India Morning Report: Markets slip as PSU bank investors stay away

Is Inflation the Real Problem?
Is Inflation the Real Problem? (Photo credit: Wikipedia)

Active index and Banknifty balancing in a stable India economy above 6% growth involved the usual confidence investing in PSU banks a two thirds of the Banknifty to and or xis, HUL and a select set of defensives , that have disappeared as markets fall thru additional support levels. Apart from the loss to Ashwini Gujrl’s set of picks seen over two – three weeks post ‘shucking’, any other impact on the markets is lacking. One feels the confidence shown in non leveraged High Operating Leverage businesses in small and mid cap sector is also misplaced. Such High Operating Leverage Businesses with more than even 75% Op Margin in cases have time and again shown that less than 1 in 20 such businesses , even with deep pockets like Jyothi Labs, convert into a brand and a business like Bharti.

Bharti and ITC lead markets back and Lupin has a lot of strength left in it. Expectation have come back to a 360 Cipla to kick off the game for this rally segment and ICICI Bank and Axis are also losing ground from a probable low yesterday as the Banknifty sinks into 11,500 levels. However, the end (of the shorts) is nigh. This observed bear extension on Thursday is a direct concomitant of a stable PCR near 1 levels leaving writers hungry for more and writing calls is always easier than underwriting puts at new market levels

Tulsian’s faith in the ‘shadow stockings’ ahead of Christmas is also back, but we don’t think  UB Ltd will be compensated fr not rushing returns in the merger and bankruptcy melees of the crisis Olympics. However, it would be  good idea to sink into HDFC and Siemens.

Also Barclays Capital, as we have been following got in  5 out of 7 the same selection of 2014 picks. We already made it clear Tata Motors is a big sell on 2014, probably bigger than the Jindal Steel breakdown which will stop out of the ‘bear cartel’ push at 225 levels The Energy trade should be pushed but the Fisc is already distressing and the release of Fert subsidies at INR 50 Bln  was already a razor edge detail for the Corps watching India’s clawback on global fortunes. Assuming NTPC would not be ready to immediately step up on reform gear and leverage growing efficiency, we would disagree with buys on NTPC.  GMR is back in the big bids and the big bullish candle moving GMR, RelInfra and IDFC together with JP Associates should land on the next bevy of drones.(any independent rally segment up or down can be ascribed to a virtual set of drones picking the right calls). Bank of America, the other who nailed the Economy without attention to thoughts of a wavering Rupee (more than required) will also be worth tallying scores in 2014

The 15% Food inflation and the 12% contraction in Consumer Durables (read our earlier monthly commentary on PMI/Inflation) put paid to any thoughts of a recovery improving despite news of a Q3 debacle already factored/expected for October 2013 and probably till December 2013 s this includes our festival time data. November Auto sales disappointed for all though retail inflation has been strong (good demand indicator) in Consumer durables items on existing stocks as production has been subdued for more than 6 months now

Again, despite the policy tightening, banks are unlikely to need rate hikes as they have weaned off MSF rates. Also retail inflation will continue fueled by higher Food inflation , in double digits due to supply and other economic concerns for small and rural businesses. onion rices have corrected sharply in the meantime and Food inflation data for the month was likely overstating facts, returning to lower double digit levels in the remaining 5 months of the Fiscal.

Oh yeah, we may have forgotten, in the search for Economic employment, the Global recovery of 2014, is not happening except in US Equities as Europe proves its a dead continent and a usurius currency. China thus also fails despite a better share of its own currency in exports again and that leaves US and India and the ROW without business ends to close deals beyond a hygienic rise in Trade led growth. US is also stuck at 3% levels despite the mentored lower trajectory for Currency and rates which a good motivator but the currency is unlikely to be allowed to get eweaker at least from the current Dollar Index levels, probably never below 78 in all of 2014 even as Oil imports stop for the Superpower of the 20th century. And that, is despite the taper.

India Morning Report: Markets open week with 6500 in sight, India hits stride (Business as usual)

Discontent emerging in the divide

The 30% electorate hiding underneath the planks of a whirring Economy in erudite and the shadow economy, showed up in strength to drive home their preference for a non political vote, loosely coupled to issues and worryingly coupled to AAP’s own concoction of manifesto promises at the local level. The markets however are apparently celebrating the vote for BJP led stability in this trademark play. The Rupee has already retracted to 61 levels after opening near 60.75 levels and equities have opened at record highs around 6400. Yields (10-year) have traded up to 9.13% including the days trading as the RBI policy announcement is just more than a week from now

Midcap and PSU Bank investors are standing by (Quant broking and Nikunj discussion on ET NOW) but the stock selection has worked wonders for the confidence and at long last the pockets of the FIs investing into India at the bottom of the cycle unfazed by DII sales and worries of a failing Indian economy

Markets could keep these gains again even as volatility trades remain impossible with strangles holding sway again at the new levels allowing writers to walk away with a rapidly growing Derivatives market in terms of all profits made. F&O trades have to be switched to a 6300 sold put and 6500 sold calls for the time being, with unhedged writes or hedged with weak end of the rainbow OTM strikes befitting the large volatility moves

The return of the L&T and BHEL trades in a universe of very few great stories shows up India’s hand n the markets and markets are unlikely to go swinging up from here as well, markets moving in block moves good for probably the entire month and 6500 a likely try for traders from current open levels

AAP’s apolitical mandate is likely to grow in other stats as well but political options are likely to change equations in the next General elections, a big risk facing Modi backers from here. Congress has maintained most vote shares especially as Chhattisgarh results showed and MP and Rajasthan ar e notoriously aligned to both sides of Congress and BJP in successive election decades, cycle spanning 2-3 General elections and state elections. AAP should consider formal linkages with likeminded hell raising Tea Party’ians in the US Congress

ICICI Bank and Axis Bank are good trend trades on the upside with levels unknown till the market tires out without funds flow supporting the euphoria by next Monday, while IDFC has come back strongly , this time without Citi and Macquarie portfolios running it or their being any strong correlations with the non infra realty pack. Midcap stories continue to be generously endowed with interest as the consumption take off continues to ramp up and make the inflation story insignificant. Congress (and BJP!) however has repeatedly lost with strong cries denying “accepting the verdict in all humility” but it seems more transparently this time a vote for stability. India should  finally learn to emulate the Rajasthan model in the General elections and go with the winner from the start instead of getting into another era of desi hotch-potch coalitions

India Morning Report: The Capital Goods chimera fools no one

Markets settled in to a subdued Friday even as the now almost regular double feature jump in Capital Goods sub indices in the IIP caused IIP to flare up to a 2.6% closelt following June’s 1.8% growth. Though the jump in Core industries reported last week too signifes a likely higher mark for GDP than the June bottom, the jump in IIP itself needs to be ignored with care as the Capital Goods number in the positive is now habitually likely followed by an equally sharpp negative in the August series when it is reported next month or at least before the October festivities mask production growth, if any For those interested, such volatile jumps are a regular in the Durables orders data series in the US and the component of Aircraft orders for example is thus repored separately rather diligently than a black box number up 5% once and -5% the next month almost without reason

Industry investments are not back and thus markets have given in to high PCRs (Put Call Ratios) retreating to 5800 levels in the Friday Morning trade. .Another consumption major McDonalds and on assumes the continuing saga of Walmart signify strained battle lines between Global majors and those who know India at the helm, all in the name of corruption and many other equally obvious slogans India panders to in the global arena ( Without being best at any) Connaught Plaza, seemingly owns not many restaurants and McDonalds obviously as always wants to be unfair while buying out reality partners an moving to another hase of growth,. The valuation battle will be difficult to disengage for any private company but a $100 mln ballpark looks more  feasible than the company sponsored $10 or $300 mln valuations and it is going to be a long battle. Walmart too is apparently not driven by valuation in its current revisit of the decision to Invest in India, at stake the Best Price business with $500 mln turnover and a prospective equity buy in Easy Day which will allow Walmart to become a household name in India

The Rupee is not getting any sponsors this week beyond the 64 mark, but with indices nearer 5750 or 5800 n Monday, it might be another bullish week of te Indian Rupee making up to the benchmark EM currency moves which are more than 10% smaller than India’s 25% move since May 21 in the absence of any buying or sustained investment into the Indian Economy

India’s Mid Cap IT like KIT and MindTree could probably use his time to gainfully grow in size but Enterprise space growth is definitely overdone for them and bigwig Indian outsourcing. IBM is exiting India CRM (Voice) centres too but in a misguided bid to grow portfolio profitability without a synergistic picture as is the Elephant’s wont.

Power NBFCs started the week well an may well help the banks lead Indian equities into the 6300+ zone as the dismal days are following a very standard script and business could be booming before you know it without improving the Savings rate at an all time low of 30% currently

BTW, the PMO mentioned most PSEs (94%) have hit the Capex targets for the June quarter and Government expenditure, well targeted could keep us generating that sub 4% peg of growth on which Private sector investment may build. It’s a long weekend though and Oil could also be at a much lower level on Monday


India Morning Report: And the market survives a cut to 5900

Tried and tested , yet new mechanisms of 2013

Of course, the markets could still decide to browbea

English: Wordmark of Tata Steel
English: Wordmark of Tata Steel (Photo credit: Wikipedia)

t the equities segment further from here despite the mild recovery at the end of the session. As of now my plans for going to Ahmedabad are on course and the indian Ph D programs are getting better lookie loos again with Ahmedabad “Management” ranked in the Top 100. More importantly for the markets, delivery based buying cannot be expected to ramp up in this rally as retail investors are not just stung by 2008 as journalists perceive or want to name the shroud, but are infinitely better placed by investing in inflationary spending than in equities for the future canvas.

Mutual Funds, Insurance and Bank savings still come next and pretty importantly yesterday’s negative IIP score and a near 11% CPI inflation clip ( more than 11% decidedly in urban areas, but thats just the trend) are unlikely to matter to this question of volumes. A slowdown in bank deposits could be an interesting quasi middle management at 100s of growing India corporates and IT investors could take to watching as it mirrors the real response to the production slowdown even as investment makes a faltering return to the Indian Economy and the Savings Investment gap recedes.

sinbadRevival of fortunes in steel seem to have hit an “early call” WALL a new block and tackle strategy likely to hit traders nah speculators in the F&O segment and though I normally desist but the morning call on JP Associates straddle buy invites my derisory attention by the spades. The JP Associates stock is unlikely to tank from 71-75 levels and if one expects action in the scrip in this series further it would be a clear positive, likely kicking off the pre budget mini rally instead of the rally we were going to have at the start of the series. Of course those promoting this market hiccup were the ones betting on fundamentals instead and thus calling off the big pre budget move.

Are Sun Pharma and TCS yet Defensives?

Much as Consumer goods led by HUL had been lumped in Defensives with Pharma, so also today while Pharma while awaiting the Domestic breakout remains defensive as a sector, stocks like Glenmark and Stride Arcolabs aren’t and Sun Pharma is probably unlikely  to last in the Defensives list too long (it ould not be shifted on account of Taro, however)

Similarily IT as a sector and TCS as a defensive remain sectoral strategies or more Big Pig strategies at the start of the macro uptrend where Trendlines can be drawn and in such moves as are in 2013, the stock probably would move out as a mainstream investment much like Infosys earlier. Either way those watching for a bottomed out markets are right in prognosing the comfort moves in stocks like TCS and Sun as a likely vote for no Bull run than the other way around and thus the to get cast in the same leagues as HUL, Sterlite and SESA which would be the Defensives the markets could ascribe. While Axis Bank may not get rebranded as the ‘defensive’ for 2013’s mini moves, Airtel still likely will be as the corporate gets shafted out of bull only and 130-30 portfolios for lack of a volatility linked move in the stock

Tata Steel

Meanwhile the Tata Steel calls are good to sell off probably as JSPL and SAIL indicated a slowness in the sector which is to be shed in 2013 and 2014 so it is also the time for buying this defensive as well for Domestic fund houses avoiding buying for so long since August as they get another Start of Rally point to invest surpluses.

Banks say meeooww

Banks are the move I am waiting for as PSU banks finally acquiesce to getting re-rated instead of trying trading jumps to catch up with the gap created by the NPL imbroglio in the last six months at Banknifty 13500. Thus the move from 12,400 on the Banknifty and it is not made today, will be a decisive one as Public Policy recedes and Finance takes over as the bete noir of the India Comeback strategy for 2020 and beyond.


The India PM Report – S&P forces the blues on to India

English: Prime Minister Manmohan Singh in the ...
English: Prime Minister Manmohan Singh in the Opening Plenary – Resillient india: 25 years of Economic and Social Progress. Participants captured during the World Economic Forum’s India Economic Summit 2009 held in New Delhi, 8-10 November 2009. (Photo credit: Wikipedia)

India’s first risk on rally in a long time has probably been nipped in the bud effectively by the S&P announcements ahead of the IIP data for what is likely the worst quarter for the Indian Economy Credit Suisse joins us in suggesting June’s numbers would not be good but that the next few months are unlikely to be as bad as Pranab steps out to Raisina Hill from the Congress stable and Manmohan Singh itches to take control and bring in a 1 Tln worth of projects back in the reckoning

The Rupee will suffer all week and thus equities will have to stay away from tracking the upside they had started on in the morning earlier as S&P gets ready to probably convert the negative outlook into a lasting downgrade that takes India below BBB- It won’ t be the first time S&P has pre- empted a downgrade based on the last of a string of bad results for the Indian Economy as it also holds a unregulated negative bias and wants to play catch up with other global downgrades more than review the reasons set in the outlook for a downgrade/upgrade. Brazil and Russia are both at BBB after frequent downgrade. Brazil has cut interest rates 6- times since August 2011 and GDP is still contracting as of June 2012. If the downgrade does not happen it would be because indian liquidity problem long solved has taken interest rates to a low of 8.1% and after a rate cut this weekend the interest rates would trend down below 8% before growth also responds. The problems of the CAD and the Fisc have hardly been solved but are unlikely to see any deterioration and political inaction is unlikely to take our costs or the fiscal and current deficit to any worse levels. For Fiscal 2013 we would repair the deficits to at least 5.5% and 3.5% despite the political inaction.  The correction of the currency to 56+ levels factors in the current deficit led correction and from here fiscal measures like a n increase of more than 10% in Petrol/Gasoline prices at the pump that take care of some of the Oil import led creeps on to fiscal discipline

Q4 GDP at 5.4% Full year at 6.5%

Not Bad for India Inc as the Dollar Support also clamps on and 4900 holds on the indices. The usual suspects, Agriculture at 1.4%, Mining at 4% and positive unlike the last IIP data report with overall GDP growth at 5% having probably been factored in already in the last emergency reratings by the Big Four on the indian Economy Q4 2011 was upgraded to 9.2% almost a point ahead of earlier data, and the base effect will likely be pronounced in Q2 as well. Some hope for investment growth has been noted with larger FDI in Q2 and an uptick in infrastructure and mining that could translate into a sustainable growth rate too.

this is a likely bottom too but individual quatrter performances now increasingly depend on support from the ever present Electricity , Utilities and Social Services with the Traverl and Transportation components which are the ones that perform every quarter. Hopefull, some lessons have been learnt for the longer run as well.

How Western Journalists keep missing the point and join a scam

How even Educated Indians feed hokum to Journalisty / Touristy visitors and the western media gets spun out by the local rickshaw-wallah

BW reporter gets the India VIP data treatment like the FT guy before..

Jessica Seddon writes this piece on typical kitty party hearsay longsy introduction about the Indian economy, with data fed to her by a likely bunch..incl the non details of India’s multi faceted debates on defining the poverty line, multi agency disputes to how you just can;t trust Indian statistics…probably clubbing it withour known adventurous neighbours in China who like racy statistics to prove the loan

Mind the Gap: Managing the fiscal overdraft – India trumps up the inflation watermark?

Detail from Government. Mural by Elihu Vedder....
Image via Wikipedia

There are not going to be any receipts from Spectrum

With India not likely to buy and sell LTE specturum for some time to come (4G for those new to the lexicon) and the CAG working overtime, the disinvestment target and other extraordinary receipts are unlikely to bridge indian public profligacy ( in social welfare and health by any stretch? no, the frozen budgets in planned defence, infra and more) Fortunately for the government more people realise that the current budget document is already optimised in terms of no pie in the sky dreamy allocations unlike the NDA and the tweet hungry leadership of the next gen’s likeliest hopes. Though the UPA does not hold too much of an audience no one is close to taking India’s geo political stability but the wallet is spending more in the hope for growth and yet with retail inflation holding higher watermarks for 2012 every passing day, it comes back to the budget and its 4.6% deficit. The first rumors of the overkill were early but the likely amount to be overshot by the year end at its least is still coming out from compatriot and global desks at more than 5%, a good 0.5% gap..showing that most do not expect Indian bureaucracy’s due diligence to hold within the first five months when it comes to reading the reportcard in February next. ( I am not rewriting that, you’ll have to manage with that..and do write back in comments if you can help) The nominal growth in GDP of 15% or even higher may still leave the nation with a sub 7% growth and as fiscal charge in the other direction instead of moving to 3% of GDP

We need a $10 bln Sovereign fund of our own

The first 5 months data are usually the reason to read the crystal ball, and this time we have already achieved the first few successses with record 30% growth in gross tax revenues and 45% growth in Exports. Further down the road, one will note that there have been no changes in the dullness in Investments since the begininning of the post Diwali 2010-11 season Non Tax revenues in the first quarter were as high as INR 2 Tln last year in FY11 and now in FY12 they are only the usual penalties, fines and no spectrum to count only INR 1 Tln in the same period.  Also with reserves inching up to $320 bln we will likely get a SWF to channelise all the energy investments we are making to further proactively manage the deficit bill

The success of Revenue and Control mechanisms

Though deficit estimates haven’t been changed by the PMEAC much, deficit achieved in the first 4 months had creeped to more than 55% but the Government Borrowing program expected to be overshot by detractors has remained well within the targeted segment 50-70% of the much controlled INR 4.55 Tln program. The deficit on the fiscal side adds to the woes of the $55 bln trade deficit and the Forex reserves included our national reserves have hardly grown at $320 bln again much ahead of stock critics waiting to and having already criticised the likely $305 bln number in advance, to ready for the sub 7% GDP performance coming next in pre Diwali jitters

Banks will have to burden more in priority sector spending to ensure results in the government’s welfare program with new 10k loans in NREGA, the last INR70k lacs write off in 2009 a high watermark in this case too. Agriloans have fallen 30% since 2009.

The Fuel Subsidy Bill

The Fuel subsidy bill has been paid out in part but yet more than 2/3 of the government share is  going to be made only in the March quarter after the bill comes right and till then the likelihood of overreaching and ending up with a higher unpaid share borne by Oilcos ( OMCs) remains high esp with crude holding up at a higher peg and the subsidy bill being likely even 20% higher than the high watermark of last year The subsidy bill has likely increased to INR 400 bln or 40k Crores

The Twelfth plan spends

India has after 5 years of dillydallying finally targeted a higher healthcare expenditure ( MSA commited a target of 2.5% of GDP this year) and is still underspending on Defence and even the otherwise regularly “powered” infrastructure, social welfare and even education spending Tourism is likely to get increased allocations as it demands a 4X increase in the 12 th plan ffrom $1.2 bln last year

Managing the external debt

According to the recent RBI report, India’s $306 bln external debt has commercial borrowings increasing to 28.9% from 17% in March 2010. That is the real good news qith government debt incl guarantees holding less than $87 bln. The Debt Service ratios have however fallen to 4.2 frm 5.2 showing less covered by the existing reserves and the commercial debt increase has happened mostly in short term borrowings ( growing by 24% in treasuries and overnight foreign debt) and the proportion of borrowings in overseas inter bank markets is more than 21% of all our outstanding debt. india’s external debt though is a shining 17% of the GDP lower than most comparable economies and leaving the country with a lot of spare borrowing capacity for non remunerative infrastructure investments.

India aims to spend $1tln in planned and annual budget expenditure on infrastructure in Private partnership incl $60 bln on ports( tripling capacity to 3,000 mln MT, and new allocations for food storage infrastructure. in mst infra heads our spendin g has been less than half the planned spend till 2012 and will come back with cost escalations inthe next plan

Mind the Gap

India’s tax receipts have increased to INR 155,000 crores in the period till August but tax refunds have increased disporportionately by 154% or INR 30,000 crores but on a gross basis still growing by 26% in the first four months and faster in cluding August numbers and yet staying almost still as all of it was paid back in refund demands, net collections still under INR 1 Tln. Corporate receipts have grown mre than 30% but probably tax collection ss will crawl back to March 2011 figures as the slowdown takes effect on balance sheets Our tax revenues have been estimated at INR 5.32 Tln of which till now 30% has been achieved. Even Personal tax collections are higher by 10,000 crores y-o-y

Foreign Banks in India: Looking cheerful again

Citibank Handlowy i wieżowce Stalexportu
Image via Wikipedia

While Global results did temper Indian ambitions at HSBC and StanChart, tidbits confirmed from last month and anew show the magnetic pull of a 7% growth for India as the baseline factor.

1. HSBC is recruiting heavily in India(HT). With 50 branches and a retail operation that is almost profitable, HSBC plans to continue expanding its India footprint to a $1 bln profit by 2013. This 6 months saw it make $394 mln in Corp Advances and $451 mln overall in India, incl Investment Banking and Asset Management, no mean feat and Stuart Davies has a hard time recruiting enough, confusing watchers who probably just left the bank and more..

2. SBI’s results have been noted and HSBC Global has already put out a buy on the stock, raising its target to 2600(ET)

2b. Citibank is restarting its unsecured lending business in the country while HSBC continues to be careful in retail assets given large NPAs(BS) India’s Private Banks hope to restart the competition in the space with Axis Bank going after existing customers and HDFC Bank increasing the share of new customers to 25%

3. Emerging market funds see most outflow again for the third week and Paulson got out of more than 50% of his BofA and Citi holdings in June according to his 13F filings. All hedge funds filed their 13F and see idf we have the right analysis in quick time at

4. Of the $3.2 bln leaving Emrg Market Funds $2.9 bln came from Asia ex Japan funds. Also in the first half of August FIIs have sold INR 53 bln in Indian equities Emrg Funds saw outflows of $14 bln  in total in 2011(DNA)

5. StanChart PE is investing a good $250 mln in MSM, 60% owners of Sony, SET MAX and SAB channels. StanChart PE is buyin g stakes of opvt investors including Jackie Shroff, Sudesh Iyer and Rakesh Aggarwal – and infuse fresh capital into the company. (TOI)StanChart profits in India fell 39 %in the first half

6. StanChart Economic Research  in general has committed to using the Dollar forty rule from the looks oof it committing rupee to an appreciation cycle till 2013(Kudos to me-self at the the Banking Intiiative). Equating Dollar to Forty rupees is uplifting, simpler and generally true for all investments spanning till 2014 and more

7. The New Private and Wealth head, Ananth Narayana at Standard Chartered confirmed his faith in the Indian Economy’s restrained performance being in a select band as repeated by many network commentators throughout the day today

8. He and other commentators also mentioned a pause in RBI September 16th policy, quite some noise on that. I would not mind another two rate increases. Been there India. And we will never outperform anything anyway, might as well not stay a lossmaking enterprise

9. ING Vysya raised rates a day after RBI announcement and HDFC Bank upped policy rates by 50 bps today in response to the RBI hike

10. SBI and ICICI Bank also upped rates by 50 basis points today, ICICI Bank’s base rate now a round 10%. While ICICI Bank improved profits year on year, SBI managed to increase margins, with NIMs improving to a never before 3.89% on a Rs 8 tln book

11. Indian Mid Cap Bank, Axis Bank is raising equity & debt from Foreign investors, with IFC chipping in a $100 mln

12. Citi India is ramping up its FICC and equities trading teams in India according to CEO Pankaj Vaish last week(IBN)

The key appointments include those of Rohit Dusad, who joins from JP Morgan as director of origination in credit markets trading; Aditya Bagree, who joins from Nomura as director of credit structuring; and Chintan Shah from Morgan Stanley, who joins as Vice-President for credit trading. In the past three years, Citi has helped raise close to USD 60 billion from capital markets for its Indian clients and advised on nearly USD 25 billion of India-related mergers and acquisitions, the American banking giant said.

13. Indian M&A scene has lit up Asia pacific, with Asia ex Japan reporting a renewed $270 bln in deals year to date (only M&A) out of which India has reported more than 10% at $26.9 bln

14. India’s foreign debt? India owes INR 4.17 tln ($105 bln) of which $66bln is interest. Look at this piece on delusions and economic fallacies

While Global results did temper Indian ambitions at HSBC and StanChart, tidbits confirmed from last month and anew show the magnetic pull of a 7% growth for India as the baseline factor.


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