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
As expected on Monday, irrespective of weaker global cues as the Dow travels back from new highs on weak Chinese follow through, sold puts have moved up midweek to 6400 levels on way to making a bottom support at 6500 itself before the end of the week. Mislaid punts in old Economy stocks like L&T and Maruti provide market shorts ready ‘bakras’ to support bigger longs in the rally segment favorites with PSU banks, tired from all the browbeating are also ready for a short short and BOB is teetering at new 650 levels in March.
BPCL turned out to be the surprise winner as ET Now also highlighted, gaining 20% in 2014 as PMCs and Oilcos caught up with neglected mispricing in the first six months of the rally from the Rupee’s endless bottoming in the last week of August as the Rupee leads the global charge to stay relevant in a post taper world.
Along with the continuing winning stock specific plays in all the new consumer stories of 2010, Just Dial’s F&O inauguration may well be one of the sterling performances that mark a lifetime winner as Titan, Maruti and L&T head for the dumps.
SGX Nifty continues without a hint following Nifty to its close yesterday unable tpo provide cues to the Indian markets as FIIs continue buying, adding another INR 14-15 Bln on Tuesday. Asian markets opened exceptionally weaker after a Dow falll overnight as they remain sensitive tio the situation in China and need a significant depreciation in the Yen in 2014.
IDFC remains a superb trade and the expected corrections in ICICI Bank and HDFC Bank and thus the Banknifty continue to elude any other buyers waiting as the stocks remain poised for a big upward push from 1100 and 720 levels, FII trades switching the bottom of their range to 6400, writing 6400 puts even as Naked 6800 and 6900 calls continue to get more OI now instead of Call writers who can see the end of the rally before taking a position despite higher PCRs. A hidden Short Straddle/Strangle ranging the market between 6400-6600 may well win the day ( Bloomberg F&O had a 6300-6800 recommendation on the 12:45) in March though it is still not the recommended trade, Call writers likely though to be not penalised with global volatilities at extreme lows . L&T Finance could likely catch fire from here as goroudns are laid for the trade on new bank licences limiting itself to just key candidates.
Only 35% of Indian Cars are compliant with new mileage efficiency norms applicable from 2016. Exports are down not just in Precious metals and Jewelry but also in Pharmaceuticals. From all visible indicators, Hotels and Airlines are coping well putting the almost recessionary two year spell behind them with double digit rate increases and new fare discounts respectively. EIA yesterday also confirmed that Crude prices will remain low till end 2015 at least while Natural Gas is likely showing an uptick even as Copper leads the metals down as usual at the start of a new Chinese year spooking the browbeaten sector needlessly before the murky waters provide real hints in Chinese take outs two months from here.
Questions on Indian Exports however, seem real as Indian Exports refuse to break the strangle hold /saturation around $27 Bln a month mark and FDA continues to eye Indian export consignments with due suspicion. FIIs may also be done with debt buys in India for this segment. One has a feeling the next month’s elections may not return a unique government mandate but are likely to see the biggest turnout in recent history, with more foreign Observers looking on curiously, Crimea and Turkey, not tomention China and Russia underlining the unique prism of stability offered by India.
IIP and CPI data releases during the day set the ebullient tone for Policy day next Tuesday /Wednesday for Governor Rajan.
Friday’s closing rushes on the Rupee trade could be just another chimera as the China miasma refuses to scare foreing investors from China and other shallow EMs renamed MINTs. China also reported an improved Services PMI implying the trade situation could improve for it and its partners including Aussie, USA and India. However, things overall continue to look bleak for global growth as dependent on legs of growth in China and Europe.
Europe has been importing more, however, esp as Germany probably focusees on its own consumption for a small break after a Target imposed halcyon end to 2013. Rates are likely unchanged in Central Bank announcements and Global liquidity reprieve trades, may be ephemeral at best as Yellen returns to post snow recovery prognostications to hopefully continue along the same taper gradient $10 Bln in each policy date.
However, not to be confused by the Global Economy’s internecine interactive brusqueness, the India trade remains a leader for the Global benign trend continuing in Equities and HY debt this year and is likely to turn in better performances on the bourses than any other.
The 4.7% GDP score was not so bad except that it included at its best form, not more than 6% contribution from Services. As expected, Agriculture did not continue an extended rebound from Q2 and thus contributed to an overall disappointment for policy watchers with Governor RGR still on the edge of another couple of rate hikes and CPI close to plateauing out at a high 8% itself
Radico Khaitan is one of the bigger winners as the Equity trade in India opens to new bull scenarios, we choosing to watch after every 100 points as traders fill up the gaps and bears might give up most of their extraordinary gains in the following 6 monthsas they take each plateau of waiting for more investors as an inordinate sign of weakness or overconfidence having nbrought the hcicken count home to roost
Volatility remains at an extended low and the PCR below 1, implies one should batten down the hatches as most price levels on your choice investments would carry very little risk on sold puts . SBI and Maruti also proffer extraordinary choice to traders that need financing and are not selling puts ans positional shorts in both continue to dig for lost Mayan Gold, making it at least a year or 1200 levels before they exit with profittaking trades.
JP Associates may be out of the index but is a great plus trade ( opnly post redenomination of the Nifty) while Adani Enterpricses catches supplementary caucus support from the Adani Port bull trade. GAIL may still not make it to mainstrem positional trades or transition into a defensive but we reccommend buying the stock with IDFC and YES, while ICICI Bank and HDFC Bank individually will carry the Banknifty, PSU shorts making the Index tradea patchy non performing long
Foreign buyers saw $2.2 Bln in gross trading on the NSE itself on Friday. The return of bank investors and trading rooms including StanChart and HSBC to the bull trade on the Rupee, counld confirm secular up trades in Asia even as China gets ready for a currency depreciation battle. However, first order of business would be to observe if equities can keep up with the smaller selling that remains part of the trade in the first half of the week as markets start the series at fresh new highs of 6277.
The Sun Pharma and Hindalco trades should catch fire by the middle of the week in that scenario as mainline picks remain good for the goo but new buyers may not get them at better levels . Bharti , ITC and Bajaj Auto continue to hold strength in the consumer investments story and Services PMI returnign tot he green likely for 2014 means aviation, trade and tourism could critically support the good guys from here. The LIC and ONGC/OIL buys for BHEL and IOC are confirmed but sectoral trades aer non existent on either side. Pharma’s big week returning to substitute IT is the one certainty and not an immediate bulltrade so more consolidation is likely this wek esp if the Pharma trade does not kick in. The inevitable short trade on Hero as it yields ground to a bad February sales data will only land blows till 1850 levels as the news f the recovery should kick in the sector after new excise reduction and recovery in buying from March
The Nifty is up 25 points in morning trades, taking a 6090 clip to test the 6100 levels though new buyer interest is looking iffy. Selling and profit taking orders have topped out however, and Banknifty has resumed a positive bias though a trend is yet to form with the PSU block moved aside, the index being a traders” delight esp. with shorts on Kotak pressuring in house support
ICICI Bank is up 2%, HDFC Bank is in the middle of the 600-680 range strong as ever. Tata Steel continues down, renewing its correlation charts again with Ranbaxy even as the Steel sector’s fortunes have brightened. China’s remaining the question mark has likely provided long term investors with exceptional opportunities to accumulate at a stable price band.
ITC is looking like evaluating 325 marks anew for a new rush as it is safe in being a bull scrip but there is no current trade in the scrip. Bharti as expected likes 300 levels pretty much for keeps except a small downside risk to 290, and informational marking of the stock is likely to show up more often from here.
Bond investors should be interested in this Bond market but again, a short term spiking of yields is likely even after docile 10 month trade data. Gold and Silver imports have caught up to almost 2013 levels at $1.72 B and noise demanding removal of curbs has likely increased on the Central Bank. Trade deficit for January kept the $10 bln average, but the good story is that Exports at a healthy $27 Bln (26.75) are a significant improvement after being tied to a non growth $25 Bln mark and Oil imports are under $14 Bln again. Going forward the natural impetus to India growth is likely again multiplied by a continuing dullness in Oil prices and Dollar inflows may well continue headed home in the 9% yield scenario beating a few HY options a s well
Investments promoting Indian GDP growth do not look like having grown past the 5% mark. IT is buoyant on 2014 prospects but headroom is limited except TCS, well corrected for a move back to 2300 levels. I would have thought FY16 Estimates would show the gap being overestimated currently by the market at 14 multiples or thereabout (FY15 multiples are near 17)
Other Emerging markets are likely to cede to India again in 2014 as Janet Yellen looks to fine tune the taper design with a smaller cut in inflows going forward and Stanley Fischer is confirmed as Vice Chair.
Indian Media sector is probably looking a little tired at the bottom of the cycle, with IPL advertising revenues likely to exceed expectations in an overseas edition. However, in unlisted business, more gains are accruing for digital movers as E Commerce is currently buoyant with PE funding.
“Winners Curse” by Goldman Sachs analysts gets a popular break in the media for the coming price wars but the auctions process over the last 2-3 years more importantly showed businesses do not overpay for such commodities. Auctions lasted 6 days as of yesterday’s reports for INR 600 B inflows. Investors may take hope from Sustainable pricing at Bharti having lasted 2-3 quarters surviving on minutes and ARPU metrics. Both Idea and Bharti will be formidable to beat in Data for newcomer Reliance JIO which apparently has bid nearly INR 30bln adding reports in the ET on total investments. Vodafone , as a 100% business make the foolishly high premium move again to start off The Hunger Games
Maruti may be ripe for fresh shorts again in the Auto sector as exports volumes increase at Ford, GM, Nissan and VW. The markets would be increasingly straitjacketed on any up and down moves till the Vote on Account announcement and are thus more likely to be a volatile move on announcement, esp when the expected :no action: status from the FM is construed as a big disappointment.
Of course on paper 12.8% Tier I is nothing to scoff at, however the bank’s larger book of advances makes its likely that it would need additional funding soon and now would wait for the government to fill up the tank on Capital. PNB on the other hand is a value play at 520 and Bank of India at 140-50 levels could be offering value for incoming investors ‘cept for the NPA monologues, not in play at PNB in this FY(FY14) where SBI and BOI would lose further stock with analysts
Meanwhile, the weekly closing will be positive, and the new series will see a build u of positive trades. Apparently Nifty and the Blue chis all fell 10-15% in the January series. The currency saga is also over with the post taper trade turning out a whimper and US equities smartly rallying in Thursday trades. While Asian markets may enjoy a bigger uptick on that rebound in Morning trades, Indian markets will decide as they go along with all stock specific trades holding
Havell’s has been a great story this year and will see 2014 exceptionally favorably. Powergrid and REC anyone? The trade wis ripe alongwith IDFC as Mumbai’s Monorail comes online in a late reprieve for the Mukesh Ambani group. Yesterday’s trades saw a sharp recovery at close to 6080 levels again because there were no trades at the lower levels, markets just waiting out the post taper reprise and increasing transaction costs for those creating shorts or withdrawing from their overweight Indian portfolios, which saw no takers.
ING and OBC both report today consolidating the story of improving NIMs and a lrage profitable Asian market still delivering growth to incoming banks. A couple of measures deepening our presence in the Global Fixed income markets would do the Trick, if I were governor. Currency markets are back at under 62.50 levels for the Dollar.
Dr Reddy’s looks overpriced at these levels . HEro may also be ready to complete the black candle and get a big red score to end the week. Bajaj Auto will hold levels. Buy and Accumulate IDFC, Yes Bank, ICICI Bank and HDFC Bank at current levels. Stay away fro m construction cos. back on a dead cat bounce. Bharti, already up 2% yesterday can move up to 330-340 levels before next week closes. The Maruti short is about ready but will probably wait till Monday. Going in first precludes market operators from creating that position as hey are anyway prop. holders of the stok and are not using it for short collateral
BOI NII growth was stolid and the PAT hit should not hurt the stock sentiment desite the almost immediate post earnings reaction as the stock has been discounting its NPA woes a good six months of the rally that ensued in July 2013. IDFC results should se a muted reaction as its diversified businesses hold up and get ready for an aggressive 2014 ( The last three years have been bigger growth in the loan portfolios already) the stock offering great value at 90-91/-
Ashwini and Angel Broking are again fishing in troubled waters and most shorts should be avoided esp at 320 level son YES Bank
Maintaining the Channel at 1% and the CRR at 4% , the third quarter policy will go down well if markets in credit ( inter bank markets) continue to gravitate to reverse repo rates for borrowing in lieu of improved liquidity. Most hawkish analysts would improve their forecasts of rate hikes basis the new policy implemented in the third quarter. Our day’s review of Urjit Patel recos shows it is unlikely to be in an implementable form for some time and cannot be proposed into active roster during FY15 and probably FY16, but then it is a function of Central politics in 6 months from now
The Macro review admits to a loss of grow momentum. CPI declined as food groups obliged WPI at a four month low and the report notes the mall uptick in Cre inflation which is still very much below a healthy 2%
Hardening prices of services and key intermediates seen in conjunction with rising bank credit, increase in order books, pick-up in capacity utilisation and the decline in inventories of raw materials and finished goods in relation to sales suggests that aggregate demand pressures are still imparting an upside to overall inflation.
Policy stance incorporates the glide path to CPI envisaged in the UPA report in six months
Term repos were conducted in the later weeks of January despite Advance Tax payments to improve liq after Government Balances rose. Trade deficit is down by 25% in nine months. CAD has been forecast below 2.5% in March and CPI(Combined) expected to be ranging 7.5-8.5% at the end of the fiscal and FY15 before the next target of 6% kicks in.
The GDP fan shows a 4-7% range by Q4 FY 15 with expectations of growth from agri included in the RBI prognosis, forgoing their choice of a sticky move in Repo rates north to 8%. However the new Governor does admit this was an on the edge decision leaving further moves to the south probably open if his version of noise in the inflation is rested appropriately further, and improving chances of holding at 8% on the Repo rate and 9% on the MSF. On the whole, post policy action is still likely to raise interest rates in the Indian Economy now prior to the returning of the miracle grow / prodigal (not RGR reference obviously) though banks may not raise lending or deposit rates and Transmission issues remain with Banks using excess liquidity in borrowing from LAF for investments(govt borrowings/adjustment auctions)
Import controls, mostly on Gold brought CAD 1.2% in Q2 and the liquidity measures on Sept 5 , rejuvenating post impact from the currency crisis resulted in inflows of $9.1 Bn in equities and $14.1 Bln outflows in the Debt segment till Mid November (since May) were balanced apparently by $3.8 Bln in inflows in Debt since
MSF rate was only brought down by 150 bp since with elevated inflation expectations resulting in a repo hike of 50 p till now, which is likely achieved objective but still leaves the threat of increasing repo rates out, we would say another 50 b p is ready in the bag assuming yields travel to 8.5% , which would have been stable conditions this policy but are likely to be six months out from here given normal growth henc as yields likely move back to the 9 benchmark in the intervening period
Markets dipped on worries of UPA report making it and the unexpected rate hike before biting the bullet at 6130 levels during the presser.
Asian markets do tick down slightly probably because of no Commerce in the financial sector as US markets are closed.
Even without anything much happening locally, The Chinese GDP underperformance at 7.7% was unlikely to be the markets’ concern here our export markets in China safe and the 9.6% production improvement and signs of bullish trades in Copper and other metals. India’s 6% forecast is hopelessly over optimistic and thanks to the networks avoiding the entire China update the fact of FDI non interest is unlikely to bear on market sentiment, and today, and in all 2014, this is a good thing! WPI hit a sharp floor at 6.1% and may breach much lower lewels with core inflation already below 2% Core inflation was basically flat.
In the midst of results season, the positive surprise markets did not expect and despite attempts will continue to be marginalized, is Wipro’s back to back second quarter of gains of 27% on year on profits but F&O markets are trading that and the last weeks IT news pretty feverishly /robustly. However, this interest is mostly maintaining shadows of activity while the Bank stocks get reassessed yet again. The realization that Markets were going to hold 6250 was all too evident in the one way candle of Friday, the 6 hours of sloping down, accelerating wantonly almost after 1430 hrs to achieve 6250 marks
Interestingly, a well-developed hedge fun industry would certainly have seen a short strategy for IT esp on WIPRO from some entrepreneurial trader after this bout of strong results, esp with WIPRO tempting fate and unlikely to beat history ( like Morgan Stanley did, Friday night)
Bajaj Auto and IDFC are my longs this week and will probably score very high as new funds enter the market and get earmarked to the new universe of stocks added in the buy lists ( ET’s Volume breakout series is a helpful ready reckoner, but I doubt you’ll easily find those mix tapes /snips on the ET Now carousel. Go figure)
Actavis may be a strong boost for Aurobindo with almost $8 in earnings in the last four quarters. However Aurobindo is buying its European operations with a EV of $1 Bln apparently ( $320 mln in annual sales) and obviously an easy divestment for ACT and the news has seen a $14 or 8% jump in the week’s trading in the US. After hours trading added $2 on the news . The synergies come from the operations tie -up with the 200 strong pipeline at Actavis
Gold’s busy start in this year’s trades, enthuse Indians but they have traded less of the metal under clampdown driving prices down in 2013 and the story is likely to repeat from a higher watermark below 30,000 this week
Comm stocks lead the indices back after a quick crash mid week on ticker news. Isn’t Debt trading news looming from the Central Bank? Meanwhile if IRFs had been actively traded the rates started the great slide from 8.8% levels and would probably close a 100 bp lower in due course whence RBI will return to relaxing the 7.5% Reporate ( excluding the 7.75% last tick forced on by the new Governor) Floating Funds would have a few investors more and any survivors of regulations may have new FMPs to this sector, but will likely be late again. Meanwhile the 10 year can well trade below 8.5% this week.
Energy stocks looked good for this week as well, but it seems there is a new LPG subsidy likely on the ticker for them. Kotak and a host of mid-caps report tomorrow and Dabur and M&M(Fin) follow HDFC with Biocon also reporting on Wednesday.
Midcap indices will probably harness a lot of gains in the week, none of them ready for a harvest of Sell on news tomorrow or Wednesday Avoid the L&T trade tomorrow unless you are fairly clued in to a tepid results expectation in the market
Edelweiss also reports Friday but the crown in the jewel should be Glenmark, that has already up since last week from 500 levels
Of course, Infy will lead the bullish breakout on the Index, and the profit prognosis again at a Cons INR 28.75 Bln is much more to look forward to than the Cons Revenues of INR 130 Bln but the dip in Revenue growth , braked to 0.5% on Q2 Dollar data is still probably excusable. The jump from Infy to the Earnings season that starts in earnest next week.
However, IOC is as expected delayed on the divestment news but mainly because the Oil ministry got the fangs to file a dissent note as the Energy co’s price has slumped to lower than 200 (on the average of prev 6 month closing prices) There are many benefits to divestment and in fact a bargain such as IOC at these prices would be an investor bonanza par extraordinaire. BPCL (up 7%) and HPCL(up 3% probably) gain on the news of the delay but the question to who are the agencies involved in muting the price performance of India’s best navratna after ONGC remains important to answer unfortunately for the BJP fueled markets and the outgoing Congress government
The Delhi Power audit will also ensnare Relinfra as it owns 2 out of 3 Delhi Power distcos with more than 30 mln subscribers and three-quarters of the Peak Demand. Delhi takes in a huge 7.5GW of Power Capacity of the installed 130 GW nationally but the share is much larger in utilised Power capacity
The Pharma companies, the other beneficiary of India’s global largess in currency trading, will also be busy making aggressive deals in the US Pharma market while rejuvenating their domestic Pharma businesses, with Torrent and Auro completing deals this quarter in Elder (domestic) and Celon. Lupin delivered another USFDA win along expected lines with Twynsta generic being allowed to both Lupin and Torrent. Fresh buying is impossible even in Lupin, Cadila ( 850-1350 nah?)
The market is not really ranged and while Infy may not be able to envelop all India expectations ever again at the start of the results season, it still clears most markers impeding a new rally post earnings. Bank earnings deliver the second infusion of realistic optimism on India Inc in a few days when the upward edges of the range are exected to stand up to better levels. Meanwhile Infy should crawl to the top of its 3400-3650 range benefitting the rare speculator who punted positively for them , most having to square out written calls, even as the markets face resistance offered by such shorts and Infy sets the grounds for more positive surprises down the line with NRN back at the helm. The changes in the Executive would be the easiest to explain.
The RBI governor would be probably hoping that the month end policy becomes a non-event considering the positive mpact just from holding rates and the challenges from inflation growing by his side. BofA’s Axis Bank ugrade may still be too little and too late as Axis battles NPA spam with PNB , counted for its days with the PSU crowd
Indices should not see a meltdown thus at 6150 and you should get one bang out of the score if you sell 6100 Puts getting cheaper by the minute at the open and even 6200 ones. If you cover them do cover them with buys in the OTM range(buy) at 6700 ( assuming 6500 in a close future top of the market ) The bottom of the index range should thus become more volatile funding the shorts glued in to the market bearing down for over 6 weeks now but they will probably tire out this time, Vol allowing a long-range upside on its own nevertheless as India VIX continues to ride low on a stuck to the tea leaves recovery, which will still trend higher and not lower like in China
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 lendingas 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
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.
Also though the New Year Holiday is not listed, it is unlikely that markets will open tomorrow.
Dow corrected its Wednesday closing reaction welcoming the taper and Indian markets will likely realise they had shorted the markets unnecessarily and move up with IT stocks back to 6180 levels on the last trading sessions of the week. That means bad news for Angel Broking as Ashwini with them, keep digging for lower levels and markets hold above that 6150 support and move back to 6200 levels.
IDFC and Reliance are special mentions in the Morning Report today. IDFC as ET and CNBC18 report struck the alarm bells when hitting 50% in Foreign holding took it out of the bank license race. It would be applying for bringing down the foreign holding limit to 49% from 54% now. The overall foreign holding limit will be bumped back if the Central Bank refuses them a bank licence
Reliance GAS price hike of $3-4 per MMBTU seemingly translates into a sub Re 1 increase in Power Tariffs(Tulsiyan, CNBC) while Reliance increases profits on its current 20 MMBTU production (CNBC) by INR 25 Bln but its production does not increase till FY20 materially and it will thus shuck out of the Winning XI again by next week.The Gas Price Hike was approved today allowing gas availability issues to recede from April 01, 2014
On the diplomatic front, I think serious gaps between diplomats have surfaced that take the India US relations South as the focus has shifted to getting the charges dropped. The US side will thus focus on legal issues as well, where probably the real issues of employing domestic help in the US within the Embassies should probably be addressed more in the ‘face saver’ agreement, wilfully skipped by both parties showing up both sides in the Foreign Services not being live to real issues in the quick and quiet undercurrents that matter so much
Powergrid says it will be worse off by just INR 1.6 Bln on new CERC availability regulations a very small road bloack and that gives us at least 3 sectors going strong apart from the ephemeral IT and the longer term moves into Energy and metals which should completely rule out any shorts on the Nifty which continue to ride December series. Pharma is good for immediate trades, as is FMCG including ITC available at trend lows at 310-12 and Bharti at 320 levels as well as Power which almost welcomes the hike in its Gas prices as that is definitely more realistic than the $4.20($7 incl taxes) rate expected per MMBTU in the MSAs esp at the GVK Hyderabad plant example which would also benefit from the Powergrid reconnection in the South.
The India Rupee has likely bottomed out again at INR 62.5 levels
Even as RBI shows concern about the retail inflation, it has probably factored in the welfare sustenance supply chain requirement that has necessitated a higher tick of Food inflation likely to last till 2015. Even though the jump in core inflation to 2.66% has reached worrying levels, the RGR regime has played it on the level, standing by the current Bank rate at 7.75% . As banks have already moved off the higher MSF lending or the last quarter, banks would anyway be unaffected by the lack of change but the markets can seriously take the impending rally’s mechanics from here .
The FOMC reports later in the India day, closer to midnight when they can , we agree, start with an early taper. However, The Fed meeting is likely to also be a sendoff for Ben Bernanke and so any such major policy announcements may be skipped for Janet Yellen to attend to in February, April or even June 2014 and as the Fed has managed so adroitly, the Taper would not mean tightening. Though the Dollar remains weak, the Taper is unlikely to still avoid the Dollar strengthening into a vise like grip on the US own Economy.
On India’s Policy announcement, the 7.5% mark would have been even better but as noticed concerns on Food and Primary inflation are real and may spill over to Core inflation unless kept in check. The RBI Governor notes that Vegetable prices that jumed 99% in the Friday WPI report may fall sharply.
Yesterday’s Review noted, in the overall scenario
In India, the pick-up in real GDP growth in Q2 of 2013-14, albeit modest, was driven largely by robust growth of agricultural activity, supported by an improvement in net exports. However, the weakness in industrial activity persisting into Q3, still lacklustre lead indicators of services and subdued domestic consumption demand suggest continuing headwinds to growth. Tightening government spending in Q4 to meet budget projections will add to these headwinds. In this context, the revival of stalled investment, especially in the projects cleared by the Cabinet Committee on Investment, will be critical.
Banks have garnered $34 Billion from FCNR Deposits and India’s FX reserves have jumped at a $5 Bln every week from $277 Bln odd at the end of November and now at $291 Bln. RBI continues to flag the negative output gap and even a slowdown in Services
Also factored into the December decision is the virtual shutdown in Spending by the Government from January as revenues remain not so robust, which would strain interbank liquidity (LV?CNBC18)
It is good that RBI has returned to not being overtly reactive to the inflationary economy and GDP in March could have a larger chunk of the good news premium Indian data has been lacking since the year began.
With the forced liquidity constraints as the currency devolved on the nation in June ( after May 21 announcement) RBI was stuck in the middle of a rate cut leg of its policy to encourage growth. Already hampered by banks using Central Bank liquidity to the extent of INR 2 Tln instead of market, the Central bank’s rate hike onsequently in September even as the MSF hikes were redacted and brought back to the normal line may finally break the back of the markets on the verge of a bullish move from 6200.
The only inflation out of control however is the Food inflation which may not respond to any rate hikes and this rate hike may just be a mechanistic response continuing since Duvvoori Rao demitted office to stabilise the higher rate environment, in which case India may old these levels for a good six months, and in developed markets this new intermediate leg could have lasted years, till the rate cuts can begin again.
Meanwhile consumer staples will continue to see large double digit price increases to correct 2-3 years of suppressed marketing budgets and pricin pressures unrequited to keep basic sales growth alive in consumer markets
The announced policy steps however will increase bank rates and as retail lending has reounded such increases are largely going to be absorbed by consumers and however will have had debatable impacts on fueling furthr inflation now controlled by bank rates. NBFC business is already looking better in consumer durables with a clampdown on 0 interest loans and while that may not segment the market in favor of first time durable buyers that have been an absent quantity fooling marketers and policymakers, it will continue to better control the negative output gap with more advantages for NBFC lending even for banks that have already relied a fair portion of their portfolio on the sector at the expense of obviating the real winning consumer sectors or industry sectors winning n the changed scenario
RBI hiked rates 25 bp and MSF channel has returned to 100 bp over the repo rate clearing the path for a return to the Repo rate as the Bank rate.. WPI forecast has been banded to the central bank’s comfort zone as 6-7%. GDP growth is updatd to 5% for FY 2014
The banks lead the Nifty comeback post policy action as they assume the deed is done and currency will consolidate around 61-62 levels before going back to the trade deficit control led highs nearer 60-61 levels The sponsored rally ost policy is however blushingly even across non actors and non performers in the banks bunched with YES Bank, ICICI Bank and even HDFC Bank and Axis Bank. IDFC has recovered its morning deficit too. BOB is up 15 pointsand BOI is in the positive with Pharma/result candidate DRL also staging a mini rally. The short on LIC Housing ahead of results has also disappeared and tomorrow’s results are likely to see fat positives as sentiment needs a good build up and inflows ontinue to allow market makers to perform as such and the Financials are likely to reward investors who stuck through the unreasonable 2 months pre the last MSF related policy action. Further policy action unless embargoed by inflation is likely to stay with seeing the bank rate climb down from the current MSF 8.75% to the Repo rate of 7.75% ( The Revese Repo is 6.75% where RBI issues new collateral securities)
Apart from the unremediated concerns in the Fixed Income market, yesterday’s rally created an awareness of the potential inflow obvious to insiders earlier this year. i.e. Around the Globe, India remains the most attractive investment destination after being clamped on with the rest of the globe in recovery awaiting elections to be over here in policy action and growth parameters and local consumption and investment makes this story unique.
Infosys is also likely to deliver significant outperformance at the Q2 announcements a week later and interestinly, the markets are correcting Infy’s recent run up already to 3000 levels and that could mean one rally is due in October and even September saw 6148 based on the return of inflows.
Banks of course in the meanwhile are looking askance and a standoff with the Central Bank is in the works while Markets continue to worry about Banks other than PNB, BOI and the private Sector banks. Banks probably still look for opportunities with the currency not stabilised and may have to worry about increase in Deposit rates. The Bank Nifty churn would have been isolated easier if they had concentrated on shorting SBI which despite its distribution continues to spring a growing NPA basket every quarter instead of delivering on the retail growth and profitability they continue to tom-tom to any analyst who would spare time for management commentary
Considering that this 8.6% yield on the 10 year comes after banks got a whole Trillion and Half from non penal overnights at the Central Bank and NIMs are protected and increasing, it is quite likely a matter of concern es in the light of the Rupee strength that yields are wary of coming down
Penal rates and those new effective rates on the MSF may however still be withdrawn another inch or more on the October policy to bring the channel back to 100 bp. ( For details flip thru previous issues or ask us) PSU banks received another large Capital infusion yesterday to keep lending rates in check(SBI is funded separately)
Bajaj Auto and ITC probably continue their northward rally till the mid results change of weights while those looking for a correction in Tata Steel are likely to have given up now, while Tata Global investments may take off only after the company itself stakes out a minimum of 200 Starbucks stores ven as wholesale auctions improved pricing for India exports but output and hence export takeoff was lower
Pending infra projects are not going to take off in a hurry but 5900 levels should see both DIIs and FIIs buying and F&O interest has definitely moved up the range from 5900 to 100 &6300 than yesterday’s 5900 Call OI that signified markets ranged to 5900 levels on the upside. Gold and Silver are still negative. India and US in the meantime, the two strongest markets and recoveries continues to once again falter in Services PMI and thence composite PMI because of spending cuts
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)
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
RBI followed Fed into the ever present snare of having lost the confidence of the markets when it decided to recalibrate repo rates while decreasing MSF rates to 9.5%. The Repo rate at 7.5% in fact allows the 200bp cover on the normal MSF as it now stands exactly at 9.5% but the markets were spooked by an anti inflationary stance from the Central Bank blocking out possiblities of growth returning in the immediate future.
RBI has in the meantime further eased intra day trading on FX limited for banks along with the extraordinary increase in MSF and Bank rate last month. The Reverse Repo rate is also notified to 6.50% and though the bank rate has not been updated, it has been notified to 9.5%. Unfortunately with yields pulling away sharply to 8.3% levels despite their being room to move to 8% levels after the policy announcement, it means markets and inflows are now gong to try and make economic judgments all over again and with no other policy action forthcoming that could fiscally pressure India all over again ahead of the tightening in December
Daily CRR has been reduced to 95% from 99% allowing banks a little more flexibility but CRR and SLR together still account for more than 23% of the Banking deposits
Changes to liquidity rates can be effected further at any time before or after he next policy review. The Mid quarter review sees to balance the good monsoon’s impact as he negative outut gap now expected with the increase in risks on CAD and inflation
RBI’s stress on WPI seems unwarranted at ur end esp wit Crude levels coming back to manageable levels even as they go down further.
Commodity markets are as their predilection , totally dependent on news from the Fed in a few hours and present very simple shorts in Gold (trading below 30k), Silver ( network picks to 48k, we feel the 44k mark is a long term ‘ambition’ target in the market). Fixed Income yields too are dull despite the great news of $20 Bln inflows in the remaining six weeks for the swaps on Dollar Deposits offered by the Central Bank. Also the Dollar refinancing thru Swaps has precluded any possibility of higher interest rates and raised the bar for liquidity tightening measures to remain in place longer, except that those measures remain India’s only defense to the Dollar in this situation.
A Taper announcement less than $15 Bln is very likely and that would still leave the Fed a net buyer of $70 Bln in MBS and Treasury (twist) securities. However the returning emerging flows have to the consternation of destinations like India, Turkey and even Thailand and Mexico, have again found China to be a serious option, laving India with net reallocation from ETFs alone unless faster moves create the opportunity for Indian Gilts to be part of the Global Bond Index.
Banks are ofcourse on the edge but the overall equities are happy enough to move back up to Friday levels. Globally the Dow and the S&P 500 in the US traded near all time highs intra-day at 1550 and 1709 respectively. The Banknifty and India’s fixed income yields could probably jump down a couple of notches to near 7.5% yields if not for the global question of reducing Dollar liquidity as one feels banks have been unnecessarily trading down given the advantages of a higher interest rate scenario for them Interest subvention in collateralised personal lines like Home and Auto loans also mean better margins for the banks exp Private Banks like HDFC Bank with the network and those depending on wholesale overnighters for funding like YES Bank who can finally return to supernormal profits in business, normal to Asia than worrying about cost of funds
News was good to the markets lening on reforms in the morning. Apart from the Rajan announcements from the RBI on Home and Auto loan subvention, we also ad action reducing MCX directors from promoter Financial Technologies to one ( four earlier) and undercurrents of liberalisation in the Higher Education sector including FDI. China again rushed where angels fear to trea, taking the Property markets 8.8% higher in August month on month, with the first shoots of recovery, staring at the Asset bubble again as a credit squeeze fails to channel flows to the renegade property markets
Bank Policy Thursday could well see R Rajan starting off on reducing banks’ dependence on Government investments redcing the SLR if not CRR as well to fast track his outlined reforms
The Indian Rupee opened near 62.50 levels, a 2% jump from Friday levels well likely to follow last week’s 2.5% crawlback and the prospects of a bleary liquidity hit SuperFed becoming a scrawnyScrooge MadFed retraced as Larry Summers gave in to a Democratic caucus on the Banking Committee, incl Liz Warren and withdrew presumably in favor of Janet Yellen in the Fed changeover. The Fed will go ahead with Tapering as planned and that news is in by Wednesday. Indian Markets of course are then going to take the opportunity to break away from the global correlation and set a few ground rules for an Indian recovery. The WPI at near 6% again and the continuing pressures of the CAD and Bank reforms are likely to cause markets some sleepless nights too ahead on the turn. But before that a 6000-run as promised is nigh and mostly the mark would even be hit in today’s session itself in late afternoon trading given the Rupee level jumps are not adequately referenced in the 70-point Nifty jump in the pre open
Banks , even the lagging PSU Banks are finally in the limelight and the resulting breadth available to buyers is likely to be good tidings for the market. Reforms in the G-Sec market may well continue as caps on FIIs even without auctions are much easier today and probably reflective of the real appetite for Indian debt at $25Bln G secs and $45 Bln corporate debt now allowed to QFIs
LIC Housing is back in the news but if its that banking licence then one is not sure it is right for the market recovery esp with the 80-20 disbursal rule out of action. IDFC may be done with shorts and Power NBFCs may be ahead in the lead. As more debt reforms pick up steam and remaining restrictions on G–debt are removed, it is likely the NBFC sector’s institutions will also increase in priority for the markets. As of now effectively there is only one on the run (lquid, current) 10 year security available and it is issued by the RBI.
Really, though markets are up the traders’ picks on networks could point to the list of mid-caps just likely to gain from the liquidity rush and may not reflect any real fundamentals and is probably sign that these low mid caps list in the traders favorites needs to be changed more frequently. Notably, Voltas, Jindal Steel, UCO and Union Bank, Future Ventres and NHPC are probably candidates for non performance and “no results” in their respective sectors and will be trgeted wins as market favorites because today nothing can go wrong for the pro traders. But many other pro traders now would pick the over NBFCs and other good picks not at variancce with what Foreign desks have also short listed in the last four – five years
The change in Monetary and Fiscal policy stance is fairly well obscured by the need for consensus but with Overseas Direct Investments retained at 400% of Net Worth and removal of hedging restrictions by allowing rebooking for both Exporters (50%) and Importers (25%) or Dollar Swaps at 100bp better rates with the Central Bank for FCNR deposits till November in existing schemes could just be a sign of old policy pieces being consigned to vestigial life, though such reform reaams have come and passed India Inc by for almost millenia, and at last 67 years f independent India. However, these limit relaxations typically let th Rupee sales accelerate into a new orbit usually and that is definitely unlikely
as predicated last week, S&P, Moody’s have been watching these developments only as a fallout of their prognostications of India’s twin deficit weakness and are much reiterating their last assessment when S&P had recommended a negative outlook based on a 1 in 3 chance of downgrade which USA had barely avoided. the Ratings firms are likely to be under pressure to change their ways and the step difference between Asia, Europe and probably from office to office of the agencies which reflects a woefully inaccurate picture in ratings , that are still catching up with munis and structured products n US and Europe and illiquid CDS in Europe and Asia
The Land and Food Bills have passed both houses seemingly without riposte and the Pension and Insurance Bills are next. However, back on Rajan’s first day, some other welcome proposals include allowing NBFC Prepaid cards for payments, starting national Gyro payment services (Nachiket Mor -Inclusion)and Rajan himself sitting on the committee to decide stringer norms for NPAs and concerns on restructuring yielding more NPAs than normal accounts. Banks will be investing lesser in Gilts and SLR rates going down could be still a long drawn process while Branching being freed may be some incentive for Foreign banks also to execute subsidiaries. Most of these proposals will be overseen by various Deputy Directors an ex Governor Jalan will head the committee on new licenses due soon after Jan 2014 when Anand Sinha leaves.
Markets otherwise keep responding to new signs from metals after a record comeback month in July/August and the banks will show their hands on the policy through their price movements the remaining two days of the week. Liquidity restrictions are still on and India is fighting the worst currency crisis of the last six generations
Indices again moved the entire range crossing 2% from 5340 to 5450 levels by the close and Wall Street enjoyed one of its best jumps overnight n Auto sales data. European PMI cements the days of crises as past though growth is yet patchy and China is the pod the global investors still look to, despite their repeated equity failures in the market
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.
Long targets have returned to traders even though no net position longs would be carried home at close as en early end to the bear festival on Thursday engendered a great change in mood across the three markets in Bonds and Government Debt, Currency and Equities. To remember despite the targets for a 10000 Banknifty and a 5400 Nifty uts ale in some quarters you should not take the change in sentiment to heart too early and endanger your precious capital as markets may take less than the 4 remaining sessions to send the Nifty and Bifty(Banknifty) options south on Calls and gaining more than 300% on Puts in the spirit of Open interest remaining strongly on the short end despite the offing of short positions yesterday. Sorry about sounding pessimistic as the bounce could be meant for serious investors but such blah is unlikely to save the India oriented investors in such traps as created by this early bounce back rush by the shorts themselves.
Sorry Mitesh and best of luck to those winning daily contests on predominantly long positions on the weekly close as indices at 5400 are not overvalued but the currency run is not complete and with the propensity of correlation binding all the different markets to be true for a market yielding negative returns one must suspect shorts to outweigh longs in the market and stay away. Banks are unlikely to have serious impediments to loan volumes at higher rates Credit growth reported for the first week of August returning to above 15%, a supremum for most markets above the size of $1-2 Bln per month in new credit Also banks are not going to be paying for the rising yields for time to come int he interests of financial stability keeping their share of GDP intact India’s FX reserves are in the bottom fold globally but a s a global Gold home market, it may continue a bounceback on days when Gold s indeed favored over withdrawal of global liquidity by OECD Central Banks with BOE Governor and BoJ unlikely to favor tightening despite the chance to follow the US into a change in stance after 5 years.
Equit y indices moving t 4700 lus will again erode value from the perfunctory jumped prices in IT s their Export oriented Metals and Pharma sectors get entrenched in investor psyche and Banks, Metals and eve Bajaj Auto, Bharti and ITC are likely to hold investor interest. Which makes it rosy peach for investments in IDFC and YES Bank while ICICI Bank may continue to list among the few advances ona daily basis making i easy for Bulls to survive the remaining stressed days till september series exits though 4700 levels could be accelerated to reach by mid September itself given the easy moves down in the Rupee by more than a Rupee each day to the Dollar
India Morning Report: And after 5600, is 5500 ..then 5400, 5300, 5100, 4900, 4500, and on it goes pegging poor buyers..
That would be one loose definition of retail investors currently ready to be pegged as not so germaine and India being resilient and a winning post even as RGR takes the board at the Reserve Bank of India. Vallabh Bhansali tried a valiant effort while MF managers ( again to be free non academic and interested in discussing with the educated layman who has other professions to tend) can be loosely ascribed as the educated investors’ abode and banks as continuing bulwarks of pressure for enterprise even as the NPA saga will not bleed anew but will extend its lasting periods well into 2016.
However if you do not ascribe to these notions as a first party or as third party notions of whats ailing india, which we would happily accept is not so, coalition politics to come and the lack of political prowess of the Nitish Modis and the NaMos, Advanis and Dear Rahulare going to cost India inc dear. One of course does not mean this as a crutch of benefits of stable seating charts at the RBI here but the ailments of the system will not be solved by monetary policy and one sees , like the continued selling of infracos and infra NBFCs even as banks rebound on the news of the new Chicago educated governor taking over (Deepak Parekh also was prominent among those welcoming the change). Fixed income Yields and more promisingly CDS spreads could respond to the timely change of regime at the Reserve Bank
JLR results will be down this term, the defensives have been hit hard with HUL and ITC responding negativey to being tagged defensives after just having broken into growth on the trendline for the 3rd time together in a decade. Its a wonder SESA Goa , Sterlite and Tata steel are still falling sharply and that just means the market is unlikely to quit correcting till the CAD measures yet to be invented by us or experienced Economists like RGR and CRA (Rangarajan) are implemented to sustain the Rupee. Pharma and IT, the big white hope of those living and operating other Indian businesses from outside India, hardly seem geared for growth, most sticking to just small additions fom conversions of Fx and Exports though a stable share not growing fr pharma including the continuing risers in Stride Arcolabs o rthe youngest pig to the slaughter , Torrent even as Glenmark and not Sun pharma look great investments for the future
DIIs are still not biting and rates will be hiked sooner than later even as RGR tries to keep the bridge between the politicos facing elections and rolling out the first entitlements bill (in cash).Imagining Jet Airways at 300 levels while celebrating the final inking of a 24% stake from Etihad would have been unlikely even for those who started 5, 10, 15, 20 or 25 years ago.
The Sensex could not keep its morning cues intact going into the 11 AM post morning session and may sjow one more steep eigenvalue of fall on th Nifty and Sensex even befor the weekend comes but then it is becoming likelier at these levels after 12 sessions that the markets will not be freshly bet short and that this time means you should take one big short but it is improbably improbable that from here the hedge you take in buying the Banknifty will possibly probably and without virtual nanobots, make likely more money in the period to August end of series. So, come ray with me the markets last at 5500
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Ajay Srivastava of dimensions woke me to another nineties dictum we used to abide by. The higher the interest rates, the more money for the banks to make. Of course the transition will be difficult but it may well happen that while the markets readjust sharply (and hence the ferocious return above may well be antsy pantsy horrific and squeamishly fragile)
The Dollar has finally found its match of the Indian Hockey team’s heydeys. But before we go for the corny stuff, the details as we see it. interest rate margins will expand as banks , esp midcaps start the healing process for themselves by raising lending rates (YES has increased base rate today by 25 bp) The capital markets will continue to slide but once the banks break their downtick as the rupee’s downtick will continue beyond such levels till even periliously close to the 70s whether India’s sovereign bonds borrowed in rupees or dollars.
Banks as they are wont to, will soon be found readjusting faster and in a position to look at the bright side of things as India Inc wakes up to the new levels to operate International business at, and markets will even return to celebrate another round of robust reported results from Bharti today morning.
Double digit rates are probably not so tough for India Inc but that move has definitely failed for the Central bank and for the Fin Min. However the UPA/Congress has had a few laughs in the last few days and its still not party time for the NaMo face to take over the Indian mindset.
Indices are probably not going below 5300 levels but those looking for a return to 5800 may be a little buzzed by unwanted attention (and crank calls, maybe) to their person and offices. Markets will probably wait to rise back (and will keep falling as opposed to nursing the morning’s wounds) till the close of week operations but FIIs had probably started closing out their hedge positions last week and yesterday so the indices will know how much exactly the rupee exchange matters. however at this end of the business cycle, credit growth is definitely unhindered from here. Also it is a relief to see DLF fall back to 150 levels , though at a very broad market cost as the distinction between infrastructure investment and constrction growth finally gets encilled in on other India experts. Funnily enough even REC is also 150 levels right now as NBFCs will get boxed in by their banks again the fastest, in the most efficient leg of the rate transmission workaround and banks will also probably reassess the advantages f having increased monetary transmission to retail and wholesale markets as they had ample liquidity for more than 12 months whence rate cuts cycle was squeezed. rupee well nigh opened to 61 levels in the morning nd it is atleast one market where the droping vlues have not poduced many losers yet (ha ha!)
Markets, finally assured of their assessment of the long road ahead, jumped at the heartening news , though expected, of no change in monetary policy parameters from 4% CRR to 23% SLR and the bank rate temporarily at 10.25%. the Central Bank will “rollback liquidity steps in a calibrated manner” when stability returns and the yields are already south at 8.05% , Rupee climbed south at 59.75 levels but unlikely spoiling for a flight/light immediately as markets parry at yesterday’s levels but back in the green after the jump in selected stocks
The jump has of course died as he policy announcements are over, an unseemly trend, now seen twice in the last 4 years Our detailed RBI policy analysis will be available. Futures and options markets could be demotivated in volumes after the Rupee spike , still not sure of a trade after the loss of growth policy eigenvalues and a lack of a down trade in the Equities or Fixed income markets in this month. Oil payments schedules can probably be aggregated at the end of August
Credit Growth / Deposit growth projections in the quarterly review come in at 15% and 11% respectively. Banks will be unable to raise rates in either direction in a hurry. housing NBFCs seem to have lost the most, lIc housing levels at 180 unheard of and IDFC (Infra, PE, AMC) at 110 levels after a long break of nearly two years. M3 growth will be 13% as forecast today the High CAD for three years has been highlighted by outgoing Governor as a structural risk. The next RBI review will fall immediately after the expected Fed announcements of QE withdrawal in the September policy
RBI did right and is on watch but it seems that money is still pulling at the current Rupee levels as the Oil calculations get ready to upset the new equilibrium and the BoP risk comes fore much before exporters catch the new opportunities
This is that kind of belief that turns policy makers into Monster characters as most of the markets are certain of a humdrum ho hum restrictions will remain for some time with an even optimistic note or two in tomorrow’s policy announcement.
But markets cannot help but respond to the coming policy event with trepidation and declining interest as they try to still assume a worse scenario. It is however not changing the fact that Rupee is under pressure and the policy easing initiated one policy date earlier than required has died an equally abnormally death and will not ensue to support any domestic investment growth.
As has already been proved however, much of Corporate India was actually not using credit probably already on its books as credit flows slowed to an all time low of year/year growth of 13.5% last month and has improved since.
The Reserve Bank of India thus having responded worthily to a Hobson’s choice is now more or less resigned to following it up as a Global cycle of lower growth and incomplete recovery has probably been ignored by the markets in the assumption that India’s outperformance therein was because of only its global trade posits and thus new investments continuing to elude India just turned into a chaining of expectations gone awry from no new investments making it as a suspended fiscal policy and reform because of political middle of the line voting lines cannot be repaired by any Central Bank. However India’s Hindu rate of growth posit may also be tested despite the recognition of this failure widely (and the completion of this government’s agenda by political fear) in terms of a requirement to carry Interest rates to double digits for at least a decade or two as there is no new consumer credit or consumpion demand except in unsecured loans and Housing and Auto markets suffer a chaied breakdown from the slowdown improbable but still awaited in th event growth recovery does not come.
Infrastructure investments should not have been shot in the foot midway and the wholesale bank portfolios are unlikely to be able to stand to the situation in case Deposit rates start rising further from here which is always a binary possibility thus making it a half chance too.
Holcim and Jet Airways continue to test India’s commitment to robust corporate governance even as the Rupee’s shallow provenance means that the Central Bank is still per force holding Indian finance sector to ransom and channelising Gold Trade to exports. Talking just about India further , the Holcim deal ‘s 7.4 /6.6(after funding Holcim into Ambuja) share exchange ratio shows also the potential exits for Foreign investors not looking to be good governance leaders that cannot be covered by loophole based laws from a nearly dozen regulators, instead of a full investment into India”s new priorities much like relayering a road than taking each pothole out with a “minimum valid quantity” of tar and a pass through roller every time it rains
Infrastructure investment aside there are other parallels with the missing wholesomeness in India’s corporate governance story here its policy leadership and a crisis less 2008 fail to cover the basic lack of provisioning for Good business practices, Good Employment Practices and Good Investor practices that remain yet valid shareholder criteria in India to find out stories head and shoulders above the others who will thus sustain better growth and power. Ideas that are good on all three eigenvalues are probably not overvalued but some (Havells , Heromotocorp ) have been disproved for sustenance from their consumers in their expectations much like Jubliant Foods that could grow higher than 50% for a year or so only and one round of Capex subdued the tiger in it unlike previous examples at Bharti and HUL in the eighties
India’s triage of these Business practices, investor practices and Employment practices is unique despite there being global movements in the three areas as in india there are barely a Dozen from which the Top 10 lists of employers, investments or businesses to corner among the variegated field (motley crowd) of unlisted, unlisted MNC, Globally owned, Indian Globally owned, outward investing (Bharti, ONGC) Indian Global , Private, Private-Public (ICICI, SBI), Public (Coal), internet only ( ecommerce) , Private Equity, Cooperative , social or other holding structures that dot India’s Business landscapes. Some sectors like india’s Higher Ed defy any such categorisation as well and have no link to the Corporate ends of the trail to synaptically make the neurons work together.
Hardly 10% of our “interest sample” is even listed or accessible to investors precluding complete sectors like Advertising, Information etc instead of the global sample of a few mutual or private businesses which are nevertheless well-defined with market pricing control policing them much more effectively than any government However shorting private banks like Axis and ICICI Bank in today’s conditions is a n unforgivable error brought on my such extraneous pressure in the Economy as such banks losses on short funding squeezes are eminently reworkable into their secular 20%+ topline and sequential bottomline growths except for the immediate quarter ICICI Bank esp seems at a bottom at 930 levels and the trader short interest is basically an overwrought hedge for knowing that their is no lower mark than 5980
CNBC’s The Firm ( Menaka Doshi) and citizen denizens like Anil and others defending minority shareholders are a new breed and barely survive in the noise on promoter manipulation, Sahara and Jet’s revenue headquarters migration to Abu Dhabi. We wish all of them the best
All said, Bank Nift’s holding at its bottom, there are no ears to speak of an if you still think the above scenario should somehow affect India’s valuation further negatively, give me a call and I’ll try again.
ITC results will be an eye-opener as Yogi leaves and ITC indeed transitions back to Tobacco led Consumer behemoth, making profits at Ashirwad and Sunfeast( I hope! for my noodles’ sake)
Wockhardt is still in a bigger soup for its digressions barely days after investors returned to the stock and Bajaj Auto is the only one among auto majors whose Export story has worked throughout from 2006 onwards without a break despite the challenges
Yes Bank covered a lot of ground after publishing results yesterday, as the Net Interest Income jumped 2 in 5 on year or net profits increased more than 10% sequentially on INR 0.94 Bln in Investment gains on bonds /debt . The NII of INR 65.9 Bln was sufficiently larger by our benchmarks as the bank remains one of the few posting robust gains in Fee Income and advisory income including retail charges as at bigger brother HDFC Bank, the lines have gone relatively stale on such income in the Indian scenario.
Other Income was INR 44.2 Bln looking to equal contributions from NII going ahead as is the wont of this income stream in robust bank models. While private banks set quite a standard for robust corporate governance without due transparency in such old habits in Indian Banking a s a consolidated other income figure unexplained, the reforms in banking would still have covered more ground than it is internationally. the higher interest savings led CASA increase to 20% at the bank is still miles away from reaching an entrenched player status but that is just a n indicator of this bank’s potential to grow faster and stronger than the ICICI Banks and the HDFC Banks.
Retail assets remain a priority at the bank with total book still ahead of other “midcaps” as Kotak and indusind dependent on corporate treasuries ( variously wholesale deposits/short funding linked to the usurius 10% = call rates pushed by RBI’s interim policy) with assets of INR 612 Bln
The yields, cost of funds a dynamic provision coverage shared by the bank(click here) continue to reflect the continuing profitability of the bank’s model and its relative closeness to NBFC models in vogue, currently trying to reprocess themselves as banks but the existing players will settle up much higher in any status ranking of the candidates yet remaining a respectful outsider in loan syndicates and loan melas
Banks across the board got a full reprieve in Q1 (Fy 2014) as they report much better NIMs, ING improving to 3.56% up almost 10% from previous year scores because of the lower interest rates by the Central Bank. Apart from the old hat CEntral bank rebuttal to banks at this stage for refusing to pss along the rate cuts, this strategy is not really creating any abnormal returns but would have unsqueezed banks bt for the oil triage getting the Economy back into a high rate orbit.
Also the concerns about asset quality are probably unfounded as they just try to close up books on all doubtful assets and this quarter’s anomalous jump of 50% at HDFC Bank and more at ING vysya is likely just a result of that
Retail Banks have obviously been running higher NIMS like 4.4% at HDfc bank and cllose to 4% at Axis, but they also hide a lot of retail pain in their bigger balance sheets that can be shown by segmenting the cost of funding also appropriately for the retail book
Inching towards that 6100 mark, to inch back to 6000~
Markets never had such a foggy idea of where they were going having just cut up all paths withs chances of an India recovery but yet fogged by the fact that there is hardly any other choice if you exit India as a Foreign investor. US markets in fact have much the same prognosis ahead of the QE withdrawal as most of the money staying in any markets would unlikely move between markets. In fact Indian debt is back in “currency” as a new auction for buying rights saw the permits from the Central Bank covered to $4.33 Bln (@60INR=1USD) However, exits for indian debt since the fateful announcement in May were a humongous $10 Bln and RBI auctions have been unattended last when they thought banks would respond to excess liquidity mop up initiated in response to the FX crisis
Yesterday’s measures go further, es the ingenious channeling of Gold imports, committing a fifth to exports and assigned to custom bonded warehouses. mports are allowed for Gold businesses only but should fairly benefit the Economy from here after the thud from the extreme shock in June that dd bring the trade deficit back 40% to $12 B for the month
Markets and commentators seem to be losing faith in Cap Goods “monopolies” in India like BHEL who are fairly regular in printing bad numbers every three- four quarters and as banks have bottomed out, the short trade would start from any such market reaction to bad results, good results already baked in. L&T’s results for example seem spectacularly bad for market sentiment despite the Capital Goods major stuck with the same pipeline for well on 9 quarters now as it has been highlighting frequently and deterioration was probably unfortunately still not baked in
The GST reform may not be done but as ET reports on the front page the Capital NCR state of Delhi is finally getting bar codes to track elusive alcohol revenues , an important arsenal of funding for States in the Indian Federal system. in the southern idyll of Karnatak, in fact alcohol lees and extra state duties on fuels ( esp Petrol) make more than 90% of the budget’s income streams
Mid Day update;IT sector seems to be set up for the big fall as markets drop the dollar factor and go back to business left in value from the big move to IT last month. The IT short could well start before the expiry as IT stocks are not big in derivative trades esp with TechM, KPIT and infoedge not getting th bg speculators who play in derivatives
Also Walmart, Carrefour and tesco ventures in India may finally be closer to expanding statewise as the policymakers write in a waiver to 30% local supplier clauses allowing them to go for their preferred favorite supplier strategies sheltering them for producing exclusively for them, much a good thing for the supply chain deficiencies in the country
In stocks, you should have been long banks and you could hold from here. You can also keep longs in ITC, Bharti, Bajaj Auto and IDFC irrespective of current levels. At 6100 , the markets will head south for having run out of reasons to stay up and make room for a few margin trades on the short but expiry may well happen above 6000 levels as the ‘comeback’ trade (sic!) would just try and get a fai trade for shorts before closing up again with select stocks and sectors really sparse in this deep and big market, making impact opportunities a likely opportunity for those with 1005 data access. if you are game, you should look for changes in liquidity impact of the NSE 500 stocks and probably a dozen will show up interesting changes in trend to pounce upon. Those stocks toking up and ready to go downhill may also be camouflaged especially if you see large volumes in trades as prices go down on sustained basis(more than 2-3 days of this week )
Sorry Ashwini(ETNOW), going short ain’t so easy if you are betting on India, much like its hindu rate of growth, the nations stocks are probably stuck at these levels unable to channelise a trend
The Put Call Ratio, never an independent trend saturation indicator per se is nevertheless impeding most new buying in the Indian Markets as a higher PCR indicates the highest levels of puts sold and comparatively a negligible strength of written calls to initiate a downtrend. Given that the banks have recovered the sentiment to 11200 levels though, the unique topped up situation will continue to walk a steady tightrope for the markets at this point because unfortunately traders are sunk for short ideas except for targeting the private banks again even as the perfectly engineered ride up to the market has left value in most rivate banks and in most blue chips.
Bajaj Auto at 1870 is hardly compensated for its Margins of 18.65 and Hero Honda is no longer overvalued. Reliance is again hardly left with any steam on the upside but with investment eigenvalues in India rarified Himalayan peaks, such stories are hard to come by for India and will unlikely get short interest even on their Q2 results day when they report barely coming back to /staying at normal profitability levels ina challenged environment. The INR 44 Bln sales at Bajaj are only bolstered by the new rupee and so also for petroleum cycle bled Reliance as oil starts going up after a barely 6 month breather to importers like India
Manmohan Singh did a great job holding 8 channels to task while inaugurating the ASSOCHAM session today morning, taking of true reform ably effected in energy and the rupee levels helping export volumes 9 again, without discovering that direct relation to be not more than a fond hope anymore) as commodities continue to sink globally except for Oil, led by Indian exports of Cotton and copper also losing value and market like its exports of Tea Coffee and anything else non Gold as the quality is exactly what the buyer did not order, good or bad
Me, I was even thinking it s saturday all morning and the markets are virtually closed..ET’s report on July currency trades this Monday..
The data shows that average daily volumes for currency options have fallen by as much as 79 per cent for one of the exchanges so far in July, but another bourse have witnessed a hefty drop of only 35 per cent.
Meanwhile Raymond and Indian Hotels are not going to be traded derivatives from the Octoebr series
With FDI pronouncements unlikely and more than $170 bln in debt redemptions due in FY 2014, the more policy makers dither on shoring up FX reserves with bond offerings the more the risk to the currency from flat international trade and eager money flow watchers finding it a tempting investment with a small investment and a big payout in percent returns.
However, it is today (and just today’s trade likely) only that the lackadaisical equity moves still risk a big rupee downside as equities are sustaining a large 6000 level in light of the real reassessment of Indian prospects as a flurry of GDP downgrades continue. The cyclical reinforcement of this downside risk aka in Latam and east Asian examples of the past is unlikely as equities are strong and the depth is likely to see the markets after a good show by HDFC Bank yesterday and a likely par for the course from TCS this morning.
Though longs would have to wait for their time , further shorts in this market esp on the banks are unlikely to bear fruit. The money market investments made through mutual funds amount to an expected INR 1.6 Trillion and the Central Bank has immediately provided a reserved window of liquidity for these mutual funds to a sizable INR250 Bln as redemption pressure resumed on Monday/Tuesday. Yields hit 85 on Tuesday market open in the short term instruments but rbi lending to banks is at a minimum of 10.25%
With Foreign banks also reducing their footprint in light of Global Banking regulation of Capital and ringfencing, which exactly are wholesale players in India in the non PSU, well managed banks!! HDFC also reports today and axis a 4%+ margin again on its retail portfolio strength
HDFC Bank seems to have flashed a pretty good 26% NII on the wires for INR 44.4 Bln from loan spreads that remained a natty 4.6% in the quarter. The Loan book and Deposits have grown over and under 20% respectively to a book of INR 3 Tln each. The NII seems to be up 3% from the linked quarter in March. the bank’s NIM reporting was bumed up by new rules for apportioning of usual expenses employee pension liabilities and some commissions. Last quarter’s Fee income at iNR 1 Bln is likely static as profits came in at INR18.4 Bln adding to INR 18.8 Bln in April
The markets however do not seem to be rejoicing as the insurance FDI question is moot for the player with Standard Life and IPO plans both not firm for the bank. Yet, the markets continued sppoked by banks fixed income portfolios letting blood at the 100 bp move in yields from the 1 yr forward to 10 yr and at least at 8% + and rate cuts batted out of sight even before the FX scare by the Central Bank rushing into four such 25 bp cuts factored in barely 5 meets since March 2013
Recast loans are almost non extent as in Q1’s figure of INR 3 Bln and Non performing loans are as low as 0.3% of the book at less than INR Bln from the wires
YES Bank on the wire?
YES Bank reports next week on Wednesday and has been singled out for this rate move’s aftershock while
Indusind, when is it a good enough scale as competitor
Indusind reported a huge 50% jump in Net Interest Income at first glance from its new off take in retail lending finally trickling in . NII hit INR 6.80 Bln for the upstart and operating expenses moved up 5% over March at INR 5.08 Bln. Fee and Other Income was up 30% or nearly INR 1 Bln at INR 4.71Bln , Income before Tax rising 45% to INR 5 Bln over last year. Indusind has also brought down net NPAs to 0.2% and the gross NPAs at 1% of its rapidly growing INR 500 Bln book itself up 60% i the last 5 quarters. The ROA of the bank at 1.83% will be counted a s low for its still rudimentary book Bank reported NIMs of 3.72% on its retail book
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
An old adage for the market, it is now a repeated phenomena in the global markets for India to retain the dubious double distinction of heralding global commodity lows and be cornered by the slightest sentiment building in Oil. The day thus is a weak barometer but may soon gain ‘tumbling’ significance for global currency markets as the Rupee will be decimated to even beyond 65 levels if Oil rally does gain strength.
However as it is unlikely to happen for now, long investors may not be able to leave Indian shores before it eventually does, giving the upper hand to hot money flows as opportunities run out with the Yen at 99 and Euro also not facing new substitute demand, yields going up from global lows in various central bank auctions in Europe throughout June bringing short term rates to near above 0.5% and even closer to the 1% mark from momentum extrapolation(as will likely show)
The Indian Rupee has been closely pinned down earlier in 2009 and lack of buyers remain its “new” worry in global trade share increases as Yuan manages a smaller volatile range despite an equally suspect recovery path due to a paradigm change from South east, Coast Only development to a more homogeneous spread as legitimised by a 5 year plan.
Back to matters at hand PSUs like BOB will probably lead the bank indices down even as most new banks will make likely a good sector lending structure possible in the higher spending towns and villages of India that have kept Rural CPI apace at double digits till now. Muthoot’s Bank may indeed be a new kind of entrepreneurial venture in banking as long as they meet RBI conditions and manage not just the minimum net worth cap but raise the bar for fellow new anks to the desired but not contingent levels of INR 2500 crores of $400mln and even INR 10000 crores or $1.6 bln whnce an opportunity the size of India may be deemed fit. This size of course may not be ready on day 1 but should nonetheless be planned to those levels with capitaal lines tied as was behind the uccess of private insurance in its infancy in 2000s
100% telecom FDI for India thus might mean in an indirect way, better days for Oil consumers even as demand returns to the US market after a good 6-8 weeks in yesterday’s reported data and are critical for the market to retain 5750 levels on equity indices. ITC and Bharti remain on the up and up in block deals for FIIs or even program trading where such volume is amenable. Yes Bank might see another block of additions by FIIs as it exits a RBI ban on foreign investments and has quite some potential before reaching the allowed 75% levels currently in the sector HDFC/Bank prognostications for a 100% FDI in the sector linking its scrip fortunes to the same may see thus a longer gestation period till the new government is in place in 2014 and indeed starts picking up the courage to forget its pre electoral hang ups with FDI if any
The headline tries to get at the difference in the consolidating market of now vs. that of three years ago in a similar situation i.e. within this cycle as the prospects of infracos having taken a nosedive and that of auto sales having hit a rock or two still have not dented or revived the case for an explosion of demand and the few selected beneficiaries in each sector. As always the moves are helped by Banking, in this case new bank licences even as Bharti, ITC and YES retain investor interest but have lost their lead as momentum creators in the market. Jet Airways was repurposed by Tony Fernandes’ claims countering Jet’s path to growth in the last 10 years taking unused Tier 2 cities and airports as model bases for its expansion starting at 3 aircraft and proposing to add 10 aircraft a year. Vodafone’s unilateral attempts on the other hand remain wierd and misrepresented to say the least s they make no sense of price or commodity in question probably trying to get a buy one take one free from the judicial process with the tax case still not settled on the m&a either.
In Energy, brokerages try to play catch up and set a mini trend but with 10-12 more hikes in diesel any fundamental rerating except the positive drfit up ensconced currently is unlikely. UBS upgraded BPCL and Citi downgraded ONGC to neutral. In Auto xports, Maruti continus to scare with losing the plot over old established exports continuing 2 years after the shift t diesel and D’sire models in the Gurgaon and Manesar plants but the MNCs and two wheeler/three wheeler companies ride growing marking of production to exports
But back to index based investors and statistics, now would be the time to reassess the significance of India in Asia and global indices though company based weights have been switched around earlier in April. Volatility should subside and give rise to a positive volatility based move sooner than later after core growth was par for May at 2.3% and Energy prices were realigned without protest. Global Oil and gold prices continue to trace lows and new banks from muthoot finance or others however be unable to get out of the success of their nbfc counterparts while establishing retail having to take existing operations to the bank.
That should also mean more new licences as each of the 26 is also a regional in one way or the other apart from leading from one business segment.And, importantly there is still chance for finance m&a albeit after grant of licences, while Sundaram finance /Shriram finance continue to try and refashion their book to get RBI’s nod currently not available for the deleterious mix o securities from refi considerations. India may ass this lull for ECB finance sooner than later as it materialises that the rupee level is unlikely to improve and thence investors, already back for the ride may get to cook more for the gravy train than 2012 offered.
Also, a note to sovereign asian investrs, this could be the last chance to get into the India story at these levels, and more attractive with a weak rupee as these funds hld more of foreign currency than local currency losers in fixed income and currency
The markets expiry should probably read F&O exiry but that is just here nor there. CAD(Current Account Deficit) data is as 3.6% of GDP is a very good score with a $17 B surplus admittedly par for the course for Jan — March quarter. Crude basket pricing has gone down to $101 for the year but still leaves a 6% bill hike for the OMCs and oilcos to distribute The resultant price increases if any including the known rise in Gas prices would not exert price pressures on the economy given new inflation levels either. Together that means that if there were buyers for the Rupee they would win. Obviously given the debilitation market punters have handed rupee trade in the imediate three weeks with the exit of INR 200 bln in FII debt positions, the cash positions re lower except at the Reserve Bank which managed to add a few dollars ($2.4 B) to the reserve before getting engulfed by the waterboarding slide uncovered by Ben Bernanke.
So musch for the Rupee and oil. The banks and telcos seem well poised for a recovery though as spectrum buys or no spectrum buys, there is great values at 280 levels in bharti and in RelComm though we never backed the scrip or even Jio infocomm as of now given the Ambani track record and obvious imposition of informal network values on bare minimum corporate governance and a resultant pathetic track record except in petrochem
US will allow more LNG imports to India while the Coal and power situation has also started improving. Chinese increases in consumption are sporadic and are being run by import consumption however in the riorities for the new government and so the US SED with Inia continues to be bland and almost inconsequential to India, a moot question most interested people between 18-40 ( and those just out of that range like us ) significantly continue to question as a fallout of the so called successful reforms since 1991
The rest, once i find a paying sponsor or a working proposition for the second career I start in my 40s
Markets have opened at 5650 and may make a close for expiry around 5700 around the 2:30 m bell though the close per se may find shorts active in that case, as they look at a longer innings in the july series against the virtual non representation in Jun
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
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.
Vikram Pandit’s new efforts in India with Kampani’s JM Financial may get JM a 10% bump in stock quotes but it is unlikely that his 50% buy of the subsidiary and 490 million warrants worth 3% of the listed company with Hari Aiyar and wife in the new bank application at this stage will build on anything like branch infrastructure in at least the next decade, so watch out for questions on the application being followed closely in the media?
Otherwise of course the Chinese continue to prefer the number of wealth ‘8’ in their phones and registration plates for the cars that are sold and you should avoid gifting them anything with the number ‘4’ thats sound like the word for ‘death’ and Morgan Stanley leads the list of suitors looking for a bear to hold as Indian markets sit pretty on last year’s prudent calculations still not outrunning the underperformance in sensex companies in the quarter gone by. Markets are headed to all time highs probably but the next target is 6350, steady as she goes..
A wonderful FNO pick on Tata motors reversed my earlier opinion of the TV18 guest who chose Tata motors again but as stock vols (option vol in current month series) closed above 40 the bid to range the 280-310 stock trade with a bought put at 305 on a strike of 290 as recommended should gladden many a margin accounts. The strategy is brilliant only if when it opened this Friday, the bids in the normally not so liquid stock family would not have quoted the ratio spread at a profit. Buy three puts at 290 at today’s open and sell four 280 puts in a minor tweak to the strategy played on the network but you could leave it a t 1:2 as well
Do write to us above and link in with your blog / facebook page in the comments. 2013’s dull exports and consumption story for India in the meantime cannot stop cosmopolitan urban India from turning Jiading(F1 track) and Pudong (Shanghai) and Lavie and “Caprese” luxury bags with Gucci stores springing up here now much after China’s $15 b market accepted them despite our protestations to the contrary .If not the Chinese predilection for lucky numbers, one could still catch a fancy to under-reporting ages , the ilk spied upon by Jug Suraiya on Page 3 in his TOI op-ed of today
ITC results should be eagerly anticipated and with infracos back in demand together ITC and IDFC will garner a lot of new outstanding demand volumes ( open interest) esp as JP Associates has completed a first rush yesterday to 80 on the futures. Sun TV is much better than Satyam though but both are equally risky on corporate fundamentals after the corporate governance in churn in either of the scrips. Sales of $1.6B at ITC in the quarter reflect the last of the big consumer companies making a sustained comeback after the jump in Q3. Europe based consumer goods giants including Nestle, Diageo and Unilever have already been singled out for investor attention in growth deficit hungry Europe for their stronger Asia businesses (ref FT.com, subscription required)
The New Drug policy is out though impacting margins at Pharma MNCs and Cipla & Lupin will also trend down on the repricing of margins across the board.
The main topic on this busy day could still have been the new RBI trend policy established by the WPI falling below 5% and the CPI having come in earlier. Though loath to check the sub indices this morning i see a Core inflation at 2.77% near all time lows and I do not believe we have seen the last of food inflation though April did not get to be a major run on the home makers’ wallets.
10 Y yields on the new bond have already responded vertically to near the 7.25% mark and thus RBI will take the whole term down immediately in the next three-four months before growth actually responds, likely leaving the rates below 7% forcing banks down on deposits despite the flagging demand and without more than a signalling cut in CRR. The news of more cuts was however the most important one behind Thursday’s heart of a rally.
Yields on the 2022 bonds moved down 5 bp to 7.77% in pre policy trading and kept the gains as RBI announced the expected cut of 25 basis points in the Repo rate despite macroeconomic concerns in a bid to sledgehammer the supply side weaknesses that have disabled policy transmission and kept illiquid markets near the marginal standing facility rates and the higher reverse repo rate which correspondingly moves down to 8.25%., The RBI emergency lending rates (MSF) are exactly 7.75%
The response follows a weak macroeconomic assessment yesterday and the hawkish tone though warranted has brought markets down to 5950 levels. markets correspondingly ill understand that “RBI has played true to form” *(ET lead on ET Now) and finally keep the faith in the economy after having been ebullient on the expectation of this rate cut. RB has cut the growth forecast on the GDP in this fiscal — FY 14 to 6% and inflation target is a 5.5% for this fiscal. The Macro review also highlighted that CAD is likely a risk till is funded by external capital flows (read new foreign debt)
The presser after the announcement focuses on the issues of liquidity and continued omo support from RBI
Markets sit on a big slip as they await the 11 AM announcement of policy rates and the afternoon meet the press with bankers. interestingly this is the closest to near unanimity in market expectations held together by all stakeholders including different institutional and brokerage based analyst teams on research and bank economists and other commentators that the RBI will be giving a 25 bp cut after inflation has fallen in line and the need of a stimulus is par for the course. However, the likelihood of the unlikely event is still finite in that no one expects the Central Bank to ignore the macro weaknesses and so far the prudent fiscal path is not more than a promise either. To cut the longer story there short, the question of the RBI not following through has really made the sentiment jittery(threatening?) ahead of the announcement
Interestingly GMR to take a infraco on point kept its head above water(closed positive) while the Anil companies celebrated the gold rush with the rally peaking above 6000 levels and Bharti’s deal today for 5% equity (new, post issue stake 5%) to be issued to the Qatar fund or other events like results are largely being ignored in the morning session. The session’s preparation for the q-case of the Central Bank not conducively incentivizing the markets thus means that the rally is still on and will not breach 5800-5900 levels on the downside after a sharp derisory devaluation of the PER of the indices today. The optimism on the surveys has however like us in the past led to a forecast skew towards the right with the india positive commentators opting for a 50 bp cut signal from RBI
Regardless of the bank policy announcement however, its outlook will remain cautious till the end of this quarter bu t may include data to prove reasons for becoming bullish from July 2013
A short and quick stab on Monday will show that efforts continue to keep India Inc juiced as Q2 will likely return a broader cohort of companies that increase their bottomline based on continuing decrease in non food core inflation, and a small measurable uptick in production.
Most of the market business still returns to banks at their low point of the cycle and struggle is on for a better run rate for deposits on the growth. The only negative skew to this cycle being that banks cannot cut any rates of lending as they maintain interest bearing deposits to an edge to market investments or hope for better borrowing rates for themselves despite the professed rate cut forced on the Central Bank
Taxation changes to mutual funds that till now paid Capital Gains have leveled the playing field somewhat the in the new budget but the banks cannot make up for the loss of money market deposits placed by large corporates earlier so quickly. Retail unbinding of savings rates have already scarred the proposition for mainstays like ICICI Bank and HDFC Bank as new business is the most important of all business segments in any industry and esp so in retail banking. Short term Mutual Fund investments now bear 24% tax.
Bulls remain in Auto (Bajaj Auto not Hero moto, Maruti and M&M but Tata Motors too) , ITC, Bharti and IDFC and may not exit healthcare or enter infotech for longer than intraday business
Allowing competition in International flying with a fleet of 10 is good news and low fares have been promising in the off season too. Rupee remains strong and will likely climb outside the 52 range too if foreign investment portfolio flows indeed do not ebb as March seems to promise. Again a caveat to Domestic institutions to keep cash for such rallies and not miss the bus or their overall performance base will erode faster than they have the opportunity to ride another big multiple growth wave that last ended in 2006-7
Though we did not suspect the political mulligatawny soup that will lead to a face off in the Parliament on the Lankan Tamils issue and should in fact be used by Indian polity to align to US on this issue and come down on belligerent China friendly Lanka, the very least done today in the political arena with the Nifty barely holding 5750 and yields hardening closer to 8% has been the virtual throwing away of the monetarists wheel in what can be educative to all large economies hoping for moneteraistic target based Economics to bring home the citizens out of the global crisis of growth overtaken by stagflation.
RBI allowed another 25 bp cut in Repo rates to 7.5% and though it seems pat following fixed yields early 2013 move below 8%, it removes any further room for easing for the Central Bank. Cheap RBI lending thru the LAF should have already impacted yields to move down as inflation remained in control. LAF rates are now 6.5%. RBI has also posited the MSF as bank rate at the upper end of the channel in the mid term review. India’s GDP growth was the lowest in the last 15 quarters at 4.5% in Q3 of FY13
The bank rate cut to 7.75% was already an avoidance response to the Type II error of over tightening the monetary turf by the RBI which is already conducting large OMOs to provide continuing liquidity. The last one was just this week , the 3 day repo accounting for INR 1350 bln. In real terms rates have only risen after the last rate cut announcement in Indian Fixed Income markets despite the appreciation in the Rupee and counting today’s rate cut of 25 bps thats 50 bp of rate cuts shouted out by India bears waiting for the debt trap that India Inc could never be. Indian credit stock instead still remains the lowest in Developing and Advanced Economies globally at 75% of GDP ( both data points in this argument have come from this week’s RBI data releases)r
The Challenge ahead
Despite the 30% growth in NBFC credit this January (based on RBI data released for segmental review of bank credit) credit growth will likely challeng e the 16% non food credit target. In market terms(equities) , though 5750 levels are holding on the Nifty, expectations have definitely been turned down three notches after the violent 100 point mid day reaction and as profit growth eludes and food inflation rules the rest of 2013, real income growth may finally turn out to be a mirage and bring down curtains on future consumption growth for the nation as it dives into political uncertainty. RBI rate cuts could have been avoided to keep the market discipline better in later months when the fixed income markets would have been in situ better able to target a downward slide in yields and keep ahead with higher growth enumeration as non food inflation instead of staying low now tries to bite back with global demand improved by China’s lot However all that still means India grows by 5% in FY13. The lower data of worse cases for FY 14 enumerated above are still low probability events and can be easily avoided though these downside risks should also blanket any other global downside risks.
Foreign investment flows
India remains a global island of relative comfort for investors engendering continuing foreign investor interests that should as posited turn positive as the global downside risks emerge stronger esp for Europe and competitors like Korea and Singapore (affected by the China story) get bit while others like Thailand may still not provide the required depth to global investors. BRICs and N11 stories have at one time or other shown how executive decision can help them pull past the Indian jugger naut and India needs to be better positioned to respond in global markets thru joint policy and private sector action.
Despite the political improbability of this being counted as a standoff by the understanding P Chidambaram, this will be the most advocated course by us as Indian Food inflation starts into gear and despite non Food inflation now being below 4% the banks’ predisposition to trust their models earning a good profit in such rate cut cycles and the lack of transmission of last rate cut to bank rates across the board means the RBI governor will have more wiggle room later if he leaves rates untouched.
That is some simple policy math weighed in by a outside in look at the markets busy in the ranged groove. Market economists are hemmed in by the lack of bullish global prospects despite a healthy prognosis for 2013 just two months ago. CAD remains dangerously teetering on the brink and can easily be held hostage by Oil and other imports. Gold imports have not been capped off. Fisc parameters have not been resolved.
Indian markets have showed the same audacity for a bullish candle if only they were allowed to bully the experts and the pragmatic Duvvoori Subbarao. Most experts thus have agreed to a rate cut tomorrow as more likely but have correspondingly cut down on the wiggle room for growth in even 2014 and definitely the rest of 2013. While Bank Policy could traditionally go for a rate cut now, the only room it will have in the future is to nod sagely and say ‘we told you so’. The 6.8% WPI is no measure of the 11% CPI and never the twain shall meet.
This is not the last stand for central bank led monetary policy however and if rates are indeed not cut now and market forces continue to engender the positive turnaround in IIP , the Q3 policy in December 2013 could look much more positive and we could be near a good take off point where consecutive cuts could then support growth. A 10 Y yield at 7.75% therefore is no bad news and the guv has all my good faith support if he lets the rate cut go unannounced tomorrow.
RBI thinks inflation momentum measures are showing enough control to allow for a bank rate cut while it will be monitoring further conditions related to momentum measures including controlled International commodity cycles et al . the issue as always in this cycle, has been non manufactured products inflation which continues at high levels despite more than a year of low core inflation
As Demand is still flagging and investment outlook still deep ended by scarcity of viable and interested Capital for India, despite policy measures, it is a good sign for markets which have already applauded big ticket banks while the Rupee has gained 13 p on the day on announcement of the RBI Governor’s measures in his last year as governor
RBI expects inflation to remain rangebound at current levels allowing monetary policy intervention again as a key instrument of the bank’s policy in the next fiscal.
Yesterday’s hawkish review ahead of today’s policy meeting and announcement was very clear about the CAD reaching 5.3% with another reduction in the Central Bank’s conservative GDP pronouncement. However, inflationary pressures have ebbed and since the Central Bank realises the importance of doing away with the spectre of a recession, now hinging on a rate cut with Credit growth stuck at a low 15% despite the gap from Deposits that grew 11% in the week ending Dec 28.
That it does, also means that the rate could well be a good 50 bps, accelerating the dissemination of liquidity and growth from financial easing in the Economy and allowing RBI another breather to study inflation in detail over the period till June when the next rate cut would become due. one wonders though if like bank desks have forecast, India can actuall live to the top of this Economic cycle with only 100 basis points in cuts or even 150 bp till March 2014
Axis Bank Mega QIP garners $2 bln
Axis being the speculators’ pick for arbitrage and weightage balancing on both Nifty and Banknifty, the effects of its improving fundamanetals with a large $1-1.5 bln Capital infusion are going to be important momentum providers to the Nifty and as it fortuitously looks like it will not result in Cats and Dogs moving up with both Educomp and Jubilant foods lying low ( the latter having lost its coin purely on speculative traders’ dime), it would mean longer term Capital taking over some of the remaining float at Axis Bank and others in thelarger Mid Cap categories like Yes Bank ( who have changing ownership on the FII ‘float’ as a downside risk after having Rabobank exit)
Glenmark reports Q3 results on high expectations – ‘Enriching shareholders’
The deep pipeline at Glenmark with 46 ANDAs to go in the US market and 82 products already authorised its growth at double the industry rate fof 12% in the first nine months of 2012 ill only be exceeded by itself again in this quarter and lead to probably a count in the Top 10 pharma companies and even the Top 5 in the foreseeable future.
A healthy 25% of the portfolio seems to be domestic market driven and unlike other market observers we do not believe such 35% growth as it achieved in India in Q2 is likely to be beaten by others in the Industry depending on new compulsory licensing and expensive generics for the Indian market as portals for explosive growth
The domestic market remains likely to reward Diabetes solutions and normal OTC and low value prescription medicine manufacturers with volumes and growth from the current pathetic $2.5 B mark in 2011-12
Glenmark pharm in the meantime is prescribed for having broken the barriers with consistent 20% Topline and 30% Net profit growth parameters.
The deterioration in asset quality though well within control at SBI to 5.15% or INR 491 B does not meet management statements of no more deterioration in asset quality. The written off loans of INR 14.92 B and reducing provisions of INR 18.5 B from INR 22.73 B a quarter ago raise questions of capacity and capaability even as the Central bank has obliged with CRR cuts and the bank continues to manage the loest deposit base in the country ith the status as largest bank int he country borne in measure by share of loan assets and the size of asset book as well as the market share computations for the sector in both retail and SME/corporate banking
However a future for India Financial Services may need to have a larger NBFC role designed aas per the latest policy documents or otherwise continue privatising bank franchises and allowing new banks with rural and priority mandates make the competition tougher whence sucha weak showing by SBI with only 5% growth in NII below INR 110 B for the quarter makes ita tough pill for the market to swallow. However, the current macroeconomic revival may let other banks pick up the slack and allow investors to ignore this quarter’s SBI records while the markets again take a fact check on how good the India story is.
Net profits for the quarter are INR 36 B ahead of estimates by more than 5% but the stock will drag the Banknifty in the current run with management guidance not being welcome. The year on year groth in profits does meet the benchmark of 30% at a 25% score bu tthat is on a low base from underperformance after the bad loan cliff ensnared the bank
REstructurd loans are INR 46.94 B or 5% of the loan book roughly Additional slippages are INR 85 B compared to INR 103B last quarter (linked/seq) but recoveries are also up by nearly 17% at INR 14.3B The loan book has grown to INR 9.56 T
Given that Inflation was also expected to be lower before the Wednesday announcement for WPI and the Diesel hike importantly, it is understandable that 1 in 5 economists in the latest surveys still expected a rate cut to put pressure on the unruffled Central Bank Governor. Nomura economists and even Breakout Nations’ Author Sajjid Chinoy however point out again that the government has no room left as do we. Though you may not be able to scroll back to views as we were also away for a month on the subjects of Global Policy and Economics, you will be able to find the thread in earlier bank policy writings here and at advantages.us. And of course as the public sanecdote demonstrably admitted to everyone, there are no CRR cuts in store.
However having been fed reform policy the markets are unilkely to react to their v”dull and drab” version of the credit policy later today. Infact except for Economists at the banks above most in the industry will be relatively busier with deals happening in the wake of Bharti Infratel kicking off a public sale of PE investments with a not so untoward calendar in just 5 years of investment. Back to the calendarised Economics though, the dip in IIP is scary and continues to run down the Economy alongiwth a double digit in Exports but none of these would improve from an easing of credit conditions as bancks get don to safeguarding their margins by cutting deposit rates to the eventuality.
As DNA also notes however, there is no time like now for India Inc and this will take almost a year to fruition in Services and Goods uptick while inflation including the dangerous fuel subindices about to make a bigger come back having come to 8%+ in the August announcement. Bond yields will be going down because of inflows and that should not be confused with a likely rate cut for now.
The Euro of course is at 1.26 and the Rupee, happy kept its level to the Euro as benchmark for Dollar’s movements against the Rupee has gladly tempered this rise of the Euro to 70.40 in morning trades ( Interbank rates at 70.4, nse can run at a retail premium to 20 basis points – not just points)
The Dollar’s weakness in the week of more QE ahead of Greek elections has been shortlived hopefully because the QE rumor is a shortlived one, however, the Fed would extend its support thru Central Bank swaps ( see advantages.us – It’s for sure another LTRO, but QE? ) Anyway it means the system would be awash with liquidity and Gold, Silver and Oil are back on the (upward) run. That is another week of respite for the Dollar index hardly corrected from its peak in the first 3 days to 82.5 and no falling rapidly, with the Euro 1.26 levels likely to be a strong support in a liquidly able banking system funded from Europe, other G20 or the US
The Rupee is likely to breach 55 on the long side if the trend lasts long enough and the fall for the dollar may not be a one way street in the Indian FX markets as the USD is defacto the only currency traded including cross rates to Euro and JPY good reference for currency moves and the Revenue account
having limited avenues for Dollar speculation, Hot money flows still find a way to keep the Rupee excessively week
MidCap IT is ebullient at the improvement in Margins but unfortunately for the lean prospects of IT the Rupee is unlikely to help more than the 26% depreciation at its ‘peak’ of 56.50 to the US Dollar
Inflation data from the CPI index considered more carefully in global monetary policy is ready with the CSO declaring data from tomorrow ( see last paragraph)
However as we pointed out in a post minutes ago, the Fixed income yields are almost tentatively poised at 8.2% with the markets a primary reason for the tentativeness as the urge to speculate comes to town on Indianomics. India’s OMOs last week of INR 120 bln and the CRR chop to be worth INR 360 bln has not materialised, the inflation at a comfortable below 7% figure may rear its head again soon as manufactured goods indices are not dipping that well, staying nearly 8%
The 10 year at 8.2 % ansd the 12 and 15 year at 8.52% and 8.55% show the yield curve having steepened bu twith no CDS and swaps market with spread unnecessarily compensating to junk levels without liquidity for the market makers to fine tune the action, FIIs are unlikely to come bareback into a new Asian market. Even new bond issue bankers are getting a quarter of the fee last year.
According to Arjun P in the DNA analysis
Liquidity tightened by `56,000 crore last week with the system borrowing `167,000 crore from RBI on a daily average basis. The rising liquidity pressure led to the RBI buying government bonds in OMOs.
That’s INR 560 bln out of the window even as banks move rates down and RBI borrowing now all corrected to 9.5% the designated MSF by RBI getting higher than India’s high trade deficit and nearer 5 times banks could have released from their Central Bank acocunt after the CRR cut, almost all of it could easily be explained as amounts banks have in excess deposits with the RBI. Banks are moving to cut loan rates, having made affirmative stateements and SBI having seen as reducing Edu loan rates in the press.
The point is that the rates are precipitously poised on yield as rate cuts are months away and moves down could hit growth badly while yields moving up back to 8.5% ont he 10 year bond will necessitate the overtly stretched government finances to arrannge for another OMO
Last but not the least Oil has moved up to $120 levels one spike to $150 likely and 12% of our supply in Iranian oil in as mucha threat as also half our rice exports and many in tea and fruita and vegetables to Iran. The Afghanistani Oil we have planned for also travels thru Iranian ports huh! wow.
Inflation data on the CPI series is in for the first time as a yearly series becomes available from Tomorrow, and likely coming in near 8% ( watch the lovely rural vs urban vs composite chart at livemint.com) , instead of the feared 10% unless there is another spike in January data. As of December the rural indices have moved to 115 and the composite 113.9 data available from January 2011 when rural was 107 and composite 106. The urban sub index started from 104 in Jan 2011 and ended last year at 112.4
Central Banks worldwide, our RBI included are busy providing Reserve Requirement cuts and Emergency liquidity mop ups to ensure inter bank market fluidity and avoid a situation like for Italy and Belgium, Spain and others last November in Europe.
The ongoing Euro crisis is not just the cause of this drying up, but in fact few would probably bother to
remember that 2008 was a result of this extreme loss of liquidity. why that happened and why banks are wrongly considering themselves only for the liquidity charter or seedings is that inordinate rush to fund the entire banking assets with inter bank overnighters. RBS included 70% of Capital from short term sources when it went down in 2007, Lehman did not get a Fed licence to add liquidity as Capital for its next balance sheet when it ran out of collateral in September 2008.
Deutsche Bank and BofA are still selling assets to add capital back not because the bar was raised by the governments to Tier I capital but in these cases just because they relied entirely on overnight markets ( BofA means the investment bank with a banking licence in Merrill Lynch too) and after sales of $50 bln in assets, the bank still needs another equal amount from non available Capital to survive.
Deleveraging thus is as much a response to clampdowns on use of inter bank notes as long term capital for Basel 3 requirements as anything else. Above all behind a well regulated bank, pointed out by Menaka here, is the new realisation that you can’t leave on the neighbour’s bread all year and need to absolve yourself of the charter to provide continuous liquidity to markets. Banks should focus on long term lending and matching sources of funding to the tenure of the funding they do than just sit on liquidity windows pressuring themselves and the banking system.
Also as we mentioned in our popular series in October and by Simon on WSJ
Banks currently hold capital well in excess of regulatory standards, but that is due to pressure from markets, not regulators, who gave banks until 2019 to meet the new Basel III rules. There isn’t much point in regulators extending this deadline, and it would probably undermine confidence if they did. Reducing capital weights on business lending might help but is currently illegal under European law.
Central Banks worldwide, our RBI included are busy providing Reserve Requirement cuts and Emergency liquidity mop ups to ensure inter bank market fluidity and avoid a situation like for Italy and Belgium, Spain and others last November in Europe.
The ongoing Euro crisis is not just the cause of this drying up, but in fact few would probably bother to remember that 2008 was a result of this extreme loss of liquidity. why that happened and why banks are wrongly considering themselves only for the liquidity charter or seedings is that inordinate rush to fund the entire banking assets with inter bank overnighters. RBs included 70% of Capital from short term sources when it went down in 2007, Lehman did not get a Fed licence to add liquidity as Capital for its next balance sheet when it ran out of collateral in September 2008.
Deutsche Bank and BofA are still selling assets to add capital back not because the bar wad raised by the governments to Tier I capital but in these cases just because they relied entirely on overnight markets ( BofA means the investment bank with a banking licence in Merrill Lynch too) and after sales of $50 bln in assets, the bank still needs another equal amount from non available Capital to survive.
Deleveraging thus is as much a response to clampdowns on use of inter bank notes as long term capital for Bassel 3 requirements as anything else. Above all behind a well regulated bank, pointed out by Menaka here, is the new realisation that you can’t leave on the neighbour’s bread all year and need to absolve yourself of the charter to provide continuous liquidity to markets. Banks should focus on long term lenbding and matching sources of funding to the tenure of the funding they do than just sit on liquidity windows pressuring themselves and the banking system
Even as banks have been looking for increasing theiur exposure to unsecured loans, the Auto loans sector and even loans to businesses in real estate sector have grown healthily in 2011 on the back of NBFCs alone. CV financing by Shriram Auto and commercial Finance by L&T Finance alongwith players like Mahindra Financial for in house auto loans have been growing through 2011 even as price hikes creep up on buyers.
In the mean time, the success of Discounts and promotions has encouraged vehicle manufacturers ( see December Auto Sales report) to continue suhc offers till February 2012
While Auto loans may well reach rates of 12-13% to the consumer or flat rates of nearly 10% per month,
interest rates are unlikely to come down for the NBFC lenders even when the central bank does cut interest rates for the banks. Also, most NBFC lenders survive on a higher margin as a higher tolerance is inbuilt into their models for repayment schedules of borrowers unlike bank finance. However as of now, RBI applies the same three month norms to recognise NPAs for these players and this might skew their loan book performanc eint he coming one or two quarters, in some cases leading to increasing borrowing costs from banks too.
While NBFC lending has crossed 2.0 Tln in the current credit reporting to RBI, making it 5% of credit assets the same has been pulled up by the Central Bank esp targeting those rejected by the Central Bank from taking public deposits into the ND-NBFCs or Non Deposit taking NBFCs.
RBI is mulling a limit ont he anmount of bank funding available to these NBFCs the MFIs are separately classified, as are Infra Financing Companies. MFIs have recently been allowed to access ECBs internationally to compensate for the dqueeze on lending practices and regulation of margin and amount of loans they can make in their captive rural/urban areas MFIs can be registered as a Society or Trust or with the RBI as NBFC-MFI
With inflation falling, the inverted yield curve ( 10 year yield a point below the short term 8.7% yield) could well be a good thing for india. the rupee depreciation could however keep imported inflation hot for India’s traders and manufacturers, esp as the Fuel basket is still up on the high ledge at 15.5% . The livemint Friday report has good data to back its inferences too, but even if we do not follow the RBI copybook ( playbook elsewhere 🙂 ) and set our own inflation target it could well go under 6% as and when Fuel also tackles the base effect. Prices have stabilised and bond market liquidity healthier as seen in the 8.7% yields at the short and long end a good 25 basis points below the yonder peak of two weeks ago.
For investors yields coming down on the inflation ride mean large inflows into bond and then gilt funds to shore up the neglected funds industry where AUM has dropped from 7.5 Tln in 2009 /2010 to 6.75 Tln this year a slow deterioration as all the bank rolled money for money market mutual funds was exited. For banks and large treasuries however, with the money market fund closed and RBI auctions likely to be discontinued, there would be a limbo while they decide where to deploy their idle cash for quick gains, perhaps in longer term Floating funds eventually
Rate cuts could come sooner, therefore the talk of recession as Capital4 author Deepak Shenoy highlights back in June could well be baloney. In our case inverted curves mean that banks can use that extra tey keep with RBI even if CRR cuts are not effected and bring back the short rate as and when IIP improves based on lower inflation. Believe me, no one else has the luxury of 40% of the banking system’s funds lying with the Central Bank anywhere int he world even if you could go back a hundred years thru the hyperinflation cycles in Germany and LatAm or the recession cycles in Brazil and Venezuela and Russia
China has a more well defined shadow banking system, our own professionals torn between the brand of organised businesses and stock markets and the penny pinching savings they need to build a home nest. We still have a cash based economy like Italy’s south which will apparently keep adding to our tax basket at its own pace regardless of how many investigative journaliusts or how many amnesty schemes are created and expired 56 new tax treaties later there is no inflow from that system into the economy and our taxed remain the lower percent population of the country. Typically, these factors influence the fixed income market which moves on the supply and demand of money, but that shadow cushion in China and elsewhere ( incl in Europe where it has yielded a15% tax on Swiss deposits) is much more in control
The FM was fiscally positive in tone earlier today reiterating that a lot of pressure would be released on the
government from reduction in Energy prices and subsidies due on Fertiliser, Oil and Energy. To expect inflation to subside to 7%, unfortunately it looks little more than the ineffective posturing politicians have to resort to as the mouthpieces of a government working with is hands tied. What is immediately needed is good liquidity in the money markets and the inter bank markets otherwise yields could climb even further from 9.1% of last weak
RBI has immediately opened a Floating Rate Bond sale that would help but probably needs to look at reducing CRR/SLR options as well and probably release at least 500 bln from banking reserves of more than INR 45 Tln that banks have handed over to it.
Reserve Bank of India is poised to issue floating-rate bonds (FRBs) — for the first time in two years. Come this Friday, and the country’s central bank will reissue Rs 3,000 crore worth of FRBs that are set to mature in 2020.(BS)
10 year bonds, in the new series issued last week are already trading lower at 8.74% after the announcement but much more needs to be done as the pressure on the rupee is unlikely to be let up
Or, What you should be doing when the markets go dropping off that Pirate cliff:
1a. If you are thinking about buying gold, do rethink about that one as Gold has to wait for strong bearish pronouncements to move from here. However did you know that Central banks have bought 150 tonnes of the metal in one week and are still at 10% of the levels they held in the 90s when they sold and everyone else bought gold.
1b. As Central banks count as the most followed buyers right now, Gold’s meteoric rise in the last few weeks may restart Also India becomes a candidate for taking everything down right now as it gets into a tighter inflation high, currency weaker every day and deficit unsent kind of tougher twirls with a higher and higher downside, but then we would still do 7% growth so do not think of a a market below 4500 Nifty, really ( even if it breaks down to 4420 you can beasar with me, right!)
1c. Did you recheck your list of stocks to buy: All time lows everyday present great opportunities for investors out there to verify at leisure. You have at least 2 – 3 weeks to select, drop and re- select winners..
2. Watch that hollywood movie that gets released in India on time during market hours..You could not get a more predictable market direction with no trading bumps mid day since last to last Friday. Also Disney and ESPN are doing much better this decade than their worried little India doobies of a decade back, esp as Pizza and China surge
3. Reorganise India’s infrastructure priorities, find time to review M&M and Unilever (Despite a fundamental change in the fortunes of these two companies from directed strategy, they get good results and attention on a tough down day only, talk about predilections)
4. Teach other knowledgable friends – Who being optimistic on India esp during MSCI re organisation will be full of ‘know all stuff’ you can bear down on with gloating dripping from your eyes and mouth dfor weeks on end..(like the savoures you cooked for Diwali but did not last)
5. Figure out the Economic Indices: Wierd Inflation and IIP volatility, not to mention the staggering deficits not every month but every other month, the winning margins of a UPA government motion in parliament, the no. of public losses Anna is unable to bear and other ..Most of the economic ones we have dissected and detailed over the last three years here
5b. Count and read up the number of laws still required to be passed in Parliament to make reforms work for India, if only just Corporate India..GST, DTC, apart there are two years of laws to make new banks work, countless banking supervision concessions to be worked with to be international bank franchises including voting rights to be passed as clear as day, Capital controls on Forex vis a vis restructuring for a new indian currency instead of pegging to $1=100, are all end of the rainbow ideas that are not at stake either, the laws need a simple fresh Corporate law basis and has to be apart from all the changes to the M&A and competition code, Bilateral and multilateral agreements and treaties, and include Social Welfare, removal of fertilizer and oil subsidies and funding and execution of PPP projects such as the DMIC, (with NMP), new ports and unlimited gaps in education and healthcare not being considered for private participation and foreign participation to the extent required.
6. Tell everyone to “Take a virtual dive”: Right now is the best time to start on something you have never done before..In the AEs (RBI term for US and Europe – Advanced Economies, the latter have become candidates for REMs now – Re emerging Markets) they have even stopped asking people to start blogging, it’s so passe. You could take a dive into a shopping mall too, a good crowd as always
7. Ask people to figure out the probabilities of a recession in India: No one will put a blame at your door now that India is going to get tougher in the next2 years and who knows your chances of a recession in India may have just improved from 1 in a 1000 to 1 in a 100
8. Review your family’s eating and drinking habits: Especially those zombies and moose heads who are still stuck in your head and inner ear without turning you into a schizophrenic, trying to imagine themselves as a fund manager, not investing with you or paying you for your reports or research bothered with becoming a complete spectacle and proving themselves to be ones.
9. Pay attention to India’s Defence budget we are getting everything we need even if so late and even though China’s spin counts in the media we don’t
India reported its October figures for inflation still near the September’s 9.72%. The 9.73% figure was stuck
with a high food and fuel component of 11 and 14.5% The core inflation figure remains equally tense at 7.7% India has lived with historically higher rates than most economies, its nominal growth always outpacing inflation by 7-8% since the 90s and even before at higher inflation figures and short term borrowing rates of even 21% .
India’s shadow banking system has also been in a perpetual declines unlike its counterparts in China or elsewhere is Asia and Europe. However, bank rates are currently capped at 8.5% and borrowers do not have to fork out more than 10-14% across the 5 different credit worthy rating baskets. Credit growth is however slower at less than 20 %with RBI targeting 18% and consumption sectors have again slowed down after 11 straight months of 9+ inflation
Also linked to the monetary and fiscal systems is the fact that less than 5% of Indians fall under the tax code and/or file returns and GST has not been implemented across the Federal structure and /of fiscal measures monitored along with welfare scheme as systemized data is usually at variance within and not connected across different silos
Food and Vegetables have not dropped below 10% in the year most times, a category of vegetables or pulses landing an annual rate as high as 25% and never lower than 15% for 6-8 months on the trot as supply measures and inadequate remuneration of farmers disturb the welfare mechanism. Almost 2 in 3 of farm advances are classified as bad loans but remain recoverable for most bankers by experience
Tighter liquidity has taken domestic yields in the 2-5 yr range to 9.1 – 9.2% recently and banks have stopped subscribing to new Govt auctions , small amounts of $220 mln devolving last week on the new 2023 security as banks are already loaded up on SLR securities as well as the 6% CRR
Rupee has also broken on the downside decisively across 50 this month after the 15% down move last month
A 50 bp hike, addition of a MSF rate 100 points above the repo rate and the removal of the reverse repo rate as a floater. It would be npow in a fixed channel denoting the lower end of the channel at 100 bp below the repo rate. The market should really welcome this policy as allt he planned reforms from the liquidity panel have been added as a bonus while the market was well set for a 50 bp kicker. The advantage of being part of a thinking growing economy is that it becomes easier for you to be at the top and mauntain thought leadership. Move over the oughts, we are finally in a new decade.
The central bank has also nmixed liberal norms with simpler policy conditions which might cause a few hiccups with the old guard esp those from MNC banks as 25% of all new branches have been requested in Tier 5 and Tier 6 locations taking care of the unbanked at least academically. As policy goes of course this is much nearer to implementation also unlike the deliverance from the beauty and the beast year on year without a set course showing which has been turned on its head since 2007-08 with Duvvoori Rao firmly int he saddle taking a distinct direction and moving fast on the same. The contingent facility and the availability of 1% of CRR+SLR to the banks in overnight should be a brilliant move to keep yields in check as banks could have ended up the bvillain in pushing up inflation ain the conming higher inflation lower growth era for the economy. Also ahead of deregulation, savings rate has been kicked up to 4%
As predicted a lot of noise about inflation too..as the mogul is still speaking, we shall wait for others reactions too