India Morning Report: Les deux ex machina, et vous? Les fou de cirque n’est pa!

In singular, it would be the Ghost of the machine or the fool in the circus. A market of course has more than one of everything. Apart from that there is cricket too, where India turn a win opportunity into a clarion call to stay awake

Markets ‘jumped’ overnight to 6080 levels at the close, with US markets closed on Monday. The VIX trade is back again, 2 weeks from expiry, ( though the last week in Indian monthly expiry is usually the busiest in contrast to more deeper US and European markets that trade weekly expiries and expire by the Friday for Third Saturday in monthlies staying untraded the last week as most of the busy series are in the “next” month or new weeklies.

The banks are back with a bang but the Bank nifty trade is a good strangle range pick , even a sold straddle will give you a decent range (as Ashwini reccommended yesterday) as PSUs and SBI get exchanged out for new buys in ICICI Bank, HDFC Bank and Yes. While one is not sure of Kotak, PNB definitely has enough detractors yet despite the great performance with controlled NPAs and fully provisioned balance sheets at begin of year allowing improving provisions while releasing profits. That means PNB might again be a buy after the big run to 550 levels is cut on profit-taking.

I”d try a short in Kotak and let you know what happens. IDFC, Bharti  and ITC are great picks and starting from the bottom of the trading range while the Power NBFCs are ready for a move as well.

Bajaj Auto gets first mention on the Excise giveaways from PC’s last presentation, which was technically just a Vote on Account.

Excise Cuts on SUVs and Medium and Large Cars to 20% and 24% mean the gains in market will start for all automakers including the listed Maruti. The markets preferred Hero management coming out after the excise cut, but with Hero also biting a lost mandate for a grip back, Bajaj is still better off with Egypt exports hit by the import ban meaning less than 100K units to be recovered from the drop in excise duties.

The Indian Macro is easily the best poised for most fiscal adjustments to be burdened at this time and the VOA optimism could well prove to be PC’s gift to the parent Congress party in its new roles after the Elections as a fiscal deficit target of INR 5.3 T is not a shakedown or bleeding optimism in the projected Indian Balance Sheet. The nominal rates of growth at $1.10 T base in FY13 we assume may yield $1.26T and $1.44T targets for FY14 and FY15, that may very well be any other number at the realistic 11% nominal ( achieved in FY14, LV-CNBC) and 13% in FY15. However the 4.1% target look daunting esp as Food subsidies have been duly increased to INR 110,000 Crores (1.1T) and Energy subsidies understated at even INR 650 Bln (65000 crores) with INR 850 Bln scored in FY14 after the deferral.

A great Fisc performance thus at 4.6% will be greatly rewarded by the markets esp that includes INR 2.46 T and INR 1.8T only from Tax revenues but shows 100% achievement of Divestment (INR 400 Bln ) and Spectrum sale targets (INR 600 bln) and the new government make the usual drop down ravines for itsel fin beating the other government’s VoA, before trying to dump comparisons in the new Budget post general elections, All inall, not a great day in parliament for the new government as it would never sound better than boring humdrum in the whirring engines of growth that have to take over this year. A last note on India Macro stems from the continuing dissociation of Investment levels in the GDP at 34% from the true investment which has barely just hit 5% growth and mostly in the Consumer areas. Unconstrained Bank lending continues to remain available in India and interest rates are likely to continue down from here at a fair rate, allowing Fixed Income portfolios a bigger boost

There however is no comparison of the difference between any remaining expectations on Infrastructure investment in India and real participation to any other subject to kickstart India’s new millenium story, yet to begin after in stalled in 2009 and infra funds have to prove versatility in financing the new projects still blamed on bureaucrats or the Congress. None of the private cos as the markets have shown they realise, are in any position to take new project debt into these balance sheets at GMR, Relinfra or JP Associates and conventional bank lending is not the answer for them

Kejriwal and AAP brought the AAM AAdmi back but failed in their mandate by leaving from the aisles before the start of Act I.

Energy cos are getting the best possible deal with INR 1.1 T in payments despite the deferrals with more than INR 800 Bln already paid out , so they should have already been discounting much better levels, at least 250 for IOC for example as the fiscal did see a consistent unburdening of the energy infrastructure and a more rewarding marketplace, even as the Power regime gets more competitive

India Morning Report: It was Kotak meeting its maker again! (6250 again, naturally)

Thus the market turns south from 6320 levels though there is nothing to bother the market much.

Kotak’s mid afternoon tryst(just the 9 month report) could not shake off the market assumption that Kotak’s business is all but done and that does not bode well for it in an unbanked India Q3 results showed a grand INR 35 B in fees and INR 34.92 B in Net Interest Income yet again, not counting minute variations. Adding insult to injury, where the bank almost categorically does not expect to grow any of these businesses were the unravelling NPAs on a small portfolio

Improving NIMs at Kotak are heartening and CASA is up 22% on year. The split of the Advances column is a heartening reminder to others like Yes and Indusind evenly split across Corporate, Commercial and Retail (INR 20 B) and NIMs are much better at 4.9%

HCLT in the meantime has hooked up with CSC for Application Services Delivery centers in Bangalore and Chennai. SAP continues to explore India in the mid market Enterprise space with partner innovations. IBM recently sold Daksh back to local operators

Korean GDP releases later today will probably again reset India’s FDI expectations. Bank Policy Tuesday may appreciate the inflation correction and the increasing deposits in India’s coffers coupled with Government Borrowing turning out better than expected. Foreign Reserves are hardly comfortable but higher than usual allowing RBI to spend a couple of Dollars last week (January 5) on exchange adjustment. Bank Credit update will continue to show better growth.

HDFC , Dabur and Biocon may keep viewership glued to trading software and TV releases again. Arvind and Tech Mahindra are among the fabled Volume Breakouts of the season but we won’t be looking at them till FY16 as the model and the Distribution kinks for the former are still suspect. Aurobindo Pharma has post announcement made the splash on news count into hard stock price increases and will likely hold new levels. Biocon , if you believe in a generic thread of Indian Pharma , could still be the Indian Infy/TCS depending on your version of the morning coffee.

I am still buying IDFC and YesBank. Power NBFCs come out jst before their results break or in 2 weeks as the rest of the breakers are in town with M&M Fin joining Volume Breakouts today before earnings. CESC also sees a higher clip of returns on breakout. no Zensar isn’t making it anywhere..Lupin is still bussing up and let me know the others, it’s busy season outside the markets. 6315 was holding at 10 even with the Kiwis in trouble

Network Analysts or Gang of Analysts will do better with Lovable and Page Ind(no pun intended) as the scrips move into gear after the post ipo run meshed with a consumer rush and a dearth of supply in good stocks in 2010 . Prestige , Talwalkars and JP Associates are good for l.t. accumulation. PVR hasn’t wound down so the pie for I Sec finally broke out of the clouds and will keep growing (till it rains burgers and purple juice?)

Cymbalta apparently is a Torrent Pharma revenue which posted a good INR 10 B revenues yesterday. We haven’t captured its jumping fortunes earlier, Torrent Power sharing an equally unique business advantage in the utilities space (serving Ahd and Surat)

Davos streams on cnbc and or Bloomberg(us) could have well waited for saturday programming or the interview settings could have been suitablly upgraded from luxury breaks to business interviews for those at work

At 11am, I am shorting BOB, the 6300 calls are so cheap the 6300 straddle is the BIG WIN(Ashwini/etNOW)

India Morning Report: Why exactly is IOC available so cheaply?

Of course, Infy will lead the bullish breakout on the Index, and the profit prognosis again at a Cons INR 28.75 Bln is much more to look forward to than the Cons Revenues of INR 130 Bln but the dip in Revenue growth , braked to 0.5% on Q2 Dollar data is still probably excusable. The jump from Infy to the Earnings season that starts in earnest next week.

However, IOC is as expected delayed on the divestment news but mainly because the Oil ministry got the fangs to file a dissent note as the Energy co’s price has slumped to lower than 200 (on the average of prev 6 month closing prices) There are many benefits to divestment and in fact a bargain such as IOC at these prices would be an investor bonanza par extraordinaire. BPCL (up 7%) and HPCL(up 3% probably) gain on the news of the delay but the question to who are the agencies involved in muting the price performance of India’s best navratna after ONGC remains important to answer unfortunately for the BJP fueled markets and the outgoing Congress government

The Delhi Power audit will also ensnare Relinfra as it owns 2 out of 3 Delhi Power distcos with more than 30 mln subscribers and three-quarters of the Peak Demand. Delhi takes in a huge 7.5GW of Power Capacity of the installed 130 GW nationally but the share is much larger in utilised Power capacity

The Pharma companies, the other beneficiary of India’s global largess in currency trading, will also be busy making aggressive deals in the US Pharma market while rejuvenating their domestic Pharma businesses, with Torrent and Auro completing deals this quarter in Elder (domestic) and Celon.  Lupin delivered another USFDA win along expected lines with Twynsta generic being allowed to both Lupin and Torrent. Fresh buying is impossible even in Lupin, Cadila ( 850-1350 nah?)

The market is not really ranged and while Infy may not be able to envelop all India expectations ever again at the start of the results season, it still clears most markers impeding a new rally post earnings. Bank earnings deliver the second infusion of realistic optimism on India Inc in a few days when the upward edges of the range are exected to stand up to better levels. Meanwhile Infy should crawl to the top of its 3400-3650 range benefitting the rare speculator who punted positively for them , most having to square out written calls, even as the markets face resistance offered by such shorts and Infy sets the grounds for more positive surprises down the line with NRN back at the helm. The changes in the Executive would be the easiest to explain.

A problem of plenty as I use images from Google with the syndicated image burner feed disappearing from WP?? 😉

The RBI governor would be probably hoping that the month end policy becomes a non-event considering the positive mpact just from holding rates and the challenges from inflation growing by his side. BofA’s Axis Bank ugrade may still be too little and too late as Axis battles NPA spam with PNB , counted for its days with the PSU crowd

Indices should not see a meltdown thus at 6150 and you should get one bang out of the score if you sell 6100 Puts getting cheaper by the minute at the open and even 6200 ones. If you cover them do cover them with buys in the OTM range(buy) at 6700 ( assuming 6500 in  a close future top of the market ) The bottom of the index range should thus become more volatile funding the shorts glued in to the market bearing down for over 6 weeks now but they will probably tire out this time, Vol allowing a long-range upside on its own nevertheless as India VIX continues to ride low on a stuck to the tea leaves recovery, which will still trend higher and not lower like in China

India Morning Report: Bharti Airtel improves India offtakes, pecking order unlikely to change for markets

Bharti Airtel Lanka
Bharti Airtel Lanka (Photo credit: Wikipedia)

 

The improvement in EBITDA to 31.7% obviates the other stream of bad profits from Bharti and one can wait for the stock to become available under 280 but the reassuring move from 275-330 is well safe as the dust settles down on another quarter on sharp cuts in reported profit again likely affected by one time items surging thru the global major’s rupee balance sheet every other quarter. Within, Telecom Bharti remains #1 in new customer acquisition data for March as well close to 3 million new connections in mobility and revenue increases seem defined upticks than Tata and rel Comm’s occassional blips into civilisation before going back. ARPU is no longer an orphaned series at INR 195 per month. The earlier quarter ARPU was at 193 and probably year ago as low as INR 188

 

Bharti’s INR 60 B Africa revenues too count for a major incursion into India’s new favorite FDI market since 2008, gaining FDI volumes close to China’s push FDI in the dark continent. One has however capped that $15 B investment as resource sectors apart , tales of stability and consumption in Congo and Somalia are more the exception than the rule

 

Brand India in the meantime relies again on infraco fund infusion but as election years go, this one may still be counted as one of the more peaceful with rare positive excursions by FIIs and outside India analysts into the country even when news from ECB and Fed remains critical to the direction and size of funds flows in the markets

 

Banks have been subdued for the Bankex and the Banknifty trading lower from all time highs in ait for an opportunity but some components of the bank sector indices are still likely to head south and negate the just aborted psu rally on their own steam as the difference within the PSU herd also shines and the threat of new competition makes the private sector bans stampede the rural consumption markets faster and grow back the consumption story still going strong in unbridled double digit CPI series for both rural and urban. IIP services data follows on Friday and as it would compare across US, Europe and China, it may well define strength for India inc.

 

Manufacturing R&D as a business segment has reached $10 B in India from more than 200 captive units of global majors, while pharma outsourcing is likely to regain captive strength as wwelll in light of the affordability linked rulings in Indian courts. China meanwhile is a real physical threat knocking us on the borders in its own inimitable ‘sleight of hand’ show on Ladakh and Arunachal borders showing up the importance of increasing defence allocations and arms spending while the Freight corridors and even the NMP supercities of Dholera seem to be threatened by the lack of movement on Land reform bills and external funding

 

 

 

The Delisting trotternama gets investors again!

Investors expectedly got blindsided by companies choosing not to buy back and delist their India subsidiaries even as stocks crashed in Honeywell on news of the change in plans. The stock run up had more than something to do with the correction and the decision and is a common conundrum for many MNC arms in the country not wanting to continue in the listed subsidiary business model but cowered by the price of delisting for the less than 15% stake in many cases that is priced high in expectations of a block buy back

An ET stat compilation of date shows thomas Cook, Kennametal, BOC, Sharp and Astrrazeneca already showing strains and having probably arrived at a new management decision crashing prices on the local exchanges bringing back the buy back option for those unable to envisage a further stake sale here it  is more sizable than the 1.43 nmln shares required to be put in the OFS by Blue star and may again skew the probablility of an OFS.

The regulator SEBI is unlikely to further  stand by patiently as  the delisting stories have been coninuing for almost 10 years in many cases as the FDI regime has become more open on business models espoused by Wholly owned subsidiaries.

One foreign bank also listeed in India after the crisis broke but banks have been avoiding creating a new risk silo for India , neer licence operating only CIB franchises and avoiding retail business altogether

Bluestar and Honeywell are pricing their delisting Offer for sale in the markets to get the stakes down to 75% removing them from the target delisting universe.

Coca-Cola: Millions to Washington Politicians,...
Coca-Cola: Millions to Washington Politicians, Billions to Invest in China (g1a2d0040c1) (Photo credit: watchingfrogsboil)

India Closing Report – Week Of September 24-28, 2012

 

The CDS currency series on the USD is finally trading below 53 as expected starting back from 53.5 2 days ago an dis this time likely to go below 52 intra day in the Ne October series as gold and Silver importscome to a standstill before Diwali on Nov 13. International prices of Gold move in tandem with Indian jewelry demand and the bottom is a certainty the market has seen over the last 20 years internationally and locally

Retail FDI aspirants are active and biudding up their real final control equation wary of the $100 m in 3 years and the back office requirement as they run for good M&A possibilities int he space. Aviation rerating from FDI is abviously because of more international demand for listed stock from Spicejet and Jet to Kingfisher and perhaps unlisted Indigo and Air India as well

The jump in Nifty is a little bit of a surprise , one expecting the bull commentators to again not again get any returns in the fresh series gambles and while new picks have not succeeded the enduring stories from ITC to ICICI BANK and IDFC have not disappointed. JP ASSOCIAT deserved the run and TELCO’s (TATAMOTOR) mysterious run continues flummosing all and sundry a nightmare compared to REliance Capital and Rel INfra’s expected rise and fall on good and bad days in a spree

BHARTI is still at reasonable levels but given that it is  a less than 50% holder in front office big retail with almart expect some investor groups to leave it for its portfolio fo international /US investments The bump isn profitability if that is the hope is still a mirage a nd a lot tof hard work from the management returned in kind by new consumers and governments important for that to happen. Th eDCHl case is a mite mysterious as ell, ICICIBANK obviously relying on the IPL franchise name to the latest tranche of loansin 2011 and now the immediate restructuring while YES holds out for franchise assurances. USL rise is likely limited from here as promotores have already haked therir stake for collateral , almost the entire 27.7% and their hoep from a Diageo/KFA investor treasury purchase is on debt improving the bottomline from a upto 50% drop in interest costs

 

India FDI Report (March 2012)

India’a FDI process received a tremendous boost in March after $2 bln flows in January and February, itself a fair score were boosted to $8 bln for March even as international media slips into a morass susing the Indian voice and using their ignorance of India to blindfold and then play with Economic Darts ( or half cooked $$art points).

Hamersley Iron 20 class locomotive at 7 Mile Y...
Hamersley Iron 20 class locomotive at 7 Mile Yard entrance, Dampier, Western Australia. (Photo credit: Wikipedia)

India is well provided with such munition for its unfriends starting with the 4% Current Account Deficit and the double digit depreciation of the rupee to the curbs on FX trade imposed by RBI since October and added to today with punitively enforced conversion of Export dollars to a local currency. That boost was also needed for the Rupee as it faces severe action by European speculators stunted by the lack of LTRO ritual and a drying up of business back home.

FDI grew in the last month of the fiscal and even allowiing for the fiscal end corrections if any in the tabulation, is still a great score considering that FDI in multi retail was never satisfactory after coalition politics robbed the Indian markets of a great expected boost in the Hindu new year. The $36 bln FDI in 2011-2012 is still below the FDI receipts expected when the Fiscal began last year before it ended on a low note, expectations of growth scaled down to below 7%. Asian competition from China and Indonesia apart, India still expects to see a boom in retail consumption and needs a lot of private participation in infrastructure. Telecoms and GAAR apart as they target specifically sensitive corruption and governance issues, Foreigners remain welcome and banks may not be the only ones growing business in Asia esp India in 2012 and later.

Routing of FDI thru Mauritius has been a special charm for the India story signalling to most Indians on the ground that jugaad is still the order of the day and hence the efforts by the government to re emphasise that india is not one of the banana republics or one scrip economies that Western investors seem to favor. Indonesian and ASEAN FDI story is however more freely linked to Chines e FDI into and from these Countries.

The March rush may be explained by earlier announcements, large ticket investments expected in Mining and Energy from BP and other global players. Rio Tinto is part of a diamond exploration project in Central india.

India 2012 FDI Reports – Curtain raiser

Though details are yet available till January, the rearly momentum in FDI and the now value equation in India’s Financial Markets has again meant renewed inteerest in India FDi though the buck stops at retroactive amendments and the recent clarifications on FII portfolio investments thru P-notes a s a measure of investor confidence. In the last three months of November, December and January more than $5 bln in FDI was reported despite the ongoing saga and domestic credit growth also belies expectations of a slowdown at more than 18% growth.

January FDI of $2 bln mostly Added to Services sector for $1.3 bln and Infrastructure construction projects of another $600 mln while there was also a solitary software project investment for $100 mln

That means there was no FDI in sectors like Automobiles, Power and Pharmaceuticals / Healthcare unless new projects have been added in February and March buit these sectors will also contribute further in FY2013 alongwith Financial Services and Transportation/Travel and the ongoing impetus in Infraastructure witht hte first two India infra debt funds, one with Citi and another with HSBC in play.

Ten month FDI totals have hit $37 bln and Feb and March would at least take it to $0 bln for the Fiscal.

India’s Fiscal Deficit in the meantime hit a few flood signages on way to INR 4.94 Tln for 11 months in FY12 from a INR3.68 tln for the full year in FY11 which was a humongous 68% of the Budget estimates against this years likely overshooting the Revised Estimates of INR 5.15 Tln CPI Inflation was a high 8.8% in /february and thus WPI will also climb from March and April risking the rate cuts planned in early part of the fiscal by RBI

So are P Notes in or out

CoA of Mauritius Français : Blason de Mauritiu...
CoA of Mauritius Français : Blason de Mauritius Deutsch: Wappen von Mauritius (Photo credit: Wikipedia)

Well, i understood it thus. There were first the Anti avoidance rules called the GAAr rules which were intended to catch those who benefit from the treaty in Mauritius without belonging to Mauritius per se , with a token presence not backed by assets or business i.e. Offshore investors. These offshore investors have been targeted.

Two, in the clarification on Overseas M&A transaction involving india assets, the intention is not to cover P Notes because underlying equities are Indian Assets. So that piece was unnecessary walk in the park while the trucks were running up and down and you could have all avoided the noise.

The real rule details would thus clarify how Portfolio and FDI investor would be welcomed and how revenue leakage from Maurtitus a s a treaty participant, which remains the key example, would be taken care of now that the new treaty signed has included only token changes at the behest of the Mauritius government. And no clarifications are available yet. We are looking.

Where’s everything headed, then?

We as india writers have pushed out everything with insight in the last three four years, short of  the unworthy Indian infrastructure which could not attract even $100 bln in Gross investments yet with two debt funds of $3 bln each and some older established PEs like Macquarie and 3i and the Govt of India grants of INR 750 bln. Short because Indian Infrastructure sector with all the public enterprises involved is very short on the details and as it works without meaningful graft like the Telecoms, the Roads, Power, Aviation and Ports infrastructure continue to work with construction companies like our FMCG sector works with $500 mln brands from HUL, P&G and ITC and we are the wrong ones because we criticise something as if it was the end of the road for the sectors in each case and nothing else going to happen because it is not.

At least that is also what the Dy Governor of the RBI, Subir Gokarn seems to feel if we read into his new timetable to plan out Capital Convertibility for India. FDI in India has always been able to attract the bigger dollars irrespective of investors’ fascination with issues like the retroactive introduction of taxability of transactions and the impossibility of investing more than tokens of currency in our banking sector with restrictions of M&A or the recent failure of FDI in multi brand retail/ defence, healthcare and aviation.

The true problem comes in India’s cultural intractability compared to China or Signapore or others total rolling out of the Carpet for the bbigger dollar including the State sponsorship of the project, and not an immobilised set of half dozen land reform and Tax reform bills, and the Private state and comsumer acceptance of that way of life that the investment unwittingly imports itself with. Being open to cultural transfusion, this is a real anachronism always heaped on  the middling old politicians who could not run coalitions but it runs deeper as the next few generations will find out.

Probably what we need to bring in each sector is like the perfect storm, at least two representative investor in each such sector, like probably Yum with KFC and Pizza Hut and Tata Global – Starbucks and or Dominos with the Bhartiyas where there are unlikely to be any hiccups with all three biting the bullet and all government departments, consumers and politicians able to sell and compare. I would even aver that the 2g  experiment is still very much a success for the FDI story right now. A similar base exists in Banking where the world’s Top Banks are increasingly looking to Asia and India in particular to roll out bigger base staff or the magic wands that the local and global Harry Potters need to win the magical sorcerers over at state and center.

Whether it is International Quality standards for Highways or structured products in Banking, Indians more than other s are Comparison shoppers who like to think their Point-Of-View is appreciated and part and parcel of the product/standard unlike others who let FDI build a parallel Eco system, much like empty highways and cities outside Bejing while the Eastern corridor esp  around Beijing keeps cars stuck in Traffic queues that take three days to move from end to end, or even more

The simplification stated in that, is to be taken with the usual detailed quid pro quos and the details of a contract like bringing the capabilities to service rural consumers becoming a new reality for banks, auto and credit card and durables/discretionary sector plays from Pizza to That larger personal loan than the $500 on my Kissan Credit Card.

FDI momentum for India’s growth

India remains the #4 destination for FDI worldwide way behind China as less than one third the rate of FDI

Armani Exchange
Image via Wikipedia

hitting China. China’s FDI changed characteristic at the start of the crisis to a Services led growth in the Central and Western regions , moving away form the Eastern seaboard and even as wages increased at the rate of 12% per year it stayed in new Services areas and current enterprises in McDonalds,, Starbucks and GM continue to either grow or as in GM’s case battle new 11-22% duties but remian the dominant player in China.

On the other hand, India has turned away many in retail from Ikea to Walmart, keeping those planning JVs in the play for more thna one reason. Yet, Till November the eight months of FY2012 managed a $22 bln inflow

Deutsch: Moët Hennessy Louis Vuitton Logo Engl...
Image via Wikipedia

of FDI, $15 bln having come till July 2011 and data for December and January incl LVMH and Starbucks but excluding Carrefour and Ikea still expected from official sources.

FDI in aviation allowed to Foreign carriers is yet to bvecome a happy event without a ready pipeline of bidders and local sourcing restrictions helped a couple of 100% entry decisions get shelved

English: Simone Singh at Jimmy Choo Bash. Phot...
Image via Wikipedia

FDI averaged $2.8 bln, $1.7 bln, $1.1 bln and $2.5 bln from August onwards and likely stayed below $30 bln for Calendar 2011. China in the meantime crossed $110 bln for 2011 as FDI alone even as new exchanges in Schenzen paralleled Hangseng in size and grew business on the last remianing Indian bastion, the Equities Capital Markets, India’s natural advantage in a well understood global ecosystem lost in China’s sheer opportunity and advanatges of quick execution and operationalisation we somehow never wanted, putting the blame on the democratic process.

English: Logo of Ikea.
Image via Wikipedia

Fortunately, India’s infra sector does not suffer from those bottlemnecks that much, except that the Land acquisition itself has been an issue for many projects and the Power projects in play already beat by non availability of coal and sector specific finance deals

India FDI: India superpower in application development (E&Y)

China

Even as FDI growth in China continued to grow Services at 15% and manufacturing at less than 5% , its inland provinces will soon get to be the majority FDI destination with the Eastern seaboard share falling below 50% this year.

This year despite teh statistics from the E&Y report the erstwhile no. 4 sector with 33 infra FDI projects is likely to become a major recipient of FDI in value terms thru dedicated Infra Funds incl the ADB-HSBC – IIFCL one

India no. 4 FDI Destination : E&Y

In India however, 146 Tech projects outbid the no. 2 industry in Retail and consumer as the single biggest contributor to FDI. For some strange reason India’s middle class/ consumer for the E&Y team stays stuck at the 2001 figure of 250 million even as it discuesses the Top 5 FDI destinations as those favored by Indian IT

The top five FDI destinations in India are Bangalore, Mumbai, Chennai, New Delhi and Pune. They attract 43 per cent of the investment projects, 34 per cent of the jobs created and 26 per cent of the value of FDI in India.(BS report)

Auto and Healthcare were also pointed out as key destinations in the E&Y survey released by india head Rajeev Memani


The survey also points that private equity (PE) in India has significantly evolved over the last decade. It mentions that 2,000 Indian companies were funded by PE in the last five years and $50 billion was invested from 2007 to 2011. “Despite the ups and downs over the past decade, PE has emerged as a very important investor in India Inc and with the long term India growth story still intact, PE funds continue to look eagerly at investing in India, ” says the report.

100% FDI in Single Brand Retail, Aviation and Multi Brand FDI also on the anvil

As the drop in investment rate of more than 47% in both investment proposals (CMIe data in ET lead – ) and

English: Logo of Ikea.
Image via Wikipedia

government infra project approvals shows up in negative cap goods and low GDP growth, the FDI saga is likely to be brought back to finish off positively for this government to keep the India growth agenda with itself.

An invitation to Louis Vitton, Cartier, Armani, Rolex and Ikea

The 100% single brand FSDI approval came through in the morning headlines, adding the usual 30% local sourcing rider allowing that sourcing to be from”Indian” providers” and necessitating the allowed limit of $1 mln( It could be $5 mln so easily if enough lobby pressure is applied) to be invested by the brands in developing such SME (Village industry/SMEs) supply chain themselves and there is hardly anyother option available for Ikea and others with the rider in place to develop such supply chain locally and/or limit participation to 51% and come in with a partner whence they can sell 100% imported units/itsems/SKUs for clothes/shoes accessories or furniture as the case may be.

Ikea for example would think of suppliers for joints, nuts and bolts where applicable/possible or some wood panels for specially introduced furniture lines ( highly unlikely!) or an apparel brand would set up finishing units as India is already a known exporter with a definite quality benchmark in fabrics/leathers/readymades or accessories

Multi brand FDI and Aviation FDI face state and coalition pressures from Mamta Banerjee and the

Election symbol of DMK
Image via Wikipedia

designated DMK State Aviation minister, already facing tough corruption action in Telecom.

India’s economic contradictions show up, infra investment remains slow

Equities trading near lows, derivatives including the PCR has moved on to a low 1.05 showing that the down move in equities will be limited. However after Friday’s trading at 8.55% yields are already further down to 8.47% very encouraging to the RBI Governor to begin rate cuts in earnest  and there in lies another potential breakpoint for the market after policy announcement on Friday as rate cuts are unlikely to play into the Indian story for another 4-5 months., inflation drops well in progress otherwise.

Moodys’ and goldman Sachs ( Jim O Neill) have already sounded dire Forex payments warnings  with retail FDI having counted as negative. India’s fixed income exposure outside continues to look healthy with recent outward and inward transactions of sizable value completed per expectations so we stil have time to repair our outlook.

Apart from revisiting retail FDI , whence the six months figure of $20 bln in FDI could move faster in the

English: Logo of The Goldman Sachs Group, Inc....
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remaining fiscal, we also need to get our power sector investments going again. 2012 will be better for Fixed Capital formation as the new 5 year plan makes fresh proposed investments in its first year and briniging the growth imperative back could bring back the same additionally.

Fortunately, India’s banks are sitting on good capital reserves to accelerate credit where it is in the right stage whether for outward FDI or domestic projects thru domestic and International/PE equity. Infra structure projects’ longer gestation from the various Bombay Metro projects to the Harbor Sea link (Sewri) to be bid by Mukesh ambani and investors’ rejection of the same show the challenge ahead of us in investments in infrastructure as both fixed income markets and equities need to vcover short term returns to recover their higher costs for the scarce capital. 30 year capital can come to projects from private players only if longer debt is assured of better financial infrastructure apparently,else funding India’s $2.5 tln infrastructure gap and thus maintaining the growth imperative was well within our reach in 2011

Negative Gross Fixed capital formation after a dull 8% growth in the June quarter has skewed India’s relationship witht he credit agencies. It’s uneven relationship and the last minute slowdown when China is steadying ships is a confusing signal for the market watchers.

Unfortunately RBI cannot do much more right now except sing paeans to the success of inflation being in control

We are not alone in the slowdown nor we ever had any reason for our equity markets to be so optimistic in the last six months, but somehow we missed our growth imperative in 2010 and 2011 before being caught inthe slowdown, looking at the fall now negating our previous accomplishments rather than allowing us a wait and watch period.

Healthcare remains free – 100% FDI

India Gate

India’s Pharma market is a paltry INR 565 bln currently, Just cardiovasculars and diabetics constituting less than $ 2 bln each across a universe of global MNCs and Indian diaspora supplying generics globally. In a nation of 120 bln people or 25 bln households, 10 bln households of which are below the poverty line, it is a quandary not many can resolve. The pharma companies already see only one strategy to increase the per capita usage. increase prices so much that even if they bought half the medicine they bought last year they would end up with a higher per capita consumption. The CCI is apparently reviewing this unnecessary price increase in the system, A Food Security Act in place may further improve longevity ( at least for the common man / analyst leaning on logic to make an infererence)
English: GSK Factory Glaxo Smithkline manufact...
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However any larger study will show that by back of envelope calculations if we looked at the 98% uncovered population of the country without medicare as spending a per household 15,000 on medicines for the year for children, OTC, prescription and the stereess related disorders for the husband and wife the 24.5 bln would end up spending INR 367.5 tln or $7 tln on medicines and I dare say hospital care would be an extra amount more than this consumption expense. Of course the 10 bln poor families would depend on state sponsored insurane and low cost care for these requirements.

100% FDI has been persevered with in this sector. Both for greenfield projects thru the automatic route and brownstone projects thru the approval route

However, Lupin and Cipla do not seem to have a buyer after being on the market. The global situation could well be to blame for that and the fact tat sales of $1 bln barely are hardly the scale someone is looking for to enter the market. Like in automobiles, the lack of scale just whets the appetite for global players to explore independednt plays from scratch and market realities stop them from taking the plunge as such a large market does not forgive mistakes easily

On the Hospitals side of the Heathcare sector, players such as Fortis are still trying to take advantage of the amorphous nature of an emergent industry , valuation and transfer pricing issues likely to continue to plague the industry as a whole as for other sectors with Vodafone again taking the fall in one of the first decisions by the Tax man

MNC players have hung back till now in poharma, but they do not have any more reason to do so, India by itself could be a bigger market than Africa as a whole and while GSK and others have moved on to growing NGO initiatives in Africa (GAVI) for the immediate scale possible, the India market is likelier the more profitable market with and without NGO participation and sponsorship.

English: Wordmark of Cipla. Trademarked by Cipla.
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State funds however are unlikely to come this way till Food, infra and defence are paid, both healthcare and education eternally waiting for the state and the planning commission to realise their importance with higher more tangible contributions. India’s state owned low cost health infrastructure is one of the most well spread across the 3 lac odd villages with many still outside the ambit of affordable healthcare comparible only to banks without India’s ‘large unbanked population’ still ominpresent in towns throughout the country, not even accessible for weeks at a time in certain cases

Vodafone Logo
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FDI failures

Ikea ContestThe government has lost the advantage it created for itself in retail , but with the market trading at value levels,

Walmart India associates arrive in Northwest A...
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it might get one more opportunity with foreign investors in the near term, a minor window of opportunity in which it has to push the home field advantage with DTC, GST, Companyies Bill, and many more waiting to be fully executed weither federally or in law.

FDI in aviation, in retail and in Cable as identified are now critical to be cleared in quick time and the political pressures will anyway cost the ruling team some franchise share nationally. 100% single brand FDI by itself has Ikea and other takers esp with Reebok’s village plans and high end retailers cutting India out in favor of China sooner as China snows on luxury retailAs with the “golden chidiya” proposition of India a couple of centuries earlier, just that instead of plunder wwe can parcel the rights and sell toi the highest bidders now to get crucial capital flowing.

We have missed significant opportunities inInsurance FDI, new banks ( that need to watch for regulation changes till 2015) and infrastructure and retail where China has out smarted us and now runs a bigger and faster balance sheet

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MID CAP PHARMA Coverage: Orchid Chem

Though we have tried to cover all companies yet on Sales and Potential in the Healthcare segment, we are really short-staffed to push out first in class updates on the same. Suffice it to say that with Orchid Chem FCCB redemption coming up, bonds will be called and the fear has driven the scrip down from 186 levels.

Current TV18 interviews with promoter K Raghavendra Rao confirming that fears are misplaced as a further ECB has been tied up to return the earlier FCCB debt as also domestic arrangements have been made. The company also ‘guides’ lower interest costs in 2012

The company is profitable with a 10% NPM and good Q_O_Q and yearly growth in the September quarter, running to $500mln + run rate. Definitely not worth dropping and something you should buy and keep with Glenmark, Opto circuit (devices) and hold Biocon if you have any

If you do the calculations, from the USD 500 million of our sales, around USD 420-430 million is exports, and against that the import component, it is less than USD 200 million.

The delta of USD 200 million on profit and loss statement (P&L) is in terms of dollar inflow and my dollar outflow including FCCBs is less than USD 200 million. My dollar balance sheet is mildly positive hence rupee volatility is just a paper entry and it doesn�t affect Orchid on six months or one year basis.

Lupin and Cipla are the bigger ones in the area who were actively looking to sell out ahead of changing FDI regulation in the sector where earlier M&A has already scooped out much local infrastructure and biggie Sun Pharma is adding inorganic marketing and research strengths. Dr Reddy is a stable business with sales intact a a $2 bln run rate

In most cases the domestic market is relatively small,  but that is more of a limitation for MNC pharma stocks still listed

The retail consumption level off – Hero reports lower Q4

Hero Honda Passion
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Profits year on year are down 16% and the auto number s for March have definitely scared observers as well. The profit deceleration is hihger than expected ( misses Bloomberg poll estimates by 2% ) Sales growth numbers are respectable yoy like for others as Bajaj Auto and Maurti, Hyundai ( even yoy pretty bad)

India just does not have the profile to switch to SME players in this age and till the dollar gets to levels of below Rs 40 to a Dollar, the Trillion Ruipee EV companies are likely to be good enough for PE or individual global portfoliso. Index ETFs are anyway 75% of the FDI with $1 bln per month likely to continue. disposable incomes allowed food and fuel inflation without concerns yet, but going forward the larger imported inflation and the transmission to manufacturing and the retail demand curves ( durables, autos, services) have been the immediate market concerns that need facts to displace the pessimism

20 Tweets from Friday – Part Deux | zyakaira

  1. Rural Distrbn: Current FDI limits / Foreign Investment limits of 20% / 49% in DTH may go up to allow foreign media investors to catch upabout 6 hours ago from HootSuite
  2. Unitech Telenor has revised capital participation terms putting responsibility on Telenor to fund all expansion, ready with 8500 towers..about 6 hours ago from HootSuite
  3. New Islamic Bank Al Baraka to take off in Kerala based on Shariat principle of Bai al salam, distribution of profit and est of a social fundabout 7 hours ago from HootSuite
  4. China’s bear trend unlikely to be braked but may recover based on Emerging markets strength $EEM, $CICabout 7 hours ago from HootSuite
  5. More banks to join India Post in sales of the new pension funds (NPS) All pension money since 2004 has been routed to NPS for Govt employeesabout 7 hours ago from HootSuite
  6. Lot of investor cash is aching to come back into the markets, accelerating the rise in Emerging Markets $EEMabout 7 hours ago from HootSuite
  7. Reliance raising Cash in Rupees from a treasury sale, may make international expansion in energy fields more likely _TYY4about 7 hours ago from HootSuite
  8. Gold also crosses Rs 16000 in India ( per 10 gm) with $GLD ruing above 101 and $FXE inching to 1.50about 7 hours ago from HootSuite
  9. With Mutual Fund and Insurance loads and agency charges also banushed, the next 3 years should see a super normal rise in these productsabout 7 hours ago from HootSuite
  10. Rupee may rise to 46 by year end, continue rise till Q3 2010about 7 hours ago from HootSuite
  11. Similarily Global Forex reserves are up $441 billion (up 6.5%) to $7 trillion, buoyed by rise in Korean Won, Brazilian Real & India Rupeeabout 7 hours ago from HootSuite
  12. Similarily Global Forex reserves are up $441 billion (up 6.5%) to $7 trillion, bouyed by rise in Korean Won, Brazilian Real & India Rupeeabout 7 hours ago from HootSuite
  13. Foreign holdings of Indian bonds climbed 28 percent since March 31 to $6.4 billion, stock exchange data show http://ow.ly/pW1nabout 7 hours ago from HootSuite
  14. I have 3,571 tweets that show that Twitter isn’t for lunch anymorehttp://retwt.me/2S6f (via @Scobleizer) by @tweetmemeabout 8 hours ago from HootSuite
  15. Karnataka Prem League: #KPL Provident dent Belagavi Panthers hopes, Brigadiers second to B’lore Rural! games are worth watching not vettori!about 9 hours ago from HootSuite
  16. Can Atlanta make it 16-0 this season? #NFL #Falconsabout 9 hours ago from HootSuite
  17. #irreverentfridays Irene Rosenfeld looking for fly-by strategy support http://ow.ly/pVveabout 9 hours ago from HootSuite
  18. By @EconomyFacts How To Stimulate Consumer Spending And Jumpstart The Economy http://cli.gs/j8esBabout 9 hours ago from HootSuite
  19. Signs of markets having peaked as emerging markets and midcaps continue to outperform, why not 20k next week itself?about 9 hours ago from HootSuite
  20. Citi sells Government stake of 34% « Obamanomicshttp://bit.ly/ORZ0Oabout 9 hours ago spanspanspanspan

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Indian Market Tweets from Friday | zyaada

  1. From Marketwatch.com Dow up more than 50 points as U.S. stocks open Frida.. http://bit.ly/C53J4 :ask us to analyse24 minutes ago from twitterfeed
  2. Valuations too high http://post.ly/5WrLabout 1 hour ago from Posterous
  3. Indian PE deals, lousy skype fights ..just bad weather everywhere Valuations! Valuations! | The investment blog http://bit.ly/Tq2Ipabout 1 hour ago from Splitweet
  4. And to end the day of tweets, from the Sun Tsu of War ( from Gekko) when your enemy is stronger than you, don’t be afraid..to run awayabout 6 hours ago from HootSuite
  5. Hollywood: Wall Street 2 started filming this September, Can Will Smith be far behind  about 6 hours ago from HootSuite
  6. China farming Energy in the Mongolian desert. What took so much time!about 6 hours ago from HootSuite
  7. RIL losing a $100 million a month sales in KG basin, D6 but never produced more than 30 million cu m per day !!about 6 hours ago from HootSuite
  8. Bollywood: KKK2 star to ride sea bobs & skimpily clad Lara Dutta in ‘Blue’ Arindam Chaudhri’s Last Lear Mr Bachchan to keep anchor at Colorsabout 6 hours ago from HootSuite
  9. Mutual Fund investments in August fell 74% to add less than $700 million with banks staying away http://advantages.us/a/amit…about 6 hours ago from HootSuite
  10. BSNL, MTNL not to buy stake in Kuwaiti Telecom company Zain for an estimated $14 billion ( Rs 70000 Crores), twice their annual turnoverabout 6 hours ago from HootSuite
  11. US has 22.5 GW of installed capacity, India 14 GW (663 bn units in Jan 2008) Germany also upgrading lot of Powerabout 6 hours ago from HootSuite
  12. IDFC buying BP wind power in India for $135 m, UBS selling for $100m ( 1.35 times sales) and WNS likely sold to Intelenet for half the priceabout 6 hours ago from HootSuite
  13. Do oversubscriptions matter? OIL ipo 30 times , not going to list at premium either..what’s the hurry to invest?about 6 hours ago from HootSuite
  14. India’s NSE to introduce strategies trading in Futures and Options, combined with IRD, Commodities and Forex a lot of new stuff, thin volumeabout 6 hours ago from HootSuite
  15. Pipavav at Rs 55-60 gets $115 m for working capital and odds and ends, one Dry Dock, 50% orders to be renegotiated down! Don’t bother  about 6 hours ago from HootSuite
  16. Angel Broking (Picks outperforming 2009-10) says India’s chocolate market alone would be $500 million ( Livemint Sept 11)http://ow.ly/pW8Sabout 7 hours ago from HootSuite
  17. India key to Kraft bid ($KFT, $CBY) http://bit.ly/mKg0r Emerging markets make 40% of $CBY sales<a href="http://advantages.us/a/?VyNJQUJJ&quot; title="Original Link: http://twitter.com/boutgreen/status/4075606130” rel=”bookmark” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>about 7 hours ago from <a href="http://advantages.us/a/?wZd_PoOT&quot; title="Original Link: http://www.hootsuite.com/” rel=”nofollow” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>HootSuite
  18. SBI cnsolidating its other subsidiaries into the bank to focus on size, may start in London with a small acquisition<a href="http://advantages.us/a/?OFZ1tJyw&quot; title="Original Link: http://twitter.com/boutgreen/status/4075559226” rel=”bookmark” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>about 7 hours ago from <a href="http://advantages.us/a/?wZd_PoOT&quot; title="Original Link: http://www.hootsuite.com/” rel=”nofollow” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>HootSuite
  19. ICICI Bank heralds the market down turn every time in the last 6 months hyper growth.. Will SBI take off where ICICI left _TYY4<a href="http://advantages.us/a/?IibvcU41&quot; title="Original Link: http://twitter.com/boutgreen/status/4075551452” rel=”bookmark” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>about 7 hours ago from <a href="http://advantages.us/a/?wZd_PoOT&quot; title="Original Link: http://www.hootsuite.com/” rel=”nofollow” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>HootSuite
  20. Indian companies raised only $4.73 billion from ECBs, down 28% despite relaxation of upto $100m without approvals<a href="http://advantages.us/a/?RztPeBR8&quot; title="Original Link: http://twitter.com/boutgreen/status/4075532949” rel=”bookmark” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>about 7 hours ago from <a href="http://advantages.us/a/?wZd_PoOT&quot; title="Original Link: http://www.hootsuite.com/” rel=”nofollow” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>HootSuite
  21. Rural Distrbn: Current FDI limits / Foreign Investment limits of 20% / 49% in DTH may go up to allow foreign media investors to catch up<a href="http://advantages.us/a/?WqUH4W8J&quot; title="Original Link: http://twitter.com/boutgreen/status/4075513472” rel=”bookmark” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>about 7 hours ago from <a href="http://advantages.us/a/?wZd_PoOT&quot; title="Original Link: http://www.hootsuite.com/” rel=”nofollow” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>HootSuite
  22. Unitech Telenor has revised capital participation terms putting responsibility on Telenor to fund all expansion, ready with 8500 towers..<a href="http://advantages.us/a/?pbi8UovF&quot; title="Original Link: http://twitter.com/boutgreen/status/4075476728” rel=”bookmark” style=”margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-decoration: none; color: rgb(153, 153, 153);”>spanspanspanspan

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Valuations too high

Three sales canceled, carried over, increased stakes and quick QIPs instead of IPOs, no one’s playing to the basement anymore..Wanted to sell, couldn’t get my price so bought some more. Whacky, emulating personal shopping habits of people more than corporate board tussles of the 1990s.

KKR now owns 80% of Aricent (79), WNS will still have Warburg and Axis bank is happy with $720 million where it could have easily absorbed another tranche of the same amount. And this is in the faster growing market of India that we have these white elephants

In fact the 2007 majority view of these all private equity investments and tinny tiny private sector banks being as unproductive as the public sector white elephants may still be true. However, all these three companies should have spiffy new management in place soon.KKR, CPP Investment Buy Flextronics’ Pie In Aricent For $255M TEAM VCC
Global private equity biggie Kohlberg Kravis Roberts & Co. has increased its investment in Aricent, following the completion of an agreement between KKR and CPP Investment Board with Flextronics to purchase certain securities. The transaction, valued at $255 million, closed on September 16, 2009.Original Link:

WNS Halts Talks On Majority Stake Sale- MADHAV A CHANCHANI
Outsourcing firm WNS (Holdings) Ltd has said that it will not pursue any further talks regarding the sale of majoity stake in the firm. Private equity major Warburg Pincus, which holds over 50% stake in the NYSE-listed firm, had put its stake on the block and was in discussion with other PE players and outsourcing firms.

Axis Bank Raises $720 Mn Via QIP, GDR– MADHAV A CHANCHANI
The Indian QIP party, which kicked off with the real estate sector, has now assumed a diverse flavour. Private sector lender Axis Bank has raised $720 million throught its QIP (qualified institutional placement) and GDR (global depository reciepts) issue.

via VC Circle

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