India Morning Report: 5550 and nose down, Banks give up consolidation

FO Update: Bifty(BankNifty) strangle could be a good sell so vol moves are up but one should stay away from buying bank puts individually or shorting banks per se. They are quite in line for a jump and won”t be characterised as the villains of this move

The day started well enough Banks shifting chairs with HDFC Bank and Kotak taking over the upside and ICICI Bank facing a small (less than 1%) correction and Axis Bank moving up smartly as well, but as we prognosticated, the Rupee is touchy and tus 5550 seemed like a top off, barely opening at 5573 before trending South. On the bottom again, the move is capped at 5400-50 and the Bifty could well stay above 9000 throughout esp if the Rupee manages to keep the bears happy at 67 levels itself, as the markets decide the new direction of the move in the rest of the Financial Year (Fiscal).

The Rupee has received considerable global attention it has yearned for and sellers have been keeping quiet not because of fundamentals or flows but for the attention alone. ( Any study ignoring other parameters and attending to the correlation with global fourth estate exposure would thus be able to prognosticate the new founts of pressure on the Rupee. Oil is going down and 4% GDP is post a not so tough Oil Bill prognostication at the umpteen downgrades that heralded the start of the week. IT is almost overvalued again, one windfall quarter per 25% loss in Rupee value (YTD :D)

GDP (PPP) Per Capita based on 2008 estimates h...
GDP (PPP) Per Capita based on 2008 estimates http://www.imf.org/ (Photo credit: Wikipedia)

On the market performers, accumulation of a disordered undervalud opportunity variety has started making itself felt in Caital Goods companies and infracos equally as Reliance industries which may look to E&P approvals in 6 different fields. Thus the sectoral technical picture is additionally cluttering the fact that no policy decisions would be forthcoming till after May 2014.

Savings in the Oil ill are coming  from the 13% share of Iranian oil, which because of shipping lines and insurance issues, are unlikely to be raised. True to form, Irnians do not really want t o use Rupee payments made to buy Indian exports except for its rice and tea demand.

Auto sales jum is more a victory for the two wheelers again, Bajaj Auto recovering Exports to 144K ths month and domestic sales on breath with value #2 Honda (301K). Maruti’s jump back to 87,000 units is still a poor performance below its run rate of 100k cars on average  pre 2010 itself. M&M tractor sales have dropped to near ZERO at 14,000 r month and Hyundai has been wiped along with Tata Motors for all the improvements in traction at GM, Ford, Toyota and VW.

Glenmark Pharma is a good pick to start the mid cap ride. Yes Bank and IDFC should e among the non controversial movers and shakers as the markets operate in an unwilling tight  rang waiting for the Rupee pain to go away. Sun Pharma will bottom out above 500 levels and start on its promise again as it builds on the INR 1 T capitalisation. The September trade data for India is due in a week

I do have a couple of questions on the detailed NH survey on housing price trends released yesterday. The 670 mln sft inventory for example seems to be a little bit of an over estimate and prices in Bangalore ,Bombay and Delhi are unlikely to move down despite huge inventories in residential , affordable, commercial rental and commercial spaces overall

Also ATF prices ( 71k per kl in Delhi and 77k per kl in Mumbai) are probability going to  strain the almost barebones domestic aviation pricing again and UDF are up for renewal. These are likely to remain hygeine factors to the India story ( low growth high cost aviation and high inventory of property) because of obvious inelasticities in the real estate pricing and the elastic nature of demand, roving a sea of red for aviation in the last decade. Thus inflation fears are probably dead in the water with Oil and Gold moving down globally.

Metals esp Tata Steel is back in the Buy lists in this run which will probably peak immediately after mid 2014 till September 2014

India Morning Report: Rupee at 66, GDP Growth at 4% and Interest Rates at 9%

Unknowingly for those of the common Indians and even market commentators across long term and sort term watchers, India has again stabilised around rates at 9% and The Rupee after a 23% move ( which was completed in a month) finally pulling up a notch of two at 66. Interest rates are at 9% and the markets bounceback on Monday Morning seems actually sustainable.

The earlier volatility ending stops at 9% rates and 4% growth were ofcourse around quarterly growth lows, Markets and Central Bank almost decided on a bounceback on the unfortunate low, but this 4% pitch seems to be likely now for a whole year of growth concerns at India Inc.

Again markets did show resilience in responding to the new Oil Swaps on Thursday with equities stopping the down rush at 5400 itself, but there is no forward momentum now except as EM weightages again cause money to flow back into the same selected investments which popped off selling because of reduced value causing weightage overflows on EM equity portfolios.

A war has  been averted though Assad Bashar is o n the loose in the Middle East and Indian Oil is still at a minimal risk from the geopolitics of the last surviving dictatorships in Oil.

In sectoral terms as ET data would like us to believe, interest isback as much in Textiles as in Banks and Finance companies. IDFC and Banks will lead the show from here ofcourse andas Ambit Capital suggested, it is still a little early for interest in Autos but it will eventually happen for FMCG investors. Chinese Shadow Banking woes could affect the slightly positive outlook from here for Exports. It’ ood to see the Banks having started te day at 9200 levels again on the Bifty (Banknifty). It was a bad month for Autos, Exports and the currency but we already know that.

Again, rage of motion at this time could just be crimping up on the 50 share index as at 5500 it has broken down just last week and that would mean this stabilisation could have engendered a big fall but for EM inflows returning in a couple of months.

No, the hike in Diesel and Petrol prices are of significantly less positive value than the shutdown of fresh investments in Exploration and Production ( see a list of Projects from Reliance which need Government investment in today’s ET) and similar non events in infrastructure more tough fo India Inc than the Food and Land Bills progress, though the markets’ are not disappointed

For the Agricultural shot in the arm in GDP calcultions, a reminder that our expor markets in any agricommodity are not price incsensitive and have mostly shown a declining share of Indian exports.

 

India Morning report: This week in history of 2050: The sun rises on the east India Company in Asia

With half-hearted restrictions on Dollar flows talking of Capital controls and engendering a Rupee ‘addition’ to the value of the Dollar and European Banks getting free after a couple of years in Capital wilderness, India could be a bigger part of Asia when Banks get into a new bout of short term credit , not just Transaction based Banking which s already operating with preference to SCB, DB and Emperor HSBC in the area. The new east India company, third edition would thus be the rupee benefactor with true self interest reserved in trading than the hitherto close coordination with businesses and governments on policies in the countries in the region. We have in Asia however successfully staved off such pressure since 1987 esp outside the East and North Asia belt where foreign interest makes up a dominating market share of the Financial Markets in debt and equity

The Rupee runs close to half its weekly move at 66 on Tuesday afternoon itself leaving very little to the imagination as conservative and HTM Indian risk offices as they price in the Dollar at between 70 and 75 for current short term rate planning, which hastens he move to 78-80 soon. The nifty pre expiry range has broken own in the same hindsight and with 5500 inaccessible, technically markets run another steep wall o try and find stable levels especially with long futures holdings from offshore desks dominating in the morning . The 5325 index may well stop south of 5000 as the longs were never to be rolled over in any case and the cash buying will unlikely be sufficient in volume to increase index level prospects in the September series.

East India Company (video game)
East India Company (video game) (Photo credit: Wikipedia)

Banks suffered for the active monitoring feared by Expoters and importers trying to go the extra length made available by the steep wall in Dollar Rupee trade ad all of Asia is a little straaped for Dollars as investors respond to fund exits and rebalancing of the last full QE portfolios. The East India co though like all Capitalist colonising ventures do not invest in local quality anymore, which the Bombay club has long neglected but in true 2013 models, there is no growth yet to justify keeping the depression ship with increasing investments and growth in Exports still easily outpaced by the cost of imports leaving more rupee for each Dollar till it does. Government Spending has improved and i would aver short term interest rates are helping in ensuring immediate focus on the Capex cycle as well but investments will come only when higher realisations are available and so inflation may even need to be roomier as in a new frankness in pricing Gas and diesel, that has enabled that consumption cycle without any political fallout. the Cereals and Milk have gone thru the supply bottle neck based realisation improvement and vegetables price hike may also be done in 2-3 months

 

Bank Results Season: HDFC Bank Q4 grows 30% PAT and Net Interest income

HDFC Akkrama!
HDFC Akkrama! (Photo credit: prajayogi)

 

Net interest income for the Indian Market leader in Private Banks rose to INR 43 B from INR 33 B 26% on year/year growth. As dividends from insurance have also started showing up regularly every two quarters consolidated PAT has been growing unbridled past our 30% watermark. PAT for Q4 ended up at INR 18.90 B, a substantial shoring up of business performance in the last six quarters when it began a series at a strong but smaller share of the indian market with INR 12.5 B quarterly profits and  INR 26B NII

 

A CASA of nearly 48% however with Advances at INR 2.4 Tln nearly not growing fast enough, deposits have closed in on the INR 3 Tln mark. Though its cost income efficiencies rival the most superior in the industry, the funding structure of the bank still shows up in a heavy 16.8% Capital Ratio in Basel I terms which would not get negatively impacted in the Basel 3 regime for Indian banks and an Advance / Deposit ratio near 85% and gross NPAs of less than 1%.

 

Though flash reports have not mentioned it yet, Fee income likely tracked more than INR 28.8B and the bank needs to attend to credit growth as a main objective and define trade credit /transaction banking and commercial lending separately going forward as also wealth vs traditional retail and loan product income in retail where new blood is likely to strike alongwith limited competition from indusind and kotak bank

 

The detailed exposition of year end results will appear in our traditional HDFC Bank vs ICICI Bank face off after the Chanda kochchar led bank’s results are announced.

 

Morning Trading Strategies – India September 17-21, 2012

Trust us. it’s not time to sell into the rally yet.

Banks are again the biggest victors of the Reform story. While Telcos will be apparently in with 2G licences without missing a beat including Uninor and Sistema buying Aircel, Bharti would be benefitting more from investments in retail and its IPO getting investors out of the 5 year old Bharti Infratel restructuring

Stay long in Banks and the uptick will be tempered as we go along. Indeed some may again try a Bank of Baroda trade. ICICIBANK and SBI are the best picks going up while HDFCBANK is the one likely to lose the least value

The Rupee is below 54 even in the September series and that is saying a lot apparently as Udayan puts it from INR 28 B in one session. The gain in the Rupee is not capped yet either till December

The infra stocks ill be part of the second coming and will be from among frontline stocks only from IDFC to JPASSOCIAT and maybe GMR and RELINRA

11 AM UPDATE ( As opposed to Late Morning trading Strategies)

Axis Bank is likely to do exceptionally well in a strong AMJ quarter in which yields moved down and lending business grew handsomely for the right lenders. Axis has also increased operational efficiecies in 2010 and 2011 which have since tapered off. Net Interest Income will see strong yearly growth but may struggle to rise sequentially from the high water table for Q1

The Rupee does not encourage much trade at lower levels seeing spikes on every transaction in the NSE and may have bottomed out at 54.9 for most players being on the long side. However, the global moves and the Asian correction in korean WON and SGD may be followed by the rupee which does represent  a large transaaction island of 5% growth and Exports and imports make 1/3rd the GDP now.

Unfortunately the shorts on IT have taken the wind out of the up-move which is strange considering the bulls are still  on in Banks, Healthcare and even consumer goods performance though that has a bleak outlook after results season  A single MARUTI short from here can test the Sensex 5200 and even 5100 levels after Axis Bank results are sold in instead of jumping further etc.

 

Morning Trading Strategies – India June 21, 2012

Capital Market Line
Capital Market Line (Photo credit: Wikipedia)

There is still one week to expiry but those selling puts to stay long on the Nifty are safe at expiry also, a rather one way strategy in terms of flows as you do not expect to do a transaction cancelling your position. However, if you have also sold calls and you should always be careful about that, the exit of the bears is on and 5 trading days could still take out 5100 calls into losses which happens above 5160 odd at yesterdays close.

The USD INR move, very wild in the post CM closing yesterday was strong and the global developments on the Euro’s crash also mean that the Indian markets will remain bearish on the Dollar intraday but as it means a bullish Capital Market segment ( and vice versa) it will not fall much unless the equities want a breakout in this series itself.

Banks are good investments as suggested yesterday, Healthcare will remain great and there is a bear play in Two wheelers yet with construction lagging a week of byull sessions before a rally ensues. JP Associates has a play though with a deal in the pipeline hopefully. Market is rangebound and choppy unless you kno your picks

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