvement to 2% even as the Electricity sector was back with a bang as Durables joined Cap Goods in along drawn ‘winter’ of demand led production.

One would have thought that should have seen higher Gold Loan volumes but apparently the Gold consumers are able to hold on to their holdings despite a poor economy prognostication as Gold prices remain subdued in a CAD challenged year. Global Gold prices are still headed south from last week’s 1280 levels

India Morning Report: The Morning after and the rush to October expiry, pre Diwali

Maruti Suzuki - A Star - Reflection
Maruti Suzuki – A Star – Reflection (Photo credit: Balaji.B)

 

Banks get a further fillip after a great policy picnic yesterday as the 7day and 14day repo allowances of 1% of NDTL rev up Balance sheets and as Chanda Kochchar explained, large projects will stay away for the extended holidays that is Q3 of the Fiscal till December and retail lending will be in high fashion, ensuring a good economic fillip to non investment GDP growth and due dimensions of a recovery with a good monsoon

 

This edition of the Morning report is late because of an exceptionally busy earnings week ( though technically i was engaged in an all-nighter on one of the better games out there)  The easy availability of government collateral apart, the Indian Banking system also enjoys, despite its overt concentration on NBFC and Real Estate Loans a still largely unsaturated map of loan portfolios with both these stakeholders whose importance cannot be underestimated in the growth cycle.

 

LIC Housing results were a great start to the rest of the week with INR 22 Bln in Topline and INr 3 Bln in Net Profits, boosting the missed Net Interest Income with other income and  as usual one of the first with their wholesale bank funding tied up. Big brother for NBFCs, Deepak Parekh led IDFC reports tomorrow while Auto scrips like Bajaj Auto and Maruti ( i do not know why) are in front of the rally that survives. Given the market predilection for selecting concentrated risk after choosing winners from a diverse basket, 6250 is already looking stressed if only in the bullish premium of the series futures being lose in the run today with merely 40 points chalked up on the Nifty,..

 

However as of now there was enough with bank stocks having come back from out of favor and apart from YES and the bigger ICICI Bank, HDFC Bank and Axis Bank, the others, especially the badly run PS Banks with near 5% of NPAs on the Balance sheets must start receding and winners again return to glory for a move further in the same run. IT will probably return to extra attention to allow funding that leg of the rally if there is one. Pharma stocks have been up as good results pour in from challenged players like Ranbaxy and high expectations from DRL keeping away from interest in the real winners in the midcap sector

 

Bharti grew more than 5% sequentially and EBITDA margins grew 1.2% on year to 32% though a one time forex loss impacted the bottomline. Markets were quicker to shrug off the net profit miss as the Africa business , late to the party reported a 18% sequential jump to INR 70 Bln revenues, Dollar value of the Business also climbng to $1.11 Bln. Mobile Data, finally seemed to have taken off for Airtel and while India markets revenues dropped the exected  dimes to an ARPU of 192, Africa more than made up as the company wh $9.7Bln in debt had hoped. The Forex cost hit Financing expense which jumped 38% sequentially. Also Revenue per minute in voice finally grew to 36.74 p from 36.39 p in June. Growth was 13% on year in the topline

 

DLF is hurting from the pre festive season but with the continuing woes sequential growth is for Q3 is down here as well still expected to be near 10% on year in Revenue and EBITDA terms , EBITDA margins have grown to near 39% for this quarter too ( estimates from ET/Moneycontrol)

 

The currency and bond markets are still subdued though they have responded positively to the policy’s tone of finality for the direction for India Inc, open options not sunting corporate strategy into a crucial business season

 

Good returns with pricing advantage for Consumer companies and fuel decontrol cannot and will not risk the India growth story, nor is Indian currency going to be compared with the likes of Brazil, Turkey and Russia at any stage despite our structural ‘diversity’ and the unsaid inclusion worries as with other more developed democracies like the USA. PIMCO leads the return of the non ETF institutional Investors to the India story as the kitty for October inflows continues to grow ahead of tomorrows expiry which could still happen into the 6350 mark and definitely should close at 6300 as rollovers complete within yesterday today and tomorrow. Maruti should ideally return to more reasonable valuations and attention shift to M&M Bajaj and even Herocorp

 

 

 

India Morning Report: HUL divines the uptrend, shift in stock weights

NEW DELHI/INDIA, 16NOV08 - Klaus Schwab, Execu...
NEW DELHI/INDIA, 16NOV08 – Klaus Schwab, Executive Chairman, World Economic Forum, Narendra Modi, Chief Minister of Gujarat, K.V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank; and President, Confederation of Indian Industry at the welcome lunch for the World Economic Forum’s India Economic Summit 2008 in New Delhi, 16-18 November 2008. Copyright World Economic Forum ( http://www.weforum.org )/Photo by Norbert Schiller (Photo credit: Wikipedia)

 

One part of the funding trade is of course another substitution from IT into post result scrips including private banks. Another reinforcing trend for the market is the return of interest to Mid Caps like Tata Global Beverages for the Coffee Auction expansion in their Global Supply chain effort and the Starbucks JV. More importantly however, HUL’s mid trend reinforcing of Ad spends by 24% has signaled more than return of its brands in that despite its lack of growth in soaps and detergents as in Personal Care by 16% nd in Food (9%) and Beverages (16%) , it seems to have forced the hat off ITC which has gone into a tailspin with investors likely to exit as the funding trade returns to HUL instead. Bharti is still strong however, and likely after HUL is not taken by a majority of brokers (from old times more than anything else)

 

ITC wll return to favor as an in trend consumer staples scrip as its Consumer Brands fared pretty well and they have already taken big ad spend jumps in a 2012 quarter instead. Also P&G despite its continuing domination of US markets has not ventured that strngly upon India as China walked away with most of the “Middle Class” Consumer equations leaving India’s non encouraging performance a fundamental back bone of most Global Consumer staples

 

Nifty is strong at 6150 as Monday morning sees uick exits from IT trades for another day with the bulls before the end of next week. Banknifty is finally catching on strong results and has crossed into 11000 so there is speculative interest there to take it to 12000 in a rush.

 

In Autos, CV Sales continue to scare investors and bankers, and it may hit NBFCs and Banks with Auto portfolios as well and Maruti’s recovery is pretty much incomplete with a return to barely 100,000 cars a month rate in the last two months. Justdial success was an eyeopener for sceptics but is likely a Jubilant/Talwalkars repeat in the trade being years’ ahead of the performance volumes not unlike the 2001 dotcom boom (and bust)

 

Interest returning to Metals and Energy would be a good sign for the market to retain higher volumes and move past 6400 levels for the longer term if a recovery oes come to substantiate higher EM flows that will definitely prop up Indian equities. Bonds are still twirling as yields still hope for no repo rate hikes by mid week . If there is a repo rate hike therefore yields will move further north and the Rupee in the offshore NDF market and in bank trading will lose some sheen even as other EMs catch up on the No Taper news, now becoming the new market basis for further Economic clairvoyance

 

Signing off, Essar Oil’s squeeze on GRMs to $6.98 could be in fact a positive sign for the Energy scrips as it means international prices of crude are weak and that other efficient producers(refiners) may still be able to score on their GRMs . India is not currently on Import Parity pricing but on Trade Parity ricing with 20% weightage on Exports and the Government may well ski the Ketan Parikh committee recommendations for this term.

 

ICICI Bank performance is instructively better, and Bank nifty would do well to exit all pessimistic trades shackling it for the last 2 odd months, also PSU Banks at the bottom like Union Bank esp are unlikely to return. Some among them have since jettisoned Bulk DEposits to break the negative attern in the product’s impact on the bottomline but unless REpo rates stop moving a higher cost of funds will be the norm for those in bulk deposits and LCR inspired wholesale funding only model shifts.

 

 

 

India Bank Earnings: A 20% rise in revenues for ICICI Bank, Asset quality upside not enough (Q2: FY2014)

English: Mukesh Ambani's house "Antilia&q...
English: Mukesh Ambani’s house “Antilia” in Mumbai. Deutsch: Antilia – das Haus des indischen Milliardärs Mukesh Ambani in Mumbai, Indien (Photo credit: Wikipedia)

ICICI Bank which has continued on a lower margin growth in retail to gain just 20% topline growth will still be growing at more than 20% a year. Net Profits also grew to scale as Domestic NIMs were a tremendous 3.65% and the International Book started growing again. India’s largest Private Bank in true banking paradigms neither government owned nor still counting down to respectable CASA despite having started as a division of a Project Finance Firm, it has beaten competition from HDFC Bank in many categories except in true reach and has a real corporate book and fails in comparison with HDFC Bank’s large retail share. It’s book is predominantly mortgages in retail and its lending practices imply a bigger concern on asset quality n that portfolio as well.

Investments are more than a quarter of the Gross Interest earned after the likely HTM transfers and booked losses and  with International ‘cash’ also being put to use. Fee Income was up 20% sequentially to INR 24 Bln and 15% up on half year over FY13 as the bank seemingly wins the war for customer yield while rearing up growth, a quick way to kill criticism of its retail lending practices that will sooner than later rear up but without a margin squeeze , does not get into ‘crisis mode’ again

Net was iNR 23.5 Bln and retail credit grew at 22% with the Corporate Book also growing at above 15%. September Banks’ non food credit has grown to 18% above the 13% rate most of FY13 and will this be a good momentum for the Bank’s continuing growth. ICICI’s under 20k ATMs (19500) are same as HDFC Bank and in almost unreachable urban areas across the spectrum of SEC income classes and provides a substantial part of its retail lending book in unsecured loans , a practice missing in private Sector Indian banks. Organic portfolio grew at 27% but the need to purchase retail portfolios is only going to grow. The bank will also need to scale up outside townships as one of the two active private sector players needed to contibute to rural reach as India battles a large more than 50% nbanked population and a changing welfare regime

It suffers from a just short of INR 100 Bln in restructured assets (including current disclosed pipeline ) by FY15 and will be a significant 3-4% of the Advances and will mostly be seen as heading to NPA than to normal assets after the two years except for one or two cases that will go back after the currency stabilises, the business model still safe

The ratio of Gross NPAs though down is another mind furrowing and disturbing biggie at over 3% and NPAs wmore than twice of rival HDFC Bank ut comfortably under 1%.  The banks’ leading growth as a multiple of GDP and thus growing at more than 15%, ICICI Bank’s  Loan growth will remain close to 20% for the growth cycle as Taper is postponed and India tries to regain a better growth clip

Lifestyle Champ ITC , here or there?

ITC improved EBITDA margins to 40% in the meantime on price realisations in Tobacco even as profits from Hotels halved and FMCG returned to successive second quarter of losses ( of INR 120 mln). Net Sales were INR 77 Bln , 33 Bln from cigarettes and INR 26 Bln from consumer staples

RIL loses buyback steam

What will also reach India Morning repots next week though just a quick plug here is that Mukesh Ambani’s firms have decided to extinguish existing Treasury stock of almost INR 500 Bln and will be discontinuing buybacks

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