India Morning Report: It’s the banks, stupid!

The January series, with three days to go in the New Year, has started optimistically and apparently is in no hurry to trade. however within the two trading sessions including the first 15 minutes of today, Banknifty has already managed to 11600 levels without undue weightage to the losing PSUs. That being the target no one probably wanted to exit the 70% of India’s banking in PSU Banks forever not served by the State Bank of India or the PNB recognised as winners earlier separating them from the sick pack.

But given this start on the Banknifty this time, one would expand the role of the Private Sector banks in this rally to 13500 where one first probably evaluates its value score in terms of future March 2015 earnings

Meantime, Havells and Idea seem to be the scrips to nod to given their position in the trend and coming FY results as December numbers get reported only after two weeks and more hints are sought towards the Fiscal close where India would assess its gap in Economic terms as well, having assumed at the start of April that they would be much closer to a 6% GDP recovery

The infraco trade will like to preempt more hopeful whispers from North and South Block, the fate of the Congress government precariously hanging in balance and the hope outlasting the pushing back of most important decisions and any spending to post elections, a Vote on account coming in February to last the interim period

India certainly batted the 2nd Test well but with rains likely to spoil two more days of that game, its a virtual close to the year on a less than even score having barely eked out  a draw in the first to save face.

Happy-New-Year-2014-HD-Wallpaper

 

The LNG hike in Delhi seems to be a good marketing strategem launch timed to last throughout 2014 and players in IGL , GAIL and Reliance that starts producing under the new price from April 2014 sales. Diesel cos lasted most of yesterday with more than 1-3% gains fo rthe reported news of increasing the gap closing of diesel subsidies at INR 10 per Liter

Food inflation has shifted from Onions to potatoes, but will tick down the overall cPI before the fuel inflation statrts up in Q2 FY15

 

Bank Policy Wednesday: India stands PAT on rates in December

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.

India Morning Report: Markets slip as PSU bank investors stay away

Is Inflation the Real Problem?
Is Inflation the Real Problem? (Photo credit: Wikipedia)

Active index and Banknifty balancing in a stable India economy above 6% growth involved the usual confidence investing in PSU banks a two thirds of the Banknifty to and or xis, HUL and a select set of defensives , that have disappeared as markets fall thru additional support levels. Apart from the loss to Ashwini Gujrl’s set of picks seen over two – three weeks post ‘shucking’, any other impact on the markets is lacking. One feels the confidence shown in non leveraged High Operating Leverage businesses in small and mid cap sector is also misplaced. Such High Operating Leverage Businesses with more than even 75% Op Margin in cases have time and again shown that less than 1 in 20 such businesses , even with deep pockets like Jyothi Labs, convert into a brand and a business like Bharti.

Bharti and ITC lead markets back and Lupin has a lot of strength left in it. Expectation have come back to a 360 Cipla to kick off the game for this rally segment and ICICI Bank and Axis are also losing ground from a probable low yesterday as the Banknifty sinks into 11,500 levels. However, the end (of the shorts) is nigh. This observed bear extension on Thursday is a direct concomitant of a stable PCR near 1 levels leaving writers hungry for more and writing calls is always easier than underwriting puts at new market levels

Tulsian’s faith in the ‘shadow stockings’ ahead of Christmas is also back, but we don’t think  UB Ltd will be compensated fr not rushing returns in the merger and bankruptcy melees of the crisis Olympics. However, it would be  good idea to sink into HDFC and Siemens.

Also Barclays Capital, as we have been following got in  5 out of 7 the same selection of 2014 picks. We already made it clear Tata Motors is a big sell on 2014, probably bigger than the Jindal Steel breakdown which will stop out of the ‘bear cartel’ push at 225 levels The Energy trade should be pushed but the Fisc is already distressing and the release of Fert subsidies at INR 50 Bln  was already a razor edge detail for the Corps watching India’s clawback on global fortunes. Assuming NTPC would not be ready to immediately step up on reform gear and leverage growing efficiency, we would disagree with buys on NTPC.  GMR is back in the big bids and the big bullish candle moving GMR, RelInfra and IDFC together with JP Associates should land on the next bevy of drones.(any independent rally segment up or down can be ascribed to a virtual set of drones picking the right calls). Bank of America, the other who nailed the Economy without attention to thoughts of a wavering Rupee (more than required) will also be worth tallying scores in 2014

The 15% Food inflation and the 12% contraction in Consumer Durables (read our earlier monthly commentary on PMI/Inflation) put paid to any thoughts of a recovery improving despite news of a Q3 debacle already factored/expected for October 2013 and probably till December 2013 s this includes our festival time data. November Auto sales disappointed for all though retail inflation has been strong (good demand indicator) in Consumer durables items on existing stocks as production has been subdued for more than 6 months now

Again, despite the policy tightening, banks are unlikely to need rate hikes as they have weaned off MSF rates. Also retail inflation will continue fueled by higher Food inflation , in double digits due to supply and other economic concerns for small and rural businesses. onion rices have corrected sharply in the meantime and Food inflation data for the month was likely overstating facts, returning to lower double digit levels in the remaining 5 months of the Fiscal.

Oh yeah, we may have forgotten, in the search for Economic employment, the Global recovery of 2014, is not happening except in US Equities as Europe proves its a dead continent and a usurius currency. China thus also fails despite a better share of its own currency in exports again and that leaves US and India and the ROW without business ends to close deals beyond a hygienic rise in Trade led growth. US is also stuck at 3% levels despite the mentored lower trajectory for Currency and rates which a good motivator but the currency is unlikely to be allowed to get eweaker at least from the current Dollar Index levels, probably never below 78 in all of 2014 even as Oil imports stop for the Superpower of the 20th century. And that, is despite the taper.

Bank Policy Tuesday: RBI Governor completes policy action

inflation
inflation (Photo credit: SalFalko)

With the forced liquidity constraints as the currency devolved on the nation in June ( after May 21 announcement) RBI was stuck in the middle of a rate cut leg of its policy to encourage growth. Already hampered by banks using Central Bank liquidity to the extent of INR 2 Tln instead of market, the Central bank’s rate hike onsequently in September even as the MSF hikes were redacted and brought back to the normal line may finally break the back of the markets on the verge of a bullish move from 6200.

The only inflation out of control however is the Food inflation which may not respond to any rate hikes and this rate hike may just be a mechanistic response continuing since Duvvoori Rao demitted office to stabilise the higher rate environment, in which case India may old these levels for a good six months, and in developed markets this new intermediate leg could have lasted years, till the rate cuts can begin again.

Meanwhile consumer staples will continue to see large double digit price increases to correct 2-3 years of suppressed marketing budgets and pricin pressures unrequited to keep basic sales growth alive in consumer markets

The announced policy steps however will increase bank rates and as retail lending has reounded such increases are largely going to be absorbed by consumers and however will have had debatable impacts on fueling furthr inflation now controlled by bank rates. NBFC business is already looking better in consumer durables with a clampdown on 0 interest loans and while that may not segment the market in favor of first time durable buyers that have been an absent quantity fooling marketers and policymakers, it will continue to better control the negative output gap with more advantages for NBFC lending even for banks that have already relied a fair portion of their portfolio on the sector at the expense of obviating the real winning consumer sectors or industry sectors winning n the changed scenario

RBI hiked rates 25 bp and MSF channel has returned to 100 bp over the repo rate clearing the path for a return to the Repo rate as the Bank rate.. WPI forecast has been banded to the central bank’s comfort zone as 6-7%. GDP growth is updatd to 5% for FY 2014

The banks lead the Nifty comeback post policy action as they assume the deed is done and currency will consolidate around 61-62 levels before going back to the trade deficit control led highs nearer 60-61 levels The sponsored rally ost policy is however blushingly even across non actors and non performers in the banks bunched with YES Bank, ICICI Bank and even HDFC Bank and Axis Bank. IDFC has recovered its morning deficit too. BOB is up 15 pointsand BOI is in the positive with Pharma/result candidate DRL also staging a mini rally. The short on LIC Housing ahead of results has also disappeared and tomorrow’s results are likely to see fat positives as sentiment needs a good build up and inflows ontinue to allow market makers to perform as such and the Financials are likely to reward investors who stuck through the unreasonable 2 months pre the last MSF related policy action. Further policy action unless embargoed by inflation is likely to stay with seeing the bank rate climb down from the current MSF 8.75% to the Repo rate of 7.75% ( The Revese Repo is 6.75% where  RBI issues new collateral securities)

 

India Morning Report: Markets negative ahead of expected rate action

Inflation rate world
Inflation rate world (Photo credit: Wikipedia)

 

Most economists and bankers are in consonance  that RGR may well post a higher repo rate number from the Central Bank Quarters today and thus Markets, teetering at 6100 levels since yesterday along with our expected markdowns on currency and bonds coming in play are negative on bank stocks and the market is ready for a pitch South of the 6100 mark this morning.

 

More than $4 Bln or INR 250 Bln have entered the markets from Foreign accounts in the two months of August and September according to ET Data and October will probably see an even higher number having come in as ETF inflows were exceptionally strong.

 

WE on the other hand still do not find such a motivation in the current inflation data except for the small spat on Onions. If the new Guv of course thinks he cn meaningfully control food inflation as India enters a critical period of recovery , it might well be, but it is unlikely to make a strong case as there are other reasons in the Supply chain and the continuing need to support farmers for food inflation to wave through food, veggies, milk & animal products

 

We also think Dabur results ae a good portender with Consumer Staples being an important watch category and if RBI policy is favorable the markets must rise with ITC results being seen in that light as well. The exceptional 10% postive reaction to Maruti’s results are of course just a sign for quick profittaking int hat scrip as trades eluded the banks in the cliffhanger again

 

Glenmark Pharma reports on Thursday with DRL and Torrent and Sanofi report tomorrow, so the Export earnings fiesta is well and truly alive exp on Glenmark. The Master investor’s Jai Corp reorts today

 

A couple of NBFCs do report today incl Chola and JM Fin (Vikram Pandit) but the market interest is ripe for pickings in the Power NBFCs as again shorts try to climb the wrong tree with REC already trading at 180 levels, REC, PFC and even PTC might react better post policy. IDFC reports on Thursday with Magma and Muthoot. Also, REligare and the PSU troupe with Union Bank and BOB joining BOB report Thursday. LIC Housing reports tomorrow. Each of these will see more than scrip specific impact

 

DLF, Bharti and bank hopeful Edelweiss also report tomorrow and will be key

 

 

 

 

 

India Morning Report : Rally snarled by a lack of fundamental strength (seen earlier)

English: World GDP growth rate and GDP growth ...
English: World GDP growth rate and GDP growth rate of total OECD countries. Data source: World Bank Group and OECD. (Photo credit: Wikipedia)

Though the Indian growth rate will be beyond the reach of most emerging markets and outside the projected future rates for any OECD countries, the growth in GDP below 5% and the return of food inflation is scotching confidence in the markets as it waits on edge for  the Tapering news to go by and Emerging flows to return allocations to India.

Unfortunately today’s report come after closing of day’s markets, a day when the Rupee also snaked down unnecessarily biting its nails on the supply bottleneck hit food inflation which will also probably become the legacy of the Food Security Bill later. The stakes – to get India’s growth rates back to 7.5% and keep inflation in check. With core inflation below 2% the onion inflation index cannot be allowed to influence further investments in India

Our note however can still remind investors that not just Consumer Durables but the consumer staples sector, offers a unique opportunity in India among the listed scrips and current 30X multiples in the sector may be no sign of investor saturation as bellwethers like ITC and Bharti are rare publicly listed behemoths in the sector which have also successfully avoided the defensive tags unlike the Pharms biggie Cipla where investors move after things come full cycle at Ranbaxy and European CPG pioneer HUL, now an old story for India Inc. Others in the sector are either privately owned or multinationals and pricing power remains in this sector, with its packaging strategies and working capital cycle flexibility in brand selling working them the advantage required to absorb supply chain inflation and raise prices at the right time.

The other story of the morning was the inelastic August Demand for Full fare airlines as the price increases amounting to more than 60% on the Delhi Bombay sector even in he best fare book-ahead rate plans could not stop passenger traffic from returning to a positive 3.3% growth in August. Such ricing power is important in this market where Oil is a major component of the import bill.

As usual it may als be prudent to realise also that India of tomorrow is unlikely to return to the same power ahead growth strategies that worked from 2001-2007 , the meat of the post reform era growth and that the required infra and other capx growth has to wait for the May 2014 elections to complete and that will not stop inflows to India, making the brakes in the market to 5800 a mere hiccup as long as the Taper is an expected number and flows return to Indian sovereign debt as it attempts to brake the shackles keeping it from the Global Bond index  and to Indian equities on reallocation

 

India Morning Report: Markets steady, India facing uphill task

Bajaj
Bajaj (Photo credit: Chandra Marsono)

 

The Indices opened barely in the red after a dull week of Economic data . Trade deficit reported under a $10 Bln for June as Gold imports were blocked out but Inflation on CPI climbed back to 10% in a precursor to fuel inflation expected now to climb back from a barely settled in period of less than 6 months as the drop in Oil is destroyed by the 12% depreciation in the currency. The depleted Forex reserves are already a qustion for the Rupee and the negative IIP for the month is unfortunately unlikely to give confidence in the comeback. Consumption being defeated, one is not sure of the reasons for continuing retail inflation with foo inflation at 12% leading the charge currently.

 

IIP showed a more than 10% contraction in durables Production index and negative growth year/year for non durables as well. WPI for June has also come in below 5% again And while monetary policy will be challenged by the prospects of inflation and depreciation , consumption is actually flling making infation an easy target to even prospects of deflation in terms of sentiment continuing negative in the economy. Investment is yet to come back to the Economy has become a challeneg desite a Forward FDI policy esp for Defence and Telecom on the cards.

 

Auto Sales are down almost 10% on year at 139000 cars and 55 lower for two whelers and though markets continue to treat Bajaj and Hero equally one can see performance for Hero worsening in the war with erstwhile partner Honda in the market and Bajaj has maintained euanimity in shares and market segments nonetheless.

 

Unfortunately apart from the results of this quarter one also does not see further uptick in Exports immediately. Banks despite the low 13.7% growth in Credit for the month of May/June remain fairly healthy in the selected layer as we have pointed out here and Bank  Nifty remains a great pick at 11600 levels markets keeping value priced in line with the economic sentiment

 

Last week, the India Morning Report could not be posted and the same may not be available from Tuesday or Wednesday till the end of the market week on Friday when the trade data and CPI was posted. For JP Morgan and Wells Fargo results refer to advantages.us. Indian Banks report this week and we will be covering Indusind’s results of last week later with YES Bank performance

 

 

 

India Morning Report: A new bank, not Citi, 8 not 4 and numerous other slips to the mile..

Vikram Pandit’s new efforts in India with Kampani’s JM Financial may get JM a 10% bump in stock quotes but it is unlikely that his 50% buy of the subsidiary and 490 million warrants worth 3% of the listed company with Hari Aiyar and wife in the new bank application at this stage will build on anything like branch infrastructure in at least the next decade, so watch out for questions on the application being followed closely in the media?

Otherwise of course the Chinese continue to prefer the number of wealth ‘8’ in their phones and registration plates for the cars that are sold and you should avoid gifting them anything with the number ‘4’ thats sound like the word for ‘death’ and Morgan Stanley leads the list of suitors looking for a bear to hold as Indian markets sit pretty on last year’s prudent calculations still not outrunning the underperformance in sensex companies in the quarter gone by. Markets are headed to all time highs probably but the next target is 6350, steady as she goes..

A wonderful FNO pick on Tata motors reversed my earlier opinion of the TV18 guest who chose Tata motors again but as stock vols (option vol in current month series) closed above 40 the bid to range the 280-310 stock trade with a bought put at 305 on a strike of 290 as recommended should gladden many a margin accounts. The strategy is brilliant only if when it opened this Friday, the bids in the normally not so liquid stock family  would not have quoted the ratio spread at a profit. Buy three puts at 290 at today’s open and sell four 280 puts in a minor tweak to the strategy played on the network but you could leave it a t 1:2 as well

Do write to us above and link in with your blog / facebook page in the comments. 2013’s dull exports and consumption story for India in the meantime cannot stop cosmopolitan urban India from turning Jiading(F1 track) and Pudong (Shanghai) and Lavie and “Caprese” luxury bags with Gucci stores springing up here now much after China’s $15 b market accepted them despite our protestations to the contrary .If not the Chinese predilection for lucky numbers, one could still catch a fancy to under-reporting ages , the ilk spied upon by Jug Suraiya on Page 3 in his TOI op-ed of today

ITC results should be eagerly anticipated and with infracos back in demand together ITC and IDFC will garner a lot of new outstanding demand volumes ( open interest) esp as JP Associates has completed a first rush yesterday to 80 on the futures. Sun TV is much better than Satyam though but both are equally risky on corporate fundamentals after the corporate governance in churn in either of the scrips. Sales of $1.6B at ITC in the quarter reflect the last of the big consumer companies making a sustained comeback after the jump in Q3. Europe based consumer goods giants including Nestle, Diageo and Unilever have already been singled out for investor attention in growth deficit hungry Europe for their stronger Asia businesses (ref FT.com, subscription required)

The New Drug policy is out though impacting margins at Pharma MNCs and Cipla & Lupin will also trend down on the repricing of margins across the board.

The main topic on this busy day could still have been the new RBI trend policy established by the WPI falling below 5% and the CPI having come in earlier. Though loath to check the sub indices this morning i see a Core inflation at 2.77% near all time lows and I do not believe we have seen the last of food inflation though April did not get to be a major run on the home makers’ wallets.

10 Y yields on the new bond have already responded vertically to near the 7.25% mark and thus RBI will take the whole term down immediately in the next three-four months before growth actually responds, likely leaving the rates below 7% forcing banks down on deposits despite the flagging demand and without more than a signalling cut in CRR. The news of more cuts was however the most important one behind Thursday’s heart of a rally.

 

Bank Policy Tuesday: DMK steals policy limelight, Rate cut hopes of India Inc

Though we did not suspect the political mulligatawny soup that will lead to a face off in the Parliament on the Lankan Tamils issue and should in fact be used by Indian polity to align to US on this issue and come down on belligerent China friendly Lanka, the very least done today in the political arena with the Nifty barely holding 5750 and yields hardening closer to 8%  has been the virtual throwing away of the monetarists wheel in what can be educative to all large economies hoping for moneteraistic target based Economics to bring home the citizens out of the global crisis of growth overtaken by stagflation.

RBI allowed another 25 bp cut in Repo rates to 7.5% and though it seems pat following fixed yields early 2013 move below 8%, it removes any further room for easing for the Central Bank. Cheap RBI lending thru the LAF should have already impacted yields to move down as inflation remained in control. LAF rates are now 6.5%. RBI has also posited the MSF as bank rate at the upper end of the channel in the mid term review. India’s GDP growth was the lowest in the last 15 quarters at 4.5% in Q3 of FY13

The Governor meets the press at 2:30 pm.

SEMI Breakfast - Fixed Income/Credit Analysis
SEMI Breakfast – Fixed Income/Credit Analysis (Photo credit: ceonyc)

Rate Cut Economics

The bank rate cut to 7.75% was already an avoidance response to the  Type II error of over tightening the monetary turf by the RBI which is already conducting large OMOs to provide continuing liquidity. The last one was just this week , the 3 day repo accounting for INR 1350 bln. In real terms rates have only risen after the last rate cut announcement in Indian Fixed Income markets despite the appreciation in the Rupee and counting today’s rate cut of 25 bps thats 50 bp of rate cuts shouted out by India bears waiting for the debt trap that India Inc could never be. Indian credit stock instead still remains the lowest in Developing and Advanced Economies globally at 75% of GDP ( both data points in this argument have come from this week’s RBI data releases)r

The Challenge ahead

Despite the 30% growth in NBFC credit this January (based on RBI data released for segmental review of bank credit) credit growth will likely challeng e the 16% non food credit target. In market terms(equities) , though 5750 levels are holding on the Nifty, expectations have definitely been turned down three notches after the violent 100 point mid day reaction and as profit growth eludes and food inflation rules the rest of 2013, real income growth may finally turn out to be a mirage and bring down curtains on future consumption growth for the nation as it dives into political uncertainty. RBI rate cuts could have been avoided to keep the market discipline better in later months when the fixed income markets would have been in situ better able to target a downward slide in yields and keep ahead with higher growth enumeration as non food inflation instead of staying low now tries to bite back with global demand improved by China’s lot However all that still means India grows by 5% in FY13. The lower data of worse cases for FY 14 enumerated above are still low probability events and can be easily avoided though these downside risks should also blanket any other global downside risks.

Foreign investment flows

India remains a global island of relative comfort for investors engendering continuing foreign investor interests that should as posited turn positive as the global downside risks emerge stronger esp for Europe and competitors like Korea and Singapore (affected by the China story) get bit while others like Thailand may still not provide the required depth to global investors. BRICs and N11 stories have at one time or other shown how executive decision can help them pull past the Indian jugger naut and India needs to be better positioned to respond in global markets thru joint policy and private sector action.

 

Related articles

 

Bank Policy Tuesday: 90% expect a rate cut. Sorry, says RBI Governor. India wins.

Despite the political improbability of this being counted as a standoff by the understanding P Chidambaram, this will be the most advocated course by us as Indian Food inflation starts into gear and despite non Food inflation now being below 4% the banks’ predisposition to trust their models earning a good profit in such rate cut cycles and the lack of transmission of last rate cut to bank rates across the board means the RBI governor will have more wiggle room later if he leaves rates untouched.

That is some simple policy math weighed in by a outside in look at the markets busy in the ranged groove. Market economists are hemmed in by the lack of bullish global prospects despite a healthy prognosis for 2013 just two months ago. CAD remains dangerously teetering on the brink and can easily be held hostage by Oil and other imports. Gold imports  have not been capped off. Fisc parameters have not been resolved.

Indian markets have showed the same audacity for a bullish candle if only they  were allowed to bully the experts and the pragmatic Duvvoori Subbarao. Most experts thus have agreed to a rate cut tomorrow as more likely but have correspondingly cut down on the wiggle room for growth in even 2014 and definitely the rest of 2013. While Bank Policy could traditionally go for a rate cut now, the only room it will have in the future is to nod sagely and say ‘we told you so’. The 6.8% WPI is no measure of the 11% CPI and never the twain shall meet.

This is not the last stand for central bank led monetary policy however and if rates are indeed not cut now and market forces continue to engender the positive turnaround in IIP , the Q3 policy in December 2013 could look much more positive and we could be near a good take off point where consecutive cuts could then support growth. A 10 Y yield at 7.75% therefore is no bad news and the guv has all my good faith support if he lets the rate cut go unannounced tomorrow. 

Bank Policy Tuesday: Rates are due for a big cut tomorrow..(incl the Mid Term Economic Review FY 13)

IMF Chief Economist Raghuram Rajan at the Worl...
IMF Chief Economist Raghuram Rajan at the World Economic Outlook press conference.WEO Press Conference, Washington DC, IMF Headquarters (Photo credit: Wikipedia)

 

Maybe only 10% can see it well enough to vouch for a bigger CRR cut this morning but the news of Economic bottoming out and the data outlook from infation and IIP could well translate into a big Pre-March boost for the Economy tomorrow. Any boost in the rest of the Financial year is hardly likely to reach the Economic growth of the next very quarter and the RBI Governor has shown earlier that while he is brave enough to hold back if it is still opportune for only inflation led dinosaurs, he is equally brave in rewarding markets with better rates on such a cusp of expectations where the Economy is showing signs of upgrading itself and Credit has been strong and silent as a performer in the background without retail inflation crossing 10% in CPI terms. Also that would leave policy doves and hawks eager and attentive in the remaining three months including the call in February.

The discussions of a bottoming out however , especially in light of the findings presented in the Mid Term Review ( Chief Economic Adviser Raghuram Rajan is on rightnow). However the reduction in the CAD is not on account of Revenue targets ( which are likely lesser by ~20% of the ambitious Target to nr INR 3.1 T ) but from the Divestment Engine that has chugged along after NMDC’s successful completion the same week.

The Mid Term Review also mentions the Fisc is likely to go to 5.3% and the spectre of reduced subsidies is unlikely to engender further instability to the current regime. RBI is expected to go for a 50 BP CRR cut or more likely a 25 BP CRR cut according to the morning polls

 

 

 

India Inflation Report ( September 2012)

As expected, fuel inflation jumped to 11.88% and though Food inflation was below 8% a drop of almost 1.5% to 7.86% and primary articles to an almost respectable 8.77% from above 10% the overall inflation is too high for the government already blackmailed by the prospect of rising oil prices to factor in a rate cut or ask the Reserve bank to implement one as a quid pro quo to policy reform. Manufacturing Products inflation is coasting at 6.26% from 6.14%

The CPI data for the previous month already came in at 9.7% with the Rural data even higher at 9.8% and a rate cut could artifically support the depression of prices with financial costs coming back into alignment

The WPI number for September is at 7.81% and almost threatening to take Injdia into a hyper orbit above 8.5% on the WPI basket itself as Fuel will llikely remain higher. SEB Electricity price hikes were factored into this series’ data as well

 

Bank Credit Policy (September 2012) : Fixed Income Markets Celebrate India Reform 5.0

 

Given that Inflation was also expected to be lower before the Wednesday announcement for WPI and the Diesel hike importantly, it is understandable that 1 in 5 economists in the latest surveys still expected a rate cut to put pressure on the unruffled Central Bank Governor. Nomura economists and even Breakout Nations’ Author Sajjid Chinoy however point out again that the government has no room left as do we. Though you may not be able to scroll back to views as we were also away for a month on the subjects of Global Policy and Economics, you will be able to find the thread in earlier bank policy writings here and at advantages.us. And of course as the public sanecdote demonstrably admitted to everyone, there are no CRR cuts in store.

However having been fed reform policy the markets are unilkely to react to their v”dull and drab” version of the credit policy later today. Infact except for Economists at the banks above most in the industry will be relatively busier with deals happening in the wake of Bharti Infratel kicking off a public sale of PE investments with a not so untoward calendar in just 5 years of investment. Back to the calendarised Economics though, the dip in IIP is scary and continues to run down the Economy alongiwth a double digit in Exports but none of these would improve from an easing of credit conditions as bancks get don to safeguarding their margins by cutting deposit rates to the eventuality.

As DNA also notes however, there is no time like now for India Inc and this will take almost a year to fruition in Services and Goods uptick while inflation including the dangerous fuel subindices about to make a bigger come back having come to 8%+ in the August announcement. Bond yields will be going down because of inflows and that should not be confused with a likely rate cut for now.

 

The India Inflation report July 2012

 

The WPI data begins the catch up with economic data from India for July 2012 after global trends could not break India’s earlier rhythm, though still contused by global shock, with a 52% PMI and a 53 in Services PMI.

The inflation came in well below 7% from a 7.25% revised number for June to 6.87% number for July likely helped by the lack of demand in durable goods witnessed in the IIP and the continuing low basic and intermediate goods that continue to fuel production indices. Markets hold out hopes for aggressive rate cuts turning into a rate sensitive led rally post the inflation data release.

Primary Articles Inflation has settled down to a 10.38% same as 10.46% in June as Fuel price increases have been shelved and Meat Fish and Eggs continue to lead food inflation increases. We believe RBI may hold off on rate cuts till those fiscal changes have been implemented or the alternative disinvestment plan counted as success though the RBI will likely stay away from confusing the markets on the simultaneity of fiscal and monetary impact in terms of its equation with governments.

Inflation values for Food categories have dipped to 10.06% against 10.80% in the previous month and manufactured pdts inflation is just above 5.5% also down from last month

 

India Inflation Reports (May 2012) : Last series for WPI data?

World map showing inflation, updated for 2009....
World map showing inflation, updated for 2009. Grey means no data. (Photo credit: Wikipedia)

The use of monthly CPI data for now more than 14-15 months with Y-o-Y inflation comparisons available for 2 months on the trot, it may now be a matter of time before the WPI data becomes secodnary in the Indian scheme. Consumer point inflation though has been refashioned and some may want to verify it further and the WPI trends at sub series level across Core, Primary and Fuel as well are available for estimation quite discreetly and forecasts may not get market confidence for some more time.

The Core inflation is expected to be the biggest encouraging figure in the May data at 4.7% almost half of the data till no in the past one year, which encourage bonds to move down to below 8% in anticipation of a positive RBI Monday. Fuel inflation though likely to go back to near 13% is s till belo the 2011 benchmark of 14.5% and the Primary Articles data of 12% is actually understandable and does not require more policy action as commodities trend down steeply in many cases despite China’s buying having begun in earnest in May

The rate cuts may be 50 bp as pointed out by current 20Y yield movement but then RBI will be not expected to do more than 150 basis points in the whole year and a 50 bp cut removes the flexibiliity from its hands having committed then 100 bp before JAS and OND quarters even begin and that likely means the markets will prepare for a slow(25bp) of fast ( 0 bp) descent on Monday

The inflation data is a little late but safely bullish for the RBI Policy day at 7.55% Primary inflation at 10.88% was still less than 11% and fuel inflation did not get most of the fuel rise in the last week at 11.53%. The Core inflation was below 5% at 4.99% primary and Fuel inflation ere at 9.71% and11% in April 2012

2012 India Economic Survey

Inflation 6.5-7 % by March

Recommends Fixed rate of Diesel subsidy /Litre

FY12 Growth at 6.9% ( as per Advance Estimates , GDP to INR 52.5Tln )

Survey projects 7.6% +/- 0.25% for FY2013

FY14 Growth seen at 8.6%

Inflation may fall even below 6.5% in FY13 but Monetary policy needs to adjust to fluctuationsin Oil and adjust prices regularly

Again in repeat from last year, Petrol pricing neds to be based on a transparent formula.

India needs fiscal consolidation and spending curbs in 2013 >> ..and inflation may tick down further does not match again and no investment in the Economy right now

Sustained high rates may hurt reality,and services sector

Inflationary forecasts at elevated levels building on the reverse base effect probably from FY12 to FY13 but that is slower demand led lower tack for inflation at its worst

Trade Deficit of 8% a matter of concern and FDI in retail important ( Multi Brand without local sourcing restrictions – Our additions in bold/italics)

Bravo: We are moving forward on Direct transfers of Subsidies for Food and kerosene (sorry AAdhar)

Land Acquisition Issues vital

Infra Finance a key concern

Need Aggressive stand to check rupee volatiliy but constrained by size of reserves

Deficit expansion due to lower Revenues not just subsidies

Recommend Customers pay for Higher crude prices – Sure!

We doubt though employment conditions have improved (monsterindia_ ) and depression in growth may jump the savings cables but the survey expects: Savings and Capital Formation expected to rise!

See slippage in FY12 Fiscal Deficit Target –

WHILE Proceed without MidTerm

DO 

Murder;

Mayhem;

Fiscal Profligacy

REPEAT 

Fiscal + Fiscal +1

UNTIL DEficit = 8% and Mamta = Laloo = Nitish/50 (2%) – NAMO*3/2 

(***FOR NEW TARGET OF FISC = 4%***)


Verdict: Why is growth back when we are in fiscal profligacy without investment

more special duties and fine tweaking of excise rates tomorrow instead of tackling reform in budget yet striving for stretched revenues

Happy Thursdays! A good day for economics

Hero Moto Corp, HDFC Bank and Bajaj Auto all hit expectations right and made merry of the third quarter encompassing a giant Festival run for India from Dusshera, Diwali nad Id to end with Christmas and the new year celebrations.

Quarter on Quarter comparisons showed up great daredevil performances by industry leaders even as food

Mitchell Johnson bowling a delivery on Day 2 o...
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inflation, negative for the third week in succession, for the new year’s week ended Jan 7 at -0.42% and Primary Articles at 2.47%, fuel still 14.45% and onions still down 75% on the same week last year. the 52 week average for the jan 7 week (nasdaq/rttnews.com) is 9.96% and this number considerably lower near the 7.41% number for December 2011 Fuel weightage is 31%, and non food articles at 20% weight scored a low 2%. Primary Articles were less than 0.5% for te weeek ended Dec 31 last week

The Nifty stayed above 5018 and you should be buying puts now, (check our choice FAO strategy) as the index may not climb further to 5100 from here without a plateau and thence the breakdown. The remaining optimism will remain on call from today’s results however.

IPL auctions come back in February, with the entire South African team and the choice speedsters including Peter Siddle and Mitchell Johnson on the block from down under.

Back in financial results only 47% of the last two months results announcements were above par in the US incl Citi and JP Morgan below the line and headed for more pain in 2012.

 

India Bond Impact ( Fixed Income Report) : RBI sticks to CRR, likely no cuts in CRR, SLR

India GateRBI stuck to its plan for India’s monetary policy not bowing to FI market commentators and probably internal pulls as it refused to consider reserve requirements cuts like China in the period it waits out a bottoming of inflation expectations before considering interest rate cuts

The CRR is 6% currently except for CBLO, ACU (overseas USD holdings) , Offshore banking units NDTL and inter Bank liabilities where a 3% CRR is avered. The MSF lends to banks already including their SLR liabilities as allowed collateral at the upper limit of the rate corridor set by RBI, at 9-9.5%

RBI has already conducted OMOs to stabilise liquidity int he market and may be on the watch for unwanted liquidity influx from new QE in US/Europe and UK in that order

Market pressure on yields pushed them below 8.4% as the Electronic trading platforms traded thrice the daily average in the new year at INR 278 bln daily or INR27,800 cr daily, still avery low amount compared to inter bank trading volumes

Moody’s rating upgrade to P-3 allows india some leeway in apportioning its Reserves again as short term liabilities for Corporates keep increasing

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

Happy Thursdays! A trading thursday before the new series

Inflation & Gold
Image by Paolo Camera via Flickr

As 2012 begins on a low note , market levels are encouraging enough for investors to make a commitment to India for more than a few million and they laso have been able to play the non FII traders in the market who continue to roll over (angel brok) short positions in short of the eternal 4500. Inflation figures were encouraging witha 6 year low on food inflation

Onions were 40% cheaper last week, 60% this week while potatoes are also down 33% as warehouses start collecting stocks and rot starts while waiting for good exports prices.

Primary inflation came under 3% meraning good numbers for basic goods and primary articles supporting the falling nose of inflation with fuel stubbornly continuing but lower at 14.5%

There have been subtle changes in the Dollar – Euro – Commodities links ( see article ) in this month despite the year end low volumes and lack of interest which evidence a great year for equities from next week! Happy new year,e veryone and thanks for staying around!

Happy Thursdays! Another week, Another crash

Bank of America on the other side and lately some banks here have started looking happier only on days when the market has crashed beyond expectations, making these a regular weekly feature of the market. Though Bank of america has been outwitted by the Euro and will bleed for more time, the india markets and its new found drerivatives losses will bottom out in the next 200 Nifty points as new suspicions emerge on prop trading desks at the end of the local’s route in Mumbai.

Food inflation plopped to below 2% this week and I suspect more higher numbers are stillleft in urban consumption items like fruits and vegetables in that even as the food subsidy bill gets closer to becoming a law. RBI’s FSR was also lined by ratatouille chameli and tom cruise bacchchan as having brought lasting relief in real estate seen by a three hour long rally in DLF, Unitech and HDIL among other strange asteroid fragments in the troposphere currently.

The Air train between Delhi and Mumbai saw Cyrus Mistry in industrial grade discuss throwing with our own MOFCOM with Ratan Tata fadng away in another 12 months, discussions on VSNL land patying up taxes becoming more insistent ( oops, its Tata comm now)

The end ( of the bear rally) is near in India’s case (please do no tbuy before 4400 is broken to a new low)  and my portfolio of trading plus investing is usually a good leading indicator ( from lounging on the sofa awaiting employment)

Our post on the bond Report will show banks using the MSF and yields staying down as the last experts get entrapped into thinking the Bear has finally come to India, Asia being the land of the eternal Bull panda.

India Bond Impact (Fixed Income Report) : Inverted yield Curve accentuates mismatch

The classic inverted yield curve is caused by a liquidity / solvency crisis and one could very easily be caused in India if attention is not paid right now. As we worried last two weeks, short term liquidity drying up despite auctions has taken the short yields to 9.3% a new premium for these two reform decades for India since (1997) while the first Fixed /income yield deflation has hit the shores like a Tsunami fromt he west to 8.3% from 8.75% last month

Ideally the mid term yields (3, 5, 7 yr terms) responding to inflation however can harness the inverted yield curve we have done on multiple occasions though never when Oil was rising along with the Dollar and it remains to be see if India can cross the rubicon and beat inflation with this stick than get grungy deflated like Europe.

India should probably avoid the 20 year or 30 year terms for bonds as they seem to have supported deflation in the Wild West, bu tcan get matching terms for Infra projects with 15 year concessions matching 15 year financing to at least make sense to investors and raise some cheap money to outgrow the deflationary impact on the long end.

Happy Thursdays! Announcing a sunset for Food inflation

US-Inflation-by-year
Image via Wikipedia

The weekly numbers for the December 3 week continued on a much higher plane even as governments and markets battled with the 9+ figure for November with Fuel group capped at a 0.3 MOM increase to a 15.23% rate, Food  rate down to 4.35% from a 6.6% in Nov 26 figures, and Primary articles looking distinctly sunny at 5.48% instead of more than 7% last week. Thus mfg inflation / basic inputs contributing to that would have also stayed below 4% and the series distinctly showing signs of beating 8% for December except the Fuels number as prices catch up with our dear dollar basket

Commodities globally have finally entered a decent correction phase as Gold was beaten to the haven by the Dollar, running behind investment allocations as its lower value starts bringing down global portfolio sizes and increasing allocations to equities in just maintaining share of allocation..In case you did not get that, please write..

Discussions of Advance Tax data show the uptick from last quarter’s performance as there is no hope for the frozen December, neither for Autos, nor for those with Dollar loans and the other domestic metals manufacturers and mining providers, leaving the real estate cement and banking downturn not so difficult to fathom

Inflation rate of Japan Economy 1980-2007
Image via Wikipedia

Happy Thursdays! East is East?

NINE NEW RUPEES IN A ROW
Image by Michael Francis McCarthy via Flickr

RBI is unlikely to post extra liquidity except thru 9% auctions to buy bonds at their window weekly. There will be no CRR cut, non food inflation expected to trudge down to negate everything else and the rupee expected to walk out of the hole it dug itself. Funny thing is, all of this is going to happen in the rest o f December and then the next Rupee level ( ML drives a 58 minimum) sets into view at the far end of the scope.

ECB/FCCB failures if any unsung ones yet, could in the meantime drive rupee deeper into its first hole, On this golf course hole Index ( indicating depth/difficulty of hole) increases steeply with each putt. Thus, no putt, no hole! That means no FDI, no retail, no aviation, no more ethan two strategic investors for Kingfisher, AND NO BUYING TILL THE INDICES BOTTOM OUT! stay away and eat healthy in the holidays! FCCB items have been added in a new post timestamped concurrently

The reforms have hit a wall. And no Wall street journal cameo can undo that. Livemint.com, ET and advantages.us do not matter in the larger scheme of the writing having been writ on the wall, the pen moves on to spoil more walls for others. FT’s caught on to its weaknesses in understanding India, it pushes Indonesia for Indian government to realise blah blah blah!  Indonesia’s got another crash coming of its own making as the Coal situation worldwide is causing serious powerburn. Indian rice is replacing Thai contracts in Philippines and Indonesia as the floods in Thai shut down the economy. Japan has not recovered yet. Korea and Taiwan doing well right now are watching out for the big wall once Chinese slowdown ripples up to the coast.

Inflation figues would be updated here as they appear. Fuel is still 15.5% Food inflation a sharp ciliff from 8% last week to 6.6% and Primary articles ( non food + basic + food) at 6.92% Good show! SIAM has updated November sales to 171,000 units from 159k last month

 

India Bond Impact (Fixed Income report): RBI purchases ‘ominous’ to another 9% bout

stewart, mena, SCOTT?!Though a late market rally on Friday has taken away the gleam of an easy short for Monday, short covering in the last hour may also add to those planning to cap the trading range with a few swats with the bat.

In bonds however, the easing of yields to 8.75% is not so certain either as RBI’s bond buying program was an even closer 8.69% in yield in the buying of nearly $1.5 bln yesterday. RBI rates are 1% lower by channel defined even though RBI charges a 50 bp spread on its MSP sales in the middle of the channel. the yields are closer to last weeks sales Auction by RBI which were at 8.94% and so the yields may move back to that near 9% mark again before the Rupee tops out.

Smart rally in the rupee though, again speedingup the trend to a big spike, leaving you with less doubt that it will return to lower marks sooner than later. consolidation above 51.50 levels near 51 would help people believing the rupee lost mire than it deserved. Remittancees likely to be heavier through 2012 were heavier only in geographies like MENA from our labor exports and not the managerial variety yet ( if it can be distinguished)

Inflation cannot get better, however China actually got it improved to 4.5% before it eased rates and put the brakes off, risk on stride into the Economy, lasting till December after throttling started in June itself.

Happy Thursdays! November buzzes everyone

English: A 2008 Maruti Suzuki Swift Dzire VXi.
Image via Wikipedia

November buzzes everyone, December is too cold

Sun comes out in the East, but the East is all sold!

All the talk of potential markets in retail and consumption, engendering domestic demand ( in China) and even the imminent collapse of Europe ( not just not happening, in danger of engendering imprudent fiscal expenditure by imprudent politicians, just back from the brink) everything’s come to a nought

US is also going to a nought score but after a $52 bln weekend in Non auto sales and another $36 bln in Auto sales for the month of November, it is rather to get on to a nought in all 2011 inventories by January 2012

India is headed to another ground zero right now, even as China starts betting on expansion without getting a jump in domestic demand. One wonders if stock market investors are correct in deriding Divestment thru buybacks and cross holdings mooted by the government arms, One further wonders if india’s aviation industry will ever get to use bankruptcy protection as a strategy as KFA finds another hole to plug, and one wonders if the yields falling to 8.75% being the end of the move in Fixed Income, if the rupee will ever come back to below 50 on the bat

India’s fiscal problems have batted on a high inflation wicket, with 9.39% in CPI in October and a 8% food inflation for the third week running for November 19, Pranab advertising a fall in the price of Onions by 40% and October Export growth and deficit stunted and expanded by OIL and rupee gyrations Non Food inflation is dead in the water ( includes fibers and oil seeds) at 2.5% but Fuel is still 15.5% and Primary Articles a 7.74% lower but by no means a low number

There are a lot of other statistics including M&M’s jump in November sale sto nearly 41k vehicles incl almost 18k passenger vehicles and Maruti’s falling behind the 100k in Sales despite there being no strike at its Haryana plants and they will all come in due course.

At Happy Thursdays suffice it to say that November was good to pass on for the results showing for any government or corporate but there have been good signs for growth, with Europe solved along expected lines, banks at an all time low globally and the Nifty 4950 a good time to go short on everything, always a better feeling once you decline to wait 10 years for the pay cheque.

China’s landing will not be hard at all, watch for the detailed analysis on advantages.us, Airlines will not fade away   with US American Air taking a 18 month vacation to recuperate with new pricing and new supplier and cost agreements a good example of the new strategies discovered in this new millennium, the other – central bank pay cheques for every citizen.

Happy Thursdays! F&O Expiry vs FDI in retail

Gold Key, weighing one kilogram is used to acc...
Image via Wikipedia

The Last Thursday of the month, promises among them a “sequestered” trading week in the US as the markets close for the holidays today afternoon. The promise  of lower short positions on the Nifty also seems a little possible as only 51% of the contracts have been rolled over, and the markets may find enough reason for extended short covering in today’s move down and post Cabinet meeting in the upward shake off

That is at best a hope. 51% FDI in multi brand retail, a reality. From 5000 SKUs in Mom & Pop stores to growing more 60,000 SKU modern retail franchises, India would have certainly come a long way when we check again a year later. Walmart and Bharti Easy day retail have been around for 3 years now, Carrefour and others waiting to start their emerging markets experiment and the Sun has been rising in the east for most paranoid investors as valuations calm down to underbought and oversold in India. A thumbs up for all those who are active on the short side too. The breakdown means that the bottom is much lower, so do not start large cap  trades right now. Appollo Hospitals though struck me as an enigma that could last. So could IGL and Concor and in two weeks he aviation guys could come back.

In consumption stories, HUL has reached its optimum at below 400 levels (and UBS  got that)  while Jubilant has raised Pizza prices by 8.5%. A 100 pizzas a day still means a lo of profit for each branch so the Dominos’ decor would survive competition from other brotherly brands they add.

Inflation is riding high, India a systemic story and will not be coming down despite the trending down  in non food inflation over the last 2-3 weekly readings. Manufacturing flash PMI plunged in China to 46 levels with double digit drops in input and output prices and new orders for the monthly figures but China is in the home plate, the last lap of the tough times to surpass before June and global indices will continue to plunge before the US markets reopen next week, A big bang on Monday is likely as Black Friday flash figures gladden the hearts of US watchers

There will be only one pullback in the rupee, either now or two weeks later if and when Jet signs up more FDI

Food Inflation fell from 11.63% in the last week to 10.01% for the week ended November 10, 2011, though onion prices have come in 33% lower, vegetables and pulses are still higher by 17% and 12%. As the guv’nor mentioned yesterday, this is probably as India moves on to higher consumption needs on the food chain in more proteins(Bennett’s Law), that supply is not ready for. Primary Articles ticked lower to 9.08% as non food inflation hit a low 4.05%. Fuel inflation continues a t the new level of 15.49%

Happy Thursdays! Let’s forget inflation, aviation, consolidation and eternal damnation

And remember something else about being India. About being a nation of 1 billion cricket happy audience who were relieved that despite Marlon Samuels, Chanderpaul and the Bravo, we are still ahead 2-0 at home after having destroyed ourselves in T20 and in foreign tours of England

Also lets remember that Indian corporates own the Blackburn FC and I’d say even the Liverpool FC for all practical purposes despite no business for Stanchart in India after its stunted listing Also that Vijay Mallya’s sports teams are still the toast of quite the world looking at India.

Apart from that just that fuel inflation is now 15.5% for the week ended Nov 02, 2011 and food inflation is still over 11% and the Nifty tanked a 98 points despite the Primary Index going down from 11.43% last week to 10.4% to 204.7, Food Articles are at 199.8, Fuel at 171 (from 169)and Non Food articles at 175.9 still up after a dip in the food index from last week.

India remains a bastion of growth, cricket and Coca Cola 

I do not understand how India can practice any fiscal consolidation with Oil, fertiliser and food subsidies hitting it below the belt and crude at above 100, though the spread between WTI and Brent is down (in the US hemisphere, because of a new reverse pipeline from the WTI hub in the north to the Gulf of Mexico) and in here as the low cost transport channels via Singapore and some de-bottlenecking in the Americas below in the shipping routes (as far as I could get this)

The mood seems to be , even during the falling knives in the markets from 9 to 3:30, that I can see some with good value to hang on to, for the eternal sycophants there is HUL and Airtel scrips for the uncaring there is the dropping stock of Oil and mineral companies showing a lot of space on the way down, and for the IT friendly just a word of caution – there is no business there except for that from depreciation of the rupee and that is halted he(e)re at 50-51 for the quarter.

The banks are traders currency though, even at their best value in prices do not hold to positions very long and try and carry trades overnight though after judging wthether long or short helps..opening a position after 9:30  is going to

a. be in the other direction

b. lose your profit from the point it worked on today in market hours.

Happy investing!

G-Secs

India’s additional $5 bln FII limit should be exhausted by the end of this week itself, we need much more.  Also if you have been following my writings since 08-09, it is the time of the season when central banks are buying gold..if anything else is falling that one won’t and global trade will remain robust and on the up for US, China, Europe and India despite every other suffering knocking through..

Heavy Fuel

UB sold 31% of its Spirits/Beer operation to no. 4 Heineken and SAB Miller and InBev must be snooping around these small marketing havens(India/China) for growing the “footprint” of beer and fuel..Did I hear a nother offer on the table for KFA?

Growth in Coca Cola

Consumption stocks in the non-discretionary sector / food stables / FMCG non durables seem to be doing OK on sales though Dabur and Marico have fallen on the way. In particular praise and investments from Dominos, now one of many brands at Jubilant Foods, Coca Cola, investing $2 billion ( 20% of our defence allocation on the China Border across 5 years) and veen general insurance and healthcare businesses like Max India or fitness studios from Talwalkars

Happy Thursdays! The India Inflation reports (October 2011)

India reported its October figures for inflation still near the September’s 9.72%. The 9.73% figure was stuck

Fort Area, Mumbaiwith a high food and fuel component of 11 and 14.5% The core inflation figure remains equally tense at 7.7% India has lived with historically higher rates than most economies, its nominal growth always outpacing inflation by 7-8% since the 90s and even before at higher inflation figures and short term borrowing rates of even 21% .

India’s shadow banking system has also been in a perpetual declines unlike its counterparts in China or elsewhere  is Asia and Europe. However, bank rates are currently capped at 8.5% and borrowers do not have to fork out more than 10-14% across the 5 different credit worthy rating baskets. Credit growth is however slower at less than 20 %with RBI targeting 18% and consumption sectors have again slowed down after 11 straight months of 9+ inflation

Also linked to the monetary and fiscal systems is the fact that less than 5% of Indians fall under the tax code and/or file returns and GST has not been implemented across the Federal structure and /of fiscal measures monitored along with welfare scheme as systemized data is usually at variance within and not connected across different silos

RBI-Tower
Image via Wikipedia

Food and Vegetables have not dropped below 10% in the year most times, a category of vegetables or pulses landing an annual rate as high as 25% and never lower than 15% for 6-8 months on the trot as supply measures and inadequate remuneration of farmers disturb the welfare mechanism. Almost 2 in 3 of farm advances are classified as bad loans but remain recoverable for most bankers by experience

Tighter liquidity has taken domestic yields in the 2-5 yr range to 9.1 – 9.2% recently and banks have stopped subscribing to new Govt auctions , small amounts of $220 mln devolving last week on the new 2023 security as banks are already loaded up on SLR securities as well as the 6% CRR

Rupee has also broken on the downside decisively across 50 this month after the 15% down move last month

Happy Thursdays! An inflation sun for everyone, and we’ve had too much sun please..

By Nikhil Kulkarni
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I feel like a college kid again ( My alma mater’s reports of PPOs and PPIs are heating the business papers this morning too) as the banking regulator in desh clarifies on Bloomberg that the Banking Regulation Act, voting rights of 15% for promoters and another legislation after that mean that new banks can possibly not make up time and set up shop before 2013. I’d say 2014.

Just what everyone knows already?

And I am sure if I was holding that IB job, that’s what would swing me everyday, that there is 3 years to go before it makes a big bank out of last month’s (August) guidelines and the sparse deal calendar would bother me ony till it bothered my employer. Which it does not.

However what would similarly break in the Bankers’ minds on credit desks would be the sweet realisation that the festive fortnight would not really bump up credit. It is kind of intuitive, As I get busy with really shopping and decorating the home and hearth and corporates basically get too busy computing any bonuses and holidays for their staff.

‘Coz thats the only reason that will fly for Oct. 21 credit figures and deposits to remain the same as Oct 7 highs at INR 40.81 Tln (40.85 Tln) in Loans and Advances and INR 56.19 Tln (56.24 Tln) Deposits, figures in brackets showing the Oct 7 high

Also PM Manmohan Singh’s appointment diary now looks like he is from India (huh!) and not big cousin China who can refuse to bankroll the crisis

Talking of Gamechangers, Cognizant related to its hyper growth with a seemingly 5th quarter ( It should be around 18th or 19th) with a 30% growth, Op Margins nearly 20% and Net Profits growing by 11% yoy despite the ground licking deals on offer. I thought the entire industry was out to do that as Outsourcing, but only Cognizant succeeds everytime. Now with a $1.6bln quarterly turnover, CTS can probably aspire publicly to beating TCS on Topline, Infosys a touch away for the Q4 itself

And you  would think HT! will forget talking abt the weekly inflation but we don’t. The morning’s

By Nikhil Kulkarni
Image via Wikipedia

been too busy and the data released around 12 (IST)

Inflation has crawled on to the wires, but it has surely been burning the midnight oil, growing to Primary articles inflation of 12.08%, non food indices are down to 6.5% which is very encouraging, food from 11.43% to 12.2% (Finance Minister) and fuel at above 14%

Primary Articles seem to be ready for the structural chop as even US reports basic inputs going down by 10-20% in terms of costs (ISM)

Happy Thursdays! Inflation pulls ways and means advances

As Yes Bank signs on to a 600 bps savings bank deposit rate, and food inflation ticks down from 15 to 11%, the refusal of yields to predicate a proposition in the double digits forsooths that the RBI will stop around here if and when inflation trends down. It seems to me that more of the banking sectors participation is at work here in controlling the rise in interest rates. Incessant lobbying apart, the rising IIP and refusal of inflation to tick down below September’s 9.7% could very well still mean a systemic redefinition of interest rate basis in India like in So Africa.

Instead of defining new zeros in overnight and short term rates treasury liquidity like in the US and UK, the new BRICS entrant has simply defined a higher systemic basis by accepting highe3-5% inflation than the US and UK and EZ targets of 2% at the maximum

Some results from biggies Kotak and Dr reddy also make this New Year holiday in India a good segueway to great market speak on the festival of lights.

Kotak outscored by 20% for a new run rate of $800 mln for the 12 months while Dr Reddy returned to its earlier $2 bln run rate with 9.6 bln and 22.5 bln in revenues respectively. Kotak will be with the biggies in keeping SB interest rates down but market sees a lot of benefit for them in the new regime as PSUs are outpriced for the time being and tackle quality issues

Inflation in vegetables remains at 25% but we are in favor of good growth for the hinterland in MSP raises now 2800 for Chana and Masur and increase again in rice and wheat. Also Hamilton must give hope to Ferdnand also to come up in the ranks as the Buddh provides a chance to speed things up on the F1 circuit

Happy Thursdays! The india inflation reports for September

As usual, with the monthly WPI slated later in the day, the static 9.32% weekly inflation rate for Oct 1 is not the focus. Policy rates in india will likely continue bucking the global rate cut trends as inflation is being imported from fiscal dilution across globall currencies and RBI is likely to continue its hawkish stance on inflation and September numbers likely to be another high watermark for inflation

The Exports for August continued a 40% + growth but underlined the weak equilibrium wth the increasing fiscal deficit of nearly $15 bln for the month on a much smaller base and the unlikely possibility of fiscal discipline bearingt to the target of 4.6% after a new borrowing program of INR 600 bln chaining market expectations

A likely 9.5% – 10% mark for inflation with continuing rise in food and fuel inflation, shows the independence of policy mechanisms and growth in India’s situation

The August IIP was a dismal 4.1% against July’s more dismal 33% and manufacturing was robust at 5.5% IMF reduced its 2012 forecast to 7.5% while Indian ministers and Planning Commission Dy Chairman Montek Singh Ahluwalia admitted challenges in 2011/12 and that India will return thereafter to a 9% trajectory comfortably

Auto Sales hrt by 2 days of strikes at Maruti were reported near the low 135k mark for 4 wheelers while 2 wheelers grew strongly in September to 500k and 350k for Hero and Bajaj Auto

Happy Thursdays! Another toast to Global Duality

Happy Thursdays is a weekly statement fromt he Advantage zyaada house and almost always includes a comment on the latest India inflation figures, watermarks for market related statistics globally and our rare direct comment on global markets’ direction including facts that make us sing together..It usually show up unsung ot me too, so get busy using it now..

That’s the sarcasm right there. In the pop of the title. As you chew on total global correlation with a 0.97 correlation and more in September, and 0.7 in early August, some might be excused for thinking a basic increase in the knowledge of the markets all around and thus gains in terms of tranparency and reform. However, that is not the case at all. The sensex tanking today was a sign of globall correlations nearing one but we are decoupling as we speak as inflation draws lower on food at 8.8% but fuel persists closer to 14% for the week ended Sept 10 As primary articles tick down and India becomes the harbinger of i in inflation globally it would stablilise in India at not much below 8% while crude prcing irrespective of the “Dollar Economies'” giving up after hearing of another ‘stimulus’ The reaction to the stimulus in global

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markets will be varied as OPEC now gets to price itself out of a depression for its own, ‘US stays at its lowest growth levels with consequent 20% unemployment and Europe deals with new strife and gets used to a regular shrinkage in its production whether at UK and Germany or the GIPSIs

 

Yet right now, everyone was listening to the same, almost stupefied, wih a not so material and much expected Bernanke speech and mini – program somehow making the way clear for everyone to see the bleak future in its totality without hope. So commingle while going down and better have a differentiator worth its name on the way up , because nations like people are all alone..

Yet righ now, everyone was listening to the same, almost stupefied, wih a not so material and much expected Bernanke speech and mini – program somehhow making the way clear for everyone to see the bleak future in its totality without hope. So commingle while going down and beter have a differentiator worth its name on the way up , because nations like people are all alone..

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September Bank Policy review : Rate hike again!

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Update: CRR has been cut 25 bps and there may be more CRR cuts. The channel being fixed the repo rate of 8.25% means a MSF rate of 9.25% and a Reverse Repo rate of 7.25% still be paid out by RBI . A SLR cut of some kind and a SLR deposit rate increase may also be happening while CRR is 6%

RBI says:

– Global Eco environment has worsened

– Pace of Exports unlikely to be supported as weak demand

– Inflation much above comfort zone

– Policy transmission is still weak but inflation is being transmitted to retail POP

yields are now trading higher at 8.37%, hawkish stance takes markets down on news. More details after rBI conference is held

Here’s the case for a rate hike in a nutshell:

a. Rates up 475 bp since march 2010. this means the Governor has to start SLR cuts now, which RBI has indicated as possible this time. It does not mean rate cuts or that thee rate hike cycle has topped off because

b. non food inflation at 13% is not in control and the new inflation target of 7% may already be too old as rindia’s crude basket for one remains one of the most expensive in the world at $110 and even in September $106( indiainfoline.com, UBS for the crude basket data)

c. food inflation control has meant plateauing and not fall in inflation

We are here and would be posting the bank rate update

Bank Policy Tuesday: RBI stays true to inflation objectives

However, India concedes a new inflation orbit

With imported inflation running through the basic inputs for well over a year and price rise now taking place in Consumer Staples, RBI raised its inflation target to 7% and in fact market commentary is likely to concede it to a consensus of 8% in the next 5-6 weeks. The current rates of 9% never expected to abate steeply will thus be the immediate reason for the rate hikes but soon even that will be left out of the mechanics as this imported inflation component is persisent oand out of control thru monetary or fiscal policy. However, RBI has committed in seriousness to controlling the same as far as possible setting a new orbit for India’s interest rates as well.

Thus, India has a new Interest rate regime, akin to the nineties

A lot of us as commentators or Fixed Income practitioners have been observing that we are not at all comfortable as a nation with the temporary low interest rate regime in our banking transactions and more. What will happen with this 50 bps hike in Repo and Reverse Repo rates is that India will climb into its more comfortable high interest rate regime, and thus credit growth projections are also down to 18%. Of course, one cannot say this with certainty even now with the MSF at 9% and yields on Treasuries thus immediately moving up from 8.29% to above 8.5% but it is unlikely that with such stronger steps one can call it quits to the spiral of rate hikes we have unleashed. Our secular growth thus will survive despite the monetary disincentive and not grow by monetary incentives. However, India now has to be clear and careful on the fiscal front as any overages on Fiscal policy will be the only thing detrimental as we move along the same policy path we set for ourselves in December with inflation coming down but may be not continue a downward trend as subsidies are excessed out of the government system by cash or by  market pricing. And that is the tightrope we must walk

Banks have to pass it on

Now that the Margin standing facility itself is 9% banks will have no option but to increase rates aggressively with deposit rates growing faster too to balance the discomfort to the consumer. As low rate CASA deposits also face price increases the pricing increase will be even and more to manage the cost structures even as Terms give them a chance to manage and safeguard their current NIMs

 

Happy Thursdays! The India June Reports on inflation and expectations

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with the Friday tray of goodies gone..diesel and LPG are upgraded to almost profitable for OMCs. India inc is on a roll waiting for the fuel inflation to build up in the July treports. Stock market volumes across India, US, China and elsewhere have been down by 10-30% ( in the US NYSE now trades 17 bln shares a day) . However, the commodity prices going down have helped the cause of investors vis a vis inflation hawks and the market is showing a lot of skin and a fresh round of global FII recommendations for the next half of the year in India

Last year around the same time, we had taken up increases in the price of petrol and the cascading effect on inflation was pretty tough scare for India Inc. This time Diesel is even more directly linked to input prices thru freight but everyone would be happy if the RBI kept raising rates allowing a sneak vision of even a 20000 target for Sensex. But I would not be fooled with food inflation still 7.7%, fuels still 13% (before the impact of 5-10% hikes on Friday) and inflation still 9% for India Inc (week ended June 18, 2011)

Also, it was great listening to Wilbur Ross on the differences between European and American Banks , the critical being that Our credit deposit ratios never exceed 75-80% unlike Europeans which thrive on 120-160% Credit Deposit ratios but Cost Income ratios are intact at less than 60% ( Of course that does not include global survivors like HSBC and StanC)

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Happy Thursdays! What else to expect..(Early Report)

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Inflation WoW came out as expected at 11.7% for food inflation, 12.86% for Primary Articles and the consolidated number at 9.02% ahead of the unscheduled eGOM meeting for Diesel and Kerosene price corrections that will keep inflation up. Expectations are normalising to a higher level and in an hour or so the bank policy for the rest of the year may become clearer with the Bank rate 100bips above the Repo rate and currently at 8.25% (Repo 7.25%) likely heading to a above 10% figure andd more as imported inflation and the one carried into input prices squeezes profitability factors in yet bereft India forver waiting for new investors..This article will be updated later throughout the day

HSBC and Stanchart have come out as the only ones carrying forward from here being used to a Rupee Trillion of business assets each in the country. MoM inflation WPI figures had earlier come to 9.06% on Monday night and markets have started correcting from 5500, results a few weeks later probably accelerating the down move this time and the yield curve moving after the announcement further higher from 8.3 to even 9 – 9.5 % in the next quarter or so. Banks’ pricing will move as also for deposits after a couple of months if and when inflation stays at 9-9.5% and RBI makes a new set of more quicker baby steps just to stay on top till the rates start moving southward in 2012

The monthly inflation figure saw non Food core inflation move from 6.5% to 7% Month on month and base transmission is on to manufactured articles as car prices were hiked this week while FMCG / durables keep playing with their own retailer economy.

Happy Thursdays! The bank rate catastrophe | Advantage Research

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While the “bank rate” has been already used into Indian policy as the commercial benchmark for banks to lend and thus borrow, the policy rates set by the RBI in the ordinarily and now by policy fixed channel of 100 bp has definitely made Fixed Income more interesting with yields touching 9% soon whenever a rate hike of more than 25 bp or a WPI inflation move to double digits is confirmed even as a blip. Luckily, the ECB rate hike would already be done tonight and we have a week before talks on QE3 are more than an idle opinion at PIMCO.

As mentioned in the networks ( by Commodities experts, I suspect) the end of QE2 would soften the inflation blow for us and if it had come six months earlier, India may not have been tackling hot inflation either, which unlike in the case of China is not from overusing existing domestic production capacities and is more from supply inefficiencies and the skewed pricing vis a vis dollar we sustain for our exports. Also, before we forget challenges continue for our forex earners in other punitive action vis a vis knowledge workers and the expiry of the Doha round, even as a great performance on the fiscal deficit at 4.7% outruns our dismay in FY2012 for a likely 5.5% deficit an almost 20% jump without Telco licence revenues and lack of availability of cost cutting measures as we continue to under invest in Infrastructure as also Education Welfare and Healthcare.

My analysis however begs again that we find the space from the globally inspired inflation that has been unwillingly thrust on us and soon because we really never could afford a tight monetary policy for the Private sector or stop printing money for Welfare schemes. The catastrophe being in the RBI having to hike rates ( and they will raise it again) to bring inflation under control and keep growth moving forward when a drop to 7% growth does almost become standing still for us because of our size and diversity

Bank Policy Tuesday: Kicking reforms and the inflation poodle

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A 50 bp hike, addition of a MSF rate 100 points above the repo rate and the removal of the reverse repo rate as a floater. It would be npow in a fixed channel denoting the lower end of the channel at 100 bp below the repo rate. The market should really welcome this policy as allt he planned reforms from the liquidity panel have been added as a bonus while the market was well set for  a 50 bp kicker. The advantage of being part of a thinking growing economy is that it becomes easier for you to be at the top and mauntain thought leadership. Move over the oughts, we are finally in a new decade.

The central bank has also nmixed liberal norms with simpler policy conditions which might cause a few hiccups with the old guard esp those from MNC banks as 25% of all new branches have been requested in Tier 5 and Tier 6 locations taking care of the unbanked at least academically. As policy goes of course this is much nearer to implementation also unlike the deliverance from the beauty and the beast year on year without a set course showing which has been turned on its head since 2007-08 with Duvvoori Rao firmly int he saddle taking a distinct direction and moving fast on the same. The contingent facility and the availability of 1% of CRR+SLR to the banks in overnight should be a brilliant move to keep yields in check as banks could have ended up the bvillain in pushing up inflation ain the conming higher inflation lower growth era for the economy. Also ahead of deregulation, savings rate has been kicked up to 4%

As predicted  a lot of noise about inflation too..as the mogul is still speaking, we shall wait for others reactions too

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