India Morning Report: Markets wait for fuzzy logic to come back as banks get ticked off

The Rupee has continued its climb but equities have taken a break even as Rupee survives end of the month selling for import payment obligations in a benign environment Oil heading below $103 (US Crude)

Bharti Airtel Lanka
Bharti Airtel Lanka (Photo credit: Wikipedia)

FDI Dollars will likely boost debt markets soon, the positive sentiment from that and the promise of removing extraordinary liquidity measures letting the markets 5 basis points off the 10-year bond yield to 8.73% . BofA ML in the mean time agreed that there was no doing anything in India till 2014 came and went so the rally is at a loss still from  a disgruntled bull frustration at this rush for beyond 6000.

Goldman Sachs put India in the same basket as Turkey and Brazil, rather on the heels of the City beating Manchester United and showing Goldman Sachs burnt in putting too many eggs in this basket too. However, we go agree on the Fragile three from Goldman Sachs which will really get stricken not just because of dollar dependence but because of domestic alchemic leadership that continues to drive a fiscal big bang attempt in those two domains as well as someone like South Africa. The Fragile Five however esp India do not exist as those with deep domestic markets cannot be clubbed with Emerging Markets

India’s Dollar dependence is much a factor of the Oil price, so that can’t happen without Syria, Iran and israel. No, India cannot choose to come out of the growth plateau overnight by dissing inaction and is not  sign of weak politics, just more federal than the smaller EMs can afford. Our deep markets still offer much more than even China in most asset classes and Financial market reform is not a steeplechase to be run, or a small sprint but a consistent marathon. Neither is the consumer credit habit overdone in India or hitting the falling Domestic savings except that real income has ben stagnant even negative as non agri GDP data shows us in 2013 ( a 0ve 0.5% growh in since April this year, i.e. Q1)

Reforms did break India’s markets stride yesterday again, as the SEBI panel freeeing Govt Bond investments frm quantitative restrictions has to merely posit the same to RBI at this juncture. RBI in the meantime is busy bringing down growth era economics by C Rangarajan and others who took his place after he remitted office for higher advisory office. The edgy action on 0 percent loans and the continuing waterboarding by banks on using MSF and overnight liquidity instead of interbank markets have got RBI in a fi x of its own and that has definitely been scuttlebutt fodder for the equities.

Those following the soliloquy of Ashwini Gujral however may do well to note that I think neither Maruti is making it higher in this week nor traders or investors are going to wean off Bharti Airtel in this series. Volatility is on a thin leash as October still rushes to 50 point premiums over the current Nifty levels even as barely three days before expiry premium in the current series has been completely blunted off by the trading blades used to bigger prizes in an Indian rally constructed/deconsructed at will

Markets could well bottom out especially if action is indeed seen in the infra sector and more is not thrown banking’s way allowing the sector to recover last week’s trading levels. Inflows from the NRI binge for example have been waned to Deposits apart from the continuing rush on Dollar payments home to the tune of $1 Bln from just three publi banks. SBI in fact is looking at its first woman Chairman in a few months

ITC and YES Bank, along with AXIS on hedgie trader desks, remain in limelight with incoming investors and most wait for a resurgence in Financials to confirm India’s superiority as an Asian investment destination though China remains bigger an d better after another shocking half year of underperformance 5600 does look like a tradeabl market bottom for India, surviving these levels in such economic doldrums

 

India Morning Report: The next sharp move in the Rupee is still nigh

The Oil wars are and with US Supplies stockpile engendering a highlighted war equation, the situation could turn grim. This Friday closing is thus not like the other weekly closes in terms of markets losing short positions and trades, and it may instead see profit booking in larger dollops. One assumes therefore the sharp increase in Open interest would remain with the likes of HDIL and Sun TV and the banks open interest would continue to rise much more slowly and the 5400 cap could in those trading terms alone, define the entire September series hitting the wall at 5300 in favor of short interest to pick up once the market dips from 5400 to those levels, which has started off on a clean plate, only longs rolling over.

The advantages to shorts rolling over are the market pricing more finely in those conditions with the added liquidity(depth) to trades with the premium esp in the Indian market removing rational investor interest rather soon in the Futures and Options derivatives markets. Witness, even in the currency the only trades that made it were structured Double or Quits and higher multiples.. excluding even a lucrative CDS market in India Bonds and Sovereign. Oil swaps come with the caveat that payment problems exist to the same extent with International payment systems complying with bans es for Iran and one can assume Syria

Airtel Digital TV Review [Updated]
Airtel Digital TV Review [Updated] (Photo credit: code_martial)
One can assume also that after a 14% cut in FMCG in August, ITC’s ‘comeback’ would also bring back interest in brands like Bharti ‘Airtel’. Though GDP Q2 data would not be a trigger and long interest remain with such undervaluation

The 75 target for the currency is here from BofA ML and as I said below 68 the box is from 70 to 77-78 levels before the market interest outlasts any post analysis of the fll. Those thus aking this 68 level an occassion for post analysis would likely be lost even without any sizable crossfire in the battleground! Lets face it we actually need exports to grow a sizable bit in response to any depreciation for more than IT profits of the next quarter for India Inc

Watchmen: The End Is Nigh
Watchmen: The End Is Nigh (Photo credit: Wikipedia)

India Morning Report: There is the Rupee and then the equity markets…

Map of South Asia in native languages.
Map of South Asia in native languages. (Photo credit: Wikipedia)

 

Frankly, there is nothing much to hold the markets after they broke 5500 and the markets below 5000 Nifty levels are likely though still not extremely likely as values identified in the Top 20 liquid counters will probably include those already having fallen to their lowest levels of this rally’s beginnings or within 10% of the same as ITC and Bharti Airtel indicate. That also means institutional buying that has resumed in bits and pieces will characterise this market thru the breakdown. Even though Bharat Iyer of JP Morgan also put on a brave face and assumed Fixed income to be just duly following the currency mechanics, structurally markets are ready to ignore the falling Rupee between 64 and 68 once it starts that leg. I personally do not think interest rates derived from FX have any significant accurate behaviour, esp where in India both markets are relatively illiquid and dependent on key PDs for volume business

 

Though nominal growth is unlikely to be the promised 15%, shift to it sector has created an exchange that is leading scrips to oblivion and not really any structural factors as they remain exactly where we always were. Infrastructure and Metal sectors are actually at their best take off points now both for Fixed income and equity QIPs the latter a little harsh for promoters, and secondary market floats in infracos could find considerable long term investor demand soaking it up.

 

Similarly, rating agencies’ almost junk BBB-/BA2 ratings on India are in fact already indicative of this breakdown and may not need a correction giving the rating agencies to correct their now identified goodwill gap in asia esp india and South Asia, that can thence merit a suitable upward notch everytime CAD is actually brought into control. Strange, but true.

 

Fixed income markets are set to lead the way meanwhile to double digit yields on the 10 year bond already hitting 8.95% in morning trades as Rupee takes up 62.3 levels before moving on to 63.30 ( TV18/CLSA) as the next Technical target. Banks presumaly are also paying for their investment portfolio breakdown in this move and do not have fresh cash to borrow and place in the 11% short term and even the 8-9% 10 – 30 year bonds for substitution of current loss making AFS and not taking everything to HTM.

 

One year down the line, with a stable government maybe instead of hiking deposit rates we will see the yields going south again. Oil is back above $110 levels and Indian buying will comfortably take out 67 levels for the Rupee

 

 

 

India Morning Report: On your marks, the rally is set to gooooo..

5850 levels would of course cede thru the week as correlation is reestablished and an agreement around the RBI call yesterday seems to have been on target to set the H2 rally in motion. Institutional investors have been selling the index futures hitherto a transparent look ahead hedge initiated for the select longs that have been holding the market above successive water marks since August 2012. Index futures selling aside, the Rupee move should also stop here at 58.50 or above that back at 57.90 whence long buying in scrips thought to be carrying their sectors and the indices are in fact treated to further quality buying

Godrej Nature's Basket
Godrej Nature’s Basket (Photo credit: vm2827)

However in concrete terms shorts on Godrej are a great idea as are longs on ICICI Bank and M&M. The side tag wars of Godrej and M&M in scrip selection if any for both promoters based from ‘amchi mumbai’ are non existent primarily because fo the inconsequential daily volume of 304k in Godrej Industries and thus for your institutional desk it is a single trade scrip, one position ruling its trend and thus will be a short beyond 20 levels too if one wants. M&M and USL similarily lead the remaining value in the market as some smart promoter moves, especially the M&M deal with a foreign promoter scaling up its auto ancilliary units in a single consolidated operation. USL is as good as a iDFC but as the network pick presented (Dimensions?) it is in a strongly invested position. M&M is also important because consumption will also come back in the second half once the recovery is in play.

Banknifty drift is transcendental and unlikely to impact the prospects of private banks leading the rally.  SS had a great pick in Dena Bank and PNB is also a great long. Air Asia and Jet Airways take off on new India inc rides that are definitely more significant than mere exploration with Ramadorai in the chair at Tony Fernandes’ Air Asia and SEBI following up rigorously on the 51% Naresh Goyal controlled Jet and the “???” Indian controlled FDI by Air Asia in almost an established Malaysian treason habit in India investments

The sudden jump in Gold imports still does not mean good redeeming news for Titan or the slip on the CAD but is probably a last hurrah of the clampdown/controls. Jubilant’s correction looks like could continue another 20% down after the move back from 1300 to 960 in pre-open today one also feels that shorts on REC or Jet are misplaced at these levels of 200 and 460 respectively. Buys on ITC and Bharti Airtel are likely t o hold for longer term though minor corrections from these levels as for YES Bank have to be watched for, including any newsy disruptions to them. FDI increases in Banking and other sectors ( though not Media or Legal sectors) are looking likely but within 2014 H1 after government formation is cleared and not in going away policy presents which would e intemperate for the coalition at this point and more importantly for India Inc.

India Morning Report: Bharti Airtel improves India offtakes, pecking order unlikely to change for markets

Bharti Airtel Lanka
Bharti Airtel Lanka (Photo credit: Wikipedia)

 

The improvement in EBITDA to 31.7% obviates the other stream of bad profits from Bharti and one can wait for the stock to become available under 280 but the reassuring move from 275-330 is well safe as the dust settles down on another quarter on sharp cuts in reported profit again likely affected by one time items surging thru the global major’s rupee balance sheet every other quarter. Within, Telecom Bharti remains #1 in new customer acquisition data for March as well close to 3 million new connections in mobility and revenue increases seem defined upticks than Tata and rel Comm’s occassional blips into civilisation before going back. ARPU is no longer an orphaned series at INR 195 per month. The earlier quarter ARPU was at 193 and probably year ago as low as INR 188

 

Bharti’s INR 60 B Africa revenues too count for a major incursion into India’s new favorite FDI market since 2008, gaining FDI volumes close to China’s push FDI in the dark continent. One has however capped that $15 B investment as resource sectors apart , tales of stability and consumption in Congo and Somalia are more the exception than the rule

 

Brand India in the meantime relies again on infraco fund infusion but as election years go, this one may still be counted as one of the more peaceful with rare positive excursions by FIIs and outside India analysts into the country even when news from ECB and Fed remains critical to the direction and size of funds flows in the markets

 

Banks have been subdued for the Bankex and the Banknifty trading lower from all time highs in ait for an opportunity but some components of the bank sector indices are still likely to head south and negate the just aborted psu rally on their own steam as the difference within the PSU herd also shines and the threat of new competition makes the private sector bans stampede the rural consumption markets faster and grow back the consumption story still going strong in unbridled double digit CPI series for both rural and urban. IIP services data follows on Friday and as it would compare across US, Europe and China, it may well define strength for India inc.

 

Manufacturing R&D as a business segment has reached $10 B in India from more than 200 captive units of global majors, while pharma outsourcing is likely to regain captive strength as wwelll in light of the affordability linked rulings in Indian courts. China meanwhile is a real physical threat knocking us on the borders in its own inimitable ‘sleight of hand’ show on Ladakh and Arunachal borders showing up the importance of increasing defence allocations and arms spending while the Freight corridors and even the NMP supercities of Dholera seem to be threatened by the lack of movement on Land reform bills and external funding

 

 

 

India Morning Report: Pledged 100% of your holdings and market is up

Seemingly though, there is no more free money in that. It could have been on a generic basis because of stricter internal risk guidelines, and fat tail events precipitating the HDIL event could also be innocent ones like pledged shares needing to transfer ownership and bank ownership of the same got in the way and so many other reasons. All of them a 100% unlikely. Almost. Because HDIL is paying for surrendering all its real liquidity to its pledgee bank that took all its sharees to extend it a loan and while margin calls are a norm to a down bear market, getting into the bull orbit, recovering real estate prices in Mumbai and some good real estate assets did not help HDIL

published from lodha's signature project site
published from lodha’s signature project site

The new mid cap stars in Mubai property are Phoenix, Peninsular land ( in this rally) and even Orbit corp where they really circled up the wagons. The signature Lodha property – The World Towers – aside there are others that have captured the public imagination in Mumbai including Exide owner’s (onlyy related families) “Raheja Platinum” in Worli touted as a first of its kind skyscraper commercial towers.

In the meantime Hathaway cable is still in play as digitisation plows ahead and makes a strong #2 in markets like Mumbai while Zee’s Dish Tv takes up the slack after a big run in digital stocks since November 2012 Back to banking though, the new NBFCs getting bank licenses could further reduce the universe of actionable Mid cap in India as most of them propeled into almost blue chip league by Net worth requirements alone would no longer be able to run up asset growth as a Mid Cap that they have wrangled out . Power NBFCs are a different story with REC and PFC having much more potential for even doubling assets twice over. yesterday’s almost breathable recovery at 2:30 pm after everyone did think 6000 was a bottom signed the recession blues away too and regardless of China’s strong PMI performance and springloaded reaction in equities India is likely to get more allocations in a continuous September in the Pre Budget rally and later post Budget as the government still has a quarter in which to post other fiscal discipline measures midstream however miniscule they may be and then get into a big Welfare play  as it would take if the Congress led UPA with or without the UPA components ask for a third continuous term. If they crimp on spending in this Elections it could be byebye india inc though some Corporate India would still like to believe in NaMo’s extremist India as the answer to big brother’s comeuppance on us.

Also it was good to see Airtel and others stonr overtures for th eprice increase but attrition is likely to come back in waves, because “Momma, I still pay my own bills” and Call volume has been dowwn almost steadily since 2006 giving strength to losing hopefuls like Kotak who failed in growth herms since then too and the amrket have been waiting on their Indian style dhandha fundas to take hold on the larger untapped Indian market

India Morning Report: A dozen successful OFS to close the year

The old logo of Maruti Suzuki India Limited. L...
The old logo of Maruti Suzuki India Limited. Later the logo of Suzuki Motor Corp. was also added to it (Photo credit: Wikipedia)

Last week’s beginnings after NMDC with Reliance Power’s 15 mln shares on offer, were followed by successful closings by Adani Ent(28 mln shares for INR 6 Bln), Eros, Bluedart, Honeywell and even institutional equity sales by Godrej and a PSE sale by Hindustan Copper. 2012 FII purchases have likely exceeded $25 Bln , near the high watermark of $30 Bln in 2010 and wiping out bad news 2011 though India’s Economic recovery is far from incomplete and some indicators even say unlikely to reach 8% again, as for China in the new post crisis developed world economics of a large base and limitations of progress (market expansion) show up. India’s model of the Hindu rate however has shown the fallacy of these being limiting factors and excuses since we took up reforms in 1991 but that was then.

Fixed income yields have not crawled back as fast as they could have after the upbeat

English: Honeywell logo.
English: Honeywell logo. (Photo credit: Wikipedia)

Credit Policy Tuesday but persistently high retail inflation is no longer the limiting cause of India’s problems and neither is a run on Oil prices likely

The Rupee meanwhile is right back up its repair drive crossing back into 55.1 on another start of flat equities to close the year while Maruti and Bajaj Auto climb relentlessly and let ITC and Bharti Airtel scrips slide on lack of interest without hurting the index prospects. Pharma continues to outperform while banks are likely to push for early clearing of margin debt and infraco debt resulting in portfolio sales proposals closing after those holding out for price start staring at

English: Logo of Bharti
English: Logo of Bharti (Photo credit: Wikipedia)

a bleak winter holdout, including those at GMR Infra and LANCO Infra. Why exactly is Lanco scrip moving up today at 10 am?

 

 

India 3.0 – Results Season reestablishes Bharti, Cognizant

A 17% rise in revenues helped Bharti establlish some glowing recommendations for its 2013 and 2014 future

English: Logo of Bharti
English: Logo of Bharti (Photo credit: Wikipedia)

even as a INR 7.7B Dividend Distribution tax and increased losses of INR 5.4 B from Africa stopped net margin to a measly 2.4%. Before the Indus Towers dividend and losses from Africa, the INR 202.73 B revenues bent a margin of over 5% excluding the INR 2.39 B from a court judgment in the company’s(industry’s) favor on interconnection charges.

The company can probably not try and push pricing to Direct margins of near 50% as any self respecting industry might want but apparently hopes to regain pricing power if industry gives it a hearing even as the CCI has tightened up its regime and ‘cartelisation’ may not be welcome in any of its market. Telecoms, like its precursor in switching technologies and business telecoms, seems to be hurtling towards, trundling dowwn to a depth of losses regime of pricing and profitability that has already taken out a few segments incl examples like Nortel and Juniper to Sycamore and others at the height of the Telecoms global roll out.

Bharti did produce a viable model of profitability for the industry and would try to reclaim that leadership and is probably the best placed for that war with overall operating margins of 32% and Africa Op margins of 27%. it has been able to use pricing to maintain a virtuous cycle in its earlier avatars despite large Capexand resulting hit on Interest and Depreciation

On the other side of the globe, NASDAQ listed Cognisant cocked a snook at leading lady TCS with US revenues of $1.504 B matching TCS revenues of $1.509 B while overall revenues of $1.89 B continue to have a distinctly anemic spread outside the continental United States which remain the juggernaut strategy’s focus in the IT services market even as Europe tries to review and rebuild sustainable busines s models for a unified Euro led future out of the current recession

NASDAQ Panelists
NASDAQ Panelists (Photo credit: Think London – connecting business to London)

A revenue guidance of $7.34 B is definitely something to be proud of despite the 18% cap on margins and annual growth of 20% on the Topline seems to be a good enough benchmark for this company (at these rarified heights) even as it disregards the 30% growth in profits benchmark we also concurrently keep. The resulting increase in attrition took data on employees attrition to 13% even as Financial Services continue to make a 42% share of pie and the US Financial services market remains lucrative yet now almost closed off to other Indian players including mid caps that may not be welcomed by larger IT strategy offices finally hoping to make a mark on consolidation and giving TCS consistent account wins till 2010.  Industry sales int he US and indeed those of retail lifestyle exports from India are likely to be hit by Hurricane Sandy in the Fourth quarter.

 

 

 

Monday Trading strategies – India October 22-26, 2012

HDIL
HDIL (Photo credit: Wikipedia)

 

Festive week bodes well for expiry as markets open dull in trade and spectrum buys or the prospect of refarming existing spectrum do not put undue presure on the surviving retail lifestyle stories of Idea , Airtel or London listed Vodafone

 

In fact indices have come up well since markets opened in the red pre-expiry and the vacillation could be a unique opportunities for all investors Left Behind in the July August scrimmage to load up on Indian festival savouries and McFries from traders’ favorites JP Associates, HDIL and new bulls in ITC (FMCG story) to more “Bombay Club” M&M and Bajaj Auto in their new Asian/Oriental winning Forms

 

TCS results were uniquely dismissive of margin and volume issues for the coming success stories of Hexaware and Geometric and the ongoing wins in Persistent as they pander to demand for firmware. MindTree and HCL were the only losers in the Infy/ Cognizant wars or as HCLT would like you to believe they actually grew profits despite the currency wars they lost for 19 crs at MindTree and 65 Crs at HCLT

 

That also brings back as we said last week, winners from Cement and Textiles supporting the north pointing directional pillars for the next few days for a rally and 6000 a clear target for December

 

However, watching the F&O series for volumes and not the directionality of the bets or the propensity to risk in OTM puts or Calls for bullish bets is critical to that 30-50 points a day nifty move till 6000 comes. Lack of clear Volumes in F&O despite new exchanges and a clear bull in the Rupee keep both Equity and Currency segments under pressure as funding calls become directional shorts on the market.

 

Bharti Airtel Lanka
Bharti Airtel Lanka (Photo credit: Wikipedia)

 

After KFA’s oblivion and on good results on the weekend, JETAIRWAYS, INGVYSYABANK and INDIAN BANK are likely to bring back investors into the Indian markets even as other Asian markets start getting competitive interest from fresh bank liquidity and interest from Europe

 

 

 

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