India Morning Report: Is 5600 the new 5000? Rupee is holding 65-66

With the  Rajan effect crystallising over the India investor skies, a new definition of India’s winter seems to be up as global liquidity withdrawals accelerate availability of funds from the exodus fro US bonds and a small portion is likely to start trickling back sooner than one would think.

The earlier expected recovery cycle threw up banks, infracos (IDFC, Power NBFCs ), ITC, Bharti  and Bajaj Auto and others in FMCG and Consumer Goods sectors and more or less they will make the bedrock of larger EM portfolios with or without MSCI index dependencies. Metals are good for this cycle and Tata Steel can still make it even if Global demand does not respond the way it is expected to recover in the end

Weightage maintenance is also in play and at 5600 levels that means sizable new buys fr funds that sold just a week back. The volatility till yesterdy will continue to affect timing of new investments and most invstors ahve oodles of time to play out their vaalue and growth leaders in the portfolio .

Now did I hear someone mention Rajan has to perform? Rajan would not be credited with bringing individual accountability to the RBI’s various senior officials but it is happening as we speak and Rajan hmself would know difficulties of thinking of implementing structural reform before May 14 decisions are out for India inc. The rajan effect itself was really areiteration of everyone’s agenda since 2000s , and the currency responding after controls on speculation were lifted is the unnoticed vote of confidence for India as a destination. ECB funding should be proceeding on A+ paper and equity QiPs


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

Unknowingly for those of the common Indians and even market commentators across long term and sort term watchers, India has again stabilised around rates at 9% and The Rupee after a 23% move ( which was completed in a month) finally pulling up a notch of two at 66. Interest rates are at 9% and the markets bounceback on Monday Morning seems actually sustainable.

The earlier volatility ending stops at 9% rates and 4% growth were ofcourse around quarterly growth lows, Markets and Central Bank almost decided on a bounceback on the unfortunate low, but this 4% pitch seems to be likely now for a whole year of growth concerns at India Inc.

Again markets did show resilience in responding to the new Oil Swaps on Thursday with equities stopping the down rush at 5400 itself, but there is no forward momentum now except as EM weightages again cause money to flow back into the same selected investments which popped off selling because of reduced value causing weightage overflows on EM equity portfolios.

A war has  been averted though Assad Bashar is o n the loose in the Middle East and Indian Oil is still at a minimal risk from the geopolitics of the last surviving dictatorships in Oil.

In sectoral terms as ET data would like us to believe, interest isback as much in Textiles as in Banks and Finance companies. IDFC and Banks will lead the show from here ofcourse andas Ambit Capital suggested, it is still a little early for interest in Autos but it will eventually happen for FMCG investors. Chinese Shadow Banking woes could affect the slightly positive outlook from here for Exports. It’ ood to see the Banks having started te day at 9200 levels again on the Bifty (Banknifty). It was a bad month for Autos, Exports and the currency but we already know that.

Again, rage of motion at this time could just be crimping up on the 50 share index as at 5500 it has broken down just last week and that would mean this stabilisation could have engendered a big fall but for EM inflows returning in a couple of months.

No, the hike in Diesel and Petrol prices are of significantly less positive value than the shutdown of fresh investments in Exploration and Production ( see a list of Projects from Reliance which need Government investment in today’s ET) and similar non events in infrastructure more tough fo India Inc than the Food and Land Bills progress, though the markets’ are not disappointed

For the Agricultural shot in the arm in GDP calcultions, a reminder that our expor markets in any agricommodity are not price incsensitive and have mostly shown a declining share of Indian exports.


The Retail Lifestyle Champions: ITC grows prices, Foods and education in H1

Line results are in: EBITDA margins up .4% tp 34.5% as Net income grows to INR 5974 up 1.8% Q-o-Q PAT up 21% yoy INR 1514 Crs for a good margin of  25.34% Acc to UBS ITC lowered staff costs and inc EBITDA despite missing sales in paperboard and agri. Price Hikes in Tobacco would count for margin expansion the most to 300 bp from the June qtr

Rumman Ahmed at India WSJ writes:

Pre-tax losses at the non-tobacco consumer goods segment narrowed to 559 million rupees from 669 million rupees, while net revenue increased 27% to 13.41 billion rupees.

Net revenue from the hotels business rose a muted 1.0% to 2.11 billion rupees, primarily as the second quarter is a lean period for the hospitality business.

The paperboard, packaging and printing business’ top line rose 9.4% to 10.05 billion rupees, while revenue from the agricultural trading business rose 13% to 14.35 billion rupees.

ITC – Outperforming expectations
Though much more analysis is required before the company settles down in the second YV Deveshwar term and gets back into the new M&A game, The retail lifestyle star with good new brand launch traction since 2009, posted good growth nos.
Tobacco business has posted steep price increase at retail POP this  quarter  at 10% with more hikes coming after inflation lasted more than a year and input costs are out of whack. Profits of INR 1729 crs or $ 346 ml sustained the new non tobacco businesses

Still the price increases that ITC has taken will boost EBIT [earnings before interest, taxes] margins by 80 basis points, they say. Its cigarette volumes are expected to grow 7% in July-September,

Bank of America Merrill Lynch sees ITC’s margins surge 115 bps in the quarter.

Kotak Securities expects ITC’s cigarette division sales will rise 13% from a year ago, helped by a mix of price hikes and volume growth.

While the cigarette business remains robust, its non-cigarette FMCG business is also expected to remain on the growth track. Sharekhan expects the FMCG business losses will reduce 12% year-on-year. The Motilal Oswal analysts expect EBIT losses in FMCG will decline 16%, while sales increase 19%.

“Improved profitability in foods [Bingo breakeven in the first quarter FY12], education and lifestyle retail will drive the decline in EBIT losses,” say Aggarwal and Kapoor.

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