India Morning Report: Markets listless orphaned by a Superbowl

Superbowl sold tickets for cheap in the snow

Asian Markets are closed today and lack of Foreign investor interest on Monday Morning leaves an India open totally listless at 6100 levels and falling again, struggling after a brief respite at 6050 last week. IDFC results were inconsequential along expected lines with no fresh disbursements in this financial year but the stock has only upside left at 93 levels where it closed last week post results as it remains the only empowered player not dependent on infra approvals and a fresh book of loans in the pipe likely. Loans continued to make a better ratio of all NII at the Bank as spreads showed up resilient despite a bad interest rate environment in the nine month period reported.  Retail interest aside, the stock will remain on Institutional buy lists for time to come. It’s large provisions also make it a great equity investment with the Provisions unlikely to be called and can always be reduced prudently. Non interest income remains slave to PE principal and proprietary trading business

The Rupee starts the weak on such rumors where the deciding NDF market actually feeding on the panic mindset in low trading volumes and the onshore markets trade down but only for the morning after as the Superbowl even that draws a 200 mln audience in the US and around the world has ended minutes ago and investors will be back to a market fairly under priced by the recent pitai (hustle-bustle/buffeting not to be confused with the sage of Omaha’s investing interest)  Bank Rate will remain higher for the majority of 2014 , the prospect of rate cuts being pushed back and there being no prospects of improved transmission of monetary policy with yields pushing for higher dollar depreciation despite the RBI efforts to clamp liquidity which has time and again proved more amenable to intuitive policy than a counter intuitive rate hike move to tackle measures outside Central Bank policy. However corporates borrowing in ECB might actually be able to break the ice in terms of getting older level low rates and break the impasse eventually with increased investments (starting to flow in consumption sectors) and RBI , maintaining a new inflation hawk stance would likely have to hike rats further after the 200 Marginal channel cation and announce a veritable change in stance on rates first.

REC had started up Friday and Powergrid should join in after mi d-day if the sentiment indeed looks up. The Equity rally in the Global Markets hit a big snag in January and that is holding markets back awaiting  a confirmation of investor interest with FDI having exited Emerging markets like Turkey, Mexico, Argentina and Indonesia in a hurry with Turkey coming in midweek last to raise rates by 4% to near 12%. Goldman Sachs is in trouble again having started their own EM investments in losses having chosen MINT’s obfuscated markets and a deep and dead in the water China over India’s liquidity given the cross winds. The Rand(South Africa)  also closed above 11 to the Dollar for the first time in January.

However Emerging markets sentiment is likely to get into it in a couple of quarters from here and India will remain one of the best performing destinations having been unaffected in the post taper trade in January if it maintains 6100 levels or at least stays above 6000 levels

PNB scored great results having come in counter cyclically on raising provisions in a known strategy and NPAs under control in a rapidly deteriorating market sentiment for Banks shoring up investors to its ferry/rafters and trades 10% higher at 550 levels still a strong buy. Banknifty starts the week near a low at 10150 and is good for the trade up but one should be watchful with ugly quotes (in both the 10000 and 10500 series) in the bid auction market still holding an initiating trader to ransom with option writers playing ultra safe.

IT stocks are still overbought and Infy should retrace 3600 levels and even TCS should come down to realistic levels (but already at 2200 levels) as the IT/Outsourcing axis is not coming out as the GDP’s saviour this time either. Volatility levels are hardly material at 16 in the current rally agains 14 in the previous segment in December ’13

Energy stocks should start the climb back as and when markets stabilise, GAIL having  started the year smartly. Glenmark and Cipla/Lupin lead the Pharma rally that continues despite an ugly breakdown in Ranbaxy and Sun Pharma. We still do not believe in a robust Arvind Ltd comeback on USPA and other new limited franchises inroduced by the team since 2011. Tata Global Beverages remains a hold but the magic is still in 100% go it alone investments in India ( which are still a far cry from the carte blanche leading to exchange rate breakdowns in LatAm and SE Asia in recent EM history) Aurobindo Pharma on results and Lupin on announcements today provide good portolio picks along with Glenmark which has only $500 mln in overseas debt and among companies tapping a continuing generic opportunity in 2014 with a new pipeline

Interest in the IPL in the meantime continues strong esp evincing interest from global players in the playing XI and a fresh re-auction for all the 8 franchises picking up steam soon after the spectrum auction closes. ING and OBC related good Q3 tales as were also employing covering strategies but have not started lending/stopped losing on NPAs. Yes Bank may not fall back to 280 levels and accumulation is advised at current 300 levels. The BOI /BOB story broke down in January itself as we foretold with both banks still addding NPAs in droves. ICICI Bank’s INR 45 Bln ( including INR 30 Bln pie in restructuring) included the bank can survive the pressures with relative ease having also been proactive on definitions than the PSU penchant for playing it by the ear and losing continuously losing investor confidence and investor money as far as its favorite proprietary traders are concerned who lose another constituency in an unplanned bull attack with construction stocks Dlf and unitech still in a free fall after the ill advised run

Energy Markets react positively Midday

Gas stocks reacted positively as Petronet LNG produce became free to sell to industrial users and IGL and other domestic distributors esp IGL getting commitments to cheaper Domestic LNG in the new pricing regime. This also means domestic CNG in all markets including Mumbai where already 100% domestic gas was supplied prices of CNG and PNG were reduced by 30% and 20% while increasing IGL margins. Petronet imports LNG and will no longer be getting custom from IGL which Delhi used upto 33% imported gas

The move was a n expected one with a new Minister coming back (Moily ) in a sensitive election year . Moily is also expected to facilitate large project clearances with changes at th e Ministry of Environment (EPA Act bottlenecks)

GAIL shares the good news as renewed pressures on its subsidy costs will likely subside as it supplies to city gas companies and others at new revised rates and the policy is deemed stable after LPG quotas to residences have increased to 12 cylinders per year and gas TX likely to increase volumes with good results reported Thursday

India Morning Report: Lets get some money from call writing quickies – Mid November hubris

Siège nord américain d'UBS
Siège nord américain d’UBS (Photo credit: Wikipedia)

It’s probably the limited upside, but mostly the markets were pretty itchy at 6200 in the middle of the November series and so the shorts have worked out. Also importantly, none of the good to great outperformers/strong buys like YES, ITC, IDFC or Bharti and Bajaj are down except for the Bank trade again weighed by PSUs hurting Private Banks in the dominos game and ICICI Bank remains a leading call writing target . The new 2023/24 bond being released day after has meantime ensured the fixed income shorts for yields look at bonds above the critical 9% mark inciting the sceptical trade on India deepening Money markets and Fixed income trade

However, that move in mind, this market could have easily moved out of the woods at 6100 levels,  and will probably do that before end of day today. Despite UBS and Credit Lyonnaise (Bhanu Baweja , Fixed Income and Chris Wood , Strategit of favor levelsst), markets move to 5900 and not behind 6100 will be that bottomless pit one wants to avoid sticking cash in.

Power NBFCs are good buys again. The Reliance Infra trade probably also opened two way liquidity where one side of the trade is actually close to breaking its margin wall, thus tempting predators with no downside targets in mind, led by Ashwini Gujral  (perhaps unwittingly) and as I mentioned the ICICI Bank trade (SS). Currency is stable at 63 levels. Any hits to 70 levels post elections cannot be avoided as a fresh slate of CAD and Fiscal worries are definitely hard to wipe off the scoreboard without real investments, Europe cannot make and the Taper that will come. Staying invested rather than exiting with Cash and Gold is however the strategy at this time. M&M springs to mind and one fundamental intelligent strategy would be to limit exposure to depreciation stars like IT, esp third tier players like Infosys and Tech Mahindra

Those rushing to Mid Cap rerating up are also fresh out of ideas. The real factor steaming down market levels which one can separate in the meantime is the fundamental variation of the 2080 rule playing out in the mrket. Instead of just the select 20 stocks in the large caps rising we have the other 80(Eighty) being almost disbanded to permanently(seemingly) out of favor levels as evidenced by yesterday’s A-D line. This “acceleration of reform” undertaken by the market segment needing to justify shorts, is misguided and ll only bring the other 20 to shaky two way disrepute as good scrips add on unwanted volatility

Today will thus see an unwanted spike in volatility which will test these new found memes laser focussed on jst the best 12 or 20 scrips that are equated to yesterday’s “Sure things”. And, of course ( with no thought to grammar as you read this as spoken) , the bullish State Bank trade or the frustrated India shining trade post Jet Airways sell out to etihad or the lower expectations from full priced aviation going forward, SIA or Asia Airlines Tier 2 town strategy

Welcome home to India, expats. Less than 10% of our current imports are Chinese

 

India Morning Report: Another “Happy Thursday!” for the markets

Bajaj Auto was the biggest story as it expanded margins more than 1.5% to above 21%, putting behind shallow stories of losing share that have mostly affected Hero Motocorp and changed the Automobiles trade as four-wheelers dulled down in Q2 and Q3 to kill the recovery India Inc was to prescribe for the Economy.(we promised to shutout the debt deal bingo and we did, the compromise anemic as ever and the Taper posted now for post Q2 2014)

Mindtree also screeched up the noise with better margins but the coming Holiday Season quarter is likely to ascribe a sea change between Bajaj Auto and Mindtree in sales and bottomline performance

HCL Tech however completely the IT revival story with a big bang jump in top and bottomline and keeps the defensives on the speculative list for the rest of Earnings season, l likely to jump further from the 60% rise on the bourses year to date(Udate: HCLT really milked the Rupee for a EBIT nearing 24%)

Banks will remain dull and Indusind may indeed be proscribed, but with not many stuck on to bank scrips any short in banking stocks is likely to be not more than pennies

In case investors are kept away from the facts yet, most of the good companies have performed in duble digit increases in topline and profits have been strong, likely to not just outperform but fuel the rally. Bajaj Auto broke the $1 Bln quarter mark nearly and will do so comprehensively in the next two quarters itself with a INR 51 Bln topline and gross proifts at 21% plus margins

Mindtree’s $124 mln and toughening of pipelines to nearly $150 mln is good as they hibernate for the winter, Infy having started off with 5 large deal wins and TCS getting back into New Jersey’s Big Pharma offices plus another Bank/FI even as Data Centers popped up on everyone’s radars especially in Europe and HCL’s growth in the segment will be good to follow for other IT satraps If HCL does not grow the IMS business (Data Centers and Helpdesk) it is likely another stumble ahead for Indian substitution services

DCB and Heidelberg both matched up to a INR  3 Bln topline and have already been traded for coming out of a hole, in terms of performance

The Banknifty in fact is due for a buy in at 10200 levels with great bank results leading the way for India having proved itself in the quarter and the Rupee gets blamed for the expanding margins, taking the currency down again to 63 levels before it comes back and yields stabilise lower after the policy turn. MSF rates will continue lower to 8.5% mark eventually if Rajan does stick to the recommended 7.50% repo rates level and does not increase it again for the 6.5% bears in wPI

Hindi on whimsy: Akasmat(Sudden, equally apt in both up and down moves); utavala na hona(to not look too eager)

India Morning Report: Infosys slam starts off a results season rally

infosys pune smoking zone at night
infosys pune smoking zone at night (Photo credit: srijankundu)

 

Probably the consolidation is good for a big move, probablyit is not. However this would definitely mean the PCR increasing again with the right Put strategy ( sell Puts  and hedge with a 6500+ OTM Call/ 5500 PUT). Hero Honda seems to be getting some sympathetic gain too in the move with Infy as Infy likely crosses 3500 also in early trades on Monday. EBITs have crashed from Product Solutions drop in sales order books, but any defence of that is unlikely to impact a new guidance push up for the industry that foretells IT will support the Economy’s return to life

 

Bajaj Auto and ITC will kick  in , in the later sub rallies hopefully from higher levels as the good moxie uncoils into the market  capacity. If there’s a reason any NBFC sector including Realty or Telecom Demand has bad news to offer , then that should be an important worry in the run. LIC Housing and Bajaj therefore will continue to pack in volatile buzz before and after the move while KPIT and MindTree scotch up even to the point of making margin security this month. Statistically data is unavailable of these security positions ( in the open)

 

Rupee will definitely move back to 60 as the Rupee trade is picking up and Stanchart (listed here) and HSBC will likely be key movers. Pharma unwinding is just a funding move and Glenmark remains positive. The markets are definitely making a run t o break the 6100 cap but as of now Friday closing being positive is about the only fact out there.

 

The USD Index hovering above 80 means a small move further weakening to 78-79 is improbable but Dollar s weak and Crude has never broken 108 lvels in Brent in the Post “No Taper” announcement.

 

 

 

 

 

India Morning Report: Infosys still chooses to report into the weekend

One of the Software Development Blocks of Info...
One of the Software Development Blocks of Infosys Technologies Ltd., Pune, India (Photo credit: Wikipedia)

 

After a big jump in pre-morning and post pre-open trading in Infosys, the scrip is registering ‘voters’ for the big positive result tomorrow. That it happens is the hope the rally prospects are living on as investors settle for the stable India an Asian investors nod into the markets after the heady May-September trades finally settled the issue of India being unique with a 25% depreciation of currency that has thence lost almost half its value in depreciation.

 

The Rupee will thus finally head to pre-60 levels and the Janet Yellen trade may push the markets further into rosy cheer, before a forced taper does tick in as Janet Yellen may still prove in a surprise for the markets. Yet, the news of the taper is fading away and US could remain overlevered to shelter its overlevered households and keep the consumption ticker running as inflation remains intuitively positive to growth. That could serve as example to India down the road though the comparison is still too wide off the mark except for specificities India shares with everyone (as usual)

 

Even as the Rupee moves back into stride, expected tomorrow an EBIT improvement at Infy and an expansion in guidance/rater as guidance has already been updated multiple times, a discouragement to those positing further muted guidance may still be required

 

The Bennett Coleman machine TOI mentions IIMs (and IITs, probably)  are facing employment pressures again , sneakily close to reports of net employment increases back at the IT offspring of India including Wipro, HCL and the MNC offices seeded here after a long success rate of the earlier growth phase. Accenture did break trend to show jump in consulting more than outsourcing revenue this time but outsourcing trends have been showing up everyone else again, seemingly the only strategy outside server management that has a direct proven impact on global profits

 

Yields jumped down still refusing to, but picking up real demand (hopefully) as the Rupee criss-crosses between 61.5 and 62.5 at an unnoticed fury of changing positional trades. The trades, still in ITC, Bharti, HDFC Bank, ICICI Bank, IDFC and probably YES as YES slides into 340-350 levels again for the results season starting tomorrow.

 

As noted, EMs like India, without the IT story per se are ready to take the year to a positive close esp. as the worst India could do is 4% growth

 

 

 

India Morning Report: Here comes 6000? and what the banks will do in 8.6% yield scenarios

Yes Bank
Yes Bank (Photo credit: magnusvk)

Apart from the unremediated concerns in the Fixed Income market, yesterday’s rally created an awareness of the potential inflow obvious to insiders earlier this year. i.e. Around the Globe, India remains the most attractive investment destination after being clamped on with the rest of the globe in recovery awaiting elections to be over here in policy action and growth parameters and local consumption and investment makes this story unique.

Infosys is also likely to deliver significant outperformance at the Q2 announcements a week later and interestinly, the markets are correcting Infy’s recent run up already to 3000 levels and that could mean one rally is due in October and even September saw 6148 based on the return of inflows.

Banks of course in the meanwhile are looking askance and a standoff with the Central Bank is in the works while Markets continue to worry about Banks other than PNB, BOI and the private Sector banks. Banks probably still look for opportunities with the currency not stabilised and may have to worry about increase in Deposit rates. The Bank Nifty churn would have been isolated easier if they had concentrated on shorting SBI which despite its distribution continues to spring a growing NPA basket every quarter instead of delivering on the retail growth and profitability they continue to tom-tom to any analyst who would spare time for management commentary

Considering that this 8.6% yield on the 10  year comes after banks got a whole Trillion and Half from non penal overnights at the Central Bank and NIMs are protected and increasing, it is quite likely a matter of concern es in the light of the Rupee strength that yields are wary of coming down

Penal rates and those new effective rates on the MSF may however still be withdrawn another inch or more on the October policy to bring the channel back to 100 bp. ( For details flip thru previous issues or ask us) PSU banks received another large Capital infusion yesterday to keep lending rates in check(SBI is funded separately)

Bajaj Auto and ITC probably continue their northward rally till the mid results change of weights while those looking for a correction in Tata Steel are likely to have given up now, while Tata Global investments may take off only after the company itself stakes out a minimum of 200 Starbucks stores ven as wholesale auctions improved pricing for India exports but output and hence export takeoff was lower

Pending infra projects are not going to take off in a hurry but 5900 levels should see both DIIs and FIIs buying and F&O interest has definitely moved up the range from 5900 to 100 &6300 than yesterday’s 5900 Call OI that signified markets ranged to 5900 levels on the upside. Gold and Silver are still negative. India and US in the meantime, the two strongest markets and recoveries continues to once again falter in Services PMI and thence composite PMI because of spending cuts

 

India Morning Report: A backward state card for Nomura, A Gross Margin push for Tata Steel

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

 

In what is probably the best cause of us investment bankers in this lackluster market for a lackluster Economy, Nomura Securities, took the sitting bull by the horns in an almost sleepy downgrade of Indianomics come Wednesday as markets opened to 57000 levels, positive inner rumblings in the Bank nifty and a new move in a new OTM opportunity in Infosys.

 

Almost seems like it was 2007 or 2008 once again depending on where you were and yes we are at the fag end of the India opportunity cycle where we have rid ourselves of all our lofty notions of infrastructure or credit growth and consumption is finally about to break down as job prospects are also at an all time low. capex however is not constrained as a lot of quality companies are growing their cash pile, not a shot in the dark but wrought on by the end of the downturn for many investment intensive businesses seen in this cycle and the Services sector dipping which has been the last port of call for the blues has been known to bounce back much better. For otherwise achieving Nomura’s new 5.5% target is going to be even more difficult. Bihar’s leaning to the uPA may provide stable government as well as a new cause for double digit economic improvements in the next edition of India Inc as we reach another anniversary of our independence.

 

Tata steel’s quarterly results are an even better segue way to India’s latest Morning trades. Th EBITDA has infact hit double digits and even after the corrections on the 90% profit improvement this quarter a 30% return on Domestic production of Steel in EBITDA is really creditable as the margins have indeed been saved on the year. You do see robustness returning to the sector as a whole with both Hindalco and Tata Steel not just surviving the sharp negative eigenvalues for the metals sector globally but showing that India can survive as the biggest players left in the huge resource industries which could otherwise be surmised to be left to India as the unwilling last man holding the Bowl in Steel and later in Shale, our last foreign forays.

 

Gold duties will have a desired effect as controls deliver immediate results to Indian policymakers in the amorphous International borders and that is perhaps an uncomfortable reminder to us to  even consider a return to strong controls and slip out of the “liberalised” reforms on offer from on of the two largest nation states out there.  we just have to keep Gold imports to 50 tonnes over each of the remaining 8 months to make the new Finance Ministers’ targets for the metal at 800 MT this year. Recovery in Global steel is likely to continue and Tata Steel is a very good investment with continuing margin safety in India, more capacities and better $50 EBITDA realisations in Europe as well, an unexpected Bonanza.

 

The coming move in Infosys will sign off on the creamy 10% extra in profits to it exporters after having absorbed inane inefficiencies and market volatility in the first round of depreciation of 10% in June as the rupee gets ready for another ride from 61.5 levels to 65 near the oil purchase date for India’s importers this month

 

Unfortunately after the great start at 895 for ICICi, 1150 for Axis and 313 for YES Bank, the secttoral index has again retreated to near 10k levels waiting for the inevitable jump but foregoing the move for today till another robust oportunity presents itself for a material move.

 

 

 

India Morning Report: As we said it, so did the market bid it

The Rupee found no buyers again at 57.70 and had no problem taking the bottom end of the new range at 58.75 today in the open stymieing buyers fromcoming back into equities. The run on bonds has added another $2 B odd in the week since as Bernanke’s announcement widely expected to bring in concrete plans pivots the markets worldwide, especially those already recognised as an island of value and ready for the QE withdrawals like in India.

 

As we said the lower volatility of Indian Fixed income markets especially after better liquidity in the month of may ensures that India markets are the first to be exit in debt but the investment stock for the country would only grow.

 

Equities maintain poise but idle lower after the weak Rupee triggers minor exits. The due noise on changing FDI laws however is unlikely to materialise before the General elections and any consequent optimism must also wait for tier 2 and detailed surveys bringing back the incumbent government’s chances of making it to UPA 3 though it is almost certain that Modi will get extra votes for BJP for being an able governor.

 

The stable range and the ready ‘stock’ of short positions on the indices and banks enables a stable return in this series  despite global volatility receding. Trades on Infy as mentioned on CNBC18 are pretty safe with puts of 2300 (till expiry) and maybe 2400 ( for a week) But I would say sold calls on 5800 are ready to be taken out and should recede back immediately by end of day short calls on 5900 are already the ceiling of good straddles in the series. 595 should also get more positions and risk/greed might also make a run on the 5850 calls possible instead of a complete exit from 5800 series. Afternoon turns are usually a great read with Aptart India on both CNBC18 and ETNow and Mitesh Thakkar and CK (ET Now)

 

Value of Indian rupee as per dollar & pound (1...
Value of Indian rupee as per dollar & pound (1980-2005) (Photo credit: Wikipedia)

 

Angel broking like SS (CnBC 18 )  continues to show signs of smaller capitalised players’ frustration with Bulls’ holding the markets bu t there are enough players to not make this a local vs FII bokerage war as at this rally cusp DIIs have started buying. SS in the meantime has moved on to better trades this week with bullish picks back in a majority opinion reducing rsk for small traders. IDFC had  anice breakout on rumors of its banking application and outside banks Bharti, ITC and the banks remain strong. Mitesh Thakkar’s strong rush for Bajaj Auto is something that jibes well with us as well after M&M. Late chores made this report a ittle delayed to remember the other interesting morning pre open and 8 am jabber. Also the OMC moves completely sdestepped us and we would still think they are great buys at new prices. And the

 

 

 

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