Even as RBI shows concern about the retail inflation, it has probably factored in the welfare sustenance supply chain requirement that has necessitated a higher tick of Food inflation likely to last till 2015. Even though the jump in core inflation to 2.66% has reached worrying levels, the RGR regime has played it on the level, standing by the current Bank rate at 7.75% . As banks have already moved off the higher MSF lending or the last quarter, banks would anyway be unaffected by the lack of change but the markets can seriously take the impending rally’s mechanics from here .
The FOMC reports later in the India day, closer to midnight when they can , we agree, start with an early taper. However, The Fed meeting is likely to also be a sendoff for Ben Bernanke and so any such major policy announcements may be skipped for Janet Yellen to attend to in February, April or even June 2014 and as the Fed has managed so adroitly, the Taper would not mean tightening. Though the Dollar remains weak, the Taper is unlikely to still avoid the Dollar strengthening into a vise like grip on the US own Economy.
On India’s Policy announcement, the 7.5% mark would have been even better but as noticed concerns on Food and Primary inflation are real and may spill over to Core inflation unless kept in check. The RBI Governor notes that Vegetable prices that jumed 99% in the Friday WPI report may fall sharply.
Yesterday’s Review noted, in the overall scenario
In India, the pick-up in real GDP growth in Q2 of 2013-14, albeit modest, was driven largely by robust growth of agricultural activity, supported by an improvement in net exports. However, the weakness in industrial activity persisting into Q3, still lacklustre lead indicators of services and subdued domestic consumption demand suggest continuing headwinds to growth. Tightening government spending in Q4 to meet budget projections will add to these headwinds. In this context, the revival of stalled investment, especially in the projects cleared by the Cabinet Committee on Investment, will be critical.
Banks have garnered $34 Billion from FCNR Deposits and India’s FX reserves have jumped at a $5 Bln every week from $277 Bln odd at the end of November and now at $291 Bln. RBI continues to flag the negative output gap and even a slowdown in Services
Also factored into the December decision is the virtual shutdown in Spending by the Government from January as revenues remain not so robust, which would strain interbank liquidity (LV?CNBC18)
It is good that RBI has returned to not being overtly reactive to the inflationary economy and GDP in March could have a larger chunk of the good news premium Indian data has been lacking since the year began.
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)
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
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.
In an extreme show of brinksmanship..India has been taken for a ride by speculators and brought back in an equally unorthodox fashion. Depending on the moolah you get from your editor and or Academic Dean or the strength of the victuals of your audience and that of your economics philosophy, the average high end Economist could turn this review into a one a month policy piece. Any number of breaks can be introduced in the sentence we started with to fill the essay, Ajay Shah for example saying (TV18) “none of it was required” and again falling through the cracks of mainstream and outliers alike among Economists. In any other normal Economic critique of philosophy, one would have added a qualifier “likeminded” before Economists here.
(sic!) Thence we avoid the other tricks of the trade to assume a daily weight to each day’s weights and wait to lookback on this month in a decade and hopefully for that our parsimonious allocation of just a Morning report time-length shall justify the deeper review whenever we do return to full time writing. Right now, Economic necessity of this individual calls.
And in that light, The Rupee hit 64, yields hit 9.5% and like a rubber band returned to pre-crisis yields of below 9% yesterday itself and 8.33% today showing trades have returned to the 10 year bond. Active Demand returning to Fixed Income of course means the Rupee move is a goner and thus one should assume, we will remain at these 63 levels for years to come before the next deep cut moves the currency related victuals of the Economy by double digits again. Incompetency of Exports apart, that takes care of India Inc’s static export volume issues on keel , the government has managed to turn the trick with Government spending too, focusing on the growth in Services in Q2, ET reminding us in time in today’s op-ed pages inside
Another funny one has been the markets stuck up attitude toward, India has FX reserves, it should use it’ almost like a mouse trap the NSEL was, (for unaccounted cash in wholesale transactions). Money stock has largely returned to the mainstream economy through Financial devices alone and it is hardly a coordinated supercomputer timed perfect metamorphosing of the India problem and its solution.
The markets can in the meantime thankfully return to investing in banks, PSU banks likely to score on their 20% of book(Advances) in homeloans. BTW, Rajan is silent because he takes reins formally in September. The King Chidambaram and President Pranab in the meantime look askance at the sharp turn because it does no bring in a single dollar inflow. imagine the glee of reformer in queue Narendra Modi and his ilk
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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.
The Indian Services GDP is probably in threat as India loses its leadership of the incipient global Services sector growth, where it now enjoys a barely positive PMI at 52 after a big slide from 54 in October and instead the remaining almost vestigial 18% of Indian GDP that is manufacturing has taken pride of place with a more than 54 clip in the PMI sub indices in November, leading KV Kamath, an industry doyen one would not belittle or argue to claim apparently that India’s manufacturing sector is resurgent. Which again, reminds of some other key mistakes from organisations like India Inc’s ICICI Bank and Infosys which have made other such weak claims earlier in the nineties and the noughts while using other selling strategies to actually gain power of mind and mindspace over the budding markets they have indubitably created.
Not that market development has gained any recognition in the meantime but there are many other areas not forgetting major discrepant growth inputs missing from India Inc like our FMCG sector and Retail where both branded output is still stuck at 15% of market after two decades of reforms and is not growing share of voice or market even at a resurgent and well nigh bharat consuming and growing at twice the pace of Urban India albeit with unbridled inflation in urban India than any other reason to blame.
Is the real consumption franchise anywhere near increasing and is any growth in manufacturing paradigms really possible. One should be careful in using carrots for a generally more educated and access powere urban and rural market in India before making such superfluous conclusions the mainstay or athe retort you have as a personage of voice int he Indyustry and in the nation that is busy pinning down its real core advantages and probably needs more focus on items of Services, Welfare and Infrastructure than Construction and whatever manufacturing we need here to survive.
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
While Indian inflation is likely to step out of the sub 7% mark on the wholesale levels to more than 8% following the retail index, Chinese inflation ticked up to 3.4% leading to a reaction in the morning’s Asian opening. Chinese imports were up only 3% like for India at $37.9 bln with not just Oil but in India’s case two thirds of the Diamonds and Gems trade shutdown and Gold and Silver imports are down by a third from a government increase in import duties. The tradedeficit thus comes to below $160 bln at the cost of over $100 bln in Exports according to the trends explained by the Govt official, after the first month of the Fiscal at Data release yesterday
Chinese inflation easing further may not be a good thing as it also follows a drastic fall in demand consumption, the bulwark china is relying on to stimulate growth though outgoing Premier Wen Jiabao has been vocal in the last few months against the culture of imported consumption items in China. We felt more comfortable for China at the 3.6% mark for inflation in March as it was within the 4% mark and Banks though restricted by opportunity on Lending had still managed healthy Q1 profits
Asian Economies of India and China’s leadership in growth is a required element for the continued recovery in Western markets and limiting of European troubles though European trade continues to favor banana policies and non South Asian economies for trade and investment hopes. India on the other hand reported new FDI of $ 8 bln in March but the Exxport slowdown and the increasing inflation from the 21% depreciation in the Rupee int he last six months will hurt growth and consumption with Automobiles sales in April already down to 4% growth or 235,000 units for April including Exports. Ford, Nissan and others would be increasing exports from the added capacity in their indian plants from this year
India is hoping to get a further $1 Tln in Infrastructure funding from private funds to quasi SWF structures sponsored by banks and government
Well, i understood it thus. There were first the Anti avoidance rules called the GAAr rules which were intended to catch those who benefit from the treaty in Mauritius without belonging to Mauritius per se , with a token presence not backed by assets or business i.e. Offshore investors. These offshore investors have been targeted.
Two, in the clarification on Overseas M&A transaction involving india assets, the intention is not to cover P Notes because underlying equities are Indian Assets. So that piece was unnecessary walk in the park while the trucks were running up and down and you could have all avoided the noise.
The real rule details would thus clarify how Portfolio and FDI investor would be welcomed and how revenue leakage from Maurtitus a s a treaty participant, which remains the key example, would be taken care of now that the new treaty signed has included only token changes at the behest of the Mauritius government. And no clarifications are available yet. We are looking.
SBI revamped AIR India’s loans to an average 15 year tenure as per a recent plan approved by RBI the company alone accounts for more than half of Indian aviation’s debt overhang and over $1.5 bln of working capital and $3 bln in term loans were restructured in the latest exercise. The bank accepted CCPS issue against the working Capital loans allowing the airline to pay the bank thru redeemable cumulative preference shares, the bank still not becoming an equity holder for the sole reason that it is a government owned airline.
Air India is also getting Govt equity of $5 bln over 10 years with $1.35 bln issued this year ( we still use USDINR=50 as rupee tries to make a 48-53 range)
Something tells me that will only pay for the airline’s immediate default and its daily operational losses will continue nothing changing about the management and operational staff habits that make for the demise of the airline. In the mean time fare hikes by private airlines will happen as highly efficient companies like Jet and Indigo bleed and or resort to sale / lease back despite being anointed full service airlines liable to charging “full fares” for their service. Low fare airlines like Spicejet and premium experience jugglers like Kingfisher remain stuck in the middle, having adopted most global best practices and created sumptuous fare without being able to carry home any profit
With bold and happy pronouncements on how FDI in retail is being considered as per plan to 51% in Multi Brand retail and 100% in single brand retail, one would think all is well. But the GOM approval is hardly the known factor in these last minute proclamations from persons close to the fire adnd should be observed and followed uop for their real strength if any. The FDI of 26% by Foreign airlines for example is already in a soup between 24% requersted by the Ministry of Finance and 26% that DIPP wants as it would promote at least a power to pass special resolutions accruing to the global airline investing. Not that that should be much of afactor but it makes the paranoid Ministry’s position suspect in both cases as it regrets issues of control in FDI. both Retail FDI and Aviation are eagerly awaited to be approved in the next 2-3 days
On our part we back all circumspection to the hilt, the recent crisis underlining the fickleness of Foreign investors and their propensity to look for leverage and scamper away with the booty like the banks getting rid of global assets inspite of their profitability as they face a shortage of capital
After the hour: Exports came out with even stronger growth for India clocking 34% higher at nearly $24 billion for April, maintaining the new heady run rate since Jan 2011. Imports continue to grow at 22-27% higher to $34 billion adding $10 billion to the monthly deficit but the higher exports making up for a long lost impetus