India Morning Report: The rest of the week is bullish again

indiaGiven Pfizer and US Authorities continuing crackdown on drugs from India ( Pfizers fake drugs lab featured Ranbaxy on Bloomberg yesterday, 100M users (see ET)  did not vote for Ranbaxy and founder Dilip Sangvi definitely has an uphill task trying to convert his $4 B revenue acquisition of Ranbaxy into a paying deal. The price even at Rs 447 was probably a face saver for Indian Phartma as Indian pharma contitnues the quest for bigger stories in the $200 mln – $500 mln molecule categories and even more and the US generics story also relies on academia to cut the costs of innovationand drug delievry with and without Obamacare.

As of now however, prices of Sun Pharma continue their rally as Ranbaxy finally stabilises at 447 (offer price) and markets look to complete their pre poll rally with benefactor Modi piping up some hot Indian curry to Foreign investors around the world. Recovery in consumption is not converting to better Auto sales apparently and poll time spend also seems to be down witht he fortunes of the Congress known well in advance.

In Financial Services and Banks, the IDFC story has multiple positives even as the markets nurse a big bruised ego from RGR’s matter of fact disposition of other applications and the Infra Financing story for India inc seems to be back on track, the Indian welfare state a survivor of other political questions as BJP promises to bring back rural employment and education schemes.

Stories like Bharti and ITC are unlikely to lose because of the changes in Political fortunes while the Pharma and It story probably come under the scanner being at market peaks and the Rupee responding in the NDF market to more than inspired business inflows and remittances from labour abroad.

The movements in JP Power., JSW Power (Nasik and Maha areas arnd Jabalpur?)  and obviously Adani Power ( Amit Shah connection) are interesting and likely to be back int he limelight as news on the business channels remains on target for a big 7000 breakout and is safe for a 6800 score by far, markets continuing to test the levels after each 100 odd points of rise, studying the ramifications and choosing a select dozen every 100 pointswith shorts back in Kotak and Hero Motors. BHEL and SAIL seem to continue to be short favorites and their fortunes and that of IDBI Bank are unlikely to be affected by market direction now.

The best derivatives strategy remains to sell puts at this point for probably 6500 levels on the safe side, markets likely to signall enough if the breach below 6450 levels in 2014. Buying risk may seem tobe in, but new investors are likely to be priced out by the constant rain checks and risk buyers from early 2014 will continue to be rewarded till end 2014 if they stick around.

JP Associates is unlikely to move upop from 56 historically a support for the stock as it continues its tortuous strategy of deleveraging its listed stock

Bank credit growth remains steady at 12-13% and deposit growth continues to outpace, leaving the changing GDP target forlorn at new higher levels and the GDP performance for 2014 and Q1 2015 unlikely to hit above 5%

Market highs around 7000 levels are however already justified by continued double digit earnings growth by top performers.

 

 

India Morning Report: Portfolio investment highs let India story dominate

Investment percent gdp
Investment percent gdp (Photo credit: Wikipedia)

As investment flows confirm net positive investments in India on a regular daily basis, making the total for March closer to $3 Bln or close to $150 mln per day (INR 900 Crores) , India and Indonesia keep hopes alive for Global equities and EEM flows remain negative with exits from China, Japan and Korea closing out on any hope for recovery in North Asia with China remaining dull and Japans deficit imports coming at the cost of lower Exports being kept on deficit mirroring the phase of growth investments without concurrent investing flows.

 

6590 levels obviously proved daunting for India Inc and markets returned the gains out of the morning trades after a buoyant day for equities all around, looking for new levels not belying the sad events of 2012 for Corporate India Markets stay away from Banks as markets had a big open on Monday and new levels in private sector banks seem to wait for PSU banks that continue to be neglected for their larger than life NPA sores and aches.

 

Reasons for cheering the performance of Auto and metals however still seem t o be further ahea d on the road to recovery and have hardly earned their stripes. Bank License hopefuls that still include the Aditya Birla Group and a couple of other corporate houses are probably caught unaware by the extra scrutiny imposed by the Poll panel ahead of a new government in steed at the Center. RBI has enough reason to deny corporate houses a chance to play with the banking system but it may be difficult to deny claims of available NBFC models like Aditya Birla Money ( Diversified Financial Services ) AND M&M Financial Services ( Retail unsecured/Auto Lending ) after satisfying the NOHFC structure requirements, giving the CEntral Bank a tytough decision as it probably wants to hand over no more than 4-5 new opportunities

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India Morning Report: Markets continues the ra-ra-rally to 6350; Business as usual strikes

The Rupee has finally moved into 61.50 marks, investor interest in the tech quartet unruffled by a climbing currency as Dollar indices moved to their lowest levels. The Banknifty is squarely above 11,150 marks on Thursday in an eventful week for bulls, enjoying a cash and positive calls led market supremacy over the cagey watchful investors with BJP backers having decided 200 seats in the National Parliament was worth a celebration too in the face of defating th eBears, an opportunity that does not come by regularly in every market segment and cannot be passed over.

PNB is back near 600 levels and the short trades are gone from even Maruti and others for the moment, likely to come back any time now below 6400 levels itself once the Put Call ration reaches 0.75-0.80. One hopes the shorts come in Index Options and not entirely in Index Futures or worse continuing in individual stock series.

To my mind PSUs like BOB are already looking overpriced again with their asset quality woes not done and BOB likely to be among the PSU strikes leading the way down, with a news driven exit in Adani remaining a probability after a quick rally in the same as this rally segment will unlikely see the one sided euphoria in Jubilant and Titan in 2010. The markets apparentlt kick into gear for welcoming the change in aviation rules allowing International flight without fleet and footprint restriction

Bajaj Auto still has a rally left for brave longs at 2020 levels, using Maruti to torque the trade ( Buy Bajaj Auto Sell Maruti) and starting a similar trade in Hero at 1850 levels ( unlikely to get lower levels int he same) The Trade will likely last thru any index led direction for the market. Index moves are matched tick for tick by the new LIX 15 showing the hold of rare liquid stocks on the market. Markets will correct once pre elections or immediately after results so broader interest can rride on the secular move to 7000 warranted by FY14 earnings and FY15 forecasts even in absence of a recovery

The Cement stock rally indeed seems a little too precocious even this late, as expat commentators would dig their heels in to say in three months time when the GDP recovery led trades start a final swing at old 6400 levels Construction and RE stocks should be avoided.

Your pharma portfolio picks may see a sneaked in ride as markets consolidate, as IDFC finally crosses back into the Century plus marks, both Glenmark and Cadila coming back stronger ona Green only map day for the markets , twice in this week

Time is probably ripe for selling in IT now esp with Infy at 3900 levels. Media scrips have again seen older bullish levels in an almost hidden move on an all green day hiding poor Sun TV(no longer media)  in plain sight with more secular picks like ENIL (Mirchi) and Zee

Bharti is back at 280 levels and the big trade in the stock could take it quickly back to 335 levels , GAIL and ITC is also a long only pick at current levels

India Morning Report: Markets will breathe easier at 6300

Many market commentator see further moves north as highly unlikely and it does seem markets have done a fair bit already including the choppy start to 2014 as buying overwhelmed short trades. However one does not see any of the selected scrips losing much from current price levels. The Ukraine crisis fade had much to do with the afternoon bullishness and fresh buying will be allowed at lower levels in most of yesterday’s increases. Pharma and Infra trades may yet break out again with Pharma yet to take off, Cipla the ‘only’ big positive trade continuing to dominate sectoral picks. IT scrips finally yielded ground with HCL falling a few notches as market spine trades keeping interest in the stock finally seem to have exited the ‘always trying’ bellwether

New affordable housing targets in China as US and China complete their budget exercises point to the realities of the new post crisis economic melee as US Arms spending takes a backseat and China continues to increase its Defence hawkishness and faces increased executive flight risks from the Smog. Australian GDP gave the Asian markets much to cheer pre dating a secular return of investors to Asia even as China is finally deprioritised at some bigger investment houses

At home, one is still foxed by the marginalisation of LK Advani in the BJP as frankly NaMo seems a little banged up for the big job and AAP is well, a one issue pony. ( at best a canard) The fate of General Elections also thus has to be separated from that of the markets as India’s residual growth and any strategic direction will never be delivered by the Legislative arm given the state of our politics. Inspiration may be missing from the Executive or the Bureaucrat/Technocrat nexus but there is still momentum for the populace per se and India remains the best bet in global equities in such confusing times, making do with a much smalller stock of FDI for it knows its limitations. Our advantages in the English language could compare to an additional factor production given the dominance of Services and along with our expertise in more intricate subjects of the business management disciplines , we can well fashion as many competitive advantages any corporation needs to win globally as required Rajnath Singh returning to Public service will be NaMo’s other card but Congress and SP have got no leg to stand on even as the issue of the State’s division holds extreme potential before it also becomes a BJP manifesto dashboard line item.

And Nitish finally replies after 6 days on page 17 (TOI-Blr)

Seeing as NaMo’s other credentials being weak are still the best bet, Nitish finally gatecrashed onto national topics, catching his favorite Paswan in his horns. Meanwhile,  NMDC has corrected more than 17% and apparently has stable lows at 110 levels to allow further accumulation post the new CERC regime in progress with the 2014 guidelines. The Power quartet had a great start yesterday as expected and may strengthen the trend in the Power sector going forward even as cyclicals try to start back for the longer trek to the top uninterrrupted by market momentum taking the index for a roller coaster ride, including the Energy infrastructure stocks and the powerful Consumer staples like Bharti and ITC which arenot going to retreat in the bull scenario while remaining a defensive bulwark

Private Banks remain the most important component of India Bull portfolios with YES Bank leading the charge yesterday and Kotak taking a breather in the secular run. ICICI Bank and HDFC Bank continue to capture market share on and off the bourses from the embattled SBI and BOB pointing to the limits of an upward move in a side like PNB even in this critical move for the bankers, as PNB continues to show good profitability

Nadar is finally offloading HCL stock as his offspring looks to focus on the Education and philanthropy sectors even as both listed and unlisted Tech  and Outsourcing businesses battle the problem of employee commute in a society where broadband connectivity is unlikely to bring any solace or a formalised structure for the telecommuting options. India thus, retains one of the greater habits of managing to jump over bigger social potholes and non lasting technologies. ( in practice i guess with cities = potholes 😉

VIX trades apparently careened over from 15 levels itsel fin Tuesday trading back to mmatching US Vol levels at 14 as the Ukraine issue was wiped off investor tables.

The Great Indian Premier Tennis League Auctions

In other unlisted business, The mega sports franchises era continued untethered with Tennis joining the ranks of other popular sports making a commercial comeback as a four location auction saw  Mumbai grabbing the top three in Nadal, Djokovic and Andy Murray at $2 million each ( less than $2 for Djokovic and Murray)

Ecommerce has enticed Walmart to India too, even as PE players move on to above par valuations after a year of job cuts and enthusiastic middle/senior management recruitment at Management school campuses and Amazon opening its second FC in India in Bangalore

The Dell Foundation makes a return to Indian shores after the Gates Foundation confined itself to outright charity in limited indian programmes. The Dell foundation will be backing a BOP Private equity set up Intellegrow.

ET also headlines India pharmas second attempt to break into higher market shares in US generics in Complex molecules that could well go to the PE companies given the investment required and the uncertainty of time horizons ill suiting listed companies like DRL or Lupin.

Aviation revenue miles are likely picking up in the final month of Fiscal 2014 and Fixed income markets also likely to accelerate demand led price increases bringing down yields as Crude becomes a bear trade and Indian currency moves up on redenomination of the dollar forecasts down for the year in 2014. Policy Day in two weeks is unlikely to be busy for the Reserve Bank of india though the Central Bank may choose to exercise a rate hie whence the yields will come back to 9 levels before investments make a mark in the Indian recovery still flatlined below 5%

 

India Morning Report: Markets start the Maruti short 1 month down

As expected, indices are holding and the degradation of Maruti’s role in Suzuki strategy has finally clicked into real trades early morning, that will probably keep the broader indices on an even keel, Maruti no longer a portfolio pick despite a 50% share of market and being the listed representation of quick and easy Indian growth components ( not many left there) as protected cash flows fail to assuage investors

A $2 Trillion GDP really bloated up India’s old economy bottlenecks and one needs to gravy the Indian infrastructure boat, but with hot money and leveraged inconscientous promoters the only steed, it is unlikely markets will try for that 7000 index just today

Cash equities have a lot to catch up with on the Futures that closed at a grainy premium, but I am not sure volumes are still low or if only one player is around, as India with 200% of GDP in equities, has deeper markets than most other Emerging markets including Korea and Singapore who still have a story to tell.

The traders picks continue to show six old timers without a growth strategy and apart from regular stories of restructuring on 1 or 2 of those stocks most others like Tata Elxsi may not be good trade picks either way

If markets are so indiscriminate and all mice come out to play on Friday before the weekend, there may be some reason to looking at short picks when they open dstarted in August and now for two months of 2014

I still worry about the Tech Mahindra story, apart from the possibility that they are playing with another i-banker to get the deal flow into a continuous stream. KPIT is a good pick but then insiders know when and till where 🙂 as PE picks up stake in the fast growth play with legs in embedded/systems programming/chip design and the normal outsourcing meat still available form more than one sector and not having been wasted on product /enterprise investments like at infy or wipro

Those foreign funds still underweight india will not get another chance to come and invest in India and may likely underperform Asia benchmarks at the end of the year, like HSBC Securities

Banks are hot again in this segment, and SBI shorts will strike before the end of next week as interest spreads across Pharma and some Consumer

In unlisted business, IIMA infra naming rights story headlined in ET is a late thing but a good start. One hopes there is also a base endowment fund when the Subsidies are let go from this sector. The Annual ioutgo from the HRD ministry could have well come for each institution from a single/individual endowment

StannCs back in an indiabull avatar but one wonders if there are beaten down sectors left this time for late entrants. Most Foreign investors who stayed invested over 2013 are going to score much higher this time onwards and one hopes this can become a doable tradition for the indian markets finally rid of old time ponies and bad trades in a new era

Unlisted Captives of Global Auto companies have the best chance to make a statement and increase Expoprts traction from India as Ford gets on it.

The Rupee has nowhere to go after hitting 62 from the up and Gold is stuck too even if they try to reverse the bear trend with some late late buying as markets can grab the precious metal at 30k levels itself for a good short and adding to equity trades

Indian residential and enterprise ( Retail Malls and Offices etc)  sector has some potential to add new inventory, last years smaller sales not having added new inventories at all. Chances of Bajaj Auto in the 2-wheelers producing positive surprises in next months data have increased but traders are right in clamping down on Hero, Bajaj and TVS as February data is released into the last months of deteriorating production conditions over most of the manufacturing sector as IIP uptick will include a negligible contribution from manufacturing. A new bite, though, the residential construction intel comes from one of our steel producers. Not the way to go , India so there iwll be another sad story down some months but I guess Jindal (JSPL) was a dead story anyway

India Morning Report: Foreign Interest steps up to confirm the boom to 6250

FII buying, now adding debt segment purchases over the last week follows on a 10-12 session consolidation in the current play on Index Option hedges and Stock Futures bidding they have initiated as a class. At this juncture the trend needs further confirmation too and borrowing on the same strategies would make much more sense in a secular trend, strengthening their overall importance in the market as they are indeed the larger players right now, the DIIs having taken a counter-cyclical opinion as always to balance the steed and likely not buying beyond the coming 6250 levels.

Even if the DII opinion does change for all investor classes buying together one needs to remain watchful and the markets will continue to strengthen their skew towards rewarding longer term investors despite the volatility at 14 levels, an extreme low for the Indian markets and all increase in volatility negating any good part of volatility. I.e. The future of the stock markets is now interlinked with all trading margins being defined by shorts and all long gains going to investors if we just look at the definition of volatility and its reward for risk.  A new Liquidity index in the Derivatives segment of the NSE consolidates price trends across the 15  most liquid derivatives underlyings and the index is now 6 months old.

Trading longs again probably negate all their advantages with a backing of almost ready to be shorted posts like L&T and SBI, which is the reason I brought in this more technical discussion for the morning Report readers. Markets open near 6200 levels on the index as markets broke out of the bear hold by breaking 6100 earlier last week.  To fess, I was still hoping for India to prove Good volatility and I would warn others  naive enough that this is not going to be so in this rally.

PNB will likely respond easier after the call auction ended as SBI investors back off and PSUs including larger entities like Bank of Baroda remain short fuses. Banknifty remains mildly positive, lending health to the trend going up and consolidating as India outscores in the Gloom quarter of 2014, down apparently only 2% compared to other Global markets and Dow having a nice return back sustaining a comeback as snow fades away in Neverland, USA, USA continuing the dream recovery.

TCS is due for a rally but Infy’s rerating looking to ride up to 4000 levels seems to signal the coming badging of the sector as a passive defensive again with the Rupee making a comeback

HSBC global results were a great comeback, though analysts following the stock did not expect Q4 to flip globally into lower revenues and while the bank remains the bigger player in India and China, it is focussing on the UK market comeback this year, UK also having ducked the continuing gloom in Euroland.

In other unlisted business, reusing quick reports from Trading Economics, FDI inflows are expected to continue to be a strong $2 Bln a little over 50 times lower than neighbourly flows into China, but in terms of Western FDI , that number is much more equitable and ocoupled with a domestic market and domestic depth in India makes for a more Economic bang in the Indian recovery seeding which now strengthens into consolidation.

Ford is ramping up its small SUV production for Export markets this year in Chennai and Nissan and GM may be forced to follow earlier than usual in 2014 itself if the global markets have indeed completed a overall cauterisation of their expectations of a bullish recovery breakout.  They have earlier over stepped in 2010 in equities and frequent breakdowns of recovery memes since 2012 have indeed made such prognostications more cautious , lending more credence to them for investors hoping to break new ground across Global opportunity.

The G20 Australia 2014 remained a hub of big activity last week. Despite the almost fully ‘denatured’ (pardon the pun) irrelevance of the G20 ( compare with a technical irreverence like applying the law of diminishing marginal utility here, and I am on holy ground) , RGR did force the conference into adopting a aggressive reconciliation towards supporting global monetary policy coordination and the Rupee has responded strongly this week. Rajan said , “International monetary cooperation has now broken…”

I like this definition for India’s new apolitical elite, used for RGR (link): impeccably credentialed , elite.

Meanwhile, polls in Delhi confirmed AAP holds sway in any new election. Modi’s claim to India seems to be weak at the point of Gujarat vs India Inc and if Congress does consolidate around the thoughts of a Jairam Ramesh (IBN Live, Sardesai interview) it could have a real chance of at least getting the right issues to coalesce around in the campaign for the General elections. On separation of Telangana and Hyderabad II into separate states, J Ramesh reminded the editor that State reorganisation is an unqualified mandate. I recommend that the word juxtapositions apart, the only way Telangana becomes a reality and the reform beat maintained is if the issue is indeed followed up quickly with active voicing of the cause of breakup of UP, the monstrous state with 75 districts and 800 blocks. Also, yes Economic development in TN and Kerala have been equally promising if not better than the Gujarat model and this could definitely weaken the economic bloc coalescing around a non sartorial, non erudite Modi who seems to be potently  walking around with a foot in his mouth as much as Rahul himself. I believe Advanu would have been a better choice for BJP too. And Congress , waiting to welcome an even younger lot with Rahul who may not all be able to pull off tags of ‘ able administrators’ make it a  ever extending churn block for India Inc ready to forget any hopes of a consolidated political establishment as the Open democracy treads the path to a Top 3 GDP country by 2050

The US mid terms similarly could still turn out to be a facesaving exercise for the Democrats reeling at their lowest ratings just before the mid terms and the chances are about even to Rahul Gandhi actually coming back to lead He will probably take a back seat from Parliamentary politics if his party does land rights to the Opposition benches.

India Morning Report: Markets retain new bullish memes (again to 6100)

Markets will close above 6100 again but later afternoon sessions may see more enthusiasm as good economic data could be followed by expected passive investor moves and new EEM flows to show likely coming trends.

HDFC Bank is up and out of the 600-680 move with new targets to probably near 750 levels. Banks will expectedly support the next upmove too, ICICI Bank having made up new routes to at least 1030 levels, probably 1070 A look at some fund portfolios , interestingly shows Axis is indeed out of favor and Infy in a different block of memory unlikely to provide any traders with gains or hedges as it corrects to 3600 levels. Apollo Tyres, India Cements and JP Associates added open interest yesterday as main trends broke tin the nifty drop from 6150 to below 6100 levels. Sree Renuka stake sale does not seem like a trade at all, being a long known and expected unloading by the promoter. Open offer is apparently at a discount but Wilmar is immediattely extinguishing debt worth INR 12 Bln. Bharti is a great buy again in positional trades from 295 levels. Bajaj Auto will likely continue to 1950 levels for a stab at a quick double (century) The Adani Port move you heard today is so true,its the INR 80 Bln JNPT contract.

Japan is celebrating a bullish candle early in the morning as Chinese manufacturing, along expected lines, brushes near contraction levels. Fed minutes from January showed the Fed agreeable to  changing the unemployment targets and thus somemembers eagerness to discuss increasin gthe short term fed rate will likely be ignored as markets start up after a 5-10% cut since the new year. However on the flip side for India, the risk of an inflated Oil bill has increased. External Commercial Borrowing Markets are open for India Inc to increase disposition from, the CAD averted, but the small packet of Coporate External debt, now unsettling India policy markets. Fixed Income Markets and Currency markets would recover from yesterdays dip as the recovery unfolds into a more tangible item of import than just hope traded by domestic equity and consumption markets. KKR is also providing transformational capital in a new (presser in ET) bid, that could soon be emulated by SBI and ICICI as restructured assets hit a new high in the banking system.

A new endeavour at the Central Bank could see proposals to accept some or all the changes reccommended by the FSLRC. The recommendation, are likely to further aim to bridge the gap between Private sector growth memes and the larger PSU counterparts with capacity building and skills development (HR) guidelines

G20 is up later this week, IMF taking the opportunity to underline that currency concerns remain, obviating any choice of policy leadership for India at another G20 edition, India the easiest dog to put down in the revolt of the EM manger. ( twisted, yet really twisted, paraplegic choice and execution of simile (not stimuli) The Ukraine Hryvnia, the Korean Won  and the turkish lira are likely to be the largest exceptions not part of the mainstream in G20 trades and will be dominating the agenda, not to forget the Singapore Dollar which remains a unique economic substitute for the whole block ( try a whole fat analysis) and mexico a member but likely to stay silent too as Australia lead this round (2014)

Jet Airways’ loss in a sedate Airlines quarter, even as its etihad deal now hangs fire  at the Compat ( like the CCI but just the Appellate Tribunal) Jet has loans of INR 104 Bln as of this quarter, hardly $1.7 Bln but apparently 7X of the other nearest competitor. its market share is now less than 20% as it waits for deal approval. The INR 2.85 Bln loss a INR 3.60 Bln deterioration from its year ago profitable quarter, leaving unlisted IndiGo the winner with Sale and Leaseback economics still leaving maintenance bills manageable and the airline scoring on all the busy metro routes. Air Asia is likely to change that if it is allowed to fly. That would be concomitant with changes in regulation allowing all these Indian fliers to book international routes without a track record’ compulsion(Two dogs in the dogfight, Indigo and Jet, why are others even flying? – significant business case and consulting win with free markets allowing portfolio rationalisation).

And as Facebook found its Twitter-alike acquisition for mobile messaging that paid its promoters $19 Bln, India media look to another expat manager in the pile of 55 employees for the India story and there is as usual one solitary reaper, digging away in that bee hive(ant hill)

Kiran Mazumdar Shaw has taken stewardship at IIM Bangalore as Chairman of the Board . IIM also recently saw a new Director joining back from Boston University ( Sushil Vachani)

In other unlisted business, why wouldn’t a new Pharma business story with unlisted Capital or a PE try to fund a great Pharma business , not from a decade old Pharma attempts in Hyderabad and Ahmedabad but elsewhere. Cost of Equity in India is no longer that cheap as the Pharma market still offers unique advantages to scaled businesses in Export markets and domestically, while current entrants are likely limited by the $500 mln market for each generic molecule,a similar cap for the domestic market too, based on a limit to branded volumes in each drug. The model would definitely be more Chinese if it happened but it could really expand the market opportunity both at home and in the US and Europe

How about new moves in the big retail pie, which despite its propensity for political disaster, is still available in at least 4 states. One reason, hitting continuing entrepreneurship as India stands on a big comeback, holding India back would be the virtual withdrawal of Foreign banks from India, assets now down to 7% of the banking system, esp the unlikelihood of a public markets led such revolution makes it imperative that the easy flow of foreign capital to India be capitalised on.

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: Vote on Account does not offer anything by definition

Not to be dismissive of other efforts to research quantised discernible notes in the market, we have beaten others hands down with the preciseness of each sentence seemingly in a complicated human language. And we are not artificial intelligence, just something more  populations can understand. However, that is all a predilection of becoming  part of a deluge unless we can remember the basics. Like 6100 yesterday, 6050 today and stuck at 6250 again. Or for the currency it is an even simpler, 62.50 and broken till 63.00 now returning to break 62 on the upside, waiting to break till 61 to start a trading move in that dead market Foreign investors pass by with just a tenth of the allocation to the China which would be enough impetus for investment I guess.  That is adding the currency noted going out of circulation bringing in additional thicker statistics streams of returning investments instead of churned velocity without disposition, which remains the only unexplained flow for many developed and EMs. Meanwhile India posted a latest velocity of another 12.5% and growth of 4.9% kept WPI ticking under at 5.5% , inflation at 8.8% (and still high to merit 8% rates for the RBI policy (India’s Central Bank)

Now to get thru the market open again, HCL Tech is done, L&T is not coming back so soon, having clarified there si no better financials in the old heavy pipeline they keep carrying in New Orders. However, the note of caution from Kotak does not translate into a correction in the markets, as it is a known flaw, using subsidy deferral on the way to an improved performance and as we have always maintained to PC’s weaker arm, its not anything to forget to talk of.

Banknifty is at 10,250 but their seems to be a dearth of substitution for older SBI folios, because SBI has to go down to 1250 levels ( broader guess) bottoming out near 1280 ( our estimate – not to be confused with the statistical mark of MLE). HDFC Bank is up and out of 640 levels but no 645 it is..Pharma should not have been a defensive trade, esp as Bharti and ITC remain powered on apart from the IT scrips which can keep current levels once HCLT returns to 1400 levels. I have faith in ICICI Bank surprising in the post speech trade if India’s Financials are surmised as feasible, though it is just necessary expenditure for the six month period going forward and the Macro economic review has already been celebrated. A smaller gross borrowing figure for instance , may not be possible as that may be the only accommodating flag for the noise of governance to come. Also it would be a shame in my mostly moderate opinion otherwise, ( cooked to become the mainstream o-pin-onion like other examples of better business leaders than the half cooked Modis and Rahuls of today) if PSU banks join in the rally just for their survival has been noted by additional Capital for FY15 in this month again confirmed in any allocations. YES Bank and IDFC remain mainline (first leads) not for this bull segment but for the secular bull cycle that remains.

Nifty i s actually having a hard time at 6080 and will not drift down but 6100 is the new bear dominance levels, mostly because the media presence as Citi explains ( in that elusive to understand bid for retail investors here) requires reusing old hat ( from this trend) and the market tone is still as 6250 the normal would have been but that is a likely illusion in the distance, with markets using the distance again and again to tone down , letting shorts bound them up and show the futility of expectiung an overnight renaissance in the Indian Fixed income Markets. StanChart in the meantime has sell side macro posting the VoA precursor on ET Now since AM, looking at Government freeze to show the numbers.

I’ll leave that unedited para  in, just because I have things to do before I come back to edit it. It is just a Morning report. I may not be writing in the vote on Account speech or the dictum,

The markets may not break down, mercifully, for lack of reason to celebrate, a not new feature of beating down equities at their own, esp cognisant to those who bank promoters accounts and promoters’ who play their equity to death in a monetary degrowth, which now runs an extended life with a defined taper even with a reduced nozzle draining out the dumped in steroids, in the recognizance that US was critical and that most of excess liquidity remains excess. I wonder if one coming from my free markets background can make enough morbid adjustments, but one knows one must to explain how taking care of the trifecta is not done by just that phase of liquidity and now by the withdrawal of the same. One does note also the 16 mln unemployed uncounted in US estimates when declaring a successful 6.5% unemployment statistic from the same.

I like Crompton Greaves for the capex trade, old Mid Cap plays will be sideline for the 2010 IPO brigade in most cases. The fisc will score the most points when it reports a positive surprise. The FM should not aim for FY 2015 without thinking up options and should look to a fat target as we have probably over reached in the current fiscal itself. I would even let him off at a 4.5% target and that will not get BJP any further advantage.

Post Vote On Account satisfaction, Congress is going to be a quick disappearing loser in the elections, BJP winning it however would be disturbing not to India’s soul, cause there was not any in the conventional modern world definition of it, but it is can only be a rude awakening to India in a few years, however growth will churn in any government, because of the strong basis on which we stand up and shout for more, and the bureaucracy , the technocrats ( non outsourcing) and Private investors / Business will remain the agents of  this growth. Bank lending will never be a constraint and there is no wishing away corruption. One can even learn the vast cycles of it in local, regional and International Sales processes, and is not a equivocal nodding to suffering , nor a socialistic bite of suffrage that will make it the topic at the corporate dinner buffet.

explains: in the middle above is used as colloq/sms for explanations

India Morning Report: Agricultural subsidies are a Global Constant, bullish trend remains

U-Car 2014

Sugar Export markets ar unlikely to ruffle any other segment of the market as the issue of agricultural subsidies was settled for good in the latest renewals by Asia and EMs led by India and continuing noise on farm subsidies are likely to be brushed off by most including customers of Indian sugar. The government has approved a INR 3.3K subsidy for 4 mln tonnes of Exports of sugar in February and March.

Of course, India’s battle with Export competitiveness is past most winnable battles and we are just increasing our tendency to be a worthless ( in terms of premium) commodity exporter, as is the wont of most resource Economies as well with far more disastrous Economic consequences like Brazil and Indonesia.

India will never be confused with the likes of the same despite setting at 4.5% and 4.9% growth in two consecutive years of GDP growth and a 25% decline in currency repeated twice in a block of 10 years, a far mitigating circumstance than Brazil or Turkey’s Economic history and one could have also included China in that list but for the almost independence of policy and execution in a democratic form of government.

India equities maintain a bullish trend ( to 6100) as a cognition of far reaching reforms did barely enough to pick outstanding dozen or so large Cap companies, usually more than enough for any broad market to survive.  The missing depth cannot come overnight and Investors are more than satisfied with the new crop of 2010 IPOs in the Consumer sector including Thomas Cook now dealt with, and Page and LL continuing older trends. That also means scrips like ttk , Titan and others that do not represent the broader market will not recover interest and those with very wide off the mark correlations to sectoral growth will not be propped up despite weak governance and order book issues at L&T and BHEL. Crompton Greaves trade is likely to sustain as the Investments and Capital Expenditure segments of the GDP stay in focus.

The Rupee started early yesterday catching the advantage of depth and domestic markets back to the Indian Debt and Equity capital markets, as a US long term bond auction also registered a new faith in reduced tapering promised by the Fed, allowing Global investors following the risk money to come in without the wait and watch chip reducing their participation

Citi is betting this will transpire in India having come out on the CAD front after extended delays and qualifying others dependence on Foreign debt skewing the CAD dependence factor, however it likely to be secular Dollar dependence worries for such resource Economies which will again qualify India ahead of the “EM Basket” and China as well in this year, though on a smaller order of magnitude of FDI flows.

I would also think the Tata Motors bull trade is vulnerable to falling off sooner. However, immediately Cipla’s results have extended the trade in both Hero and Tata Motors apart from individual stockpicking decisions.Cipla reported margins that are 600 basis points lower.

India Morning Report: Pacified by US liquidity, markets gets on (to 6100)

The Nifty is up 25 points in morning trades, taking a 6090 clip to test the 6100 levels though new buyer interest is looking iffy. Selling and profit taking orders have topped out however, and Banknifty has resumed a positive bias though a trend is yet to form with the PSU block moved aside, the index being a traders” delight esp. with shorts on Kotak pressuring in house support

ICICI Bank is up 2%, HDFC Bank is in the middle of the 600-680 range strong as ever. Tata Steel continues down, renewing its correlation charts again with Ranbaxy even as the Steel sector’s fortunes have brightened. China’s remaining the question mark has likely provided long term investors with exceptional opportunities to accumulate at a stable price band.

ITC is looking like evaluating 325 marks anew for a new rush as it is safe in being a bull scrip but there is no current trade in the scrip. Bharti as expected likes 300 levels pretty much for keeps except a small downside risk to 290, and informational marking of the stock is likely to show up more often from here.

Bond investors should be interested in this Bond market but again, a short term spiking of yields is likely even after docile 10 month trade data. Gold and Silver imports have caught up to almost 2013 levels at $1.72 B and noise demanding removal of curbs has likely increased on the Central Bank. Trade deficit for January kept the $10 bln average, but the good story is that Exports at a healthy $27 Bln (26.75) are a significant improvement after being tied to a non growth $25 Bln mark and Oil imports are under $14 Bln again. Going forward the natural impetus to India growth is likely again multiplied by a continuing dullness in Oil prices and Dollar inflows may well continue headed home in the 9% yield scenario beating a few HY options a s well

Investments promoting Indian GDP growth do not look like having grown past the 5% mark. IT is buoyant on 2014 prospects but headroom is limited except TCS, well corrected for a move back to 2300 levels. I would have thought FY16 Estimates would show the gap being overestimated currently by the market at 14 multiples or thereabout (FY15 multiples are near 17)

Other Emerging markets are likely to cede to India again in 2014 as Janet Yellen looks to fine tune the taper design with a smaller cut in inflows going forward and Stanley Fischer is confirmed as Vice Chair.

Indian Media sector is probably looking a little tired at the bottom of the cycle, with IPL advertising revenues likely to exceed expectations in an overseas edition. However, in unlisted business, more gains are accruing for digital movers as E Commerce is currently buoyant with PE funding.

“Winners Curse” by Goldman Sachs analysts gets a popular break in the media for the coming price wars but the auctions process over the last 2-3 years more importantly showed businesses do not overpay for such commodities. Auctions lasted 6 days as of yesterday’s reports for INR 600 B inflows. Investors may take hope from Sustainable pricing at Bharti having lasted 2-3 quarters surviving on minutes and ARPU metrics. Both Idea and Bharti will be formidable to beat in Data for newcomer Reliance JIO which apparently has bid nearly INR 30bln adding reports in the ET on total investments. Vodafone , as a 100% business make the foolishly high premium move again to start off The Hunger Games

Maruti may be ripe for fresh shorts again in the Auto sector as exports volumes increase at Ford, GM, Nissan and VW. The markets would be increasingly straitjacketed on any up and down moves till the Vote on Account announcement and are thus more likely to be a volatile move on announcement, esp when the expected :no action: status from the FM is construed as a big disappointment.

 

 

 

 

 

 

India Morning Report: There is no hope trade in sight

But I’d say keep accumulating as the indices break through a critical 6000 mark. Many blue chips, like in global markets offer extreme value in buys even as the speculative trade fails to take off on a delayed recovery.  Gujarat’s downfall over the small matter of a receding poverty line not helping the cause of the markets rich BJP is a puerile coincidence for the markets, but correspondingly there is no Congress faction left in the markets to buno the tanabana, Markets selling the stable BJP proposition backing out for an increased negative momentum(undesirably sharp)  on the downward side

The IT trade coming into profit taking for the almost first time except for a pre results redenomination, there ae buyers out there who are ok with the premium on Infy to a low 3475 market price and HCL Tech is good for a move of Rs 100 or more. Thus if all sectors move together like the Tuesday open, markets could see almost unheard of hlevels receding to 2012 levels no longer required by the New Dolla r prices. That also means these exits will cascade the Rupee even as it holds at 62.50 to 63 levels , that being a new fresh level for the currency. However it is still possible that with DIIs coming back as markets sell off that the gradual sell off can indeed turnaround and complete the prophesied ( by certan others , also old hands) pre election rally in India. The sell trade on ITC will likely never exit 290 levels an such picks abound with limited downside even in the correction which will confuse buyers into making losing commitments so a wait and watch is necessary. F&O markets return back to index only specials and i the downmove is to be arrested by Vols at 14 this will be a small enough move, but that is unlikely leaving vols (India Vix) ranging between 14 and 16 till the first buyers return whence new VIX levels would only see increasing volatility

However as we were stock specific going up and DIIs look for bargains to pick up pieces, there are gaps in how the markets will rebuild momentum most buyers holding on to prior 2013 selections including the new Aurobindo and Sun Pharma trades( a great defensive for mopping up your prop liquidity) in IDFC at 90, ICICI Bank almost ready at 930 levels ( the next levels are around 871), Yes Bank ( bottom at 267 will likely not reach the same so accumulating should be ready  – like a dark pool premium),  Bajaj Auto, ITC, Bharti and no – not ttk and titan currently as there is much more going down in that specific market despite the penchant of the self funded margin traders in our domestic brokerages like Angel, SMC and Centrum including the overlap with commodities wealth accounts. There will be no dlf trade north, none in Jubilant foods, titan or ttk and none in HDIL or unitech much later. Axis Bank’s orphaned again being misused in the prior rallies, leaving nay of the F&O speculators heading there at great risk from those targeting their brand of stupidity after getting on the right investments. Trading as a game may try not to suffer though sharp bear phases and quick bull recoveries are not ruled out with brokers and traders living the cricket dictum of well left alone even for great value picks in Midcaps The trades are mostly in Spreads, Bear spreads in your choice made by buying Puts at the just OTM (ATM-OTM>= 0) and selling a lower put to part fund the trade. Bull spreads, which wold be due n a couple of weeks, go bought Call just OTM (ITM-OTM>=0) which reflects better liquidity as well and thus better premiums, and partly funded by distant OTM Calls ( nly one or two will have  tested and liquid quotes where you do not pay excess liquidity spreads)

 

India Morning Report: Is SBI adequately capitalised after the $1.2 B QIP

Of course on paper 12.8% Tier I is nothing to scoff at, however the bank’s larger book of advances makes its likely that it would need additional funding soon and now would wait for the government to fill up the tank on Capital. PNB on the other hand is a value play at 520 and Bank of India at 140-50 levels could be offering value for incoming investors ‘cept for the NPA monologues, not in play at PNB in this FY(FY14) where SBI and BOI would lose further stock with analysts

Meanwhile, the weekly closing will be positive, and the new series will see a build u of positive trades. Apparently Nifty and the Blue chis all fell 10-15% in the January series. The currency saga is also over with the post taper trade turning out a whimper and US equities smartly rallying in Thursday trades. While Asian markets may enjoy a bigger uptick on that rebound in Morning trades, Indian markets will decide as they go along with all stock specific trades holding

Havell’s has been a great story this year and will see 2014 exceptionally favorably. Powergrid and REC anyone? The trade wis ripe alongwith IDFC as Mumbai’s Monorail comes online in a late reprieve for the Mukesh Ambani group. Yesterday’s trades saw a sharp recovery at close to 6080 levels again because there were no trades at the lower levels, markets just waiting out the post taper reprise and increasing transaction costs for those creating shorts or withdrawing from their overweight Indian  portfolios, which saw no takers.

ING and OBC both report today consolidating the story of improving NIMs and a lrage profitable Asian market still delivering growth to incoming banks. A couple of measures deepening our presence in the Global Fixed income markets would do the Trick, if I were governor. Currency markets are back at under 62.50 levels for the Dollar.

Dr Reddy’s looks overpriced at these levels . HEro may also be ready to complete the black candle and get a big red score to end the week. Bajaj Auto will hold levels. Buy and Accumulate IDFC, Yes Bank, ICICI Bank and HDFC Bank at current levels. Stay away fro m construction cos. back on a dead cat bounce. Bharti, already up 2% yesterday can move up to 330-340 levels before next week closes. The Maruti short is about ready but will probably wait till Monday. Going in first precludes market operators from creating that position as hey are anyway prop. holders of the stok and are not using it for short collateral

BOI NII growth was stolid and the PAT hit should not hurt the stock sentiment desite the almost immediate post earnings reaction as the stock has been discounting its NPA woes a good six months of the rally that ensued in July 2013. IDFC results should se a muted reaction as its diversified businesses hold up and get ready for an aggressive 2014 ( The last three years have been bigger growth in the loan portfolios already) the stock offering great value at 90-91/-

Ashwini and Angel Broking are again fishing in troubled waters and most shorts should be avoided esp at 320 level son YES Bank

India Morning Report: Out; KPIT, Biocon, M&M Finl, L&T? In; Sun Pharma, HDFC

Of course the trade that earns is a good Bharti as ITC catches a breath at 322-326 levels and HUL tries to crowd the space after good results across the seas at its headquarters. However, positional trades on ITC are advised, we still like IDFC and Yes, ICICI Bank’s journey is a bit in the clear after HDFC’s straightforward increase in spreads to 220 points on the yield curve turning south across all points. A lot of “Sell on Results” shucked out in the pre open indicators (Call Auctions and if they are trustworthy? right now we are pretty stabilised on the morning indicators on bid and offer prices you”ll get in the market hours)

We would advise, that viewers and ET Now still learn to ignore Volume breakouts between 9:15 and 9:30 as the price uptick in that first flush is usually recovered with a correction easily assigned in markets in the midst of a positive rally. Thus we do not believe in the Larsen technicals either and they should rest this one esp with the bad prognosis. L&T’s dismal domestic scores preference in the Indian markets is a lagging Indicator for the Indian Economy and its being a Capex churn probably a function of the pipeline at best and payment collection habits not a pointer of the Economy returned to Normal that the markets are forcing on it.

Biocon is  agreat pick after the “Sell on Results ” shock,. At least it is apparent that new investors did not join the Biocon rush after results which are due today. Those Mid Cap IT stocks still in the ring, better have a story to tell with the PCR still not crossing into overbought signals but the market still tired at old highs and the 8% after fatigue for the Indian charts M&M results are 0% higher on NII in rural catchments. HDFC profit was up 12%.

Barclays, CLSA and GS are already tepid on L&T but these levels are definitely not the stock’s ultintisurfeitmate bottom. No sign of bulls there or the turnaroo. Similarily for Kotak, who cannot perform as a company but shorting it remains uncharted territory. Is it right, BEES ETFs are back in play? check the volume ludes. and check the bottomline as always. Chill pill for qualuudes?..an extra u to coin my own word

Indian Pharma remains the great big bet for this rally as its market characteristics have truly changed and the Indian players have ramped up on the business of generics at least with cheap strategies for the $200 mln molecules and more in case of First movers post patent removal.

SBI is still uncomfortable at 1650 and looks ripe for Sell on rallies at these levels again.  I’d pick up Bajaj Auto again in pair trades as the trading range bottoms out again, not so unlikely at 1900 levels itself. I for one am ready to add Glenmark and ICICI Bank to big trades right away but waiting for a confirmaiton and the 6320 cap likely remains

The AAP charts can probably prove pre-cognitive abilities as donations that peaked in the new year damped out a week before the (Somnath) Bharti chapters made a big event splash India bulls Home loans are back with INR 6.95 B and PAT at INR 3.95 B, Loan books of INR 390 B are hopefully in process of reaching a better denominator in a large unbanked market like India. Axis Bank could pick up where it left off but investors do not expect any NPA debacles in that neck of the woods, sufficiently loudly demarcated as out of PSU

In Policy matters, the CPI linked benchmark idea, we will assume , was another committee suggestion ( someone converted us, right?). Affordable accommodation units and Prop rights(garden variety TDRs) in Mumbai RE did take off but have not grown as a class.

In unlisted business, opening as a secular class in the Morning Report, AS in including both Global Corps and Unlisted PE business or the unincorporated merchants and Franchisee business we prefer Mike Fries in the Global Charts (Charter Comm – Liberty Global)than the local entry of frozen processed fries(McCain), and that is a definite final No from India for McCain as it follows in Gujarat after McDonalds’ merchant production for its restaurants . The price points will be out of reach and the consumption uneconomical for Vikas Mittal’s new effort. Walmart’s independent beginning on the other hand is another new victor of he Indian sweepstakes and should ramp up faster in the next 3-4 years. Amazon FCs are in Bangalore

Tata Global rush trade classifieds are back again but no corrections this month, unless someone starts up a maruti while its running!

Oh ya,  I have finally come around. India’s problem is/was feting Jim o Neil. It’s a wonder he came back despite betting bigger on China and biting a big fat Turkey. (I have to watch how much to put in the Morning ReporT)

zee entertainment below 2odma is a false and stock is a great investment. do not pair trade in US cash equities if and when you head there to advise or trade. stay invested in cash and speculate in f&o. rice exports at 2.3 MT in rice couldn’t possibly have peaked already did they? are the quota clamps back in place or no surplus production? krbl trades may follow real-time exports/orders in the next 2 quarters

Did you see Biocon’s brush with the NHAI in the Bangalore Mirror today? Taking medians out on NHAI highways is definitely a surefire way to asininely jugaad India’s hind out of global competition. Biocon sales (updating at 10 AM post Keki Mistry of HDFC) are a 7 B for the quarter and R&D spends seem still subdued because of other limitations at INR 1.02 B but none of that should count against the investment. Principal Global may end up showing us how corp governance and voice on the board are still a flexible parameter for India portfolios as we move towards harnessing and integrating the NDF currency markets into the mainstream And hey that Thomas Bata protege is still walking, so there’s no (h)urry!

O Gao, Jan Jan (ko Chhua) Janjivan(badla)

Ashwini contributing to his own sells by recommending 6300 put sells, that’s backslapping yourself twice over as Puts have anyway likely over priced themselves out of investors by today’s close and that does not make investing on te bull side defensible today. so the shorts are likely having a needless hope surplus till Friday in the pouring rain.

PSU Bank Dividends are more than justified, if the Banking Secy needs any props and tempting fate by linking to February Capital re-infusions and Banks’ demand for reduction of free ATM transactions per month should be denied aand the number of free transactions should be increased.

India Morning Report: Gold Loan Norms for Muthoot & Mannapuram, Infy at 3400

Markets at 6200. Nothing would seem to have changed during our 2 day break this week, but for the fact that markets after declaring tiredness have found the will to come back to 6200 from a dip , probably to catch some Deliverable trades in the wind down as the Shorts get their day but most are bought into the 6000-6300 range. Option ladders have given way to Bear/Bull spreads and cheaper strategies of any combination in OTM Calls ranging a 6200 with a 1:@ ratio call ( from namesake Amit) with 6300 ( neutral on cash) or  a similar strategy on puts at 5900 (ITM) sold to higher Puts bought near the range as the markets are not excessively bullish (6100-6200)

Meanwhile, true to last week’s draw ins to our short list, Sun Pharma and Lupin/Cipla/Aurobindo have taken off/ are ready for a big run discounted for the weakness of the rupee being their marker as the Rupee is at the bottom of the range at 62.1-62.4 alternately. Divis’ is a great pick and Cadila is still in but some market movers would put Glenmark on watch with profit booking in place. Ashwini is off Jubilant Food again for the same reason maybe, but he is trying Jai Corp today I managed to note. Aurobindo is still good but I fail to understand the hankering for Ranbaxy again with promoters from Japan raising the issue of misinformation and misgovernance publicly

In the Zee vs PVR vs Eros /BIG and the rest again I find the PVR cosmopolitan equation still daunting and Zee the only balanced out performer despite attempts by Sun TV and the sports czars like Sahara and Kingfisher. Private Equity has a chance to prove itself again in India in Entertainment, Media and Education, the Y sectors but as of now has come out only in select E Commerce venutures in over a decade

Muthoot and Manappuram would be great plays even after this first CB. As per the new guidelines, LTV has been rolled back to 75% allowing both to lend more on existing accounts and having also gained the RBI seal of approval for moderating portfolios.  Disbursals are still by cheque for high value cases ( Same INR 100,000 benchmark) Apparently Ownership Affidavits have specifically recommended by the RBI as NBFCs probably pressure customers /claim troubled custom for original receipts for Gold more than 20 gm

IT firms would probably end the correction as Infosys result day is now key with Infy at 3400 levels. Both Product platforms and Consulting have failed to take off for the new no. 3 of Indian IT. However buy in select Mid cap ventures ( for the same tired reason, MindTree is still an in) continues as the Rupee story has unfurled. The smart correction to 3480 may be safe but the range remains between 3420-3480  and any new rally pre-results would likely be sold back to these levels. Similarily the short on YES Bank (Mitesh) may again fail as Banks manage to boost their share outlook on Private sector and credit performance in this week after a very dull prognosis again prompted the pick by Mitesh Thakkar (TGT: 340) and others. YES will still be a good buy and IDFC is again available at 102 levels so both should be bought into at these levels. YES commentary would be key as Indusind retail portfolio gets colored by being mostly in the sharply down CV sector. ICICI Bank may not keep the elevated 1050 /800 levels in earnings season this quarterly review but will remain higher and be guarantors of Indian performance both in markets and in the overall Economy with IIP and GDP rates still subdued and inflation a big part of the continuing growth imperative

Except for trades on exceptional earnings and sell on news, select stock picking remains the order of the day, going into earnings season next week.  Infy for example will suffer if the promised margin expansion of 100 bp and higher guidance for the full year is not delivered with or without commentary on taking out the Executive council from the company’s governance model. Bajaj Auto may see new highs as it remains important in portfolios with new picks in the other Bombay car/auto maker M&M. Bharti and ITC continue to see some exits but have more or less become nerve centers of a trading move despite the expanding dichotomy between Mid-Caps and the Large Caps

India would be happy enough with $30 Bln stock of FDI in the Calendar year 2014 as well and marekt expectations do not include any redefining execution elements into the stolid infrastructure story nor any PSU ETF can bring bank PSU investors or the BJP euphoria in a hurry. T2 has been commissioned in MIL in time howeevr, taking capacities to 40 mln passengers per year, while KIA is already expended into T1A with an overall capacity of 25 Mln pass per annum. GVK in the meanwhile , tries the land monetisation plan first at MIA while GMR continues to consolidate international and national bids ( Hyd and Bangalore) in it aviation subsidiary, the only post MRT/Metro good news for the sector now four years into its relaunched modernisation drive, where BJP assumed it will get the mandate to do better, but it looks likely that the electorate saw it was equally impossible before the Election mania picks up (after the Vote on Account).

(Anyone wanting to edit the Morning Report is welcome to formally request myself and email the direction/editorial choice parameters as well as the time constraints)

India Morning Report: A GDP score of 4.8%, financial services up, tourism fading?, The Jet Etihad minority opinion(onion?)

Monsoon Clouds
Monsoon Clouds (Photo credit: Intrepid wanderer)

The GDP report was an easy one with Industrial production no longer  a riddle but  a low 2% still below potential as manufacturing remains muted. Services sector GDP could have been above 7% led by the revival in Banking and Financial Services and hence lending, however it was not just Hospitality sector, which is going thru a low in line with a Global slowdown, but also in Community and Personal & Social services that the GDP for the sector and thence the overall report was muted. Mining and Agriculture have recovered though expectations were probably higher in market watchers. Gold price for example have not really fallen from $1240 levels, supporting their way of a Hindu rate of growth/recovery like old days and furrowing my eyebrows while assessing if the recovery has indeed begun can actually remain muted after the 6 months markets are willing to wait

While utilities also jumped back , both Financial services and Utilities (Elect. & Gas) coming back to near double digit scores for Q2 FY14, the Community services cut could point to further pressure from Government spending coming down. The HSBC PMI for November has returned to a positive 51 ( 10.30 AM update)

Budgets for NREGA and other Welfare schemes have been cut with a reduction of INR 100 Bln in the rural development ministry and INR 50 Bln in the Ministry for  Human Capital but the current Fiscal Deficit target of INR 5.45 Trillion (Rupees Lakh Crores) has already been spent to 84% of the target in the Fiscal period from April to October, leaving the last four months exceptionally painful, even as public spending is up to nearly 30% more than the Planning Commission contributions in the budget or INR 600 Bln with the October deficit itself at INR 300 Bln.

While India’s Capex companies look outside India for elusive new orders, (L&T/BHEL) welfare spending will now taper off if deficit is to be reined in even as Electoral spending profligate and wilful, takes over for political equations that remain murky and public spats making the BJP/JD/Congress campaign closest to spaghetti /cesspools more recently associated with Banana republics/Southern partners in Euro(pe)

 However, with other reasons seen as impacting Banking profits the well timed thrust for Banking stocks is weaker this morning and the 6350 target itself may remain an elusive slow mountain but shorts also have time to mull and wait. A word of caution that might have filtered through earlier from us, the sector substitutes chosen , except for Crompton Greaves /Greaves Cotton ( just maybe!) remain almost as wild an imagination as 20 years ago when FII franchises and brokerages had  a hard time keeping the India story transparent or represented in Listed stocks

Markets might consider moving back after the news is traded to 6250 levels (GDP at 4.8%) further expectations of an even better Agri GDP cannot be relied upon but the India investment story rekindled in the post June rally is safe and thriving though on lower volumes till January and may not even engender a big jump back in the Rupee from 62 levels, waiting for the Q3 / December earnings season after Bonuses have been announced /distributed in MNC India

A jump trade in Private Banks incl ICICI Bank and YES Bank is probable in the afternoon, the other option being stronger infracos and we sill do not think Dabur and Marico can replace ITC and Bharti though HUL is on the other side of the trend as an almost defensive again with core inflation in control from the GDP arguments above and pricing power in retail extending to domestic pharma as well before the quintessential control from Government pushes its way in. Wonderfully, the Diesel decontrol is moving on nicely without a break as Diesel prices close up to 60 levels and the Oil ill discussions for this fiscal are probably over leaving the Energy companies in cahoots with the Metals on the strongly bullish stocks led by Tata Steel. Tata Motors and Maruti attempts to breakthrough last week, will be the genesis of the immediate correction(in consonance with Mitesh Thakkar , ETNOW)

The Jaswant Thada mausoleum in Jodhpur, Rajast...
The Jaswant Thada mausoleum in Jodhpur, Rajasthan, India in the early morning. (Photo credit: Wikipedia)

Idea may also benefit from the weaker spectrum prices as the government strengthens its revenue shortfalls with the Powergrid mega FPO going online tomorrow.

USD remains weaker, making bears at UBS and CLSA a worried lot ( if they have actually ut any money into biting the Rupee on their pessimistic prognostications) and Crude at its lowest has fully enjoyed the Rupee weakness, turning to 6000 at similar levels when it battled 4500 a quarter ago. So who is going to the first dozen to really move into rural, assuming the first three slots are HDFC Banks and the Automobile Finance companies that started in 2009? Yields may dip below 8.5% to the final top of this rally before stabilising around Governor’s further refinment of the maintenance policy for FY14 and FY15 as recovery is awaited

CCI okays Jet Etihad Deal

A lovely informed review of the Jet Etihad deal, on our favorite The Firm (CNBC) and other forums shows the combinations Commish, Anurag Goyal left in the lurch as the CCI went to great lengths to ignore trouble brewing from the deal. After the deal, Jet keeps 50% of share in flights from Delhi to Abu Dhabi and 55% from Mumbai while its dropping of Dubai means big trouble in the sector flying from Kochi/Trivandrum to Dubai where it had a 69% share. The Majority opinion assumes a 2 hour reach criteria to assume a single market across Abu Dhabi , Dubai and Sharjah, showing th limitations of  20 years of hyper growth having left in official mindsets especially as such ‘arcane’ topics are probably not as interesting a conversation in Delhi and Mumbai despite the attempt a t modernity

Road to the Monsoon
Road to the Monsoon (Photo credit: Karthick Makka)

India Morning Report: No Taper and Nifty on to 6100 levels

A rather unexpected reticence by the Fed, allowed Global markets to uncoil their expectations of a taper and the Indian Rupee opened at its best price of INR 61.5 today barely hours after the announcement. the shorts on banks disappeared overnight as did the opportunity in depreciation lit IT with the Banknifty finally moving 650 od d points to above 11000 today and the 7% increase in ICICI Bank to 14% in Yes Bank possibly still allowing steam in the rally to 6300+ levels and a long awaited rally in the banks with the liquidity measures likely to go away. (what if there’s no taper?)

Apart from the bigger damage to shorts on Banks, the rally has caught most by surprise and thus some may wait out for lower levels to start again, but stopping market enthusiasm at 6080 levels itself is likly to fail with the momentum of the event generated uncoiling allowing immediate 6300 levels. Also the taper remains on the horizon for the US Fed as it tries to tackle the question from a new structural cap to growth in the US and the  Rupee may be allowed to break below  to erase the damage since May

F1 Australia Grand Prix - Thursday
F1 Australia Grand Prix – Thursday (Photo credit: Wikipedia)

Indian yields are back to 8.16% levels. ITC and  Bharti have continued investor fueled upmoves at 350 levels, while Sun Pharma and ONGC and the Energy companies rebound to 2010 levels. Investors also found the chances to get back into Hero Honda and Maruti, both of which may easily by rejected later for Bajaj Auto in the Auto/Two wheeler sector

The Rupee might close a little lower but above 62 till 4pm and in RBI trades after.

India Morning Report: 5550 and nose down, Banks give up consolidation

FO Update: Bifty(BankNifty) strangle could be a good sell so vol moves are up but one should stay away from buying bank puts individually or shorting banks per se. They are quite in line for a jump and won”t be characterised as the villains of this move

The day started well enough Banks shifting chairs with HDFC Bank and Kotak taking over the upside and ICICI Bank facing a small (less than 1%) correction and Axis Bank moving up smartly as well, but as we prognosticated, the Rupee is touchy and tus 5550 seemed like a top off, barely opening at 5573 before trending South. On the bottom again, the move is capped at 5400-50 and the Bifty could well stay above 9000 throughout esp if the Rupee manages to keep the bears happy at 67 levels itself, as the markets decide the new direction of the move in the rest of the Financial Year (Fiscal).

The Rupee has received considerable global attention it has yearned for and sellers have been keeping quiet not because of fundamentals or flows but for the attention alone. ( Any study ignoring other parameters and attending to the correlation with global fourth estate exposure would thus be able to prognosticate the new founts of pressure on the Rupee. Oil is going down and 4% GDP is post a not so tough Oil Bill prognostication at the umpteen downgrades that heralded the start of the week. IT is almost overvalued again, one windfall quarter per 25% loss in Rupee value (YTD :D)

GDP (PPP) Per Capita based on 2008 estimates h...
GDP (PPP) Per Capita based on 2008 estimates http://www.imf.org/ (Photo credit: Wikipedia)

On the market performers, accumulation of a disordered undervalud opportunity variety has started making itself felt in Caital Goods companies and infracos equally as Reliance industries which may look to E&P approvals in 6 different fields. Thus the sectoral technical picture is additionally cluttering the fact that no policy decisions would be forthcoming till after May 2014.

Savings in the Oil ill are coming  from the 13% share of Iranian oil, which because of shipping lines and insurance issues, are unlikely to be raised. True to form, Irnians do not really want t o use Rupee payments made to buy Indian exports except for its rice and tea demand.

Auto sales jum is more a victory for the two wheelers again, Bajaj Auto recovering Exports to 144K ths month and domestic sales on breath with value #2 Honda (301K). Maruti’s jump back to 87,000 units is still a poor performance below its run rate of 100k cars on average  pre 2010 itself. M&M tractor sales have dropped to near ZERO at 14,000 r month and Hyundai has been wiped along with Tata Motors for all the improvements in traction at GM, Ford, Toyota and VW.

Glenmark Pharma is a good pick to start the mid cap ride. Yes Bank and IDFC should e among the non controversial movers and shakers as the markets operate in an unwilling tight  rang waiting for the Rupee pain to go away. Sun Pharma will bottom out above 500 levels and start on its promise again as it builds on the INR 1 T capitalisation. The September trade data for India is due in a week

I do have a couple of questions on the detailed NH survey on housing price trends released yesterday. The 670 mln sft inventory for example seems to be a little bit of an over estimate and prices in Bangalore ,Bombay and Delhi are unlikely to move down despite huge inventories in residential , affordable, commercial rental and commercial spaces overall

Also ATF prices ( 71k per kl in Delhi and 77k per kl in Mumbai) are probability going to  strain the almost barebones domestic aviation pricing again and UDF are up for renewal. These are likely to remain hygeine factors to the India story ( low growth high cost aviation and high inventory of property) because of obvious inelasticities in the real estate pricing and the elastic nature of demand, roving a sea of red for aviation in the last decade. Thus inflation fears are probably dead in the water with Oil and Gold moving down globally.

Metals esp Tata Steel is back in the Buy lists in this run which will probably peak immediately after mid 2014 till September 2014

Bank Results season (India Earnings): ICICI Bank keeps showing long term tracking to objectives – Q2 FY2014

Your favourite bank did start showing  hidden wrinkles as it eagerly snapped up a 26 bp NIM increase to 3.26% this quarter an Net interest income grew in line with the bank’s voracious appetite to INR 38.88 Bln. The retail surge which slowed down to 20% and Deposit growth continues without buyouts of deposits  at the industry rate of 14%. That means the retail team is unlikely to prove other results without the earlier snafus with retail processes even as it opened 250 new branches, 150 in the unbanked regions. The chink in the armor is that the bank will smooth over its increasing gross NPAs as the continuing expansion in margins gets the bank to override and lay down the news of a jump in gross and net NPAs. Gross NPAs for a large bank as such are horribly disavowable at 3.23% and Net NPAs are also thrice the rate at equally sized HDFC Bank.

The stresses however may not be l

India decadal growth rate map en
India decadal growth rate map en (Photo credit: Wikipedia)

inked to its growth as one looks askance at the 15% plus ROE. At this moment however I am unable to more than cast a  doubt on the Capital Structure for such ROEs and the same however is not to be confused with the global banks which still have a entirely different Order of magnitude of liquidity and derivative profits/risk management. It might still have an audience requesting that they be treated as peers especially on the comments on Capital Structure while structured product profits would still seem unseemly. The results will probably bring the bank under fire from its Indian peers , starting here at the ROE growth which seems awkwardly as always one step ahead o f the coming high interest rate regime when it actually expands margins.

Profits are only up 25% less than the expected INR 24-25 Bln mark at INR 22.54 Bln

The Active CaSA strategy for the bank seems to have worked wonders again with another 1.95 increase quarter on quarter to more than 43%. From here CASA would go on reducing once it reaches 47-49% levels in three-four quarters(at this pace). Average CASA as been reported duly at 39% , ad the gap is showing , which may be a disconcerting note for investors as the surge in retail and commercial deposits continues to bank the margin till rates are hiked.

However to reiterate, The Bank thus now has been completely clean on the paper trail in terms of its profit, asset growth and retail loan growth objectives , also fulfilling its rural objectives , covering the unbanked and continuing to improve its show while the fissures in its wholesale international book and the growth in retail NPAs coming hither will well be masked in the current reporting as well, leaving it another show of increased transparency  The bank has however totally dominated its peer HDFC Bank in the banking sweepstakes for the two universal banks heralded in India at the first stage of bank reforms in 1995.

Bank Policy Tuesday: Quarterly review cannot shake off jitters – Taking on the mountain

..and not the molehill

 

Fiscal policy
Fiscal policy (Photo credit: Wikipedia)

 

 

 

This is that kind of belief that turns policy makers into Monster characters as most of the markets are certain of a humdrum ho hum restrictions will remain for some time with an even optimistic note or two in tomorrow’s policy announcement.

 

But markets cannot help but respond to the coming policy event with trepidation and declining interest as they try to still assume a worse scenario. It is however not changing the fact that Rupee is under pressure and the policy easing initiated one policy date earlier than required has died an equally abnormally death and will not ensue to support any domestic investment growth.

 

As has already been proved however, much of Corporate India was actually not using credit probably already on its books as credit flows slowed to an all time low of year/year growth of 13.5% last month and has improved since.

 

The Reserve Bank of India thus having responded worthily to a Hobson’s choice is now more or less resigned to following it up as a Global cycle of lower growth and incomplete recovery has probably been ignored by the markets in the assumption that India’s outperformance therein was because of only its global trade posits and thus new investments continuing to elude India just turned into a chaining of expectations gone awry from no new investments making it as a suspended fiscal policy and reform because of political middle of the line voting lines cannot be repaired by any Central Bank. However India’s Hindu rate of growth posit may also be tested despite the recognition of this failure widely (and the completion of this government’s agenda by political fear) in terms of a requirement to carry Interest rates to double digits for at least a decade or two as there is no new consumer credit or consumpion demand except in unsecured loans and Housing and Auto markets suffer a chaied breakdown from the slowdown improbable but still awaited in th event growth recovery does not come.

 

Infrastructure investments should not have been shot in the foot midway and the wholesale bank  portfolios are unlikely to be able to stand to the situation in case Deposit rates start rising further from here which is always a binary possibility thus making it a half chance too.

 

 

 

Bank Results season (India Earnings) : Yes Bank starts back from 390 levels despite overnight straits

Yes Bank covered a lot of ground after publishing results yesterday, as the Net Interest Income jumped 2 in 5 on year or net profits increased more than 10% sequentially on INR 0.94 Bln in Investment gains on bonds /debt . The NII of INR 65.9 Bln was sufficiently larger by our benchmarks as the bank remains one of the few posting robust gains in Fee Income and advisory income including retail charges as at bigger brother HDFC Bank, the lines have gone relatively stale on such income in the Indian scenario.

Other Income was INR 44.2 Bln looking to equal contributions from NII going ahead as is the wont of this income stream in robust bank models. While private banks set quite a standard for robust corporate governance without due transparency in such old habits in Indian Banking a s a consolidated other income figure unexplained, the reforms in banking would still have covered more ground than it is internationally. the higher interest savings led CASA increase to 20% at the bank is still miles away from reaching an entrenched player status but that is just a n indicator of this bank’s potential to grow faster and stronger than the ICICI Banks and the HDFC Banks.

Retail assets remain a priority  at the bank with total book still ahead of other “midcaps” as Kotak and indusind dependent on corporate treasuries ( variously wholesale deposits/short funding linked to the usurius 10% = call rates pushed by RBI’s interim policy) with assets of INR 612 Bln

The yields, cost of funds a dynamic provision coverage shared by the bank(click here) continue to reflect the continuing profitability of the bank’s model and its relative closeness to NBFC models in vogue, currently trying to reprocess themselves as banks but the existing players will settle up much higher in any status ranking of the candidates yet remaining a respectful outsider in loan syndicates and loan melas

 

India Morning Report: Markets swing to international sentiment on India

Pivot table NSE Banknifty PSUBank index scrips...
Pivot table NSE Banknifty PSUBank index scrips from OJN for 20110609 (Photo credit: OJN2)

 

The proof of the pudding is in the eating. in the weakest correlation ever to its presence n the Global markets, as shared by global investors and markets that largely ignore Indian events already, with mirrors available in east Asia/turkey and even other developed economies, India itself typically stands alone and the imperceptible nod to trend shifts remains the only hint to international investors. again though the banking system has been asked to step up to tighter overnight liquidity yesterday with a 4% CRR now enforced daily instead of twice monthly(fortnightly not bi monthly) where earlier it was required to e 70% now it is 995 That would affect the base SLR stock too but with most in excess on SLR, banks would have additional motive to hawk those securities for others CRR requirements and a domestic mini bond sell off may yet be avoided if there is a real overnight liquidity crunch. Which there is not.

 

So the entire shortfall of INr 900 Bln pointed out as likely by analysts like UBS’  Bhanu may actually be a mirage for inter bank markets though interest rates will respond likewise the first shock of two weeks ago and a catch up to the 10% mark as the LAF is now available at 7.25% only for 0.5% of each bank’s NDTL. Thus this shortfall may take a whole 6-8 weeks in unhiding itself in the business and a rate hike may yet be unlikely though the range of choices before the RBI Governor is still not large and banks wee on the verge of easing down loan rates when the dollar/oil trap worked them into a corner

 

What that means for equities is that they are largely naffected as liquidity from interbank schemes and pledges shares has already been minimised. Also foreign flows stay in and increase slowly while letting the Rupee fall. I may be well describing a limitation of this monetary outreach here but no one would play that card to corner India though unwittingly FX flows be unconcerned and pressure maintained on the currency as dollar starts its climb back I still dont think IT sector is going to capitalise on this leg of the continuing rupee depreciation stance but yes those basing their investments on continuing wage hikes factored in will bring in the kudos for the sector always singled out as the flip side of a depreciating currency while exports remain ata standstill falling 5% in June

 

Markets may not dip further from the 5990 levels Is ee in late morning trading on the screens and the Banknifty dip is probably still just a check on how things pan out and north is the way to bet from today late afternoon. Sun pharma going back into currency or more HUL will still not preclude positive investing in Bharti, ITC, Yes, IDFC and iCICI Bank

 

 

 

India Morning Report: Markets regain 5900 levels, short trade not on

English: Implied Vol. Surface
English: Implied Vol. Surface (Photo credit: Wikipedia)

 

Aftera small skirmish/face off in the morning trades as was likely on expiry day, the volatility smile of the May series was intact with high ranges for out of the money calls and puts and shorts bowed out of remaining scrips before noon possibly. Markets are stable at around 5900 and are celebrating the Jet deal, Tata Global beverages also getting neww found attention as it consolidates thee first year of results of Starbucks and probablyocased the kind of innovation and looks for global scale forced by its jv partners and global coffee markets. P&G global results yesterday showed the importance of innovation and BRIC growth in consumption stocks and India remains an important global destination for consumption industries FDI not just in travel and financial services.

 

FDI, Media and infrastructure expansion and perhaps a stable polity make guessing capital market priorities an almost daily habit for the multitudes but investing funds and managers fail to expand the footprint of the profession while retail investors get knocked out for scale, leaving pronooters speculating on margin an important riceboll weevil infestation in the Indian wealth crop, clearing of which is still dependent on monsoon dusting of crops, That is where similes end up when coffee conversations about the market try to replace in depth research. M&M Financial however seems to have cottoned on to the diversified growth tenets of a NBFC and bajaj finance firms too are pretty surefooted led by their last insurance investments.

 

Jet is likely to cross a near 100% retunr at these levels to four figures but that time frame could be six months or even six years whence it will cycle thru another multiquarter negative round of profits based on the cost of oil. Rupee trade is stong ont he upside and the banks being pilloried for having reached levels at which further investment is foolhardy are still purveyors of both value and more than 30% growth and as long as exit targets are available in IT and defensive sector stocks should continue to be staple of portfolios

 

Rollovers are likely to be subdued and if that happens there could be an entry opportunity in this market around 5800 levels after the new series trades in earnest next week. (ofcourse if these ‘scheme’ is indeed adopted along with the 24% stake approval for Jet, Friday trading could still have already set base levels for the May series before markets start the new trend direction next week but as of now, Friday would be dull and rollovers sparse

 

 

India Morning Report: New Private Banks circa 2013 and a Fiscal Responsibility Map for the Republic

The General Post Office and Reserve Bank of In...
The General Post Office and Reserve Bank of India building from across Lal Dighi in B.B.D.Bagh, Calcutta (Photo credit: Wikipedia)

 

Banks start the week with the right foot forward as New Bank guidelines are released well in time . New banks would have to hold 25% of their branches in rural areas and existing NBFCs would be able to convert their Tier II and rural branches into bank branches without any new RBI approvals. Bank M&A could be the flavor of the year as RBI guidelines suitably condone upper limits for Corporates wishing to enter banking thru wholly owned NOFHCs (Non Operating Financial Holding Companies) including a minimum of 40% ownership of the bank by the NOFHC , less than 5% by NRIs and 49% FDI in the bank. NOFHCs will have to bring the bank co public in three years and bring their stake down to less than 20% in 10 years and 15% in 12 years. The minimum capital required at INR 5 bln and the CAR requirement of 13% ( for each of the financial entities in the NOFHC structure)

 

States have unwittingly contributed on the green side of the Fiscal Report for India in FY 2013 as plan expenditure which does include state allocation ( which was likely fully drawn) had been drawn only 56% by December 2013 making likely according to the ET follow up that India will spend less than 90% of the budgeted Plan Expenditure for FY 2013 at INR 4.28 tln. That means Chidambaram is under less er pressure in the last full year budget to be presented by this government and need not hold back investments in ‘populism’ espoused by Food Security and Employment guarantees safeguarding the few precious investments India has made in social infrastructure though not making it better for sectoral spends on Education Health or reining in higher subsidy expenditure leading to a non plan bill of INR 13.5 tln this fiscal , a three quarters of a trillion more than budgeted.

 

The $2 bln RBS operation in India is also losing 1000 more employees as Foreign banks get the new ring-fenced structure in India and mull over as the guidelines will also define new approvals for existing banks where guidance is required for exissting bank operations looking to pare expenses in Capital investments in national operations as they struggle with new living wills that decide their winding down of liabilities in case of another global failure. Global banks continue to negotiate for transparency and a level playing field and in the meantime inorganic M&A could possibly not be as discouraged as it was in the past decades. In the meantime most Foreignbanks stick to restricted CIB operations despite holding a full licence

 

On the budget front, more infraco spending and no new taxes are foretold as India settles in for a recovery with new Capital investment that could also buoy revenues by a good INR 200 bln for each 1% pop in the GDP. Stronger Fisc targets for FY14 and FY15 will be missed again as the markets decide to hedge their bets wwith shorts on Punj Lloyd and Maruti while the Bank Nifty looks to shine the light on market followers and burn a starting point for the post budget rally.

 

 

 

Bank Earnings India: YES Bank expected to grow to required size (Q3 FY2013)

Organic growth component of the bank’s strategy has shaped up well and even the despondent NIMs shaping up into a firm 3% mark this quarter as the bank ramps up on savings and Tier I Capital thru QIPs. The bank’s loan book probably increased Corporate exposure vis-a-vis its Agri book and the Provisions have thence grown by more than twice as required at INR 0.56 Bln but the bank has brought down Gross NPAs to 0.30% of the book and net NPAs even lower.

The bank states in the earnings conference that any rate cuts will accrue to NIMs CASA is nearly 20% growing from 17.3% to 18.3% and NII is well above average even for a mid sized companies at INR 5.63 Bln and Net income at INR 3.42 bln. for a book of a target possibly closer to INR 60 bln for the bank the growth in NIM is probably stating that the bank is about to hit the big league as is obvious from is well-rounded scores in management and corporate responsibility though its early single line focus still makes it an outsider in Corp loan syndicates.

Bajaj Auto results are on the wire.

India Morning Report: Imported Durham Wheat and the JP Morgan BPO

Canara Bank Near Town Hall
Canara Bank Near Town Hall (Photo credit: SumaVV)

What would your friendly neighbourhood snitch or hag have you see in India’s future now? BPOs recruiting for Voice processes and documentation work or captives claiming they are not BPO for the same work and a hoard of imported foods you buy now but will not afford on a salary six months after.

Unfortunately, our elites continue to get such side issues with  India education after being worse than a blind bat and halfway through their work life but one should not lose much sleep over such influences in your life as more and more recruiting shifts out of the magical BPO/IT abyss and returns to active traders, banking sales and i am sure a lot of non business administratives already pulled into quasi business development roles at one man MNCs having finally run their roost.

At least in the shadow banks and the foreign brokers we have been increasing recruiting breadth for the last 5-6 years despite shutdowns at Citi , RBS and UBS. Of course the recruiting profession itself and over the hill 50 something bankers remain unqualified in the new world so the global strategic direction is unlikely to be set anywhere nice soon so be careful what you wish for in a job or you might get performance linked appointments with fancy names and quickerr shutdowns than the Sasketchwan scare in North Canada

ICICI Bank is picking up the slack thankfully on a stronger day at the bourses and more thankful because that means market interest in SBI or PSU banks is increasingly turning merely technical in nature and ?india’s story of future consumption expansion in the hinterland is not making anyone secrete excessively rooting for SBI and the dud dudders from Union Bank to Canara and Syndicate, Dena, BOB and PNB hardly looking like having recovered or improved from their unholy business ethic of the last two decades which they were seemingly not a part of.

skyrise
skyrise (Photo credit: Brennan Mercado)

Etihad had another finger in India’s aviation pie though the reporting team got busted as a Bombay Tabloid by the last century’s sole network on Indian equities and is actuallya  scoop by Mirror  ( the city based TOI daily magazine of local specific mantra)

Bank Results Season: India Earnings (The Old and Weak) Will India jettison its Public sector behemoths as instruments of policy [SBI Q2 FY2013]

The deterioration in asset quality though well within control at SBI to 5.15% or INR 491 B does not meet management statements of no more deterioration in asset quality. The written off loans of INR 14.92 B and reducing provisions of INR 18.5 B from INR 22.73 B a quarter ago raise questions of capacity and capaability even as the Central bank has obliged with CRR cuts and the bank continues to manage the loest deposit base in the country ith the status as largest bank int he country borne in measure by share of loan assets and the size of asset book  as well as the market share computations for the sector in both retail and SME/corporate banking

However a future for India Financial Services may need to have a larger NBFC role designed aas per the latest policy documents or otherwise continue privatising bank franchises and allowing new banks with rural and priority mandates make the competition tougher whence sucha weak showing by SBI with only 5% growth in NII below INR 110 B for the quarter makes ita tough pill for the market to swallow. However, the current macroeconomic revival may let other banks pick up the slack and allow investors to ignore this quarter’s SBI records while the markets again take a fact check on how good the India story is.

Net profits for the quarter are INR 36 B ahead of estimates by more than 5% but the stock will drag the Banknifty in the current run with management guidance not being welcome. The year on year groth in profits does meet the benchmark of 30% at a 25% score bu tthat  is on a low base from underperformance after the bad loan cliff ensnared the bank

REstructurd loans are INR 46.94 B or 5% of the loan book roughly Additional slippages are INR 85 B compared to INR 103B last quarter (linked/seq)  but recoveries are also up by nearly 17% at INR 14.3B The loan book has grown to INR 9.56 T

 

India 3.0 – Results Season reestablishes Bharti, Cognizant

A 17% rise in revenues helped Bharti establlish some glowing recommendations for its 2013 and 2014 future

English: Logo of Bharti
English: Logo of Bharti (Photo credit: Wikipedia)

even as a INR 7.7B Dividend Distribution tax and increased losses of INR 5.4 B from Africa stopped net margin to a measly 2.4%. Before the Indus Towers dividend and losses from Africa, the INR 202.73 B revenues bent a margin of over 5% excluding the INR 2.39 B from a court judgment in the company’s(industry’s) favor on interconnection charges.

The company can probably not try and push pricing to Direct margins of near 50% as any self respecting industry might want but apparently hopes to regain pricing power if industry gives it a hearing even as the CCI has tightened up its regime and ‘cartelisation’ may not be welcome in any of its market. Telecoms, like its precursor in switching technologies and business telecoms, seems to be hurtling towards, trundling dowwn to a depth of losses regime of pricing and profitability that has already taken out a few segments incl examples like Nortel and Juniper to Sycamore and others at the height of the Telecoms global roll out.

Bharti did produce a viable model of profitability for the industry and would try to reclaim that leadership and is probably the best placed for that war with overall operating margins of 32% and Africa Op margins of 27%. it has been able to use pricing to maintain a virtuous cycle in its earlier avatars despite large Capexand resulting hit on Interest and Depreciation

On the other side of the globe, NASDAQ listed Cognisant cocked a snook at leading lady TCS with US revenues of $1.504 B matching TCS revenues of $1.509 B while overall revenues of $1.89 B continue to have a distinctly anemic spread outside the continental United States which remain the juggernaut strategy’s focus in the IT services market even as Europe tries to review and rebuild sustainable busines s models for a unified Euro led future out of the current recession

NASDAQ Panelists
NASDAQ Panelists (Photo credit: Think London – connecting business to London)

A revenue guidance of $7.34 B is definitely something to be proud of despite the 18% cap on margins and annual growth of 20% on the Topline seems to be a good enough benchmark for this company (at these rarified heights) even as it disregards the 30% growth in profits benchmark we also concurrently keep. The resulting increase in attrition took data on employees attrition to 13% even as Financial Services continue to make a 42% share of pie and the US Financial services market remains lucrative yet now almost closed off to other Indian players including mid caps that may not be welcomed by larger IT strategy offices finally hoping to make a mark on consolidation and giving TCS consistent account wins till 2010.  Industry sales int he US and indeed those of retail lifestyle exports from India are likely to be hit by Hurricane Sandy in the Fourth quarter.

 

 

 

Bank Results Season: Shriram Transport Finance Jumps On Leasing Growth

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

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

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

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

 

Bank Results Season (India Earnings) : Earnings surprise: ICICI Bank processes a few more growth triggers for Q2 2013

icici bank
icici bank (Photo credit: Wikipedia)

Net Profits have grown to a never before INR 19.60 B or $376.92M for the bank as Net Interest Income climbed to INR 33.71 B or $648.27 M with Treasury income of INR 1.72B helped other income to INR17.91 B  all growing at more than 30% over the year ago quarter. Q1 2013 growth was a little subdued in the middle of the near contraction in the Indian Economy on year but still a sequential improvement on March quarter to INR18.15B. The current Q2 2013 is therefore a sequential gain of 7.33% and even with a near 20% rate of growth in credit CAR including Tier II has inched up to less than 19% Deccan Chronicle ‘s INR 5B exposure was added to bad debt taking Net NPas up sharply to 0.78% from 0.71% in Q2

The bank is looking at bringing $1B in NII itself every quarter in less than 2 years and with Fee Income of INR 179 B year to date is likely going to manage a superior profitability with good NIMs on a loan book closing on to INR 3 Tln

The bank added a INR 5 B media industry account as NPA and i s otherwise unperturbed by the current sector massacre from bad loan provisioning PNB also proved results today and was able to grow credit and deposits by more than 17% on year Though public sector PNB has lost grip on profits, its cost of deposits at less than 7% might be a hearty target for a bank such as ICICI Bank not shy of wholesale deposits.

ICICI Bank has met competitive pressures from Private banks to grow its Deposits to INR 2.9 Tln which means total assets are over INR 3.3 Tln earning NIMs of 3% Savings rewards and social banking go a long way in improving its brand with retail depositors. Savings deposits have grown to INR 810B and 70% of that is retail (Chanda Kochar answers in analyst meet) Advances are INR 2.75 Tln, credit growing at 18%, retail at 14% (mortgages 14% and Cars 27%) with International starting regrowing credit portfolio at 6%

Kotak Bank in the meantime has grown CASA to a respectable 27% and YES Bank also ~20% with a 6/7% interest rate peg for retail depositors. NIMs are smaller at the smaller banks like Kotak and YES

 

 

Bank Results Season: India Earnings Surprise: HDFC Bank Runs Casa At High 46% And Manages 20%+ Corporate Growth

Despite slow/soft FX and Derivatives business in the quarter, 23% growth in the Corporate loan book exceeded the industry growth rate of 16% by nearly 50% Including the current Fee income the quoted Net interest Margin is a high 4.2% even as provisions dipped by almost 30% to INR 293.3 Crores or less than INR 3 B

Indusind Bank grew Q2 net to INR 250 Crs or INR 2.5 B at an almost 10% clip over Q1 2013 while HDFC Bank also grew profit sequentially from INR 14.77B to INR 15.6 B at nearly 6% on a much larger base

HDFC Bank has grown Net interest Income almost 10% sequentially from INR 34.8 B to INR 37.3B on the wires while Overall Operational Interest Income has grown to INR85.3 B or 30% on year from INR 67.2B. Year ago net profit was barely INR 12 B in the year ago quarter

 

India Morning Report: And the markets realise the “limited release” reform is severely limited

 

The Epic reforms in Insurance and Pensions started off the day adversely affecting the existing Insurance plays from Max India to Bajaj Alliance and other likely as markets were still excessively optimistic of action despite temperin gof expectations over 6 months. The cleared Companies Bill ith a 2% PAT surprise “social tax” is unlikely to not add to the bottomline challenges for the Nifty 50 firms whch are ready to rebound in profit growth by next week when results start pouring in.

Q2 will provide more impetus to the running recovery board and then the inevitable reaction from higher levels as we come to terms with Economic armageddon as it continued from August and thus pretraces another reality check for the markets which will unlikely try to get to a reaction before the last week of the year.

Indian insurers have been relatively more comfortable with 26% FDI as that keeps stakes higher for them and thence control. However the 49% limit may be subsumed by FIIs with portfolio cash

 

Morning Trading Strategies – India September 10-14, 2012 (Day 2 – Tuesday)

 

State Bank of India Logo
State Bank of India Logo (Photo credit: Wikipedia)

 

No do not do that. though smaller targets that Ashwini Gujral has suggested work, you never know which short won’t work and thats a good investment on the long you are switching. Of course I refer to the markets enticing show of what’s left in India anyway and exiting by the back door for the show is over kind of morning with dear networks taking turns on shorts for day traders. Yes Bank could very well come back to 320 and IDFC has already shown enough to stick to 122 levels than go back to 114 both indicating that the supposed over emphasis on both banking and infrastructure financing is unlikely to go away and REC and PFC are already at encouraging levels for an uother upmove.

 

We do not expect markets to go for the South side vacation day traders are so fervently hoping for.

 

We do not expect markets to go for the South side vacation day traders are so fervently hoping for.

 

ITC is a buy again at 253-257,  More IDFC can be accumulated at cirrent prices, ICICI Bank is a good buy but the stock ill run below 900 on some quick performance concerns regarding expectations on NPA portfolios, and restructurings as well as business segment portfolios the firm operates without any regard for the consistent high NIMs  and quality credit pull to the franchise.  SBI stock similarly awaits a big bang news before a new positive target thus making a good upmove unlikely while big news is unlikely in this quarter or next, banks having stabilised a volatile operating scenario

 

 

 

India Late Monday Morning Report – September 10, 2012 – Billed the next Superpower, India likes to trudge alone.

 

Image representing SAP as depicted in CrunchBase
Image via CrunchBase

 

The One hour saturday session did not help nor the coming Liikanen report in the EU scare banks and investors on the Asia story as Monday began apparently without due cause or available discretion. Not to give in to rabid bursts of disgusted incompetence but, india remains patiently in wait to distinguish itself from the Asia story and though stocks will trudge up to 5500, Banks from Europe could be otherwise occupied in the coming opportunity of the Spanish liquidity event as unlimited bank buying replaces and supercedes all current monetary supports and back in Bangalore Infosys catches the scenic express from

 

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

 

Zurich buying SAP and product house Lodestone. The Swiss Lodestone ‘s 850 consultants do not work for bugger or private banking clients but in manufactuing and automotive verticals with it also missing the in fashion healthcare business of the scenic Alpsdespite being in Swiss.

 

The Liikanen review needless to say, adopts a lot of the Volcker and specifically it pays heed to the Britishconstituency and perhaps brings UK closer to agreeing with the EU on Financial sector reform for all in one size fits all as the struggling EC wants to. Vickers had recommended and had been approved for a new proposition in UK banks limiting trading assets and non business banking assets from participation of retail banking capital However anyone with trading assets less than 5% of (RWA?) assets could keep the trading business in the same company

 

Meanwhile a new staying power has apparently been reached for the Jobs exodus as a less than 100k nonfarm payroll addition in the August report from the BLS did not cause much accidents while we were away unless the Euro shuts down in European trading n a couple of hours.

 

The Saturday session was evetless and the Index has hardly moved shape or sectoral preferences from

 

Bank of America Plaza
Bank of America Plaza (Photo credit: Frank Kehren)

 

Friday. However, banks completed a little ceremony where Dun & Bradstreet asserted HDFC Bank as a overall no. 1 bank for Fiscal 2010-11 and ICICI Bank and SBI split 3 awards each across categories with SCB winning the best Foreign bank ( parameters incl Quality of Assets) and Citi the best Foreign bank in retail ( old hat, new takers?)

 

 

 

Bank Results season: SBI highlights NPA to 2.2% and Provisions of INR 8.9B

 

Gross NPAs for Q1 FY 2013 increased to 4.99% instead of estimated 4.7% and Net NPAs rose almost 20% to 2.2% from June 2011 in the just announced results the bank increasing provisions. Gross NPAs amount to INR74.9B and Provision Coverage for the Giant despite increasing are still much lower than the competitionand smaller public banks at below 65%

NII is just 111B, 5-8 B less than the street estimate and total provisions this quarter are lower at INR 24.6 B taking the bank to below 1900 in trades after the ires ran the shock up the market spine. Broader markets may survive this loss of confidence in the public sector as the market demands of removal of subsidies as part of deep seated reform also subside without the indices rerating below a 5200 bottom

More details as the bank management releases further details of their private massacre when the street expected that the income and loan related pown rovisioning had been completed by the bank in a surgical action last March and June and profits are expected to increase 128% but will still manage to outgrow a INR 25 B mark satisfying the requirement of a viable net margin with interest spreads under pressure

Deposits have grown to INR 11 T while the bank claims a revised CAR of 13+% as of June 30 while Total Net Income is 14.6B or less than $3 B th no growth in fees advisory and other income

Q4 NPAs were best in class at 1.02% doublling sequentially ( Net NPAs)

 

Deposits have grown to INR 11 T while the bank claims a revised CAR of 13+% as of June 30 while Total Net Income is 14.6B or less than $3 B th no growth in fees advisory and other income

Q4 NPAs were best in class at 1.02% doublling sequentially ( Net NPAs) Net Margins have infact improved as the bank manages a PAT of INR 37.5 B but we have derated the stock as it has shown an inefficiency in shooting NPAs and continuing pressures in sectors like Aviationa nd textiles apart from the industry wide press ure from Power, infracos and construction & Telcos which private banks have tyurned to their advantage.

 

The 11AM Update – Results return ING to 3.3% NIM grade

 

ING Vysya remained the only bank to enjoy the margin upgrade from the sloth in the Fixed income markets even though its Amsterdam nerve centre remains otherwise occupied and hardly interested in the Sub continent retail banking pump up.

Net profits are up 38% Deposit growth slower as usual at 15% keeping CASA at 33% Th ebank seems to have eked out a large improvement in expenses , maybe not branch set up but other not sustainable savings and the bank was still able to bump up the provision cover to 90% Net NPAs have halved as it remains interested in select c orporates only Total income is still auniquely tiny INR 514 Crores (527 branches and 446 ATMs )

CDR has grown but gross advances are a total INR240 B, like indusind of the past failing to give confidence on scale or participation

YES is expected to grow NII to around a 28% annual rate Banknifty no available at 10250

 

So, why don’t you think Dynamic provisioning norms will hurt banks?

 

 

 

It is just a proposal at this juncture but we would be pushing as many good bankers for the provisions on standard assets to be adopted so the NPAs can be taken out of this subset of provisions and expensed off at least. As of now the proposal is still raw in its details requiring banks to keep additionl provisions including for foreign branches which are still leveraged on structured plays for each loan\

 

Current proposals start off with introducing provisioning on restructured loans specifying that such restructurings should have more skin from the promoters, lessening pressure on banks from the bankrupt promoters and adding a possibility of debt recovery before preference share conversion is forced and then giving it to years before adding specific provisions to that. This is overall a discipline that may be disavoed only by a fe Public sector banks depending on their portfolios

 

 

 

 

India Earnings Season: (Bank Results Season) Axis reports NII jump to INR 21.80 B

 

Axis Bank Dream Home Festival 18th & 19th Marc...
Axis Bank Dream Home Festival 18th & 19th March 2012 at Hotel Pride, University Road, ShivajiNagar, Pune 411 005 – 2 (Photo credit: Ravi Karandeekar)

 

Axis tried to drown itself on results to break the jinxed 5200 levels but the results brought in more buying as the Topline jumped the usual 20% + on year and Net profits have held sequentially as well as on June 11. Net Interest Income is up almost 30% at INR 21.8B Net income is up 22% on the year. Gross NPAs are 1,06% , no further improvement but despite the school of hard knocks the bank comes from that is a best in class performance from the bank incl the CAR of 13% and Net NPAs are 0.31%

Net profit beat expectations. Net NPAs are 6 B from 4.73 B in March and was expected. Provisions have grown on a low base and INR 2.59 B is not the end of story and ill rise in future quarters even before Dynamic provisioning is sneaked in

The Loan portfolio is up to INR 1.7 T and that’s creditable 30% growth over June 2011 while retail portfolio has started ticking up its share after the bank’s thrust in cards and unsecured loans to INR40B or 24% of the portfolio. Both ICICIBanka nd orking Capital Experts HDFCBAnk have 50% of their assets in retail.

I am recommending buy before close of market hours today and adding to existing ICICIBANK and HDFCBANK portfolios. SBI may be sold on results as well

 

 

 

11 AM UPDATE ( As opposed to Late Morning trading Strategies)

Axis Bank is likely to do exceptionally well in a strong AMJ quarter in which yields moved down and lending business grew handsomely for the right lenders. Axis has also increased operational efficiecies in 2010 and 2011 which have since tapered off. Net Interest Income will see strong yearly growth but may struggle to rise sequentially from the high water table for Q1

The Rupee does not encourage much trade at lower levels seeing spikes on every transaction in the NSE and may have bottomed out at 54.9 for most players being on the long side. However, the global moves and the Asian correction in korean WON and SGD may be followed by the rupee which does represent  a large transaaction island of 5% growth and Exports and imports make 1/3rd the GDP now.

Unfortunately the shorts on IT have taken the wind out of the up-move which is strange considering the bulls are still  on in Banks, Healthcare and even consumer goods performance though that has a bleak outlook after results season  A single MARUTI short from here can test the Sensex 5200 and even 5100 levels after Axis Bank results are sold in instead of jumping further etc.

 

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

Budget Impact: Good opportunity to add back banks

English: ICICI Bank - Leeds Branch - Roundhay Road
Image via Wikipedia

Banks slide in face of credit deterioration statement pending from rating agencies and international banking waiting on budget not helped by continuing concerns over fiscal discipline post budget, Mean expectation will likely move to a position that without measures Fisc not 5.1% but 6.1%.

Banks hit hard include PSE banks and SBI on NPA concerns.

However trading momentum on downside can help investors get in as banks remain stars in the coming 8% growth binge once the fisc charter adjusts to the new gap , and no inflation overruns helps us crosss the hump in the first 6 months

Esp HDFC Bank and ICICI Bank among the larger banks and mid cap banks post results for Q1 But downtrend may not be stemmed immediately , buy in small quantities.

THE INDIA BUDGET 2012: Agriculture, Welfare, Textile sector push continue

INR 100 bln NHAI bonds in FY13. UID allocation of INR 147 bln ($3 bln). ECB allowed against Rupee debt nullification for PowerCos

Reaction: I wonder if there is any result of the continuing focus on developing Textiles again , this time in the North East and in Spinning in AP etc

Indian Opp Venture Fund with SIDBI for INR 50 bln for SMEs thru SME exchange

ECB limit of $1 bln for Aviation Capital ( incl  working Capital) on top of Direct import of ATF

Agri outlays INR 284 bln… ECB for low cost housing too

Reactions: Fertiliser Scrips back in play . Should have scrapped subsidies, market would have absorbed impact in the bank run..NHM NMOO (Oil Seeds and Oil Pumps, Horticulture) 

Kaveri Seeds up

Ag credit raised INR 5.75 tln from INR 4.75 tln …Addl subvention of 3% to prompt paying farmers

INR 100 Bln for RRBs thru NABARD

Kissan Credit Cards modified to use as Smart Card at ATMs

Too many schemes with INR 5 bln to INR 10 bln – any cponsolidation shot down lately?

New NM for Food Processing in collab with State govts..I don’t think the government will survive till then

3mln MT of storage capacity this year and 5 mln MT next year !!! (MMT)

INR 373 bln for SC/ST and INR 210 bln for PDS incl computerisation

Tax Free Infra Bonds of INR 600 bln

Integrated Child Development Scheme INR 158 .5 bln increased by 58%

Midday meals extended INR119 bln or $2.4 bln

Age 11-18 yrs INR 20.5 bln

INR 120 bln for Backward area projects or $2.4 bln, Coal India to sign more FSAs with Power plants, NewCo to finance Irrigation projects ( as mentioned in Infra section)

Reactions: Markets happy with Equity markets big post rally starts after DTC leading provisions in Part B irrespective of Duty increases in Cement , Diesel etc

India IIP Report (January 2012)

Growth on Consumer staples (nin durable ) shot to an aberrant 42% fuelled by growth in some categories of groceries like Vanaspati while the most dangerous degrowth was led by electricity at 3.5% and Capital Goods at -1.5% from 10.7% and 6% respectively. However it is doubtful if this can be treated a s a wash out as NSSO and PMEAC expected a rebound in the quarter and this statistical compariosson may improve by next month. 

The miss India missed to nail down again

Rather to the detriment of the Indian purse strings which are a little stretched as always, we were unable to even attract real portfolio FDI in this current run on Equities, with $7 bln hardly enough for the kind of momentum we talk to. China definitely has the edge on infrastructure but more so and back on the same drawing board, it is our spin control and inability to adopt a senior group of such investors and give them what they want that is the problem why we at our best our no more than a 5-7% in the MSCI Asia index.

Indra Nooyi
Image via Wikipedia

We need to cultivate mroe than the process and more than our seldom far out daspora like Sameer Arora and indra Nooyi / Vikram Pandit but more so, we need to sit with just one group of a dozen FDI and FII investor advisors ( just the latter is required with a commitment to bat for both FDI and FII) and not just feed them the public press but go all out to make them commit at least one fifth if not one third of their global investments to this new #2 in 2050 as reports mark our future growth. It is what the ASEAN and more importantly the Chinese have done right.

English: Vikram Pandit, Chief Executive Office...
Image via Wikipedia

The mandates, and they are not banana republics or banana billtons any of them, just the mandates hwne given have been complete and thus the investors were able to roll bigger cash into the Taiwans, the Turkeys and even China, poor at $10 blna month in FDi and considerably much more in Portfolio investments at the low end of the cycle with local governments, fund management companies and despite pecuniary duties on imported auto which does not stop th others from brining int he big investment to China

INR 18k crores windfall for PSE banks

18000 Crores capital added by government

$3.6 bln has been promised by MoF to fund state-owned banks immediately after the budget to facilitate ramping up the Tier I common/capital ratios on the FY2012 balance sheet. SBI was promised INR 1.6 bln or INR7800 crores

ECB/FCCB funding welcome

The Israeli branch of the "State Bank of ...
Image via Wikipedia

Meanwhile, the changed fortunes of the rupees could not stop ECB/FCCB borrowing as $4.46 bln was mopped up in December on top of $1.58 bln in November.of this $2.7 bln is project based on automatic route across 90 projects , small QIPs of less than $3000 mln from mid cap and large corporates

2G Licenses

The entire $2 bln ( INR 92.6 bln) funding for the 122 canceled licenses was funded by syndicates led by SBI and PNB, both will thus claim the $2 bln refund fromt he government. Telcos pledged the licenses with banks to raise the money

Bank results season : ICICI Bank begets the vote of confidence, PNB grows NPAs

English: ICICI bank in South Road
Image via Wikipedia

ICICI Bank Deposits are now INR 2.7 Tln and only 101% of advances against the expected 125% or the ideal 130% As a proportion of the $ 95 bln balance sheet they are tracking and only 65% are retail deposits That means the NIMs are overoptimised and s and when ext borrowings are added to leverage the balance sheet it might erode further from 2.7% Based on subsidiary incomes and its NII and other fee income it has been growing well however.

PNB grew Gross NPAs , with Net NPAs rising from 0.84% to 1.12% losing momentum with NII growing 10% and NIMs down a fraction to 3.84%

ICICI Bank however grew NII to INR 27.1 bln and Profits to INR 17 bln in the December Quarter. The profits were 20% higher from December 2010. ICICI Bank NII grew at 17% and Net Npas fell to 0.3% , provisions a further smaller 3.6 bln The compoany’s loan book is now at INR 2.31 tln or $46.3 bln

The bank’s 18 international operations still make 50% of the book and mortgages only 35%. Retail deposits are only 65% of the deposits and the loan book will grow at 18% incl the March quarter for FY2012

September’s Profits were a bigger INR 19.92 bln. September provisions were INR 3.2 bln CAR remains above 18% and 13% (Tier I by Basel 1.5 calc) as per RBI directives for 8% CAR reqts. September NII was INR 25 bln and the current is a 8% QOQ growth

The bank plans to cement its growht with recovery in retail growth and the clampdown on corporate lending effectively continues. CRE is less than 4% of the Company’s loan book. The bank’s $100 bln balance sheet is the second largest int he country behind public sector SBI

ICICI Bank NIMs continue to languish at 2.7% but are likely to improve with focus on retail It has grown free income basis in Transaction banking fees and remittance fee income while M&A fee also languishes in current market. Life insurance premium has grown by a healthy margin again

India Earnings Season: ITC did well again, why not enough?

Somehow ITC’s profit growth to INR 17.01 bln inspired the market to invest in its stable model causing a sell of fnear the usual 210-215 mark even though results growth is on call

FMCG business grew 25% while overall sales grew 14% and Net Profits 22.5% Growth in Agri and Hotels remains weak from management expectations Cigarettes also grew at 25%. Hotels revenue is 5% at 311 crs and profits at a 34% margin at 101 crs (1.01 bln)

Net Sales for the 9 months are at INR 181.71 bln or ($3.6 bln) with FMCG sales at INR39.1 bln or $800 mln up

ITC Welcomgroup Hotels, Palaces and Resorts
Image via Wikipedia

25% and Tobacco/Cigarettes at INR 90.74 bln or $1.80 bln up 15% only. Agri and Paper have grown to INR 60 bln in nine months or $1.2 bln

PBT margins on Capital in hotels is just 6% and Branded FMCG goods in the Foods, Apparel, accessories and stationery have not reached breakeven losing INR2.29 bln in nine months (PBT/Equity(Seg Capital) = -15%) Return on Agri in terms of Capital employed is higher at 30% and that on Paper business is a good 15%, leaving Cigarettes to be the mainstay of the company with a 20% return on Capital.

Moody’s makes India P-3

English: People entering the main temple.
Image via Wikipedia

india finally received an investment grade rating in short term debt instruments at P-3 even as the $310 bln in corporate exposure to international debt now includes more than 40-50% on short term obligations, now easy to roll over int he origibnal market as an investment grade security

The Air india Debt restructuring package – FAIL

English: The Local Head Office of State Bank o...
Image via Wikipedia

The Airline’s debt restructuring package of $ 4.4 bln rides on a INR 74.08 bln preference share issue that will require additional provision under the original RBI dispensation itself. thuis the package is back on the drawing board with SBI Caps the advisor, having earlier announced as being accepted/proposed by the lender(s)

The Investment banker’s proposal required new provisions of INR 96.18 bln for the INR 224.5 bln debt to be restructured and an additional INR 221 bln guaranteed by the government. It also requires conversion of the existing overdrafts to longer term loans of INR 112 bln leaving INR36.5 as Cash credit used ( and not new avl limits)

JM Financials: NBFC is, NBFC will be (HSBC cards portfolio)

Commitment to a non banking model does give one clarity to operate in the high risk high margin segments that are exclusively revenues accretive to a NBFC. Apart from the big bang in MFIs in the unregulated market earlier, NBFCs may also proceed to have fun in the millions of card accounts attrited in the 2008 restructuring at banks

JM Financials for example , has bought HSBC’s credit card portfolio for its bad assets..and if you are one of the unfortunate ones without income, you may yet get new calling agents to break the rules as the bad assets business is very cash driven and thus highly accretive for exactly the wrong kind if not understood carefully.

You could have bought these assets from the bank for 20-30% of their value and the bank could have recovered most of its debt by continuing posting 50% interest charges in defaulted accounts, the low revenue to the bank from the sale being more than profitable to recover the lost retail banking win. HSBC already broke even last year in 2011 March in retail operations and has restarted unsecured lending

HDFC Securities brings Trading to ‘ordinary’ smartphones

For the upwardly mobile customer, India’s first trading app is ready. though one is not sure of the execution guarantee that comes from the trading community that launched Indiaa’s second but last trading platform in 1999, HDFC Sec’s mobile app looks good enough to increase trading volumes by a good 5% more than the 20% uptick already in evidence since November when Indian markets hit 4700 on the Nifty and below 16 k on the sensex.

In terms of execution capability there are others out there who offer really best rates to retail investors on a trade whence ICICI Direct / HDFC Securities could bu tcarve niches for themselves and none of the awards and goodwill that went to Kotak securities or geojit and investsmart india, during the franchise building phase in online broking. This could be a new opportunity to “GROW” the mobile/web trading market among Indian investors and could see new laearnings being put into practice by players. This time, Kotak securities stays away from modernisinG???

Facebook to introduce unlike button for India community (ICICI Bank)

English: ICICI bank in South Road

Image via Wikipedia

Innovation aspirants and early adopters ICICI Bank finally roll out an ambitious project with a Facebook app that allows banking access to customers from the soon to be launched Business page on Facebook. The Your bank account app may not require one to like the fan page to access the bank details.

An FB app could be efficient and less time consuming for the evr multiplying legions of mobile banking users in the country and the fan page likely become a fount to diuscover what all can go wrong with your ICICI Banka ccount. I can think of a few thousands more waiting for the ICICI Direct fan page for addressing their issues with the bankk brokerage

India’s unbaned 82% could eventually accept the platform ahead of other physical and mobile banking options as apart from the social spread , the Facebook platforma also provides a technical architecture that allows for fast transactions on mobile, IPad, PC or even kiosk. Current kiosk operations in the branches at ICICI Banka re notoriously slow and unfriendly, though they use their web implementation as is

Customer Service is the ultimate winner but India’s demographic dividend needs to be reached by effective banking means and this could be a lightweight means to do so unless the security flaws with Facebook are insurmountable

NBFCs: Barclays completes process of closing out, buyers welcome

Barclays apparently thought it a good idea to enter India as a NBFC less than 5 years ago as NBFCs can open branches at will. However, as much noted, the model did not quite work for Barclays with a lack of probity and inability to grow in Credit cards forced the bank to sell out and close its operations in India.

It’s credit cards portfolio without its 20% NPSs as sold to SCB and of the 30 odd branches for the bank, hat have all stopped lending further, at least 20 ar ebeing closed down across the country leaving it with branches in ‘ single digits’ to manage the existing unsecured loan book

The loan assets are worth another INR 30 bln or $500 mln on top of the sale of INR1.75 bln in Credit card assets ( from 160,000 cardholders )

Eiko and her credit card
Image by eikootje via Flickr

Lesser Deals but good PE Deals and Exits

2011 was as much about making business happen as any other year despite deal business going down by 30% to $460 mln in the year in India and as usual we had a consultant reporting on growth from the India corneer of the world in Investment Banking as global focus shifts to fee adviisory business. India’s share is a less than 8% of the Asia pie which itself yields a 4 1 mln lower than each corresponding deal in the US on average. US leads in investment banking deals this season as well

The largest component of the deal business in India continued to be Private Equity with VCC listing the Top 5 deals and the Top 5 exits in the big ticket deals that went down.

Earning nearly $500 mln from fees may be still much lower for investment bankers to satisfy staffing for growth 5 years out esp as the region’s deal yields depend on Pe which is currently fighting funding and legal wars in their global franchises as regulations circles around to make it tougher for them to ensure profitability on deals following numerous failures in high fashion and early / blocked exits in existing deals.

It was especially happy for the bankers and the PE teams for gettin gthrough these deals in 2011

India Infrastructure: Changi gets in

Changi is also a Temasek/GIC investment of the Singapore government that wanted to prioritise its entry into

English: An aerial view of Parliament House in...
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india’s aviation infrastructure projects. Having lost 2 bids ( at least) with tatas in a JV it has finally agreed to buy 26% of GVK’s aviation business. given that GVKPIL itself is only worth $320 mln odd on the exchanges, the stake’s valuation of $800 mln for the aviation business should lead GVK out of a potential debt trap even if condition on syndication of infra debt is not corrected esp with respect to NPA considerations for debt to the sector.

NPA marking after 6 months, apart from its long tenure and thus unsuitability for bank books, none of which have stopped banks and infra projects from announcing financial completion and consequent delays in land acquisition, escalation of project costs and delays in project execution, even after operationalisation, ground results and financial projections are yet divergent as adoption of pay as you go by retail consumers is slow at best.

ICICI Bank under pressure, market likes a turnaround

firstpost.com leads with a weird ‘post’ today showing amchi mumbaikara’s frame (unhinged) of mind. the headline screams, why ICICI Bank blah, photo pic is one of the anti corruption celebration as the government signs 3 anti corruption measures to meet the mountain and I did not read the rest.

Though India has rejected the three (four ) critical sector FDI updates incl Retail, Banking and Insurance (Aviation in a new soup too!) and ICICI Bank is struggling to find its bottom , it is by no means representative of the Indian economy per se esp with such “Blitzy” slash as an opinion befuddling young minds and inviting perennial dissing from market commentators.

What is likely however , and that is why the $4 bln FII flow till now is safely locked up ( after 20 years, another first ) as anyone exiting now for a lower bottom would miss instead an instantaneous splurge which could bring the market back to 5300. Though many would have advised to start accumulating, not many would be brave enough to purchase block trades or fundamentally take a larger position at today’s touchy levels. The 54 we talk about now is that of the rupee on its way down to more stable depths ( we think!) where our IT exports ( merchandise exports having died already in textiles, tea et al) would be saved by the profits from the sold rupee. Unfortunately that also gives fodder to the bears as a Rs 100 exchange rate of the rupee would make your litre of Petrol / Diesel worth Rs 200 per liter / Rs 150 per liter even with a Rs 5 Tln locked in subsidies.

Banks: Indian CDS trading at ‘default’

English: Kundapur Vaman Kamath (born December ...
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ICICI Bank CDS suffered the most in the first few hours of India having approved CDS trading . Though only one insurer wrte CDS on ICICI Bank at a high but manageable 180 basis points a couple of weeks ago, the first few trades have pushed bank CDS’ to a high 471 points for ICICI Bank across the default watermark of 450 basis points. Even SBI trades at finite default probabilities of 361 basis points above that of  France in November trading when it rose from a spread of 200 bp to more than 350 bp.

That means cost of insuring $10 mln of ICICI debt is a $471,000. However in India’s case a CDS rate of below 200 bps would never be possible given its low ratings at BBB- for the sovereign and most of its banks can trade higher than the sovereign benchmark easily. even the soevreign should trade at nearer A rating levels in times of normal liquidity inthe Financial markets

Axis Bank to aim for 1 million cardmembers

Axis continues its late thrust with tied cross selling from deposit desks / relationshi p managers at its retail branches ans India gets into the act for increasing the unsecured (credit card ) loans portfolio. In the US also with regulations well in place, banks have started wooing consumers fed up of retail charges on debit cards etc to new credit cards. Axis Bank plans to explode on card member enrolment even as ICICI Bank and HDFC Bank work with a smaller 600k members each and State Bank of India even smaller at 400k . 

Since October Debit Card spending has shown a higher rise in India as credit card spending though bigger by 10 times than 5-debit spending each month stays dull in the new economic ways of the country. US has been growing Auto loans at a good pace month on month however India had ponly one small bump up in November (in both the fortnightly reports of Nov 4 and Nov 18) and may well fall back as banks look at new ways to get back customers that have not returned since the sun went out in September 2008

India gets a good mark up from Investors

As expected the Indian PMI numbers turned around from 49.7 in October to over 52 in November, indicating investors coming back and new orders and production picking up in November even as stock markets turned around faster from almost a fleeting bottom in a fast paced November

Services growth was faster and more confident, PMI surveys bring back the services index to 53 from a low 49.8 in September and 49.1 in October even as China went ahead with easing credit for rural and then all banks with lower reserve reqts. China’s updated reports make or great insights for Financial investors at advantages.us. China’s manufacturing brought down output as the index has plummeted to below 49 in the November HSBC MarkIt surveys but Services remained above 52

MarkIt noted that the new businesses number is a good 52.3 in Services in India, the nag from PMI coming in the last six months in the empty new order pipeline Composite PMI was thus driven up to 52.3 up 2 points. Investors and travelers have responded to India Travel and Transportation sector performance as well as its resilience in Financial services as the “Expensive” tag moved from India valuations. However, as the last 15 years have shown, India’s Capital Markets cover up more ground than the real economy while the Dealscape remains fragile in India compared to the sudden closing of larger deals in the US geography  and FDI in retail is rolled back in India. FDI in distribution platforms ( DTH, Cable) and aviation is also to be considered by the Cabinet

HSBC MarkIT produces PMI numbers for more than 130 countries and measures flash and

NDTV India
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final reports for 3 sub indices each in Manufacturing and Services as well as future outlook. the future outlook numbers remain bleak at 63.6 lowest in nearly 3 years as respondents worry about inflation. Input prices and PPI sub indices are the ones that moved the most in the PMI indices with scores of 57.6 and 56 (NDTV) manufacturing indices overall coming back to 51 but remaining confident ( expanding at >50) in the India story’s likely bottom scores. MarkIT also notes that it is the fourth consecutive decline in employment

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