India Morning Report: Thursday’s bounce engenders positive weekly closing

Foreign currency reserves and gold minus exter...
Foreign currency reserves and gold minus external debt, based on 2010 data from CIA Factbook. (Photo credit: Wikipedia)

Long targets have returned to traders even though no net position longs would be carried home at close as en early end to the bear festival on Thursday engendered a great change in mood across the three markets in Bonds and Government Debt, Currency and Equities. To remember despite  the targets for a 10000 Banknifty and a 5400 Nifty uts ale in some quarters you should not take the change in sentiment to heart too early and endanger your precious capital as markets may take less than the 4 remaining sessions to send the Nifty and Bifty(Banknifty) options south on Calls and gaining more than 300% on Puts in the spirit of Open interest remaining strongly on the short end despite the offing of short positions yesterday. Sorry about sounding pessimistic as the bounce could be meant for serious investors but such blah is unlikely to save the India oriented investors in such traps as created by this early bounce back rush by the shorts themselves.

Sorry Mitesh and best of luck to those winning daily contests on predominantly long positions on the weekly close as indices at 5400 are not overvalued but the currency run is not complete and with the propensity of correlation binding all the different markets to be true for a market yielding negative returns one must suspect shorts to outweigh longs in the market and stay away. Banks are unlikely to have serious impediments to loan volumes at higher rates Credit growth reported for the first week of August returning to above 15%, a supremum for most markets above the size of $1-2 Bln per month in new credit  Also banks are not going to be paying for the rising yields for time to come int he interests of financial stability keeping their share of GDP intact India’s FX reserves are in the bottom fold globally but a s a global Gold home market, it may continue a bounceback on days when Gold s indeed favored over withdrawal of global liquidity by OECD Central Banks with BOE Governor and BoJ unlikely to favor tightening despite the chance to follow the US into a change in stance after 5 years.

Equit y indices moving t 4700 lus will again erode value from the perfunctory jumped prices in IT s their Export oriented Metals and Pharma sectors get entrenched in investor psyche and Banks, Metals and eve Bajaj Auto, Bharti and ITC are likely to hold investor interest. Which makes it rosy peach for investments in IDFC and YES Bank while ICICI Bank may continue to list among the few advances ona daily basis making i easy for Bulls to survive the remaining stressed days till september series exits though 4700 levels could be accelerated to reach by mid September itself given the easy moves down in the Rupee by more than  a Rupee each day to the Dollar


India Morning Report: Global investors look to India after India Inc outperforms expectations

IDFC Project Equity
IDFC Project Equity (Photo credit: Wikipedia)

A quick re-rating of the F&O market in the early trades yesterday meant that writers of the 6000 call had a hurried exit from trades and very few have tried to cap the maarket already at 6100 or any other digits as the markets actually show signs of a breakout. The low volumes of MCX SX are perhaps an open invitation for the short club to try something faster and tighter in F&O trading on that exchange but with index trading not open yet, it is unlikely to have any impact and in this predominantly Asian leg of the bull tour, it is unlikely they will get past petty strategies to break up the trading interest up while 1 in 3 rating agencies have already fallen into the usual rut of calling for India’s derating showing up our lack of faith in India as another 90 days look set to pass without any execution bombs and those analysts and short side traders aree undoubtedly still just waiting for actual policy and roll out execution announcements which can then accordingly be belittled for giving them a leg to stan din the crowded room . Givcen that it is used by most large media as well, the tac has become almost respectable but is painfully obvious and can usually be shot down with larger negative consequences for purveyors like these rating agencies

However the disconnect between investors, foreign brokerages and domestic traders only joints shows up mercilessly as a red flashing risk factor with domestic traders sticking to corporate governance unfriendly scrips and sectors like fertiliser and sugar before policy announcement or choosing unknown branding successes like Sintex (‘pani ki tankiyan jinme jang nahi lagta’) for shorts on a stable market suitably gaining strength for a small pre budget week rally

This rally has a new keeper

Bajaj FinCos (Bajaj Finance and Bajaj FinServ-insco) came into favor largely yesterday as the banks’ tandem with infracos which will lead the new rise of the indian indices has largely been lost with Indian banks ramping up on the strength of the domestic market and their robust balance sheets which will be of use to foreign investors. Infracos led by IDFC have seemingly won a few more partisan traders to their side in this current rally on its trading strengths and while ICICI Bank and IDFC will both rise, PMEAC and RBI favored NBFCs like M&M and Bajaj are more likely to be important investments for the fund hungry infracos and their new leg up post budget.

Budget announcements have come into play but after the unlikeliness of DTC and GST rollouts has already been debated and the futility of unassigning another INR 100 bln odd to infrastructure and prioritising sub sectors is argued out , mostly there is just a wish that PC succeeds in billing down the fisc and the government borrowing in the coming fiscal.

India’s equity friendly outlook carries the day

India remains the only big market ready for a rally and global equities get ready for a sharp cut. The first two months of the quarter substantially shored up business volumes and profits at Hedge funds, PE companies (?? we are as much mystified by it ) and Big 4 investment banks . The global Bank rally being another three month away is probably the reason why this cut could become sharper as UK recession and US tempering down of growth at near 2% GDP levels demonise stable markets. The early global moves in the euro give it one high Six flags slide to come down in and Flash PMIs today from Europe, underlining their inability to survive with 20% lower budgets, tough love for banking and devaluation by the yen esp as competition in Capital Goods exports is considered.

It’s sorry, Indian coffee trades down

Currency wars having been a no show given every FM’s need to follow in the steps of Japan’s Abe sooner than later, Indian currency continues to resist strength on silly excuses woven into the fabric of markets structure as Exports like Coffee suffer a double whammy from India in volumes as production is more than 20% lower and value as indian coffee quality has apparently not registered favor with quality international buyers. Meanwhile Asian coffee offers hope to Indian exporters as Mustard, palmolein (Crude Palm Oil imports) and Onions fall 20%, 33% and 20% respectively to allow CPI and food inflation barometers to cool down or at least not ratchet up the fiscal bill for India Inc. Government borrowing is in control and yields have held at 7.8% desspite the small cut and the unlikely prospects of a cut in the next 6 months

Mind the Gap: Managing the fiscal overdraft – India trumps up the inflation watermark?

Detail from Government. Mural by Elihu Vedder....
Image via Wikipedia

There are not going to be any receipts from Spectrum

With India not likely to buy and sell LTE specturum for some time to come (4G for those new to the lexicon) and the CAG working overtime, the disinvestment target and other extraordinary receipts are unlikely to bridge indian public profligacy ( in social welfare and health by any stretch? no, the frozen budgets in planned defence, infra and more) Fortunately for the government more people realise that the current budget document is already optimised in terms of no pie in the sky dreamy allocations unlike the NDA and the tweet hungry leadership of the next gen’s likeliest hopes. Though the UPA does not hold too much of an audience no one is close to taking India’s geo political stability but the wallet is spending more in the hope for growth and yet with retail inflation holding higher watermarks for 2012 every passing day, it comes back to the budget and its 4.6% deficit. The first rumors of the overkill were early but the likely amount to be overshot by the year end at its least is still coming out from compatriot and global desks at more than 5%, a good 0.5% gap..showing that most do not expect Indian bureaucracy’s due diligence to hold within the first five months when it comes to reading the reportcard in February next. ( I am not rewriting that, you’ll have to manage with that..and do write back in comments if you can help) The nominal growth in GDP of 15% or even higher may still leave the nation with a sub 7% growth and as fiscal charge in the other direction instead of moving to 3% of GDP

We need a $10 bln Sovereign fund of our own

The first 5 months data are usually the reason to read the crystal ball, and this time we have already achieved the first few successses with record 30% growth in gross tax revenues and 45% growth in Exports. Further down the road, one will note that there have been no changes in the dullness in Investments since the begininning of the post Diwali 2010-11 season Non Tax revenues in the first quarter were as high as INR 2 Tln last year in FY11 and now in FY12 they are only the usual penalties, fines and no spectrum to count only INR 1 Tln in the same period.  Also with reserves inching up to $320 bln we will likely get a SWF to channelise all the energy investments we are making to further proactively manage the deficit bill

The success of Revenue and Control mechanisms

Though deficit estimates haven’t been changed by the PMEAC much, deficit achieved in the first 4 months had creeped to more than 55% but the Government Borrowing program expected to be overshot by detractors has remained well within the targeted segment 50-70% of the much controlled INR 4.55 Tln program. The deficit on the fiscal side adds to the woes of the $55 bln trade deficit and the Forex reserves included our national reserves have hardly grown at $320 bln again much ahead of stock critics waiting to and having already criticised the likely $305 bln number in advance, to ready for the sub 7% GDP performance coming next in pre Diwali jitters

Banks will have to burden more in priority sector spending to ensure results in the government’s welfare program with new 10k loans in NREGA, the last INR70k lacs write off in 2009 a high watermark in this case too. Agriloans have fallen 30% since 2009.

The Fuel Subsidy Bill

The Fuel subsidy bill has been paid out in part but yet more than 2/3 of the government share is  going to be made only in the March quarter after the bill comes right and till then the likelihood of overreaching and ending up with a higher unpaid share borne by Oilcos ( OMCs) remains high esp with crude holding up at a higher peg and the subsidy bill being likely even 20% higher than the high watermark of last year The subsidy bill has likely increased to INR 400 bln or 40k Crores

The Twelfth plan spends

India has after 5 years of dillydallying finally targeted a higher healthcare expenditure ( MSA commited a target of 2.5% of GDP this year) and is still underspending on Defence and even the otherwise regularly “powered” infrastructure, social welfare and even education spending Tourism is likely to get increased allocations as it demands a 4X increase in the 12 th plan ffrom $1.2 bln last year

Managing the external debt

According to the recent RBI report, India’s $306 bln external debt has commercial borrowings increasing to 28.9% from 17% in March 2010. That is the real good news qith government debt incl guarantees holding less than $87 bln. The Debt Service ratios have however fallen to 4.2 frm 5.2 showing less covered by the existing reserves and the commercial debt increase has happened mostly in short term borrowings ( growing by 24% in treasuries and overnight foreign debt) and the proportion of borrowings in overseas inter bank markets is more than 21% of all our outstanding debt. india’s external debt though is a shining 17% of the GDP lower than most comparable economies and leaving the country with a lot of spare borrowing capacity for non remunerative infrastructure investments.

India aims to spend $1tln in planned and annual budget expenditure on infrastructure in Private partnership incl $60 bln on ports( tripling capacity to 3,000 mln MT, and new allocations for food storage infrastructure. in mst infra heads our spendin g has been less than half the planned spend till 2012 and will come back with cost escalations inthe next plan

Mind the Gap

India’s tax receipts have increased to INR 155,000 crores in the period till August but tax refunds have increased disporportionately by 154% or INR 30,000 crores but on a gross basis still growing by 26% in the first four months and faster in cluding August numbers and yet staying almost still as all of it was paid back in refund demands, net collections still under INR 1 Tln. Corporate receipts have grown mre than 30% but probably tax collection ss will crawl back to March 2011 figures as the slowdown takes effect on balance sheets Our tax revenues have been estimated at INR 5.32 Tln of which till now 30% has been achieved. Even Personal tax collections are higher by 10,000 crores y-o-y

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