India Morning Report: Yen progresses weakness strategy to new levels

Even as Yen progresses jump(down) in currency, Dollar progresses on the long cherished goal of yields going in north just in time for Ben Bernanke to not worry about a lower rate of inflation in his last year on the job, likely to also be seen as end of the Fed’s major push to exit recessionary conditions. It should not have mattered as much to India on Monday morning but the relationship linkages with the global economy are a mainstay of this Capital controlled Economy and even as the outsourcing bug in the US designs reverses for Visa hogging engagement strategies at TCS and Cognizant in light of the new bill, the Dollar chose to strike out against the weak Indian currency. The euro will only strengthen and keep transmission of Yen weakness to Dollar strength obscured and thus today’s morning move looks like the week’s top/bottom mark for the Dollar rupee at 55 (54.90) but then the Euro may take its time to get there as results season is over and the economies are sluggish though avoiding the bigger pitfalls.

Curency apart, BOB as we suggested disappointed big after cutting provisions by more than 40% in the quarter with credit growth null and bettered NPAs marginal at best. Akshaya Trithiya seems to be catching on more into the urban youth mindset as well as the Economy struggles to bounce back.

The IIP performance was a wee bit sluggish than expected for us esp with consumer durables continuing to be negative and the  mining performance also still more negative than reports would have suggested. However, the correction on the nifty is unlikely to be deeper as the Economy’s score is much past the barrier for bears to feel stronger or easier buying opportunities to emerge than around 6000 levels itself, markets resting at 6080 before consolidating in the rest of this series still carrying chances of a plus volatility up move to another Nifty level.

Yen’s moving to 115 levels and probably even 125 later for a longish innings and the Dollar engendered jump in US yields likely to bring back a bigger rush of green in the second half of the year


India Morning Report: Private Banks paying for PSU heresy

feted by

Bank nifty private bank leaders were again targeted as investors refused to let the index give up its gains. Those locked into long PSU strategies remained headed for negative gains in the 2013 cycle and switching trades also not being available, as a measure of respite seemingly, unwitting profitable counterparts were targeted by those prefering the short side of the target at nifty near 6100 and banks are unable to resist these sharp cuts with most other new longs since April not including banks. To wit, Indian Bank is trading in positive territory being one of the few whose positive uptick in Q4 results fully recovered the profit habit in the eyes of investors. Canara ‘s NPAs for examply stayed above 2.6% headed for a 3% cut in assets and negating any other income of the bank.

New positive offshoots from Infra and results from Karnataka elections that firmed up chances of a stable regime the next five years till 2019 also indicate a firming up of price levels for a success to be feted by equities in Indian markets. All Capital markets look to move unidirectionally in the first few months of confirmation of recovery as fixed income markets celebrate a new 10 year bond and yields move closer to 7.25% levels Strange opinions from Goldman Sachs take over the small screen though as the broker’s opinion tries to spread /believe recovery has spread to stocks like L&T and Apollo Tyres, which both seem to look askance yet and well may lose steam to winners forom metals and minerals first as those look more positively geared up for a recvovery than these GS recommendations

Meanwhile IDFC has hit a late stride on the bull run and DIIs including bulk buyers like LIC look to be stuck with purchases at these or higher levels except for a later correction to 5900 and not more than that

Germany’s IIP data meanwhile only helps our belief that the Euro has taken the proverbial high road, any lack of recovery in the 17 Euro countries unlikely to disturb the currency’s upward trend beyond 1.36 ( hsbc target0 or other higher targets near 1.45 even as any meaningful recovery in the 17 country economic zone or progress on closer union may also well be ruled out after German elections till 2018.

Disinvestment mandates to achieve promoter compliance with sebi requirements (GSK Consumer, HUL) seems to have rung the cash registers at HSBC as the banks good results earlier this week, also showed its great pipeline in Asia, theonly one including both China and India.


India Morning Report (July 12, 2012) : Tech results eye-opener, rupee rearing to lose it

NINE NEW RUPEES IN A ROW (Photo credit: Michael Francis McCarthy)

Infy PAT is down sequentially to INR22B and revenue INR 96B despite the firm holding out on appointment letters ( which again surprises one assuming infosys is a proactive firm than a reactive one)

Though the Won and to some extent the SGD have come back from a month ago levels, the indian Rupee is all too willing to not return to 54 levels and run back on every day we extend the bearish correction in the indices. Infy margins will expand and in a couple of minutes it will be on the wires as a INR 96 B revenue tag finally becomes a small enough number for most to ignore. The management is likely to further reduce their Dollar growth targets and despite rupee depreciation of nearly 10% in the quarter TCS will report margin degrades from wage hikes (33bp) and cross currency movement(?) as the Euro plunged in the same period.

Biocon seems to have consolidated at german levels again in the mid break period of the rally at 240 and is likely to become a good pick going into its results within the week. autos seem to have corrected enough bu tthen there may be very few candidates losing their shirt in this mini week so everyone is a cynosure for the bears’ eyes.

Indian markets are however definitely beyond the IT outsourcing era so to expect a deeper correction except in IT for the new General Manager at GM to cut outsourcing at GM after doing the same at HP

infosys pune smoking zone at night
infosys pune smoking zone at night (Photo credit: srijankundu)

Weakness in Commodities does not a Rupee trade make.

The One Rupee Banknote.
The One Rupee Banknote. (Photo credit: Wikipedia)

I am willing to admit I am rather a big Macro kind of person even during trading and as most are, the Rupee’s upside is indeed limited by the size of the market it plays. While the Aussie does not want to and yet makes stronger against the Dollar, the dollar itself wantonly strengthens contrary to tis economy’s weakness because of the “Flow to safety” trade and because of the large foreign holdings of Treasuries not unlike the yen ( that story in the later paragraphs, do read thru for it will also play out) thus a weak Friday Jobs report for the first week of July meant that the weakness of data actually was expected to and did make the Dollar stronger and later bring it to the brink of a deflationary scenario.

It does not need to be the Dollar to affect such an inverse transaction as Yen has suffered for years on end and the Euro and the Pound Sterling carry a similar risk. On the Indian side however, the comparatively lower Dollar value of trades in the currency similarly preclude the rupee from having any upside advantage and as it gets stuck on the Euro’s downside its inverse transaction riding the Dollar Index is much more than other currencies.

Other trading economies of Asia including the pass thru trading economy of Singapre, similarily suffered but the Won and the SGD benefit from the larger share of Dollar transactions and build out a better case for strength in the currency and thus domestic inflation and interest rate management with slightly weaker equities as witnessed in Korea when Samsung results took the equities down but the Won managed.

Speculative flows make the Rupee’s comeback from 56 levels tougher as witnessed in sharp comebacks pegged to the Dollar Index (DXY) on Friday. However if there is strength and institutions are willing to trade it to 54 and lower on the “upside” nothing can stop it from happening as flow traders would ride that move equally.

Similarily a global weakness in commodities would help other Asian currencies including Indonesia as the Sell Indonesia buy India trade probably winds down if the Rupee remains weak in the face of weaker commodity demand from lower global trade demand for commodities Oil and Gold controls will therefore only help the Rupee gain back ground rather than fixatiing on government support from $289B in Forex reserves.

At certain points in the climb though Rupee does acknowledge the weakness of the Euro and that could be material in bringing the rupee to competitive levels and win back benefits from the falling commodities price cycle that begins with the Dollar Index poised to hit 90.

Rupee Impact: Why the Euro can’t fall enough for the Rupee

The Euro of course is at 1.26 and the Rupee, happy kept its level to the Euro as benchmark for Dollar’s movements against the Rupee has gladly tempered this rise of the Euro to 70.40 in morning trades ( Interbank rates at 70.4, nse can run at a retail premium to 20 basis points – not just points)

The Dollar’s weakness in the week of more QE ahead of Greek elections has been shortlived hopefully because the QE rumor is a shortlived one, however, the Fed would extend its support thru Central Bank swaps ( see – It’s for sure another LTRO, but QE? ) Anyway it means the system would be awash with liquidity and Gold, Silver and Oil are back on the (upward) run. That is another week of respite for the Dollar index hardly corrected from its peak in the first 3 days to 82.5 and no falling rapidly, with the Euro 1.26 levels likely to be a strong support in a liquidly able banking system funded from Europe, other G20 or the US

The Rupee is likely to breach 55 on the long side if the trend lasts long enough and the fall for the dollar may not be a one way street in the Indian FX markets as the USD is defacto the only currency traded including cross rates to Euro and JPY good reference for currency moves and the Revenue account

Indian Rupee Symbol
Indian Rupee Symbol (Photo credit: vishuhospet)

having limited avenues for Dollar speculation, Hot money flows still find a way to keep the Rupee excessively week

MidCap IT is ebullient at the improvement in Margins but unfortunately for the lean prospects of IT the Rupee is unlikely to help more than the 26% depreciation at its ‘peak’ of 56.50  to the US Dollar

India Currency Report: An early break for the Rupee

The Dollar index (DXY:US) turned down precipitously as the fight in the Euro remained about the semantics and the sufficiency of the EUR 100 B, France stepping in to say why it should be an ESM stability pay out than a bank rescue. That meant the Euro is trading close to 1.26 and the Dollar Index already 82 a full point down from 83 levels when the rupee hit 56. That means Rupee’s going to be very strong in intra day trade tomorrow.

Go Long in the July and August Futures at a good price if you want to bet with the Dollar and i should think short the June positions to 55

Better Than Expected Economic Data
Better Than Expected Economic Data (Photo credit: Thomas Hawk)

India’s monetary supply data trended with growth in Deposits to a safe 13.7%. I would say numbers below 16% are even anemic for growth but definitely that means the inflation report tomorrow will be a brilliant 7% or even lower unless the Economic data is not in sync. The base effect on the IIP hopefully is the only thing that is keeping it low now as Infrastructure looks at new investment and other sectors of the Economy also report higher investments this quarter, reigniting confidence in the Economy

Happy Thursdays! Expiry Volatility continues

English: The Symbol of Indian Rupee approved b...
English: The Symbol of Indian Rupee approved by the Union Cabinet on 15 July 2010. The Design for the symbol was submitted by D. Udaya Kumar. (Photo credit: Wikipedia)

One week to go, rupee made an equally violent come back even as the Euro finally matched INR levels to its own performance in Europe rather than wait for its comeback with stronger levels against  the rupee on the back of depreciation against the Dollar. Dollar marched on relentless against currencies yesterday before Chines Flash PMI data again confirmed the worst and again a rally in base metals and precious metals has been nipped in the bud because China would not be importing any more in a hurry esp after the export crunch began in APAC last month.

For equities, it means the risk trade is definitely off but the Dollar may have stopped rising giving a temporary synaptic failure between rupee depreciation and Equity crash so equities recovery can likely continue after the rupee is back at 55 levels too, not necessairily nose diving at every pick up in the USD against our currency. Changes like China’s tick down and the crash in Newzealand exports for example could disconnect the all markets correlation and that would be fortunate for most FIIs too as the Risk on trade can continue while Europe implodes on itself Spanish and Greek yields continuing rising upwards and ECB unable to afford another LTRO.

But then a lot of you should now just be trading June futures and banks and select equities like IDFC, REC in the infra sector ( or construction if you prefer)

Rupee Impact: Rupee Turnaround

While we have already discussed and the story of Forex losses for Indian corporates is ongoing given the 15% correction in Rupee to its lowest levels in November alone, the rupee has already started its climb back, not as a intra day reaction but as a secular move as governments realise the fragility of the Euro albeitly slowly, and the Europeans battle with an extended low period for manufacturing

The resulting Euro weakness eases the pressure on

One rupee — Obverse
Image via Wikipedia

the rupee which should anyway never have been an issue to dollar’s supremacy in the last 3 months whence despite low trade flows it corrected under sharp shorting by traders as the unlikeliness of fiscal deficit coming near targets or trade and revenue deficits being under control was made clear here.

The Dollar may continue strongly however but election years may limit the trend for America as well despite the easing of US oil supply as WTI instead of slimming prices is on a b inge to catch up with Brent more than halfway as prices converge

Indian IT is an immediate loser in the resulting investment interests in India as gfrowth in retail and infrastructure takes center stage Consumer Discretionary businesses may be excluded bu tthe Indian consumption story is doing great esp as more urban influencers dedicate a higher 20%-50% of their disposable spend to entertainment and “going out”, eating out at an all time high despite the high food inflation figures Of course supermarket outings continue to masquerade as non TV entertainment for most couples

IMG_0979 - 2011-06-27 at 20-24-06
Image by KiltBear via Flickr

Predilections: The exploding turkey

one rupee
Image by balusss via Flickr

The market sentiment today after the Euro’s integration was exposed to the public as nothing but  a rear guard defense throughout the coming decade, was a perilous wait and watch for any buyers with the indices giving in to another one-sided move after 8 days of unguarded hostility, broken for a brief lull yesterday.  The market also sees everyone else as unwelcome intrusion, just that there are sellers in both equities and currency markets , not to forget bond markets who still like to see the government’s face on the other side before stopping the spree.

Whether in currency markets stemming the Yuan rise or the Rupee breakdown, most would look at the woeful example in Europe and stay away from intervention as nothing good comes out of it eventually. However, the sellers are very clear in their actions and verbal speak that their selling is not based on fundamentals and they do not think that matters. Hence, given our unlimited patience and the propensity of going bankrupt by going shopping for Rupee or Dollar at the wrong time, we would stay away till things settle down. and now, the nifty after breaking 4700 down, may just swing back tomorrow for 5 minutes before staying down till Europe realises how much it is left with after the margin calls and how much it has to print. Unless China gets a new breeds of FIIs. Though, none of the money that enters India typically leaves ( After profit booking, more is inside than it is outside in this entire 2011 spectacle)

Not to say that the markets can’t rise vertically after they do end the fall, but as the exploding turkey in the oven, it is hardly going to be championship fare when this selling gets over. The prognosis therefore is that the markets will stay dull enough and you can wait even more before you do start buying. And, right now shorting any of these would be committing hara-kiri, in equities or in currency As even newly converted India bull JP Morgan mentions, we are still overweight on cash.

Sector wise, no one who is overweight on Comms can be without skeletons to hide and I would not suggest going overweight on Comms or tech. Except that Airtel scrip, which has a lot more going for it too and a sthe only player with muscle,  in its main markets, it will turn out well. I hope my readers have been buying on fundamentals, as there are a few stars out there . Also, apart from the intermittent interest in consumer staples and healthcare, sectorally, the market does not get into a secular upswing till the best sector there is i.e. infrastructure and banking, get up and get going again

Just getting the morning coffee to work..

Predilections: Read the Global tea leaves

The Fall of the Berlin Wall, 1989. The photo s...
Image via Wikipedia

3b. All said and done, shorting India stocks is easier and easier every day and those derivatives volumes are not going to fade away, Write a call today. If you want to buy commodities instead, buy the dollar instead, the others can’t last as China is still holding on to purchase orders it was suspected it would sign in metals, grains etc

3c. Did you know Europe has a trading surplus from all the import orders that have been canceled. Having decided inflation is not the way forward, most of the EA-17 will be tightening their belts like never before as Germany becomes the villain  that cannot buy them the luxury of food and drink for their next 20 years

10. India is in a vicious cycle of low reserves, targeted currency and high oil / energy and higher food / vegetables prices. and our supply side imbalances are being a targeted to tipple over and experience the “recession” that everywhere else gets talked about. China can just put it down with its surplus and state control on supply inflation is so “prejudiced” but ultimately closer to the truth than saying China does not matter ( like its military aggressiveness that is so glaringly obvious

EA 17: Those who have adopted the Euro

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