India Morning Report: Another US FDA bird hit, US GDP caught with high inventories, Markets broadening base

World map showing GDP real growth rates for 20...
World map showing GDP real growth rates for 2010. CIA world factbook estimateshttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html as of Januay 2011. (Photo credit: Wikipedia)

 

Jubilant Life got another US FDA warning taking it closer to the brink though the numbers in the same year (two) may not suggest deepening of in its case a contract manufacturing problem and the plant is located in the USA

 

In the meantime a flat market keeps its promises to the India VIX after a big ‘corrective’ rally yesterday bringing the bull trend forth to another dead in the water lay up at 6250. The US GDP report yesterday was the second successive sub 2% score with inventories taking it to 2.4% in September(for June 2013)  with a 0.4% contribution and 3.6% in December estimates counting 1.8% from inventories in the September quarter. More on the US markets impact ahead of the all important Jobs report at advantages.us

 

Asia and US trends will be the next to break correlation with the India equities, that have corrected most other vulnerabilities with continuing inflows and a 100% vote on chances of a recovery from here. Rate hikes also are behind insular shield for this market as are even coalition credentials despite the markets correlating this BJP win with a bullish market’s highest scores. 6000 levels offer almost single digit index PE within the year and Energy and Metals are ready to support a bigger sustained rally momentum while Bank Nifty seems to be discriminating between the riht banks and the wrong banks without the markets showing strains of very few good stocks as FMCG and Pharma also continue to have backers and brownfield FDI regulations have been recently firmed up while Pfizer and Wyeth merger in India puts more domestic competition on the cards. The first good sized shorts on HCL have appeared even as the Rupee remains ranged at 61-62 levels unnerved by the non story of steps for a fiscal deficit bridge, which from Reagan’s days seems to be again left to the market performance to cover, all expenses being important and budget cuts or clampdowns signs of ceding to another government

 

CLSA remains on the losing side with a seat on the fence and to us a tell-tale indicator is preferring Hero over Bajaj in these market conditions, most such investors and commentators that still prefer the Hero stock preferring to see themselves as waiting it out

 

Powergrid remains open for a great investment opportunity for retail. Just Dial ‘s great success will definitely rejuvenate stories like Prestige, Jubilant (Dominos’ India being its second largest market globally beating the UK) , Talwalkars and even Prestige which remained in most buy lists during the period when Jubliant was still seen as over valued

 

The Power NBFCs remain another isle of prosperity in the compromise between various market factions (opinions, nothing sinister) and with Bank lending revival meaning better traction for NBFCs and banks with distribution power, the banking and financial services sector may offer investors willing to jump in without waiting for decisions like New Bank Licences or overtly waylaid by the habitual topping up of PSU coffers by the government admittedly on time despite H2 pressures on the Expenditure side as it revises its divestment targets upward. India’s GDP reports had good signs with Electricity and GAs picking up 8% in Q2

 

PFC, REC, ITC, Bharti, IDFC and LIC (Housing) remain thus the favorite weekly and positional trade picks.  As mentioned sometimes earlier, Traders on the networks (Network analysts) have cornered on trader specfic plays that seem to be any good company will do kind of trades powered by ‘old hands’ but we do not have expectations from trades in USL, TVS, ttk , Wipro, L&T or BHEL at these levels. We would also prefer SBI get derated before it damages market expectations in sweeping strokes with its abysmal performance bells ahead in the next two quarters or even more. Adani is back in play with all the Adani stocks including ADANIENT, Adani Power and other

 

JP associates is a little silent as has become customary after the first lead of any new trend rally since 2008 but infracos look like getting back in the game hopefully enough for leveraged promoters to exit at fair value else the same can truly damage the markets later. I am not sure if trades in Siemens and HDFC (not the bank) are ready to dial in but Tech Mahindra would be a conviction SELL and i would not touch KPIT and Persistent but they seem to be ready for a big swing up

 

Oil prices will follow Gold’s euphoric comeback into the upper sphere where it starts hurting the Indi story soon, but may again remain weak because of the overall commodities cycle as Europe leads the way down and the Chinese recovery may yet again be short-lived without export markets, which also caps Indian exports in Copper Silver and non-agri commodities.

 

Cipla and Lupin would be good trades on the long side.

 

Futures and Options continue to see volatility trades in straddles ( Buy Put and Call on the same strikes ) but the Nifty seems to be giving strangles ( not Vol sells traditionally but profitable in a flat market) an equal premium so those not in the inner ring or actively monitoring terminals should  wait for better levels in the Banknifty series before jumping or sell Puts at 6100-6200 levels on the Nifty

 

 

 

India Morning Report: The Taper trade that did not matter and a SAP for Sugar

taper-2
taper-2 (Photo credit: Chriszwolle)

Even our best performance this fiscal is going to keep us in deficit and ECB debt is going to be fiancing thaat to a heavy share for some years to come. But we are not close to getting investment back into the Economy. Though one would specifically request those in the audience paying heed to the new Catcalls for Greed&Fear ( the one from Chris Wood, CLSA) to be extra careful even as India’s weightage rises in the same, the concept of greed & Fear including the other global index by CNN i s probably an important turn on for investors who like to measure a positive performance than just revel in the goodness of equities. The CNN index for one is more like a PMI chart to benchmark against esp now that VIX has shown to be absolutely negatively correlated to good sentiment.

Back on the Taper spooking the markets, I think the markets are being taken for a ride, but a s long as that is backed by skin in the game, the resulting corrections and from here the rally to 6300 are as real as ever. The Taper in its entirety has already found India backers pooh-poohing the European idea that India will shuck itself out from that ONE trade whenever it starts, and the traction for that correction was educative for India analysts to realize the negative sentiment India’s sitting on the fence has created for India.

Again, thankfully it is easy to see the negative sentiment as a European thing because those are really fragile banks and though they will continue to press enough of their capital into Asia in the coming decade too, their role after this taper might well be non existent after two currency crises in Asia and a little of the curry for the home run. Sorry, UBS. Sorry , CLSA. Pension investors and Infra shows like Citi, Macquarie and that HDFC investor(Scottish widows) still remain, but those sharper on the Short trade including HSBC and StanC at times, must suffer for it. That aphorism about Glass houses is meant for them to read into their history of shutdowns accelerated in the last few years

Taper trades are a hoo-haa if 6000 survived. The date for the Taper moving to June 2014 ( We mentioned sometime in October)  and a lower CAD, also star  as the most important factors in the next stage, when the Taper quantity becomes limited and gets filibustered by a non US QE from another OECD Central bank as 2% becomes their growth ceiling and the scare runs back to Bull trades, like they shut out shorts today

Of course markets closed yesterday without any shorts exiting and no one has been caught this morning because they exited the trades or are in the process of exiting the same. Yesterday’s negative FII flow would be a rare moment in the history of this exclusive bastion of Bulls that is India nd e are again ready to move beyond 2007 levels here, especially if the Dow moves out into the 16000’s as it showed last week.

There is no argument 280 per tonne,is electorally stimulating for farmers and ever untenable for Sugar Mills suffering from days they could get it for INR 130 just before the SAP arrangements began. However, it is unlikely that farmers will go back to lower realisations and it is still that SAP’s positive effects continue to out weigh its negative impact on Agri inflation. I’d say till Core inflation starts getting impacted, it is another “sleepy hollow’ strategy that India Inc is more willing to bear than it lets on and will be critical in India’s continuing move to reap the demographic dividend, not just in consumption but in investment in urbanization and modernisation residual to the New World

Those bullish on IT and Pharma for the wrong reasons may be the next in for a rude shock as markets refuse to stay on a particular 6200 or other level in search for the elusive big trade. Especially in IT, those like Tech M may not be able to hide their being disapproved by current and potential customers despite the Dollar Rupee. One suspects HCL’s half hearted transformation may also have found the cliff it was hiding for all the time.

The Taper? It does not loom..Sorry Mr. Doom

Banknifty had a hard call for market soothsayers even as higher than 9% yields tempt everyone to the current Fixed Income market as well .Kotak’s projections for H2FY14 could probably look for sympathisers extending the sam eto the Full year where it a little short sightedly holds the bullishness in earnings to a mere 6%., that probably landing it again in the wrong side of caution tales.  Also one expects Bank earnings to tank the H2 report card for the index as a whole but the double digit earnings score should still be a n easy challenge for Indian companies showing an immunity to global volatility esp with FMCG, Domestic Pharma and Automobiles. The Sun Pharma trade is on the short end right now, more to do with Sun Pharma being clubbed in the passive folios with  Hero Moto and thus probably caching good stock for short trade to use a s collateral. They could thus off and on make the negaive end of scrip pairs within their sector but overall they will still be an increasing part of bull portfolios their index scores likely to go up esp with those not formally keeping to the index components in index tracing funds that will walk away with more inflows

 

India Morning Report: So, what exactly is out of favor?

Bengal Ambuja Upohar Condoville, Kolkata
Bengal Ambuja Upohar Condoville, Kolkata (Photo credit: seaview99)

 

That seems to be the important question settled by the markets at 6200 levels as they now plug out of trades that may not happen and get a chance to incentivize good results by penalizing worse performances in erstwhile favored stocks including defensives. Thus capex companies like L&T and BHEL are out of favor with BHEL leading declines as punters drop the hot rod for the new variety available. Globally Consumer discretionary have had an exceptional year so more QSRs and ITC will be available for the switch as the Indian markets complete a small measure of transformation with new gen IPOs.

 

Exide similarly will be penalized heavily for a recidivist score, ike other traditional family managed Indian companies including Asian Paints. The straddle ranges moved out but have come inside 6200 again and the markets will lose steam till 6100 maybe as confusion reigns in research and trade between how much of a urban winner like Bajaj Auto can score int he same trend when Heromoto has come out with a pre festive statement in its results. However good Heromoto may be, an exit from Bajaj Auto at this point is likely to be a missed opportunity as also probably the chance to catch M&M and M&M Financial as they make it to FII portfolios and ramp up scale of performance. The CLSA short on Bajaj Auto however seems to be a pime example of research gone wrong and could be ignored by markets

 

Pharma and IT are not out of favor and banks not leading the rally post Capital infusion also is a done deal but banks will pull up more than most others in the Diwali season and before the next state elections are completed. ACC and Ambuja similarly posted bad results but are probably at the end of 13 consecutive not so good quarters ( Except for Ambuja’s strategy specific wins) Energy is as of now a big disappointment in the last 20 trading days and again may see some speculative interest as Oil at its lowest for WTI seems to get stuck at 108 levels at least for Brent and other Middle East varieties

YES, IDFC and ICICI Bank are back in the running and are definitely your best positional longs at this juncture for the entire shorter two week or longer 13-26 week horizons apart from the usual additions to investment portfolios

 

 

India Morning Report: Bring it on, said the citizens to the grizzled

The palaver of a broken market ready to tip off uncertain highs is catching strength this time but the bulls still have it having technically exchanged stock weights skilfully as new funds were available everyday. of course none of it makes sense if no one believes in the recovery. All liquidity infusions are a case in point, belief driving the US engine out of the morass again and again

However the Banknifty breakout confirms the bull run beyond 6100. We need to understand that PNB results yesterday with Net NPAs quite creditable at 2.37% for such a behemoth. The most glaring misunderstanding of the Indian market still comes from Bharath Iyer’s team at JP Morgan and others at Bank of America and Credit Suisse desks as they maintain SELL/underweight on this behemoth which though PSU has still managed to weather the big NPA electric storms and is now helping Industry ski with abandon. Unwittingly, CLSA loosely modeled on the same state friendly structure in France, had a desk here rooting for PNB after results yesterday as the only one upgrading PNB but PNB underlines what it promised last quarter that it will definitely show up with green shoots on its assets this quarter aiding the expected India Inc led recoevry. also notably missing the point is those missing the come back equating PNB rising as the same as PSUs rising previously, more than a decade ago an epithet accorded to SBI. The correction in bogey PSU banks unable to come back is due and should exclude the UBI, the Canaras and the Syndicate banks even OBC and perhaps Federal and SIB on the private sector have not done enough inorganically to merit positive attention when wwannabe banks are available

Production data today could be led by another jump in Consumer durables and a not so wild cut in mining as we get into the trenches for a q2 GDP rush on the global markets . Korea still struggles with the weak yen induced failures as Korea and Australia sign on rate cuts and Korea adds liquidity to get jobs back in another novel rendition of mint printed liquidity

Australia ofcourse is in a double bind with imported inflation and no regional relations except for its customers in mainland China who don’t care much for the goods right now. Good shorts on the India markets come from understanding markets at 6400 and that underwrites that these last 300 points top off the nifty’s run for right now. Again, if the market remains slow and mostly steady from here, we have not heard the last from the bulls and it is definitely not a weakness as now markets are stable at higher volatility levels showing inherent confidence in the recovery.

 

More to come..in this ‘short bout of volatility’

English: Company logo for CLSA Asia-Pacific Ma...
Image via Wikipedia

There are miles to go for India to even try a fair chance for GST, DTC and Infrastructure investments to name just three seering gaps. CLSA downgrade of India – biting for Sensex levels of 25% lower near 11000-12000 could be the ‘tru dat’ of a sinking European bank season as it hits Asia at a very vulnerable time. No one should deny the loss of purchasing power of the rupee at a rate of 60 to the dollar . PPP terms should thus become wider from the current rates again

However, Banks are being targeted somewhat unfairly raising old concerns of it being because they are our only liquid stocks that run on financial assets that can be willingly spiralled into submission. And that is perhaps precisely the reason they could be targeted. One could see India testing hyperinflation and other denigrated “IMF tenets” of deficit economics being raise by this hot money tail. As funds lose close to 20% and a s flight of capital also ensures lower than 80% availability of locked capital, it is unlikely that anyone can defend against the shorts that are required by traders to recover income in this cycle for their investors and clients.

Global fundamentals demand perhaps that India understand the downward spiral like the other sovereigns. Of course that still does not deny that we were at least 5-6 notches better than Italy and Spain, whereas we have been alooof to the crisis because the “developed world” of the med had a lot of downward catching up of ratings to do with the emerging stars like India and China. Unfortunately though, we have lost the chance to be an equal with China, irrespective of how proud we are of our distinctive identity

China's FIRST McDonald'sWith the dip in stocks on non conformation by the RBI ignored for a late afternoon sell off, Nifty could well do another 250 points till Thursday. I would suggest waiting and watchin gon bargains with a holding capacity of 10-15% of paper losses at 4200-400 levels

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