India Morning Report: Just Dial IPO great hai ji, Rupee feeling quiggly

Image used to convey the idea of currency conv...
Image used to convey the idea of currency conversion (originally from en.wikipedia). The signs are (clockwise from top-left): dollar, euro, pound, shekel, đồng, yen. (Photo credit: Wikipedia)

Markets opened to the new week’s excited chatter for a change this morning after a few weeks but the better IPO prospects and improved FII flows already more than $2. B this week could not excite the Rupee and it again opened at its lowest for the week above 55 as Forex broke on last months Gold data and apparently has become the exit for bears that know they are unwanted, trying to break the cosy relationship between currency and equities in Asia and dragging down equities towards the afternoon. Rupee, with my apologies to the surfeit of economists at the top Mr Prime Minister, is just reacting to India’s weak international diplomacy.

We should have probably given you a heads up in the morning, but revenue and subscriber prospects fail to excite indian angels into backing such ventures as ours, bent on writing and interest in firings at ecommerce carts or exits from PE investments of the last cycle not enouraging towards commercially viable prospects for analysts, writers and discretionary advisers. IPO sizes are getting comfortable around the INR 1000 crore and above mark and went thru with out a hitch despite a surfeit of promoter buy backs and appetite for indian debt has also increased manifold in the last two years

Bullish straddles/strangles are cheaper and you should not fund with calls unless beyond the 6400 mark. China premier Le Keqiang’s visit to the Capital could have been much more fruitful if the premier had tried to get more pulic awareness around it, India of course happy to have exited US defence exercises to get status quo in play at Ladakh ahead of the visit. No that China is looking to allow India banks or exporters further as it continues to keep a chinese only list for government tenders and machinery ( esp green power) bids

Those who thought Indus ind would catch again would have retreated after these two weeks and especially because apart from the positive wall offered by YES, it is also a better choice portfolio for pickers across infracos esp those looking at idfc, itc, jpassoc and gmr where buying would be perfect value plays esp if any DIIs had been carry cash for the redemptions and the volatiity turn awaiting

No, the Rupee is not going back to 52-53 levels immediately though S&P’s reservations have not been of interest to any FIIs and we would like to err on the side of caution ourselves with the CAD at ever higher levels though as the CEA mentioned the reduction in CAD faster than the reduction in Fiscal should help drive growth come 2014 And yes, Lets not forget our natural advantages as a consumption and trading economy at the bottom of the commodities cycle unlike the competition

Weakness in Commodities does not a Rupee trade make.

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

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

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

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

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

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

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

Happy Thursdays! Food inflation corrects

The 14% contribution of the food inflation may well bring cheer to the WPI number as Food caught a -3.36% score for the week ended December 24th to bring primary articles to 0.10% from a low 3% number last week and fuel remained suspended at 14.6% for another 25-30% of the basket. Everyuthing else in tow, Foreign inflows should make it a memorable 2012 for India but our local interests and trades of high volumes seem to have caught the index midway to the bottom. Actually there is perhaps just 15% left but one having to agree at

US-Inflation-by-year
Image via Wikipedia

these rates and settle down with MTM losses on my 10% risky allocation to the emergin g market play is hardly going to be the likely scenario so one will have to wait considerably more for furious inflows into equity even as markets catch a break below 47 and promptly lose it at 4750 over the last two months. Not a very good advertisement for foreign and local investors.

Of course QFIs have been welcomed, buybacks allowed with direct auctions on the exchanges to bring equity to a 75% cap and individual investors allowed to enter Indian equity exposures from January 15, following on the ealrier invitation to Individual foreign investors in mutual funds. NO one expected an immediate surge but if that is because of no printed word on the how and why, the regulator should have no problem obliging witht hat as well.

RBI is admitting that we need more FX buffers now as companies have picked up large amounts of short term debt and while the rush to repay is on and amany with good governance have survived the MTM losses massacre before it began, India’s current account may already face a stretch to buy the oil it needs every other month

Rupee Impact: Rupee Turnaround

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

The resulting Euro weakness eases the pressure on

One rupee — Obverse
Image via Wikipedia

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

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

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

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

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