India Morning Report: Everything is alive and some more are back in play

An unusually late report from our end again, but the markets continued flat after having a scar Friday afternoon closing at 6080. The markets traded closer to 6100 in the entire session and the yields again turned back up to higher than 9%

and the Rupee stabilised at 63.5 levels. Any move int he Rupee above 64 is as good as the other breaks markets are looking at and the Rupee wll in that case skid till it hurts around 69-70

The month’s IIP data reports are apparently still awaited at this long hour and markets have been trading better consoled by the slowing down taper jitters and getting used to the “NO BUY” mode at DIIs and Funds. Power NBFCs have more or less completed the rally with REC moving into 220 levels while the cuts on ICICI(1010) and ITC(310) are also probably done with equity shorting again replaced by buy index hedges in this Short trade attempt.

“Pre-emptive Open” sessions on the Nifty saw the markets trying to guess at low levels for almost every other scrip and the muscle contest was a no show as Emerging market ETFs may be out of inflows too soon in the series but it is unlikely that they will actually see outflows or even if Fixed Income asset classes get more attractive than equities it will not see any equity flows jeopardised by the same desie any attempt to rationalise a link between the two markets

Mauritius and Cyprus being targeted by  India does ht hot mone yflows and in fact probably bodes well for the REvenue Department hose hands are tied especially as they already tried an illadvised reetroactive taxaion of deals like Vodafone, from an era when FDI rules were much more amorphous than today

Tata Steel may see profit taking but that and SESA Sterlite have reported true to form fgood results and with disparate sectors reporting today from Hindalco to MindTree and Reliance Infrastructue who has turned around on their Power revenues woes with Multi year tariff agreements the rally can move around a variety of sectors without paucity of defensives and without a tight upper limit or short duration limits on BUY trades

Seriously, a little gold buying or the returning of Oil demand is not a cause for a BEAR traded on these unvdervalued markets a s long as you have the money to sit and sip a cupa instead of fliing it too fast and creating positive notes on the VIX. One expects a dip in OI also as the short positions exit during this week and the F&O series will probably see more robust trading when such exits have been completed, more probably for next Monday

 

India Morning Report: No, yesterday’s mid-day rush was not enough!!

Welcome to ICICI bank Page
Welcome to ICICI bank Page (Photo credit: denharsh)

Of course, ITC and ICICI Bank will be reporting during the afternoon as well and the market closing is unlikely to be weak enough to discourage a big move possibility next week and overnight positions are unlikely except the refreshed long straddles (short put 5700 –  short call 6300-6500) and exits from 6100 shorts built up mid-week again. J Associates may see flash floods in light of the F1 race weekend but Bharti, ITC and Bajaj Auto will lead the way through to close.

Banks may be in pressure again but only because of the legacy of NPAs in BOB which built up an entire portfolio of NPAs / instead of trade receivable in a bid to export Indian Banking Capital and lending in the last two decades and PNB lone cannot stem the tide. Also the unfortunate positive attention on SBI though under a new chairperson is unlikely to escape keen valuation specific traders for more than a few trades.

The ICICI results may thus see a complex short-term trade unfolding which will beat down PSU earning expectations and correct the recent run up in undesireds except perhaps in the big-ticket PSU Banks like BOI and Canara. Taking the examples of the bottom rung from good old ET(yesterday’s op-ed pages), Corporation Bank, Indian Bank, Union Bank and that other are unlikely to get picked up soon either even as they trade down to less thna half their book values as they tot up more of the impressive 2 Tln NPA in the PSU Banks

SBI’s steady stream of recoveries at INR 4 Bln this quarter is no small feat too and is no small measure contributing to the revival of the stock after Chaudhuri’s exit.

Blackrock and JP Morgan ( with a new Middle East Fixed Income Index) are leading fund managers as Europeans garner more cash from Emerging Markets in their Wealth Management saves and EEM continues to bring good tidings with a big rush in midday trades, again signalling a big push to break down the 6220 limits faced by the traders. Tech M has in the meantime done it again, extending more bad blood to investors as it loses a big renewal from BT to little known Virtusa

Powergrid results enthused the markets and would be a big draw for Foreign investors with more than 80% of its top line Net Interest income translating to profits consistently and the NII now crossing INR 40 Bln close to a quarterly $1 Bln target. Also the Power NBFCs have been fairly active in QIP debt and are a known international entity.

US Banks in the meantime walked out of one frying pan into another as the closure on some mortgage settlements was followed by an “unfavorable award” by the Fed demanding higher thn expected liquidity reserves. The ensuing collateral shortfall and rush for short-term liquidity ( of more than $200 Bln) may hopefully not impact Emerging Market portfolios as BankAm has completed most of its domestic restructuring and government intervention preventing international expansion ( with frequent non US asset sales) ebbing down

Kotak’s results yesterday were less than spectacular with deposits still less thn INR 100 Bln and NII of INR 10.24 Bln on Loan assets of INR 512 Bln ood yields ( NIMs of 4.8%) but hardly any expansion commensurate to its size, and YES Bank already more than caught up except for perhaps a few more wealth clients with Kotak (UHNI)

Fixed income yields are back to 8.6% at the close of the week ahead of the Bank Policy announcement on Wednesday. We do not think a rate hike is on the cards and are long on YES Bank as the MSF will anyway further come down by 50 bp. If instead the repo rate is indeed 7.75% and MSF thus stuck at 8.75%, then the Rupee’s refusal to complete any upward movement would have been vindicated and it may further move back to 63 levels . As of now a move to 60 still looks like on the cards for the Rupee to be vindicated as the stronger Asian currencies as the CAD shows into the good books again and PSU banks complete a two step Capital bonanza with more Capital post the retail fest from the government at the end of the quarter

The markets should close above 6150 in anticipation of the next week’s move or unwinding should hit quickly to more than a uarter of the outstanding in F&O markets. More likely it will as 6200 positions in shrt calls again go to cheaper OTM  6300s in the straddles

Also, I did forget, Will India welcome another to the Kingdom of Fries as “Burger King” heads to twon with the North India franchise of McDonalds already down to underestimating market demand for the McDonalds’ menu

India Morning Report : Rally snarled by a lack of fundamental strength (seen earlier)

English: World GDP growth rate and GDP growth ...
English: World GDP growth rate and GDP growth rate of total OECD countries. Data source: World Bank Group and OECD. (Photo credit: Wikipedia)

Though the Indian growth rate will be beyond the reach of most emerging markets and outside the projected future rates for any OECD countries, the growth in GDP below 5% and the return of food inflation is scotching confidence in the markets as it waits on edge for  the Tapering news to go by and Emerging flows to return allocations to India.

Unfortunately today’s report come after closing of day’s markets, a day when the Rupee also snaked down unnecessarily biting its nails on the supply bottleneck hit food inflation which will also probably become the legacy of the Food Security Bill later. The stakes – to get India’s growth rates back to 7.5% and keep inflation in check. With core inflation below 2% the onion inflation index cannot be allowed to influence further investments in India

Our note however can still remind investors that not just Consumer Durables but the consumer staples sector, offers a unique opportunity in India among the listed scrips and current 30X multiples in the sector may be no sign of investor saturation as bellwethers like ITC and Bharti are rare publicly listed behemoths in the sector which have also successfully avoided the defensive tags unlike the Pharms biggie Cipla where investors move after things come full cycle at Ranbaxy and European CPG pioneer HUL, now an old story for India Inc. Others in the sector are either privately owned or multinationals and pricing power remains in this sector, with its packaging strategies and working capital cycle flexibility in brand selling working them the advantage required to absorb supply chain inflation and raise prices at the right time.

The other story of the morning was the inelastic August Demand for Full fare airlines as the price increases amounting to more than 60% on the Delhi Bombay sector even in he best fare book-ahead rate plans could not stop passenger traffic from returning to a positive 3.3% growth in August. Such ricing power is important in this market where Oil is a major component of the import bill.

As usual it may als be prudent to realise also that India of tomorrow is unlikely to return to the same power ahead growth strategies that worked from 2001-2007 , the meat of the post reform era growth and that the required infra and other capx growth has to wait for the May 2014 elections to complete and that will not stop inflows to India, making the brakes in the market to 5800 a mere hiccup as long as the Taper is an expected number and flows return to Indian sovereign debt as it attempts to brake the shackles keeping it from the Global Bond index  and to Indian equities on reallocation

 

India Morning Report: Rupee at 66, GDP Growth at 4% and Interest Rates at 9%

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.

 

India Morning Report: GDP forecasts look for their pound of flesh, india inc reports (This week in Asia on The Banking and Strategy Initiative: advantages.us)

The old RBI Building in Mumbai
The old RBI Building in Mumbai (Photo credit: Wikipedia)

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

 

India Morning Report: Unfolding Political Drama alienates Capital investment opportunities

English: Map of the British Indian Empire from...
English: Map of the British Indian Empire from Imperial Gazetteer of India (Photo credit: Wikipedia)

 

The surprising and unfortunate saga of the returning bout of political stability that landed last week has caused India inc some serious heartburn as market mirrors waning confidence levels of corporate India which was looking at raising cheaper money and deploying into new industry and infrastructure this year. Though observers still stand on the sidelines trying to peg Economic forecasts to the agri output as monsoon season also prepares to make its pronouncement and the comeback in core metal and mining sectors will be long lasting and is already underway.

 

 

The consumption cuts after a brief comeback in December January are almost inconsequential as global equities will correct and even out only some of the withdrawing Emerging market ETFs with India being a safe haven yet for equities, valuations at 5600 pointing to an almost extreme low on current profitability set to improve in the last quarter of the fiscal. But the 10 year  yield is already nose up after having forced the RBI’s hand and is likely to land near 8.1% another 14 bips in the next month or more. Japanese capital investment flows are probably striking Asia again with Myanmar starting Rice exports to Japan after a good 40 years and that is good news to the region strapped solely by Chinese FDI. Though unrelated, the India story will also depend on these FDI flows as its own Corporates battle the post rate cut bad scenario.

 

 

Further relaxation on FII investment limits in bonds are only likely to bring in more investments in the 3-5 year horizon as precious MTN products become a possibility to increase available choices for those evaluating Indian company CDS’ in the Asian trades. Indian ratings could improve in the next 5-7 years if such depth is indeed possible as another batch of QIPs though distinctly less than the volumes from Indian ECB in 2009 and 10, remain likely in 13 and 14 banks and infracos being the hitherto winners. The steepening curve in the meantime as India’s long term yields falter and demand comes to shorter maturities could infact be a boon to low lying infra SPVs as their structures shift to quasi one year rolled over paper and trap sub 5% short term pricing of debt. Their overhang of 30 year debt continues to be a big rating concern and government is likely to be unable to backstop more of it.

 

 

The political uncertainty in the meantime will only bring Nitish’s Bihar to the fore in the governance camp and DMK itself will be softer after the change in Foreign policy stance. Our own UNHCR confrontation on Kashmir, long hidden might still get political ambitions strewn but on the whole Capital investments will withdraw to a wait and watch mode in India 8 months before due election unevenness could have otherwise been expected to strike India inc’s investment habit. In the meantime, markets offer attractive valuation opportunities with most identified sectoral leaders including YES BANK, IDFC and ITC holding on to new levels. Jet has struck another wet lease deal with Etihad to channelise its quantum of investment adding the Brussels routes to the Heathrow parking spots already in the sale and lease back with Etihad.

 

 

Stanchart’s prognostications for the Rupee may have hit a rough patch in their own term forecasts but JP Morgan and Deutsche Bank sell side units continue to invest in timing the Indian recovery with other foreign brokerages from UBS and CIMB to CS itself still holding local expertise in sectoral mid caps and even banks. Helion and Samir Arora ofcourse stand a little more guarded in light of their closeness to these political forecasts on the nation but they and other India bulls remain exclusive specialists, a breed strange enough for its loyalty as is India’s own secular growth rate still nose upward from 5% last year.

 

 

 

India Morning Report: Really, you want BHEL and L&T back – the new bust cycle

Bharat Heavy Electricals Limited
Bharat Heavy Electricals Limited (Photo credit: Wikipedia)

 

The previous one of course was having to sponsor harmful, noxic ( noxious, toxic and a mouthful of names for the new knowing breed of Indian broker houses) but powerful psu banks even though they were improving on NPAs. This cycle though we have consolidated well, so called speculators find an excuse for misgoverned and misadroitly travelling comets ( limited shelf life, bound to fizzle and skizzle near ones) in BHEL and L&T governing models of both are beat and got propped up only temporarily for a few and now do nothave the dime to last the bad times coming probably. Un fortunately, that also gives the excuse to the noxic PSE banks to be speculated from their “new” bottoms but they remain negative accretions to your portfolio and India GDP even at the new prices

 

However, that bust cycle could be a long hill trek away as India manages to snag the plus flow cycle from competing assets in the nearby shallow and giant yielding emerging markets with the same return with the slightly elevated interest rates around 8% at their best. Fixed Income markets would repsond positively to this expected change in flow as the change is a stable one. Bajaj Auto remains a top pick but would be a slow accrual apart from its speculative bursts and more or loss maintains a very small edge over the Munjal company ( Hero motocorp) even as the Munjals hope for more motivation for their dime in the compete with Honda which will continue to ddrain the big bellwether

 

Deutsche Bank has lost its banking mandate int he subcontinent and as boutique firms are now few and far inbetween in dispensations like India one should be careful of their current foray of picks into the india consciousnervously ready to get forced to withdra further despite the increasing eight for our diaspora in Asia governance and Anshu jain’s inspiring knowledge of Emerging market superiority in the new equation.

 

But then this opinion was probably wasted in a morning report and further detailed analyses are unlikely to follow unless pulled into the dime

 

Biocon is on loose but so is Stride Arcolabs Orchid and Optocircuit as also the Lupin Lab and the Cipla teams which thankfully seem to have let go of a divestment opportunity because they realise more premium is deserved and were not clubbed into a distress sale as was Jet Airways lasting the seige to come out with a 24% stake for etihad. Of course, that means that Spicejet and Indigo have the best possible premium likely in the hunt for the next deal esp as Emirates egts into a twirl over etihad’s close on the deal. Meanwhilw, thankfully the rush for Africa has not resulted in new redfining markets as the India story has hardly corded into the move to build and operationalise the right infrastructure

 

 

 

 

 

Vijay Mallya 3.0: A WOW Dream for India’s 160 mln odd connoisseurs – Deal Insight

United Breweries Group

The Six year old dream to snip and whip the USL Indian brand portfolio with Diageo has borne fruition with INR 33.3 B for USL and INR 24 B for UB Holdings while United Breweries did not seem to be mentioned in the deal announcements and presser at a good valuation for UB group at INR 1440 per share of wwhich 10% will be thru warrants and the first 19% will be from group companies . Vijay Mallya will be holding a residual 15% stake and continue to be a chairman at USL. Diageo will hold 53-54% in USL  United Breeries carries a 38% stake of Heineken that as already final in 2007/8

Diageo spirits known to India include Smirnoff, Johnie Walker and Baileys. Other global hits known to connoisseurs include Jose Cuervo (Tequila), Guinness and Captain Morgan. As the press con just concluded indicates, African and EE&ME markets could welcome Indian whiskies as well

Indian premium IMFL market will be evenly split and grow from the current $160 mln odd to even 10 times with global brands bidding each other directly as has turned for coke in the NA Beverages markets. In the latest quarter Diageo has grown evenly in African and Latin American markets in double digits and a faster 30% clip in European markets like Turkey. Vodka has been on the wane in India this quarter but Emerging markets make 40% of the Diageo portfolio. Diageo investors have not taken kindly to the acquisition announcement

Johnie Walker grew as much as 15% in FY 2012 in the first six months. India is expected to grow 4-5 times in the next 5 years to more than 600 mln coonsumers as per Capita consumption in India remains very low assuring the current CAGR of 15% to continue without a break

According to the chief, KFA will not receive any funds from this deal. Diageop will be further making an open offer for 26%

 

 

 

Deutsch: Logo
Deutsch: Logo (Photo credit: Wikipedia)

 

 

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

Up ↑

%d bloggers like this: