India Morning Report: Energy cos can rise despite Export parity?

Graph of the Gross Domestic Product GDP (at Pu...
Graph of the Gross Domestic Product GDP (at Purchasing Power Parity-PPP), per capita, as a function of per capita Toes. Year 2004. Data available online at http://www.iea.org (Photo credit: Wikipedia)

Here are the numbers the Kirit Parikh committee is dealing with. Export parity is going to impact GRMs by $2.30 per barrel. However, other things being the same (KP) we agree with Quant broking that Oilcos are the major drivers apart from the metals in the new bull run as 5750 settles in after F&O unwinding (hopefully). Quant Broking also reminded us of the important fact which markets latched on to in 2005 and forgot in the melee on the Dollar and the depleting growth rates since.

BPCL has managed to keep a very low price to Book multiple I would add that it also has a better cost base though the numbers have to come from a research desk hour. In reserves according to Quant, BPCL scores upto $200 bln in reserves wich allow it to be a god enough for portfolios even as the rush is already on in IOC on the strong Dollar. BPCL is es superior in btter ROI diversification thru available capital and retail distribution not available to IOC

Coal and other weak Corp governance stories keep falling through on easy catches by incoming investors avoiding a bigger standoff not unlike the Vodafone GAAR standoff in the same President’s times. admittedly, India’s unsuitability has become a more understood variable globally. However we stick to the view that it is still a better non OECD destination than any other BRICS or other markets including China and the Turkey s or Russia and Brazil with obvious fiscal holes that cannot be equated to India’s intractable sub 4% minimum

Again one on the flip side finds the idea that Maruti and M&M can thus be sold on the idea of expanding rural markets laughable though HDFC Bank would be a good idea , eve within auto loans if not for its overall rural and small town breadth, even as PSUs continue with their traditional problems.

Real estate inventory levels are scary and the market (working) definition of real estate as a market whose asset prices cannot come down because of along other things costs and commitments already incurred, make asset bubbles a fertile ground for research even here despite a healthy domestic consumption share and lower incidence of flipping with potential for more salaried young upper class buying better homes than anywhere else except China’s metros.

The other is the big solution of the CAD which has suddenly hit the saffron wannabe ET ( probably because it hates FDI in media or being stuck with sick company notices like the rest of the Indian newspapers)

Though the inflow rush is obvious, the lowering of invisibles in the import bill, the imported services, may not be good for the Economy nor a reason to not know India and would take a lot of time to uncover in terms of components and future trends. The traded deficit contributing so well that the Credit Suisse forecasts or others of just $50 Bln deficit including the public planned target of $70 Bln are both scary in their matter-of-fact-ness as well. The coming rush of export growth in the period to March even as Advance tax receipts fall and SME portfolios at SBI hit large NPAs would only disclose more skeletons in India Inc’s cabinet even as one of the world’s deepest Financial markets seems to rely the least on Corporate product for its GDP

The Rupee however, has seemingly bottomed at these weak 62.80-63 levels an may well rise back to 60 when these performance improvements land on the commentary and analysis streams in just a few days after September data becomes available ( Right now Q1 data is being release for GDP and Trade on the consolidated quarter basis)

India Morning Report: My right shift key doesn’t work. Will the right UBS please step up!

The McDonald Happy meal is still Rs 20/- and the $5 Big Mac Meal still under INR 200 all taxes paid ( Large fries and coke), so it is not PPP. However, Bhanu(UBS)’ target of 68 is very near and there are no buyers in the currency yet, thus the new Box from 70 to 78-80 should be in play in the coming week. That should also see the traditional Exports rise because of depreciation an import spending goes down finally proving true before the policy implemented is taken seriously by those still trying to understand India from an investment point of view starting from Ford which began in India in the first wave of reforms and is still unable to use it as an export base or get a competing model up against Suzuki.. but the three traditional arguments above hold no water because of the vast difference between reported statistics and trend forming prices, markets and the still unexplored new CPI barely a year old. Bond markets have traditionally neglected volatility especially in Valuations and recovery LGD models from KMV to other modified Merton and non Merton / non Fama-French models.

Domestic consumption is firmly isolated from the one fifth of GDP that is Exports as long as oil prices stay south which looks likely as even $15 Bln less in buying is hardly to be noticed except for the improbable hysteria still not shown by markets. one would probably see Fed buying reduced by half by the end of 2013 in the strongest such scenarios and the markets have broken trends enough to stand tall in that event nullifying any tail risk or God events as a result. Such rabid unnecessity aside, Indian commentators are not expecting a recovery in the currency, and with Foreign interest likely to return in to the investment cycle and in ETF inflows to India and the EMs in the next two months, 80 thus could be my ventured level for the currency, 60 being overshot long ago. A long recovery trade in the Rupee could in fact still be impossible at those levels and any attempt to recover the 60 levels might not even be theoretically feasible right now.

UBS of course has lost all pretentions to Investment Banking and its PPP valuation of 78 is probably a non starter even if they receive 100% of revenues in bonuses as a stay away handshake from the European Private Banking Management. credit Suisse is still due for a hole in the shoe quarter as its ROE calculations seem to suggest this quarter and th Euroean trend t increase bonus percentages flares the remaining  investment bankers to a quick relapse of their own holes. Traders at Deutsche bank of course would have ore room to create a new stand in Asia after having completed restructuring and HSBC may not have deprioritised the same as well. stanchart does well with a long term view so it may be planning to sit out further bullish rupee moves too.

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.

 

India Morning Report: Breakdown trades in progress, don’t get fooled again

An HDFC Bank Branch in Hyderabad
An HDFC Bank Branch in Hyderabad (Photo credit: Wikipedia)

5500 is not holding. It may be FIIs affected by Infosys, it may be that those who rerated Infosys already have looked not so hot on India inc despite replacements like ITC and Bharti that signify winning consumer propositions on a near global scale while brokerages still chasing the tech dream led by Morgan Stanley with an EPS target of 185 for Infosys in FY14 are bound to be bad examples for traders and investors not stopping the exit of the weak. JPMorgan and Credit Suisse have rerated Infy at long last to 2700 and 2450 and the stock may well provide buying opportunities at 1950 again thus ensuring a good index momentum to the downside

The other reasons for worrying about India Inc showed us that only a rerating of positive expectations will continue to happen in the post crisis world and India market returns and economic performance remain exemplars in the new investing heirarchy while China’s struggles continue to define Asia/India. Nominal GDP and GDP at Factor Cost have grown 6.0% (12.5% excluding inflation) and 5% respectively according to the Advance GDP report. The fiscal gap will bring discussion on cyclic impact of exits which should not be significant and as Gold falls on thru in India as well, to below 28k, likely pressure on imports will be found to be reduced but both the arguments are inane and fueled by the ir relation to the fiscal gap in basic math but unordained by any data linking them thru the years when fiscal balance and non exits have again become primary reasons for India to continue recovery. Today’s trades seem to signify a 25k level for gold and 42-43k for Silver for 10grams / 1 kg respectively

Historically this should also be the last negative growth in indian non food bank credit growth at 12% as Deposit growth remains strong enough but that is a challenge that banks have to perform to and while HDFC Bank and ICICI Bank deliver , PSU banks will struggle with higher NPAs till they reach a mean 10% of the PSU bank assets apart from SBI and PNB which are expected to have been done with systemised NPA growth

One is probably looking at more dealmaking in FY14 as well though bigger M&A is not as likely, with PE likely to find a string of deals to match the fresh deal flow in March from Kotak Bank (Temasek/GIC subsidiary) to others in aviation and likely in NBFC and other services businesses.

However back on market levels there is no stop after 5500 till 5350 and waiting in the markets again is unlikely to be worth it, especially with results season likely to be good for only large market caps and selected banks already on buying lists including Indusind, YES and Axis Bank where fresh foreign investment is still likely

Bank Results Season: Shriram Transport Finance Jumps On Leasing Growth

Income of INR 1594 B produced a record INR 3.37B profits for the banker wannabe as Shriram Transport relied on Leasing Income to replace the more lending business friendly Gross and Net interest income. In its core Truck leasng business the industry leader is still moving all the gravy with a dominant 50% market share. Consolidated Net profit is INR 3.67 B

Meanwhile Indian and European brokerages (Credit Suisse) have been upping the ante on the operator since results were announced . Its anual EPS is now riding near 60 at INR 29.14 and the growth clip of 20% of topline and 30% of PAT is likely to be an easy win for the future Bank. Off book AUMs are increasing especially in Q3 with bilaterals to banks making 80% of its securitisation in FY12

The retail market is inspiring improving NIMs for Shriram. Management commentary highlights changes in priority sector definitions to also improve Shriram’s relationships with banks. It had only INR 400 crores in Q2 securitised against an improving market volume of InR 34 B till mid October. Net NPAs are a high 2.89% but have been declining steadily int he last 3-4 quarters from above 3%

Shriram is apparently waiting to season its new leased assets to benefit from an increase to Off book AUMs and tweak new securitisation agreements to the more adaptable PTC mode where credit enhancements are still allowed ( disallowed on direct assignment) while the latest cap of 8% lending rate on priority sector characterisation of a loan might be also apossible change without due pressure on profits as its market leader status allows to maintain and improve NIMs

 

India Morning Report October 08, 2012: India Inc Waits For Real Reforms

 

Update: Some brokerages have already updated sharp shorts in Mid Cap IT but Hexaware could follow Geometric into positive

A downgrade from Morgan Stanley (RIL), an India on call report from Credit Suisse asking for reform implementation and eGOM’s easy billing answer to the fiscal deficit ( from Telecom spectrum) alongwith the age old Cauvery issue complicating mining ban and drought hit Karnataka’s problems contributed to the background against wich the inevitable happened yesterday. The Emkay event is not yet forgotten and DLF has paid for an ‘unraveling’ of a very public Vadra connection but the indices are still above 5670 and going back north today from the looks of it as the welcome corrections piques the watchers of the Indian markets from foreign shores.

A 2013 story train from us 

A title “Contemporary Banking in India” edited by Naina Kidwai of HSBC forms the bedrock of my missing gaps in the knowledge of all things local and as the author of “100 small steps..” takes the inevitable podium on thought waves, the growth of Tier 2 towns and NBFC based financial inclusion alongwith ECB avenues for NBFCs are likely to be ‘revived’ as and growth truly coems back to India after the bottoming in Q2 or Q3. However, the important thing remains to be that results in our deficit numbers CAD and Fisc show up as soon as possible and we move on to not just a buoyant Services PMI but take the Consumption story forward from the undeniable stamp of nondescript plateauing at $1 B for alomost every consumer brand in every sector int his country

The rest of them and reform

The final nails in the coffin for Kingfisher have arrived and the key issue likely to make the media strongly in the next few days is their wage bill which pays 13 managers 67% of their INR6.7B compensation costs. Foreign banks have made a comeback in assets from Citi and DBS while HSBC still has the strongest branch network and SCB inexplicably stuc k in telecom assets syndications despite having won with extensive outgoing FDI support cases including Bharti.

The reform, what exactly does one expect int he next few months to come back from implementation. Perhaps the real FDI reforms only and no GST , Direct Tax code or Companies Bill yet as it might need to be introduced in Parl again.

 

Foreign Banks in India: European Banks deleveraging in Asia Part II

English: Skyline of Mumbai from across Back Bay.
Image via Wikipedia

According to the news flow, borrowing costs across Asia have risen upto 50%, that’ is a sizable loss on balance sheets too

where Asian swaps would have been incomplete rings and with this situation of freeze in financing however expected, those betting on Asia’s growth despite the picture of the slowdown ( not when you considered Asia in subdued growth but when you – and many did – bet on contrarian growth or that the globe did not matter )

There is no denying however that Asia will still grow at 4% and Central Asia & Africa as a region would grow albeit at its speculative trade/underdeveloped paradigm rate which was Europe’s version of an Emerging market European banks have to exit faster though if they want to be not caught in the flurry of exits. TThey will not get a penny’s worth in 3 months if deleveraging continues. Expecting banking assets to be illiquid is a readjustment that will cause such reactions in the market esp with Asian banks already suffering at the hands of repo financed Europe for a decade in Swaps and derivative contracts.

I remember AIG spent two years trying to get anyone interested in its business last time  despite profits in Asia. Credit Suisse needing to deleverage its market book is not a good sign for its advisory business. nor UBS focus on private banking / wealth as its future. Credit Agricole is shutting shop in 21 countries after losing EUR 637 mln in the latest quarter and quitting 1000 jobs in Investment Banking businesses after 850 jobs in France and 650 jobs in Consumer Finance and Factoring

In India, the costs have risen on par despite the strong ECB performance till October by the sheer drop in the rupee not the whole 20% but the one from 50 – 55 ( 54.50 today) a further 10% even as only 3-4 FCCB borrowers are out of the race. Opacity in news flows continues to trouble those with exits firmly completed though, and that is the raison d-etre of having a TV channel to shout from as the index takes the wrong ones to 45 despite R Power, Welspun , Orchid and a couple of others having exited the Dollar debt that was to be a pain and / or matched with their Export inflows

Bharti has a $12 bln of External debt in Dollars on its balance sheet which it has not swapped or hedged. Suzuki gets an import bill of almost $1.6 bln dollars. Indian Oil companies’ entire Oil imports are a huge loss to the exchequer as they have the purchases of $5-10bln every other month again unhedged and miscommunication and bank managements will have to share the blame for these treasuries’ inefficiencies
It is not clear if the INR 80 bln announced by REC as external debt is converted at current rates another $200 mln is to be issued this year maximum from dollar markets apart from a current $250 mln issue. REC Ltd has otherwise worked with very low rates and is repaying $200 mln worth Its book is Rs 1 Tln (930 bln) and new $1 billion at 8.25% may be at least a percent higher

Happy Thursdays! Inflation inches down, Europe cracks

Logo of Credit Suisse First Boston. Source: ht...
Image via Wikipedia

Not much going on for this report thought as the Markets are sstill at 5500-5600 not looking to move much higher. Inflation on Food for the week ended July 16 reported a fairly reasonable 7.33%, and even Primary Articles tclose to breaking lower from double digits at 10.49% but with Fuel inflation stayign on at 12% worries still continue. Bank Policy Tuesday rocked some guns with most Economists sinking their teeth into the policy after the deed, while Banks and Autos spread losses alongwith the newly crowned real estate sector.

The Debt deal drama in US is still on and  the weak dollar putting paid to most results in Europe while US earnings look bright and sunny, even the banks reporting an ok result for each

European Banks may have cleared stress tests but all hell has broken loose otherwise, most reporting half the earnings from last year and Credit Suisse, and HSBC announcing fresh job cuts today ( 2000 and 10000 respectively) In fact except for Shell the European Earnings today from the big companies also pointed to a very mosrose economic situation for the continent and the British banks reporting on Friday already a lost case.  Bellwether Siemens and the largest Chemicals maker BASF reported subdued earnings while unlikely European Pharma Giants Sanofi and Astra Zeneca reporting better than previous results. All these would vbe reviewed in dsue course at advantages.us but the Indian pharma midca story looked like it was getting better with Glenmark and Lupin reporting good results as molecule approvals for $1-2 bln drugs keep coming through and each adds poential sales of $100 mln to each company

Returning to India, with bank rates in a new orbit in a week after day before yesterday’s policy announcement, prospects for growth have dimmed up and its time to be cautious though India remains insulated from most of the global currency troubles outside establishing a steady rate for the Rupee and a healthy exports target.

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