India Morning Report: Volatility(India VIX) has another 40% upside, the last series is a rush

Maruti Temple
Maruti Temple (Photo credit: Terry Hassan)

When markets opened yesterday, the PCR reported was an even stevens at 1.0 and the rush for Open interest additions in All calls from 6200-6800 or all puts from 5800 to 6200 by writers meant the VIX continued to jump in a flat market remaining at 6200.

The trend continues today and with a bull spread easily assimilated, Bullish positions will accrue in the flat market till the written calls can jump the markets near a 1.2 PCR level which means actually a lot of money to be made in this derivative series in the last month of the Calendar year as the Dow unwinds most of the gains in the previous two weeks.

Indian markets will drift but look like making all time highs sooner than later as the bottom catches up with 6200 while the VIX continues its move up. If you notice, in the calls for a saturated market the buy calls today are  a distinct extension of the same stock selection begun in August 2013.

PNB has finally been given the green light wth its better provisioning implying a bigger bull weight to the stock esp as PSU banks remain a big no and that means a lot of exits. The market saturation commentators probably used the SBI series to make the point but the same is more an indication of a fundamental disavowal from the State Bank stock as it remains a primary conduit in the highlighted Asset quality factors Fitch underlined in yesterday’s report to 15% NPL levels by March 2015.

ICICI Bank remains a buy on longer terms and if indeed it is available cheaper from 1080 levels it will be at the erstwhile 1035 for the day traders and accumulators Delhi goes to the polls tonight and next Monday counts will be in from the State Polls, lending  strategic beginning for the incumbent Congress and probably its last chance even as Modi makes a fool of his self in oratory and may cut his speaking engagements towasrds the end so his work record can be taken to the elections. A distinctly uneasy feeling to hear that sound of voice and it is likely to set in as a big fail for BJP on the national stage in some vaguely deviant way wihth a confused young electorate holding the keys to the next Government in Delhi ( Centre, not state)

Back in the cash markets, stocks selected are likely to gain fast colors soon as the Manthan is almost over and equity inflows substitute bond outflows near the next inflation rate hike as Money supply remains subdued and counters the rate hike rate cut philosophy underlining the wider disenchantment with trying and making money esp in India and the recovery looks to run sharer this quarter bringing banks back into mainstream picks without the PSU weighted Banknifty dragging individual winners

HDFC Bank has also suffered in the negative sentiment in aut markets and while the CV market and its loan portfolios like NBFCs and Indusind Bank remain sluggish and give of fthe all pervasive urge to cut weights in India, the rest of the retail Auto markets and Finance majors are probably set fro an upturn. November sales were especially cruel on Maruti and even Hyundai even as Ford rested on a steamed u 4000 units i export, resulting in almost 12k units for the month near its best yet.

Domestic shares of auto companies continue to shrink for everyone vbecause of the troubles with buying a Hyundai a Tata motor product like the Nano or anyther Three cheers to Darashaw Technicals for catching the exit point in HCL Tech. Notice again, the veracity nd the preponderence of select buy calls showing the winners of India Inc, this is the time to build the portfolio. Motherson Sumi(speaking on ETNOW) is one of the select auto ancilliary mid caps that will also build a market catch all in this specific turnaround time with strong order books and improving margins.

India Morning Report: Pass around the peanuts :: Losing 6200 now(not really), I am sinking, No EMs aren’t a great buy or great “SELL” either

corus / Tata steel IJmuiden velsen beverwijk
corus / Tata steel IJmuiden velsen beverwijk (Photo credit: Wikipedia)

Choosing a daily headline is a challenge, quite so. Instead of helping and supporting you are acting like a pack of chihuahuas who have been given more than enough to eat . Write back on every post , this kind of reticent observation posts on my writing are not helping your cause (Dear Readers)

The Sun Group results, mostly Spicejet, tchah why would i call that or the iPhone launch a headline in any subdivision of this country let alone online with so many obervers, NRO accounts and eligible bachelorettes. That’s another franchise down the drainpipes. (gutterball, say!) I am not talking IPL though Sunrisers also went down rather for the same mismanagement.

Debt worries may have more to do with Spicejet losses, I would hve said on a cursory glance, so I leave that one to you . I am probably wrong as Bad Debt is definitely not my worry till I am operationally efficient and thus viable again. The entire new industry of innovation relies more on such mis-accidents and so any bank with an innovative model though feted by the markets would continue to go down in the melee and PSUs are not required to instead encourage losing sectors for Export

Each “Quimvadanti” above is a torture for any reader without ad libbing the rejoinder mind you

EM analysts are right that EMs have been scoring negatives thru 2013 and that the same will be recompensed without a Bull run though. However, India is getting inflows thru November and the so called funding trades are now just shorting down a blind alley every time for the heck of it as retail and DIIs stay away from buying. Portfolio buyers are alerady selecting known performers.

JSW Steel production counts are up to 12 MT for Crude Steel but I think the ratio of value added products , at less than 10% that in each variety ( 1 MT ea for 4-5 product “SKUs”) show the limited potential despite the use of advanced technologies in these traditional EM sectors where India does score over the more volatile China, Russia and Brazil. Rio Tinto had to recently leave after a small project to review the potential of Diamond mining among others and POSCO / Mittal have been exiting the Orissa wilderness, but the so called Economic loss may well be a gain. BPO lays claim in the mean time to furthering urbanisation as Tier 2 players post out their Top talent to the 30 odd 1 mln pop towns .

UB, according to ET, has lost 20% of volumes in TN also even as Fosters and Carlsberg move up in alcohol markets in the North. Beer and Whisy markets have plateaued in India again despite a crisis in the last 5 years , an early maturity we have long commented on , in India’s branded Consumer Staples (Discretionary) United Spirits is an easy sell though any pick on news is unlikely to last till Monday close and open positions over the weekend should be avoided, easy pickings for alt Asset cronies stymied for hedges and funding on a flat index

SELL on Private Banks like YES and Indusind or ICICI Bank (Traders 20) will fail again as the banking sector carries the seed for a lot of outperformance out ahead that India guarantees. Credit growth cycles need not renew as they are already back in India at 18% and longer term impacts in East Asia and Singapore are unlikely to trump local Indian growth in the sector as again it guarantees credit growth without the Europeans . Draghi’s rate cut though deserves a mention and the Euro has returned to growth again rapidly losing 1.38 odd levels to end at 1.33 before today’s London open. The London FX probe primarily started around the EUR-GBP cross trade ‘fixed’ by leading banks as sort of a ‘tradition’ as all global banks get busy in another imbroglio obviating the need to explain their non return to Asia.

Muthoot results boast of 620,000 gold accounts even as Gold Assets obviously went down in a bad year for Gold. Consumer recession or inflation impacts would have seen a spike in these assets held as collateral by the bank hopeful

JLR volumes up 32% are but a drop in the Ocean but any uptick post-results will impact Tata Steel holdings till Reliance results come around at least. Hold and add to Tata Steel positions

Siddharth Tewaris appointment is welcome for at least the continuity in policy it guarantees and one in fact hopes that RGR’s futher appointment as Governor indeed sets a precedent , a steping stone as CEA very visible to critics and friends and allowing a testing period for future governors and more importantly a cogent monetary policy

 

India Morning Report: YES, ING Results follow up and rural consumption

Bank of Baroda at night, at Dubai Creek.
Bank of Baroda at night, at Dubai Creek. (Photo credit: Wikipedia)

PC’s conference approved PSU Bank performance over lst year with 12% growth in credit highlighted SME credit growth along specific objectives even as above INR 100 Lacs(00,000)  borrowers continued to account for maximum defaults. However that pushed most discussion on YES and ING results to the next morning. ING kept NIMs higher at 3.46%  but NII grew only 20% showing the bank’s reluctance to grow in India and CASA for ING a for IndusInd is still just 33% behind industry biggies at 42-45%.

Yes on the other hand grew advances to INR 477 Bln and deposits to INR 672 Bln posting  30% higher NII to INR 6.72 Bln. Non interest income booked a swap income of INR 1Bln even as the HTM AFS transfers were already accounted for an INR 1.12 Bln loss in June making linked comparison moot and setting up for a bigger NII jump in December from the running gowth maintained by the bank and better margins from reducing MSF corridors as RBI policy rationalises. PNB became the firat bank to tap the ECB market in the last six months with a $500 mln QIP this week in short debt YES did not report any restructuring additions even as ING added one from NPAs ack to CDR approved loans which increased provisioning power in the balance sheets

Meanwhile short cash picks led trade from 6200 levels in lackluster morning trade though multiple analyss finally rallied around our long lost Nat Gas pick in Gas authority presumably as the pricing decision is finalised. Pharma scrips are up to. This correction with 50 points eaten in half an hour maybe the result of IT scripts uptrend being limited as they prematurely bought in interest into the market and topped off at yesterday’s levels. Also suspect is the long in Bank of Baroda, still dumping old NPAs into the wheel an the return of interest to Allahabad Bank which also uniquely invites shorts back on unseemly shouts of overvaluation

Tales of a repo rate hike are over rated. Also the markets may be back in the afternoon as HeroMoto rides back on rural consumption growth after a good monsoon but the probability is limited as the urban Bajaj Auto has rather created a schism in earlier running analyses on its potential in the future as the post split Honda climbs back every month on higher market share The monsoon also hits Cement stock prospects badly even as they were already in a lurch following  weak pricing trends lasting over 2-3 years now since the industry was hit by record fines.

Sugar production has risen only in UP producers this year after decontrol. WIRO shorts seem to be on the mark as talks of improvement are unlikely to last the stresses of recovery in the industry

The rush to SBI shows a funding trade that is likely to lock the market to 6200 levels as the bank will inevitably rear up on ugly assets that hold sway on the biggest bank balance sheet in India even as ICICI Bank could power ahead in that wake and market targets for November post Diwali at least remain 6350

India Morning Report: Nifty treads lightly as shorts disappear (Priced to 6300+ levels )

English: The West stand of the Tata Steel Stadium.
English: The West stand of the Tata Steel Stadium. (Photo credit: Wikipedia)

Monday saw 6100 losing the pins as markets drew interest from investors on good Reliance results. TCS follows. IT and Pharma  outperforming expectations similarily throughout will probably see that elusive 6400 mark to set a new Nifty record it at least seems improbably probable.  Short hedges should move up to 6600 and 68-6900 levels this week or next.  The 6300 call continues to see increasing prospects of a devolving positions as the short trade exits the market. Tata Motors, Tata Steel and Idea may remain strong except for funding trades to enter short profit positions in results calendar Private Banks remain dull as the higher interest regime and larger account restructuring news and its containment are both seen as  insufficient and unresolved.

As i write, Indusind is reporting a 37% jump in NII., largely from retail yields as NPAs were contained with market borrowings helped the profits. The cost of deposits if an issue is also likely to nettle the smaller candidates as th month’s bank policy confirms continue the higher interest rate regime.

The 6200 market will likely be reached except for a sharp negative news trend with less than 4-5% probability and will continue with IT and Pharma keeping “beat expectations” premium and Metals incl Hindalco and Tata Steel or the M&M picks counting for more buying and thus volumes of trade as the scrips also need  boost in liquidity. IDFC and YES, or Bharti, ITC and Bajaj Auto will spring any consolidated market moves. ICICI Bank is finally consolidating to positive marks and Bank Nifty may se a change of the flatlined visage before the end of the week but still unlikely.

10 year yields have hit the 8.65% level but this might just be an aberration as new securities get hocked on Friday with the 10 year adding INR 70 Bln

 

India Morning Report: Tentative market ready to reward India’s uniqueness to new 6150 channels

English: Hero Honda Karizma R
English: Hero Honda Karizma R (Photo credit: Wikipedia)

It is already stripped of all technical jargon and robust or otherwise complex mathematical approximates of financial Markets. It means the Indian markets would likely not go ( barely go ) below 6000 in the coming days even as bearishness engulfs sentiment because at its worst India would still be worth 4% growth, now a bottom subscribed by long term Economists for big bad China who has been dragging everyone down. Given that many were already invested in the big China story, China however will continue to see outflows and India will continue to see small but measurable inflows in the coming months before anyone gives serious thought to a turnaround.

Banking hawks and traders watch out because despite breaching some phantom 10000 levels used by the market, Banks hadly have any reason or substitute to lose more value esp the shorts on ICICI to 930 or on Banknifty to 10200 seem out of sentiment for the movement from here till 6100. The trigger being assumed is that of disharmonius traders not getting a return for being in India since May. But then the Rupee move is yet under cooked as Gold has joined the oil price rally and the dollar seems to have started a big upward climb at the start of the week, after recording against the Aussie at 92 cents, Kiwi dollar at 79 cents and the Yen losing its desired undervaluation at 99.95

HDFC Bank results for example will see, despite the reduction of float, interest returning after punters realise the limitations of a midget trade in the banking sector with Indusind which as of now does not qualify in Mid cap sectors much. But then Axis bank’s result punt has to unwind and that gets quite complex in selection of stocks supporting the downslide within banks and the now nefariously wide distribution of non banks used a s substitute even as Hind Unilever gets ready to bow out of the markets

Also, i agree reliance hardly had anything to redeem itself in superior Q1 results on the weekend and Capital goods and energy, rising in an uncertain market would act as some of the substitutes without much recourse to fundamentals in their sectors,t the technical eigenvalues avoiding banks as long as positive push does not meet extra ordinary resistance in the BhEL, L&T and the ONGCs Bajaj Aut continues to beat Hero Honda and a pair trade is increasingly safe still Hero Honda the sold vector in the pair

India Earnings Season: Bank Results scared by the Rate/fx tuple (HDFC Bank Q1 FY 2014)

HDFC Bank 

HDFC Bank seems to have flashed a pretty good 26% NII on the wires for INR 44.4 Bln from loan spreads that remained a natty 4.6% in the quarter. The Loan book and Deposits have grown over and under 20% respectively to a book of INR 3 Tln each. The NII seems to be up 3% from the linked quarter in March. the bank’s NIM reporting was bumed up by new rules for apportioning of usual expenses employee pension liabilities and some commissions. Last quarter’s Fee income at iNR 1 Bln is likely static as profits came in at INR18.4 Bln adding to INR 18.8 Bln in April

The markets however do not seem to be rejoicing as the insurance FDI question is moot for the player with Standard Life and IPO plans both not firm for the bank. Yet, the markets continued sppoked by banks fixed income portfolios letting blood at the 100 bp move in yields from the 1 yr forward to 10 yr and at least at 8% + and rate cuts batted out of sight even before the FX scare by the Central Bank rushing into four such 25 bp cuts factored in barely 5 meets since March 2013

Recast loans are almost non extent as in Q1’s figure of INR 3 Bln and Non performing loans are as low as 0.3% of the book at less than INR  Bln from the wires

 

YES Bank on the wire?

YES Bank reports next week on Wednesday  and has been singled out for this rate move’s aftershock while

Indusind, when is it a good enough scale as competitor

Indusind reported a huge 50% jump in Net Interest Income at first glance from its new off take in retail lending finally trickling in . NII hit INR 6.80 Bln for the upstart and operating expenses moved up 5% over March at INR 5.08 Bln. Fee and Other Income was up 30% or nearly INR 1 Bln at INR 4.71Bln , Income before Tax rising 45% to INR 5 Bln over last year. Indusind has also brought down net NPAs to 0.2% and the gross NPAs at 1% of its rapidly growing INR 500 Bln book itself up 60% i the last 5 quarters. The ROA of the bank at 1.83% will be counted a s low for its still rudimentary book Bank reported NIMs of 3.72% on its retail book

India Morning Report: Infosys shows a lack of forebearance in a sack sack play

English: By Nikhil Kulkarni
English: By Nikhil Kulkarni (Photo credit: Wikipedia)

 

As expected, Infosys rerated the recovery rally with a 15% cut on open pushing thru a 1% increase in US and overall Dollar revenues and beat in Net profit based on other income offered as bait to speculators while the stock possibly returns to its #6 position in Nifty stocks based on Market Cap.

 

The market rally is intact though with a PCR at 0.93 hardly near enough after a smart move from 0.80 in less than a week. Axis Bank though is unlikely to be used by speculators to fill the coffers of the empty Nifty and a Bank Nifty run highly probably for a 1000 points after Indusind Bank reports on Monday.

 

Those looking for a 5650 cap for the Nifty may have been superceded in Nifty targets but for these results but with the PCR provisioning the momentum for earnings outperformers, once you factor out the movement of infosys alone fromthe index values it would still proceed to 5750 levels (ex infy, mail me if you are willing to do the exercise?) The Power NBFCs and the outstanding picks like ITC and IDFC are expected to outperform in business as well not unlike YES Bank and thus are likely to be chosen with ICICI Bank and HDFC Bank as bedrocks of India and Asia portfolios.

 

Critically though, India’s successes with damage control on key attributes of low low information sharing gets a boost with Infosys almost deciding to scupper guidance and India’s data engines will have to work on broader strokes for a long long time to come. Banking, Credit, Economic guidance or otherwise the India forebearance model is equally predicated on old Colonial forms of information blackouts in the public domain and the bedroom entrepreneurs of the country like it that way more than the failure of Bombay Club would have you believe. Granular data is in fact available on more counts in India than attention is given in the press but policy mechanisms and successes of ‘no crisis no new score’ strategies globally in any sphere ensure that the India dream lives along higher interest rates and a hindu rate of growth.

 

The US budget exercise on the other hand , in larger control of global Economic vicissitudes is underway despite the gridlock and with a barely $500 bln for Defence in the Budget proposal and $47.8 billion for State Department ( earlier read as the War Budget) while being part of the larger 2.5 to 1 cuts to revenue based $4 Tln spending cuts managed to increase focus to Asia. That unfortunately means large increase in Iraq, Afghanistan and Pakistan in turn showing the large gap in US understanding of Asia bigger than the wholesome ozone hole created by European Capital flows. The rest is too technical to imagine and should probably be appearing in bit and pieces in future India reports or economic discussion at advantages.us

 

JP Morgan reports when the sun comes up in the US later today probably cementing the big rally banks had in the quarter despite the changes in the mortgages refinance volumes. Derivatives clearing impact starts appearing in global banks in 2014 only as the war for granular bank regulation enters a predetermined longish rollback phase.

 

Contraction in Singapore this quarter (based on Advance GDP), followed by negative IIPs in Malaysia and Mexico are likely to cascade into 2014 after the rosy start post Christmas was wiped out in the vast Asian predilection for property growth as the be all and end all of the ‘organised economy’

 

Infosys destroys brand equity with 8 pawn gambit? Or Infosys lives dangerously?

 

Guidance is actually available in dollar terms rather transparently and infosys has again made a play for Brand infosys by pushing a too muted a guidance in a bid to allow it wiggle space in the client boardrooms and ask for high value business and try and keep its uniqueness intact.

 

Infosys has chosen margin impact in the current quarter in onsite wage increases folloing on increasing White male employment in the US and Europe geographies earlier.

 

Others in Indian IT have long given up, NASSCOM being under new management with MindTree CEO KK Natarajan taking over at its helm , and CTS and HCL looking for volume on negative margins. TCS is unlikely to follow transparency in similar terms when it mixes it up for the fourth estate and the investors next week and try to capitalise on what looks like a sub 20% margin for everyone else except TCS as infy is already down to an op profit of N 26Bln or 23% EBIT and HCL and probably Wipro are sure they don’t really want to push it beyond 15%, settling t a vastly improved 17% in the first case.

 

 

 

Foreign Banks in India: Building franchises without savings incentives

20110422_Mumbai_023
Image by Friar's Balsam via Flickr

As HSBC , Citi and SCB continue to target large private banking accounts in India they are unlikely to step up price wars in retail as all 3 are struggling to break even,. Others hardly have retail operations at all, Deutsche Bank also having sold its cards division to Indusind. Savings bank rates in the meantime have been upped at the new premier competitora , the  crop of private banks given licenses earlier this decade and last, with Kotak and Yes offering 6% on the daily savings balance computation alongwith Indusind esp on deposits above $2000 (Rs 1 lakh would translate oto $20k in PPP terms)

SCB’s 100 and HSBC’s 46 branches (incl any RBS branches allowed in 2012) as wlell as Citi’s branches are about to break even inr etail after the 2008 purge. Corporate and Transaction Banking continues to bely hopes in the September and December quarters as the falling rupee makes syndications in eCB/ FCCB impossible to justify for most India corporates hurting from the forex risk already on board

However growth in personal loans and other unsecured lending in the festive season as also the jump in debit

20110422_Mumbai_006
Image by Friar's Balsam via Flickr

card spends is likely to sustain With structured transactions their coup de detat in the Indian market their retail CASA ratios and “real lending” remains a lower priority with a CASA of nearly 45% in all 3 cases

SCB also lost minutea moiunts being bullish on the rupee in September 2011. Dealmakers have been shifting  mandates and jobs at foreign investment bank units with revenues down 40% for the year and the Indian market fee reduced to less than $500 mln iin 2011-12

20110422_Mumbai_016
Image by Friar's Balsam via Flickr

However, the talent is likely to stay with India / Asia given the new FDi regulations in retail and xpected soon in aviation. the interest from foreign PE firms also remains only temporarily suspended as FDI operational concerns and issues with standard safety clauses / control clauses awaited for resolution ( nomination of independent directors and rofr etc could trigger requirements for 26% open offer)

Bank Results Season: ICICI Bank (Q2 FY 2012) shows increased earnings capacity in limited potential

ICICI Bank Headquarters, BKC
Image via Wikipedia

The Topline at the bank hardly grew 10% over last year to INR 25.06 bln or hardly $500 mln and just INR 1 bln up or 4% from Q1 June 2011 of INR 24.11 bln

While Top line and hence Balance sheet size is almost the same ($45 bln @$1=Rs50) the bank has halved its Net NPas to 0.8x% from 1.06% to improve its standalone bottom line to $301 mln or Rs 1506 crores and Rs 1932 crores or almost $483 mln from is consolidated operations as retail wealth (mf and insurance ) improved performance. The bank does look at improving its NIM given the improvement in operating efficiencies but is grossly behind HDFC bank in credit growth esp as September saw Private and MNC banks making a killing in retail loans (Auto and unsecured/NBFC)

The stock is staying up even as FMCG major HUL also posts results and thus the bank will be the mainstay of the markets later when the press meet happens before market close

PAT is up 20% from September 2010 for the quarter for the bank

PRESS MEET:

Bank has met 18% credit growth for the half year despite no growth in Q2 NIMs are safe as they will be determined from cost of funds

Its exposure of INR 36000 crores or $7.20 bln are safe and are being tracked. Coal is being procured from OMOs (7% of advances) No bad debts as for Indusind bank

As advances grow CASA will grow on priority with CASA now 42% the rest only based on demand of liabilities

Not moving away from retail . Both retail and corporate get equal focus but unsecured loans are attriting.

43% growth in cons profit has come mainly from Life insurance business

Provisions have fallen as unsecured legacy retail has completed provisioning and is a small portfolio

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