India Morning Report: IDFC gets a bank license, India goes to Polls, Sun buys Ranbaxy for $4B

Though the trend is no longer on the up and up, BS revealing that IT and Pharma earnings have reached 20% of India Inc scorecards in 2013, doubling in 3 years on the depreciation dragon that caused a 14% run on the rupee just in the December Quarter. Meanwhile the Rupee is ratcheting back to 55 levels. According to RGR, the threatening levels of the Rupee appreciation start near 55 where it is overvalued to even 50. Remittances from the Middle East are flowing in mercilessly , leveraged by 5% loans in dubai and Abu dhabi as NRIs continue to fuel the investment boom’s precursors almost like any other Fed stimulus (QE)

However, as traders picks have shown in the week gone by, almost all shorts have been closed out and a further upmove for stoicks is not ruled out from here even as PSU banks and leveraged realty stocks like DLF remain outside the reach of good news and hence hold back most of the trading capital. As mentioned on Friday, March closed with $3 Bln inflows and almost two thirds is in Debt. A modi rally pre elections is scored in at 7000 as he steps closer to an absolute majority but it may prove over ambitious even for the NaMo juggernaut and markets may accede to pleas for a reaction this week before or after 6800 instead of hitting 7000 before counting closes on May 12. Assam and other NE states go to polls today

Bank Nifty has done creditably in this rally at 12550, without flatulent acccession by PSU stocks that have tripled NPAs ionthe Banking system adding INR 65 Bln NPLs to INR 3 T in Gross NPAs this quarter. Apparently metals continued advancing last week on news of a Vedanta upgrade to stable by Moodys, finally a piece of good news for the merged Sesa Sterlite and the acquired Hindustan Zinc

Arun Shourie and Arun Jaitley made the customary election time appearances for the party and are unlikely to be part of the governance framework in a Modi government that  has also sidelined MM Joshi, Yashwant Sinha, Jaswant Singh ( standing as independent from Barmer)  and son, even as LK Advani made a reasonable comeback on Modi’s behalf on the weekend as Modi asks for a personal vote for PM in the final stage. Sonia and Rahul also continue through a tough election schedule, made grueling more by continuous adds in Election surveys and a virtual estoppel on government business

IDFC’s bank license is indeed welcome for the strong business model of the company but as it starts running up to a grueling 18 month schedule to conform to all guidelines required for executing its license, most investors will be watching at current levels as a plan for reducing FII stakes to 49% is also confirmed within the new NOHFC structure for the bank. Bandhan was the other licensee. Most NBFCs in the fray including L&T finance which fully well knew the limitations a year ago, led the mid week breakdown as the RBI points to existing NBFCs and corporates to explore a differentiated licensing model. Policy day macroeconomic report for the quarter showed a limited recovery underlining the unlikelihood of any further improvements in RBI stance as recovery remains limited to fringes of the economy and a panic over the incoming government’s reform stance slowly takes hold during the crucial polling month

The mega deal announcement by Sun Pharma, taking it off its Japanese buyers for $4 Bln is still being digested by the market as the ramifications are mostly negative for Sun Pharma unless the game plan from the group is cogent and quick acting

Yes Bank is still a buy at 423 levels. Market indices are likely to continue adding straddles in the 6500+ ranges this week, unlikely to allow a sharp correction except for other news.

 

 

India Morning Report: And it is clear thru to 6250 from here?

Most short strangle/ straddles would be in profit to have exited and is you have been a bit late you should close out here because the markets are going to have a position either way, mostly likely trying to forget the break between 6100 and 6250 as markets have been given the mandate to a new bull run, which might well start around 6250 again. For a change both networks are carrying investor conferences, apparently not the same but more importantly, the post budget rush to 6100 (more like 6150 ) came yesterday and was backed by real flows, the current levels thus likely to have fully bought in leaving a new index level before the argument over the direction for India starts, global equities being decided on the up.

The bet o f going short on the S&P500 is not necessarily linked to the single up move in Emerging markets and while the longs in Emerging markets continue, the shorts on the S&P will either become OTM hedges or extinguished as US markets also resume an uptrend

An INR 12.7 Tln expenditure budget is fair enough but the optimism allowed to him on tax revenues from a recovering India economy is likely to have brokerages just the right busy for traders and speculators to remain ahead on the risk trades  before being called out by their analysts. For example, yesterdays dissection of each such number as a “little too optimistic” finally seems to have gone unheard as it should in a believable bull segment. However, despite our India story being better than China, a sscal e of 10X will likely apply in comparing flows to the two markets alone and India will be able to win that argument for $10 Bln every quarter.

ITC, Bharti are not overvalued in the Consumer space. We cannnot see value in the HUL trade whose markets have matured in India. Other consumption stories never scaled anyway and that therefore is the limitation of investing in Indias FMCG story except the ‘other’ 2010 winners as titan and ttk remain down and the domino’s pizza is no longer the story as expected after the DD ride, showing up the absence of a secular market and pizza hut coming back out in investments despite the Dominos’ 65% share (Jubilant Foods)

Bajaj Auto may not have substantial price cuts that have  shown on the radar for Hero after the budget giveaway

There seem to be big earnings leftovers with DLF and ABB following on , ETNow catching them for a change, but one understands that CNBC mode better, having ignored these latecomers and even penalised them. Its definitely my strategy with such presenters. DLF has a 60% higher sales revenues , with or without their main contribution this quarter from the sale of Aman Resorts as costs remain high for the real estate company

IDFC, YES, PNB and ICICI correct after yesterday’s rush for buying the select list while shorts on Kotak lead the cut in all such Financial stocks. I will look to shorts jumping SBI again, but probably waiting to coalesce th ebull candles into a stronger up force. PNB is coasting at 540 post a week long correction mode after a day’s ibig wins in the post analysis.

LIC Housing is probably as good for the medium term as the Power NBFCs, all the 4-5 stocks at the bottom of their range and Sundaram and the Gold NBFCs unlikely tpo o be competitively buoyant. Axis Bank would support Bank shorts as Kotak and thus Bank remains available as a short hedge too. Cipla and Lupin present a new problem as they continue to activate a bundle of no good stocks they were partnered with in their defensive mode and are not trading bets as they reach the top of their range near 450 and 1200. There is no secular run in metals, none in construction and Tata Steel remains a buy with the auto stocks without Tata Motors or the Unitechs and the HDILs

Modi is looking at some obvious chinks in his own armor as he stands on a half poant English speaking tour, showing up equally worse off in Oratory as Rahul, but looking comfortable with one new round of Desi dose goevrnance for India Inc

From my end, Chidambaram was more than right in showing UPA’s 8.4% and 6.6% 5 year periods ( 4 year periods) against the 6.2% average, but apparently there are not enough Financially literate voters around, despite the preoccupation with growth

 

 

India Morning Report: IT’s missing pizzazz, Auro Pharma strikes Cymbalta gold

Courtesy: BioSpectrum Asia

While the markets renew interest on Friday to get ready for the battle of wits at 6100-6150 levels, Banknifty has moved into gear with good boy PNB ceding its additional upside from 550 levels and SBI continuing down near cracking below 1500. Private Banks see Kotak going down too with Marico and Godrej losing the barely viable Western(Maha/Goa) branding attempts , consumers rejecting being shortchanged as a way of life. That leaves both ICICI Bank andHDFC Bank with YES and probably Axis but for its NPA woes. Aurobindo Pharma’s wins were mostly likely for the gains in Cymbalta and that’s a big molecule to crack.

The Foreign investors however bite into its market pie despite a 10% indicated gain at the open. Jubilant Life is also returning 3% at the open. In Banks, as desired by the broader markets BOB and BOI have also been shucked out, though the turn of events has apparently got Ashwini and proprietary traders’ older generations into a tizzy in the markets proactively readying themselves for a blood bath monday

Bullish picks in YES Bank, ITC  and Bharti continue to plough open interest as short interest is extinguished in droves before a new bite. Shorts were down 10% in REC even as PFC stole the limelight with great scores , unfortunately pushing the Powergrid story to the back. The Power and other infrastructure stories thus remain orphaned by the impracticality of raising larger equity or single entity debt for the mega project financing requirements of India Inc and specialist Finance like IDFC instead gets more important not less.

PNB remains a buy, Axis will probably continue down with BOI, BOB and grandpa SBI. The correction in Power Finance is probably understandable after the big gains overnight. Ambit Capital again agrees with us on the rate cuts remaining in RGR’s coat pockets to conjure due braking for the inflation express.

Bajaj Auto is back again but pairs would require new designs probably mixing Tata Motors into the trade as Hero exits a long term bear view on the stock. The Bajaj Auto story as pioneer however, much awaited by shortchanged Western region industry, is definitely back with a bang along with banks, with performers in banks waiting to be rewarding after marginalising of the Foreign banks in the Business and Consumer sectors

MNC Pharma will probably get into this rally for more than spectator gallery participation. The Infotech trade is unlikely to be back though opportunity for shorts in the sector or on the flip side for cadgy immature ET reporting in print is probably extinguished (opportunity)

Spectrum auctions, unlike reported yesterday have indeed turned out to be an exercise in budget restraint , bidding well for the Indian Telecom sector as Vodafone returns as a 100% owned business. Total Bids have still brought in the desired INR 500 Bln per budget targets and it was a big ask to have completed successfully with the prudence now reflecting in Telco strategies necessitating the delays in the process where Government was on the verge of bankrupting telcos with its greed.

The Gas companies will be on the good side whatever happens on Monday and some bad boys like Jet Airways have probably bottomed out while midcaps like Talwalkars, Prestige, LL and Page continue without breaking even as Pizzas break speed with Pizza Hut taking back 30% growth on completion of capex spends in new restaurants.

Thomas Cook and Sterling remain a bad story post merger with lots of work to do including printing restated financials, probably still required once the combined operations on board. The IT clawback is a temporary mirage and the sector should be avoirobably hiring plans will be postponed again as the Visa sanctions come back owith immigration reforms on tap in the US

If indeed Bear on Monday , one should retreat into Auto and stay invested in quality stocks identified here over the last year

In other unlisted business, Twitter results serve as warning to those assuming bigger volume pies from the SMAC crowd, the social space inherently low value except for big advertisers and Corporate Business with Facebook and Linkedin

Look ahead to a grand theater attraction as Disney’s Frozen takes the world by storm and ESPN after global success proceeds with better redefinition in India as well. Time for someone to get another update from Aubon pain and the QSR ilk?

The rupee is trading consecutively improved levels at 62.30 and yields are still hoping to cross 9% apparently though if we start angling for ECB debt we could score tighter spreads and renewed growth could indeed be aan easy story again for India Inc

India Morning Report: There is no hope trade in sight

But I’d say keep accumulating as the indices break through a critical 6000 mark. Many blue chips, like in global markets offer extreme value in buys even as the speculative trade fails to take off on a delayed recovery.  Gujarat’s downfall over the small matter of a receding poverty line not helping the cause of the markets rich BJP is a puerile coincidence for the markets, but correspondingly there is no Congress faction left in the markets to buno the tanabana, Markets selling the stable BJP proposition backing out for an increased negative momentum(undesirably sharp)  on the downward side

The IT trade coming into profit taking for the almost first time except for a pre results redenomination, there ae buyers out there who are ok with the premium on Infy to a low 3475 market price and HCL Tech is good for a move of Rs 100 or more. Thus if all sectors move together like the Tuesday open, markets could see almost unheard of hlevels receding to 2012 levels no longer required by the New Dolla r prices. That also means these exits will cascade the Rupee even as it holds at 62.50 to 63 levels , that being a new fresh level for the currency. However it is still possible that with DIIs coming back as markets sell off that the gradual sell off can indeed turnaround and complete the prophesied ( by certan others , also old hands) pre election rally in India. The sell trade on ITC will likely never exit 290 levels an such picks abound with limited downside even in the correction which will confuse buyers into making losing commitments so a wait and watch is necessary. F&O markets return back to index only specials and i the downmove is to be arrested by Vols at 14 this will be a small enough move, but that is unlikely leaving vols (India Vix) ranging between 14 and 16 till the first buyers return whence new VIX levels would only see increasing volatility

However as we were stock specific going up and DIIs look for bargains to pick up pieces, there are gaps in how the markets will rebuild momentum most buyers holding on to prior 2013 selections including the new Aurobindo and Sun Pharma trades( a great defensive for mopping up your prop liquidity) in IDFC at 90, ICICI Bank almost ready at 930 levels ( the next levels are around 871), Yes Bank ( bottom at 267 will likely not reach the same so accumulating should be ready  – like a dark pool premium),  Bajaj Auto, ITC, Bharti and no – not ttk and titan currently as there is much more going down in that specific market despite the penchant of the self funded margin traders in our domestic brokerages like Angel, SMC and Centrum including the overlap with commodities wealth accounts. There will be no dlf trade north, none in Jubilant foods, titan or ttk and none in HDIL or unitech much later. Axis Bank’s orphaned again being misused in the prior rallies, leaving nay of the F&O speculators heading there at great risk from those targeting their brand of stupidity after getting on the right investments. Trading as a game may try not to suffer though sharp bear phases and quick bull recoveries are not ruled out with brokers and traders living the cricket dictum of well left alone even for great value picks in Midcaps The trades are mostly in Spreads, Bear spreads in your choice made by buying Puts at the just OTM (ATM-OTM>= 0) and selling a lower put to part fund the trade. Bull spreads, which wold be due n a couple of weeks, go bought Call just OTM (ITM-OTM>=0) which reflects better liquidity as well and thus better premiums, and partly funded by distant OTM Calls ( nly one or two will have  tested and liquid quotes where you do not pay excess liquidity spreads)

 

India Morning Report: Market takes a profit taker’s slice of pie at 6400

English: Juuso Pykälistö (FIN) in his Peugeot ...
English: Juuso Pykälistö (FIN) in his Peugeot 206 WRC during the 2003 Swedish Rally. Français : Juuso Pykälistö (Finlande) à bord de sa Peugeot 206 WRC au cours du Rallye de Suède édition 2003. Polski: Juuso Pykälistö (Finlandia) za kierownicą swojego Peugeota 206 WRC na trasie Rajdu Szwecji w 2003 roku. Português: Juuso Pykälistö (Finlândia) no seu Peugeot 206 WRC durante o Rali da Suécia de 2003. (Photo credit: Wikipedia)

The cake was of course due, it being the market anniversary at 6400, and the sharpness of the cut a reminder of the buyer knowing he was due a big hole when he exited. It is still a relatively recent add back to the Indian market equations, used to absorbing continuing profit taking without such a market wide reaction

Ofcourse, the hint was in the stock selection to the rally to 6400 (achieved) and 6500 (planned) with the markets still believing in Maruti and AllBank , parts of the rally not to move till further into the recovery. Needless to say the profit-taking candle worth a 100 points before 2 pm(250 sensex points), also wiped out any chance of a further downtick as 6200 presents a secular buying opportunity and 6220 is as good as 6180 would bring if there was another day of correction. However, the important thing to note was return of volumes even though it was in breakouts suspect to last the full weight of fundamentals testing strong fundamentally valid scrips. Tech Mahindra, M&M Financial services were up on buying and IDFC and bank candidate LIC Housing were indeed weaker instead of gaining strength yesterday,. Today might see the opposite as Powergrid continues up and to me even IDFC does not look like ready for a correction at 108, let alone 105 which should see buyers crawl back.

Cornered buyers of the rally looking to add Hero, Maruti and the PSU Banks like BOI an others may again cause a flutter once the markets reach 6350. If they decide to take up cudgels , investors and positional traders should move out of harm’s way gong to 6100 Puts, buying out their  6300 position in Puts. Also transaction costs should preclude move outs from 6500 and 6600 Calls especially as the longs have some more to look forward to , allowing them to expire such calls on the hope while buying more ATM calls if they wish to go long. The Rupee was the most hurt from the lack of new picks for the bull run, the breakdown at 64 finding bears waiting in the currency which immediately lost almost half a dollar to open at 62.40 on Friday. Fixed yields remaining at 8.8% instead of riding down to 8.5% probably signify a large shot interest even as the Taper passes by.

The unwinding in Bull Futures seem to be taking place a tick at a time so the new concentration has probably cottoned on to new interest in 6100 series as well as we can confirm after 2 pm. However if you have indeed exited (updated before 11 AM on Friday) Exits may also not reinvest in Defensives like Pharma and IT at current levels though those scrips are maintaining levels

The ICICI TAB campaign will indeed live up to its hype in 3-4 months as Banks come back to lean on retail deposits after cycling thru pressure updating on Salary and Corporate Savings accounts, as a loose ready reckoner for focus, with retail lending probably also going off a cliff in 2-3 months at the inflection in the Economy where Investment has to take over and the consumption uptick will slump hopefully without further rate hikes from the Central Bank Meanwhile with the PMI above 50 in December, Q3 looks like a good number for GDP ( having battled first seven months on negative IIP) and the IIP in January next week will still report for November which should fool no one .

The India Services MI follows on Monday likely to show an uptick as China battles another new slowdown in Export Orders which again is something India has skipped in this month’s report due Monday. We warned you on the Tata Motors trade, December sales underlining the company’s longer term woes and JLR eating up all the Cash flow for its design investments. Bullish trades will again focus on a new spine of infraco and telecom even as Voda pips the public Bharti in the battle for subscribers with a DoCoMo conversion Bharti’s 200 mln base could thus even rejuvenate flagging growth back to number 1 in a few and till then news of a recovery may have slowly trickled in to a mass of ‘hysteria’ buoyed by the coming bull earning reports

Given the continuing bottom up buying approach into the rally as it continues from 6150 levels at worst, this would be the widest base of new fundamental picks identified as winners and more of the traders’ favorites fall by the wayside, making Axis equal to ICICI Bank and HDFC Bank in the coming rallies for example and even Cadila and Glenmark correcting with the rest of the market till the new rush consolidates.

GAIL could be a great add to the defensives as well and should help if you are finally ready to rid yourself of the HCL Tech and All Bank, with me being a little uninformed on Idea and the new defensive volume breakouts TechM, M&M Financial(hopefully the information risk is not going to be staple for the market)

YES Bank and IDFC remain the continuing meme from the 2011 rallies while new fundamental picks could be bolstered by the gold bankers Muthoot and Manappuram mid-caps even as Gold does slide down in 2014 with Oil as a continuous shrinkage from the Fed bites the Gold and Oil trade. I’d still bet on LIC Hsg and Shriram

Hero’s December ‘comeback’ could be another harbinger for the goo pickup in rural trade as Bajaj Auto again underlines that Hero is the loser from the Honda sale with Honda having caught up to 300k in December at 60% of the Hero figure.

Zee could sill be a good pick in this term and Adani Ent and Adani Ports could be good shorts even as their fundamentals improve on a tiny, not just small base. Infy has tracked buyers after diping below 3500 but there isn not mor than 3-5% on the upside

India Morning Report: Building up that range between 6300 and 6500, Energy Cos let fly

Call buying in the new year has resumed in 6500 and 6600 strikes underlining market confidence in making the upside while 6300 Puts define the bottom of the range (Sold puts always in a bull ‘candle’)

Also non food credit growth signifies Banknifty has less pressure on it to buy up its PSU components before the secular recovery takes hold in India Inc., right now recovery prospects led by better performing banks and corporates, even select Mid caps. BOI and All Bank seem to be in the buy rush but buyer beware doctrine applies nd we remain happy with PNB as March shows the having accounted for the bad losses and survived with better provisioning.

The Energy Cos are way ahead in the New Year esp if you include the rally on 30/31 as the pace of increases in Diesel prices and the increase in Non subsidized LPG confirm better prospects and however also confirm that the battle against the Fisc will last a long time unlike the chutbhiyas fighting it out for an ex Infy startup tickets in Bangalore (AAP gets a dirty linen in the streets fight with Pai and Bala joining against Nilekani)

Infy did start back at 3500 but there is a further downside risk from the fracas probably enthusing electorates and markets in its incipient hour tonight. HCL Tech is a great short right now to save your Bull Dollars. Cadilla and Glenmark remain the important buys with IDFC, YES and Bharti and ITC leading the Bull charge. Bharti tops its trading range around 345 and the ITC breakout is still long way to go in January.

Maruti sales hit rockbottom in December, so  I would have waited two weeks to confirm the trend for January before including them in the Volume breakouts. Sales at Toyota were down to 12k and Maruti a paltry 90k, this trend much like our Maid in Manhattan and her UN immunity spawned employer Devi Khobragade a little too ahead to go with real recovery trends, even belying equally bad sales in January too perhaps?

IIP ticks up again for December as and when data is processed but bank credit jump is part of the lag with no new projects expected in December – March and WPI will remain stressed near 7 levels and higher even without the customary poll sops in this season Indusind is not a good buy and that with the lack of buyers as volumes return this week means the bull ticks will be slow except for Power and Oilcos

India Morning Report: A tough hand dealt in the Financial Stability Report

Loan
Loan (Photo credit: LendingMemo)

The Interconnectedness of the Indian Banking system, might have become prioritised for a global caveat emptor learnt but the Indian system has much more downside from our desi PSU style profligacy in SME lending as haircuts on even 50% of that stressed portfolio would take the government out for a long walk in the woods. Delving a little more indepth into our favorite subject, most of the stressed portfolios in India Inc’s first stress tests were found to be in Infra, Mining and Cap goods sectors or our core Infrastructure series components and those would anyway need to be treated differently than Ordinary term loans . Such loans constitue 54% of the Stressed assets identified in the FSR.

However as the Financial Stability Report remarks, there is a fundamental risk to about 60% of the credit stock in the Banking system collapsing banks even as they have primarily not created a laconic lee side for the Ghat monsoons in interbank lending primarily one supposes thru traded CDLOs and real lending on larger accounts  than derivatives without a defined underlying as in the global case. The risk as highlighted in the FSR come from defaults in lending portfolios of Banks skewed to single corporates apparently among other details one has to study from the disregard of concentration risk by lenders with the 20% to single corporate and 25% i think for group key limits to be tightened and enforced duly.

India on the other hand has to grow the Securitisation pie  from here and where the Central Bank would be trying to control INR 1.7 Tln in repayments due till 2017-18 from the next fiscal onwards (FY15->2014-15) , India would indeed face an uphill task the markets would do well to ensure they have factored in. HDFC Bank too never got that approval for added FII investments even as Axis Bank application was cleared last week(to 62%).

Back to the mundane diary of the Indian markets for the day, Markets trade leaving the upside intact as shallow trades characterise the last trading session to 2014, much like last week’s record low of INR 740 Bln in the full day of equities and derivatives trading on the NSE and BSE and Cash volumes are likely to stay below INR 30 Bln (the last week low was INR 50 Bln) probably. US and European Markets are closed on New Years Day including Fixed income markets (at least in the USA) The other thing to highlight from the watchful Fiscal Stability Report is RBI’s worries on the Growth – Inflation dynamics not working out as WPI continues above 7%  which we led with sometime in November.

Net foreign inflows continue to sweeten the deal for India inc into 2014 with a 1.5% CAD (FSR score 1.7% and a FY14 achievement score target of under 3%) and the Fisc even if the virtual spending shutdown (as in the last 4 years) from January will soon find another yawning gap even if FY 2014 indeed perks up reasonably. Hopes of a stable post election scenario have almost been crossed out in case you did not notice in the New Year’s eve  celebrations and the infra pack, high on investment hopes and leadership from IDFC, and a deleveraging trio incl GMR Infra and JP Associates with the Relinfra people facing their first AAM Party audit

Apparently new year’s eve also sees an uptick in Tata Power and Reliance , which one doubts will last esp as Tata Motors is receiving its recognition only for its minute share of the TESCO-Trent JV like in fact here was such when Starbucks burst onto the subcontinent scene. The Starbucks venture is well-defined however, and the ware tastes well, drawing in big crowds in now 3(Three) cities in India

Redesigned logo used from 2011-present.
Redesigned logo used from 2011-present. (Photo credit: Wikipedia)

What probably did not get highlighted but was tried earlier by RBI, also needs to be monitored for results as Foreign Banks continue to skirt the Living Wills issues at Global HQ and continue to rethink their strategy with regard to entering India. Apparently Gross NPAs will start trickling down as we long suggested but Fitch and a few others are still hoping the PSU disaster will play out to bigger stakes and at a faster rate to make a return virtually impossible ( especially if larger Government injections are requird to keep them floating – KV Kamath). However, I would just depend on the investment recovery and the credit growth performance by Private Banks and probably PNB as Deposits finally outpace credit in the last bi monthly reports on the Banking sector in Calendar 2013 and the ICDR hopefully comes back to respectable levels without Banks having to constrain such new lending in India’s recovery phase

Also don’t take me to be a cynic but Torrent and Lupin’s timed leaks about Pharma’s assault on a generic version opportunity for Cymbalta may be better timed but is still probably a few months away from translating into Dollars and one fervently hope ( and cannot claim to otherwise yet concretise) that the generic provides an opportunity to us more than the cookie cutter $200-500 mln with or without first mover advantage.

India Morning Report: Markets reach the 6300 mark, will it hold as the new bottom?

Knowledge market BW
Knowledge market BW (Photo credit: Wikipedia)

Eventually, 6300 may also hold as the bottom of the range and so armed with this knowledge market rangers on the Bull side may ordain the mark sooner this week and next but for now markets will trade it bullishly on Monday.  Pre Open saw a shard of pricing out in Bank of India again, sinking to a bottomless pit quote 30% down, bu tas of now the PSU banks remain the biggest risk on the downside ( esp if they catch our fancy as the markets go up, they would underline the lack of options in such a wide market with 3000 active quotes on NSE alone.

Deposits were finally ahead of loans in the report of week ended December 13, growing at 17% (INR 75 Tln) with Bank lending at 15%(INR 57 Tln). Non Food Credit stock is INR 56 Tln, making up most of the growth stock in lending (INR 320 bln out of INR 360 Bln)

As we mentioned at the cusp of the rally, infracos and IT remain sectors in which stocks have to be decided for the winners and losers , both right now moving in single file, IT moving together with a losing rupee and infra moving up together on good hope for policy day, like this week. However, IDFC for example has a much more bullish trade accumulation appealing to at least three class of investors including the passive institutionals and the active hedge traders in small infra hopes.

Traders continue to hope for the non obvious trades in each of their not so blue chip large trades which technically may no longer belong to the Midcap story either including Cairns, GMDC/NMDC, Hexaware/HCL Tech. Barclays did up the growth forecast of India Inc ahead of results season, but more on the lines of MSA’s war cry for an automatic upgrade to 6-7% growth for India Inc with positive Investment flows, because the deed is done, which sadly has still to unfold surprises with statistics belying the temporariness of this recovery without the requisite investment flows except the Net Exports as we wipe out the Current Deficit and markets cornered the shorts out again in December.

I could buy a few puts on HCL Tech just to wind them up and carry home some profits on the announcements as results start pouring in. That would be really the closest to a sure winner this quarter as the Ruee digs its heels in at 61-62 levels. Infy shorts will not bait the stock till 3600 probably and if you are bullish, the up move is unlikely at thse levels despite the oevrall atmosphere of continuing good news in the sector, and that will not extend the winning rallies of Mid Caps and Product companies like KPIT, Hexaware and Persistent either.

Glenmark and GAIL seem good additions for stock watching in 2014 to our already brilliant portfolio led by IDFC and YES Bank. Mining and Metals as also L&T are likely bad trades to start. Pharma remains the best sector for bulls in both Domestic and Exports stories despite the NPPA pricing policy implementation, a higher double digit CAGR growth assured in the domestic market, I’d say. Banks despite giving up the gains early on Monday, look like making up for the sobriety shown this quarter in 2014 too but stock selection has becom critically differentiating strategy between the sub par equals as well as the Private sector leaderboard.

India Morning Report: Bad Boy shorts in more trouble, Rupee at 62.50 ‘lows’

Green Energy (narrow)
Green Energy (narrow) (Photo credit: Truthout.org)

Dow corrected its Wednesday closing reaction welcoming the taper and Indian markets will likely realise they had shorted the markets unnecessarily and move up with IT stocks back to 6180 levels on the last trading sessions of the week. That means bad news for Angel Broking as Ashwini with them, keep digging for lower levels and markets hold above that 6150 support and move back to 6200 levels.

IDFC and Reliance are special mentions in the Morning Report today. IDFC as ET and CNBC18 report struck the alarm bells when hitting 50% in Foreign holding took it out of the bank license race. It would be applying for bringing down the foreign holding limit to 49% from 54% now. The overall foreign holding limit will be bumped back if the Central Bank refuses them a bank licence

Reliance GAS price hike of $3-4 per MMBTU seemingly translates into a sub Re 1 increase in Power Tariffs(Tulsiyan, CNBC) while Reliance increases profits on its current 20 MMBTU production (CNBC) by INR 25 Bln but its production does not increase till FY20 materially and it will thus shuck out of the Winning XI again by next week. The Gas Price Hike was approved today allowing gas availability issues to recede from April 01, 2014

On the diplomatic front, I think serious gaps between diplomats have surfaced that take the India US relations South as the focus has shifted to getting the charges dropped. The US side will thus focus on legal issues as well, where probably the real issues of employing domestic help in the US within the Embassies should probably be addressed more in the ‘face saver’ agreement, wilfully skipped by both parties showing up both sides in the Foreign Services not being live to real issues in the quick and quiet undercurrents that matter so much

Powergrid says it will be worse off by just INR 1.6 Bln on new CERC availability regulations a very small road bloack and that gives us at least 3 sectors going strong apart from the ephemeral IT and the longer term moves into Energy and metals which should completely rule out any shorts on the Nifty which continue to ride December series. Pharma is good for immediate trades, as is FMCG including ITC available at trend lows at 310-12 and Bharti at 320 levels as well as Power which almost welcomes the hike in its Gas prices as that is definitely more realistic than the $4.20($7 incl taxes) rate expected per MMBTU in the MSAs esp at the GVK Hyderabad plant example which would also benefit from the Powergrid reconnection in the South.

The India Rupee has likely bottomed out again at INR 62.5 levels

India Morning Report: Will India follow the midweek ‘Global Gotchas’ now?

Chinese Bank of China
Chinese Bank of China (Photo credit: epSos.de)

The small budget deal ‘induced’ sell off in US equities as markets talked big about another expectation of a grand bargain gone south was a chimera and institutions maintained trading volumes in the last month of business. Level watchers probably look for any excuse to start off the markets in 2014 in a position to beat the hitting target level under 10% gain estimates for 2014 and is nothing ore than the correction as a big rally build up ensued since November in the Global markets. However, Global and Asian impact correlation aside, markets are due for a bigger move south from India itself to the 6250 levels as the NSE universe of stocks has been totally blindsided remaining the same in the current shucking of picks.

Most good picks maintained their levels in the open and the NSE A/D line continues to show deeper gashes while the BSE transient update continues to hold the open as around 45% advances at 320-400 on last watch

With Capital outlays lagging business recovery, the 38% IIP reported in the core industries ( Infra index) lost the entire 8% and in September while the trade data was positive on yesterday’s release (updated yesterday’s report)

The inflation data will remain strong and so RBI will likely continue with its contraindicated stance of increasing rates into the recovery till Capex comes back ( well into the second half of 2014 ::CY). HDFC Bank leads gainers as ICICI Bank and Axis gets into consolidation while YES and other midcaps react to the economic indicators expected to shoot back up into December’s reports from the gainsaying we have had around a recovery.

The bitcoin logo
The bitcoin logo (Photo credit: Wikipedia)

Bitcoin has made big inroads in the meantime on the global scene if you want your computing time to be used seriously while waiting and we remain on the verge of over-thinking in the rally instead of neglecting weak vacillating December cues from global markets with the Indian Rupee caught on the precipice.

A 9% interest rate is not doing anything great from the Bank and Auto led cyclicals either and not surprisingly at such a time the Bajaj Auto – Hero pair trade has reversed to favour Hero probably to catch up to the gains made by Bajaj Auto in the secular cycle though Hero continues to cede share to Honda in the two wheeler business and this will be estopped in two months to the secular pair trade favoring Bajaj Auto after the markets right the discount on Hero’s final achievements of a sharply focussed new strategy in the Honda break aftermath

IDFC remains a great investment pick and markets are unlikely to follow this day’s downtick into Thursday as markets correct the desire to correlation. Some market watchers already see no further FII inflows to add to the $17 Bln already entered into in this Calendar Year (most of it since April)

Paper Heroes Location 2
Paper Heroes Location 2 (Photo credit: roadkillbuddha)

India Morning Report: Markets open week with 6500 in sight, India hits stride (Business as usual)

Discontent emerging in the divide

The 30% electorate hiding underneath the planks of a whirring Economy in erudite and the shadow economy, showed up in strength to drive home their preference for a non political vote, loosely coupled to issues and worryingly coupled to AAP’s own concoction of manifesto promises at the local level. The markets however are apparently celebrating the vote for BJP led stability in this trademark play. The Rupee has already retracted to 61 levels after opening near 60.75 levels and equities have opened at record highs around 6400. Yields (10-year) have traded up to 9.13% including the days trading as the RBI policy announcement is just more than a week from now

Midcap and PSU Bank investors are standing by (Quant broking and Nikunj discussion on ET NOW) but the stock selection has worked wonders for the confidence and at long last the pockets of the FIs investing into India at the bottom of the cycle unfazed by DII sales and worries of a failing Indian economy

Markets could keep these gains again even as volatility trades remain impossible with strangles holding sway again at the new levels allowing writers to walk away with a rapidly growing Derivatives market in terms of all profits made. F&O trades have to be switched to a 6300 sold put and 6500 sold calls for the time being, with unhedged writes or hedged with weak end of the rainbow OTM strikes befitting the large volatility moves

The return of the L&T and BHEL trades in a universe of very few great stories shows up India’s hand n the markets and markets are unlikely to go swinging up from here as well, markets moving in block moves good for probably the entire month and 6500 a likely try for traders from current open levels

AAP’s apolitical mandate is likely to grow in other stats as well but political options are likely to change equations in the next General elections, a big risk facing Modi backers from here. Congress has maintained most vote shares especially as Chhattisgarh results showed and MP and Rajasthan ar e notoriously aligned to both sides of Congress and BJP in successive election decades, cycle spanning 2-3 General elections and state elections. AAP should consider formal linkages with likeminded hell raising Tea Party’ians in the US Congress

ICICI Bank and Axis Bank are good trend trades on the upside with levels unknown till the market tires out without funds flow supporting the euphoria by next Monday, while IDFC has come back strongly , this time without Citi and Macquarie portfolios running it or their being any strong correlations with the non infra realty pack. Midcap stories continue to be generously endowed with interest as the consumption take off continues to ramp up and make the inflation story insignificant. Congress (and BJP!) however has repeatedly lost with strong cries denying “accepting the verdict in all humility” but it seems more transparently this time a vote for stability. India should  finally learn to emulate the Rajasthan model in the General elections and go with the winner from the start instead of getting into another era of desi hotch-potch coalitions

India Morning Report: Another US FDA bird hit, US GDP caught with high inventories, Markets broadening base

World map showing GDP real growth rates for 20...
World map showing GDP real growth rates for 2010. CIA world factbook estimateshttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html as of Januay 2011. (Photo credit: Wikipedia)

 

Jubilant Life got another US FDA warning taking it closer to the brink though the numbers in the same year (two) may not suggest deepening of in its case a contract manufacturing problem and the plant is located in the USA

 

In the meantime a flat market keeps its promises to the India VIX after a big ‘corrective’ rally yesterday bringing the bull trend forth to another dead in the water lay up at 6250. The US GDP report yesterday was the second successive sub 2% score with inventories taking it to 2.4% in September(for June 2013)  with a 0.4% contribution and 3.6% in December estimates counting 1.8% from inventories in the September quarter. More on the US markets impact ahead of the all important Jobs report at advantages.us

 

Asia and US trends will be the next to break correlation with the India equities, that have corrected most other vulnerabilities with continuing inflows and a 100% vote on chances of a recovery from here. Rate hikes also are behind insular shield for this market as are even coalition credentials despite the markets correlating this BJP win with a bullish market’s highest scores. 6000 levels offer almost single digit index PE within the year and Energy and Metals are ready to support a bigger sustained rally momentum while Bank Nifty seems to be discriminating between the riht banks and the wrong banks without the markets showing strains of very few good stocks as FMCG and Pharma also continue to have backers and brownfield FDI regulations have been recently firmed up while Pfizer and Wyeth merger in India puts more domestic competition on the cards. The first good sized shorts on HCL have appeared even as the Rupee remains ranged at 61-62 levels unnerved by the non story of steps for a fiscal deficit bridge, which from Reagan’s days seems to be again left to the market performance to cover, all expenses being important and budget cuts or clampdowns signs of ceding to another government

 

CLSA remains on the losing side with a seat on the fence and to us a tell-tale indicator is preferring Hero over Bajaj in these market conditions, most such investors and commentators that still prefer the Hero stock preferring to see themselves as waiting it out

 

Powergrid remains open for a great investment opportunity for retail. Just Dial ‘s great success will definitely rejuvenate stories like Prestige, Jubilant (Dominos’ India being its second largest market globally beating the UK) , Talwalkars and even Prestige which remained in most buy lists during the period when Jubliant was still seen as over valued

 

The Power NBFCs remain another isle of prosperity in the compromise between various market factions (opinions, nothing sinister) and with Bank lending revival meaning better traction for NBFCs and banks with distribution power, the banking and financial services sector may offer investors willing to jump in without waiting for decisions like New Bank Licences or overtly waylaid by the habitual topping up of PSU coffers by the government admittedly on time despite H2 pressures on the Expenditure side as it revises its divestment targets upward. India’s GDP reports had good signs with Electricity and GAs picking up 8% in Q2

 

PFC, REC, ITC, Bharti, IDFC and LIC (Housing) remain thus the favorite weekly and positional trade picks.  As mentioned sometimes earlier, Traders on the networks (Network analysts) have cornered on trader specfic plays that seem to be any good company will do kind of trades powered by ‘old hands’ but we do not have expectations from trades in USL, TVS, ttk , Wipro, L&T or BHEL at these levels. We would also prefer SBI get derated before it damages market expectations in sweeping strokes with its abysmal performance bells ahead in the next two quarters or even more. Adani is back in play with all the Adani stocks including ADANIENT, Adani Power and other

 

JP associates is a little silent as has become customary after the first lead of any new trend rally since 2008 but infracos look like getting back in the game hopefully enough for leveraged promoters to exit at fair value else the same can truly damage the markets later. I am not sure if trades in Siemens and HDFC (not the bank) are ready to dial in but Tech Mahindra would be a conviction SELL and i would not touch KPIT and Persistent but they seem to be ready for a big swing up

 

Oil prices will follow Gold’s euphoric comeback into the upper sphere where it starts hurting the Indi story soon, but may again remain weak because of the overall commodities cycle as Europe leads the way down and the Chinese recovery may yet again be short-lived without export markets, which also caps Indian exports in Copper Silver and non-agri commodities.

 

Cipla and Lupin would be good trades on the long side.

 

Futures and Options continue to see volatility trades in straddles ( Buy Put and Call on the same strikes ) but the Nifty seems to be giving strangles ( not Vol sells traditionally but profitable in a flat market) an equal premium so those not in the inner ring or actively monitoring terminals should  wait for better levels in the Banknifty series before jumping or sell Puts at 6100-6200 levels on the Nifty

 

 

 

India Morning Report: Powergrid 78 Crore shares on offer, LIC and IDFC better picks

A bond from the Dutch East India Company, dati...
A bond from the Dutch East India Company, dating from 7 November 1623, for the amount of 2,400 florins. (Photo credit: Wikipedia)

The Rupee in the meantime and the bond markets again showed up weaker to announce that India investors remain Hedge funds and non standard  investors ( read hot money) already exited commitments when day began (  on any day) even as the US taper possibilities receded ahead of Jobs data but bond investors sold out just to drive the point home to the US Fed as well, keeping their pressure on after being denied a just reward for having supported the Fed when they expected the taper to start in August – September. The Divestment program is likely to continue in Coal India/BHEL (5% on offer). The Oil swaps window has been closed by the RBI in light of required action being completed ( Second Quarter Q2 economic data near the end)

The quality of India investors in the offshore markets/or of the so called Foreign Institutional investors aside, Indian markets enjoyed remaining flat in the session up to 11 am (We try to make the India Morning Report before 9:45 on most days) and ahead of the European markets enjoying a year end surge of interest as US gets Holiday fever.

Powergrid seems to be well received though no data is available yet for the first of its three investor days. Retail investors can continue to apply on Friday. Post issue purchases in Powergrid are also likely to stack u despite institutions having saved up on trading in the stock for this week of buying, and one can accumulate the stock with excellent India business prospects. The additional 7.8bln shares men 1.9 mln new F&O lots in the NSE. In the US markets in derivatives in Chicago that would have been 78 mln new lots of F&O contracts possible on the available floating stock itself. F&O shorts in Powergrid and colgate currently are likely to peter out and are bullish with individual series’ like Glenmark that is powering ahead already

LIC Housing and IDFC have finally become part of hot pick baskets and infact one or both will be de rigour in all market portfolios including those with stock derivatives strategies as both are actively traded, value investors may still find game in the two that can really build up volumes in play to the period till at least June 2014 when they might lose the value tag eventually.

6250 seems to be a good mark for a breather and may even break the monotonic correlation with Currency and Bond markets allowing RBI to consider more options than a rate hike threat for markets governance. Auto sales reports were as disappointing as post Festival month readings could be with people also postponing purchase decisions to the new year in India and the CV/Truck segments crashing through compared to last year. Traders 20 scouring reveals good shoting skeet in NMDC, GMDC and TN Newsprint (ETNOW, Lancelot D Cunha, Rakesh Gandhi)

Stocks like Lupin and M&M fin also show restless investors in the trading tick showing south while Rel Cap and Rel Infra are back in the good books. As of now Tata Steel continues to just about outperform Tata Motors but soon it may be immaterial to play Tata Motors anyway as Global steel markets relax a vice like bear grip and stabilise with some Chinese Demand pushing up. Commodities including metals are also bottomed out as end of month Chinese data confirms a better November

Exports are stronger even as Domestic Auto markets slow but the winer would be Bajaj Auto and not Tata Motors from our vantage point. The wai for a mid-cap boom seems to coincide with other rtail traders entering markets

The Trade deficit for the quarter was an almost non existent with remittances helping the CAD to a low $5 Bln or 1.2% but the Rupee seems more under slag for equities which will continue to move up regardless. Rupee thus cannot be pushed down now either with full Oil demand in play. Q2 also saw Debt outflows at $5.7 Bln in the quarter though Equity inflows according to Bloomberg ( carrying the GOI press release) are upwards of $17 Bln

This may cler the way for the Rupee rally eventually as Exports showed up above $81 Bln this quarter and imports stayed under last year’s usurius figures of competin growth beating Exports additions as Gold imports remained virtually stopped at under $4 Bln in its biggest market, global rices continuing to hold $1245 marks. Indian trade deficit at an average of less than $12 Bln may see this as the botom in the years to curb when Gold import curbs would be lifted. That reduces the prospects of any Rupee rally

Also, though no affecting any listed stocks Unitech has completed asset transfer to Telenor for the uninor licenses according to reports

A news report (ET ) yesterday highlighted the change in investor tastes in Auto as Bajaj Auto has grown 6X times from 2008/9 while Hero enterprises has exited Honda and grown 1.5X times to now equalise at 800 levels. The pair trades if anyone dared in the initial period probably because of the changeover for Hero are still a fair trade for years to come as Bajaj comes out with a 20% + motorcycle share with much better margin stories. Hero has announced a new JV with Magneti Marelli

 

India Morning Report: When the woods are lonely, dark and deep..

English: this is bajaj pusar
English: this is bajaj pulsar (Photo credit: Wikipedia)

Don’t Flip the lid though. Markets are finally moving on last call on Expiry day, to close at 6100 in November but the standoff till yesterday taking deep positions at a sell from 6100-6000 may not transpire, the play being caught and a reaffirmation of positive  moves from 6000 usually good to  start the rally from 6000 levels.

Also, as we usually are easy to predict, Kotak Institutional picks and that of some network analysts are again the wrong crop and definitely not good for harvest. L&T a late harbinger , its results likely to lag India Inc general investment recovery ratheer than be a sign of the same.

Axis and Bajaj are good again though the banking sector must face a few questionable glances purely in market valuation terms as Tatas withdraw on the question of operating ompanies esp outside India not being allowed to make a banking company in the NOHFC guidelines. M&M also did not want to move around its Finance companies as posited in the new structure directive but the structure is sound and not getting the desired response again. Also the Foreign banks had to be given concessions despite which they are not responding to the RBI invitations

Bajaj is favored by the continuing robustness in Rural GDP even as a farmer suicide on the same Sugar support price highlights unevenness in the national picture between rural and urban areas. CV sales are down 20% affecting both NBFCs and Indusind, or the auto industry majors relying on the sector. Tata Motors ahas effectively exited the sector along with a dismal Nano launch in the retail segment

Yields keep dropping back from last week’s 9% levels , starting the day at 8.67% . Buy picks on the Power NBFCs are instead good to go, with REC and Powergrid both alternating strikes on the bulls sides IDFC will also see big buyers taking positions in the new series and the only thing stopping ICICI Bank at this point is the lack of Banks to short further with Banknifty keeping to 11200 levels albeit on expiry day

US Markets will stay out of action till Monday as Thanksgiving day is here and shopping season is seeing a lot of uptick with cheap iPhone offers

The world's toughest fighting man. Yet, deep i...
The world’s toughest fighting man. Yet, deep inside he is just a lonely, homesick kid, praying for letters from home. – NARA – 535228 (Photo credit: Wikipedia)

 

India Morning Report: The mechanics of T-2 trading, USFDA, GMP withdrawal

In the spirit of all that is wrong with overseas monitoring of drug manufacturers and the known woes of overseas drug manufacturers quality plans, Wednesday started with a bang for Wockhardt as the GMP certification was withdrawn by European agencies last week and USFDA followed up with an Import Alert. Apart from hurting an export rich sector of the much tarnished Indian Economy, it remains an isolated play in the day’s trading.

However despite ranging puts and increasing percentage of the next series participation in Options etc now appearing towards the end of the series, the waning decisiveness of the Nifty may continue into December as markets deign to rally intraday and close above 6100 as Monday forecasted an easy reach for the same. Slow and sluggish markets despite the strong rate recovery action in the bond markets in the illusion of changing from old benchmark to the new has kept shorts in business. Markets are on wait before pushing the Banknifty in the last two sessions back to 11k levels. The Banknifty levels are definitely encouraging for a rollover induced good beginnings to the historically over priced next series (December in this case)

However back to things that can be read as making sense and are a watermark for the next events in India’s robust Financial markets, seldom confused with the Fragile Five before the preponderence of retail investor targeting left only Institutional actors in play over emphasising index trades as the only safe flows.

The December series again will continue the experimentation with sectors trying to avoid known good plays in Energy and Metals as brokers and agents seem to have set a high benchmark of participation while trying a little of this and that and that will impact rollovers as Index options go out of play and passive funds remain shortlisted on a very high ground with ITC, Bharti, IDFC and Banks like ICICI Bank, HDFC Bank and YES alongwith Axis Bank and LIC Housing Fin.

Traders are also unlikely to let LIC Hsg off without it reaching below 200 levels so buying should be attempted only around 197 levels and if 196 breaks then 192-4 levels. REC, PFC and PTC have also made investor lists only though they execute perfect range trades between 188-221 for REC and corresponding levels in other scrips. Cipla and Sun Pharma remain good scrapbook material for traders too and trading will return to the banks if robust flows are to be had in the markets while FMCG, Pharma and Energy and Metals present strong sectoral opportunities.

Despite the new midcap entrant Just Dial and Jyothi Labs where prices are robust if not trading volumes, Midcaps remain a Notice to stay away from India with the inability of research to overcome stop and start news flow and sensitivity to just one factor in most individual midcaps that keeps money from following the opportunity

However the mechanics of the T-2 trade, remain to find the level at which to screech into the next series optimum levels or in more mature months with broader flows optimum entry levels which usually allow shorts a large window to stand in, but once they are caught playing with fire, there would be no stopping this market having just woken up to an Indian recovery around the corner. Investment flows looking to be the harbinger however is a cruel fallacy esp as it lets investors on to the Capex companies like L&T and BHEL which in line with Global conditions are nowhere near their recovery with flagging order books and delayed execution.

Remember Modi is only one of the shortlisted candidates in the POTY sweepstakes at Time Magazine (Person of the Year). Investment positions should continue to be advised strongly in IDFC, ITC and the selected Banks you trade. Also Tech MAhindra may be an easy exit from MSCI too after an easy entry this week, within the next 6 months and markets wshould note missing fundamentals in pushing volumes into any such specific counter as it brngs a laser focus on to the players, used to making a mover out of a Satyam or a Rolta. Most money flows have safety in following Corporate Governance reports and big contract losses do not help as the commodity marke flexibility does not spill over to equities or even Real estate any longer.

Lupin, Cadila and Glenmark continue to get quick drug approvals and also make the cut for bigger investments

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: A sudden rush for crossing 6350, nipped again

Corus trein 823 Tata Steel train
Corus trein 823 Tata Steel train (Photo credit: Wikipedia)

The Banking system’s woes are fresh wounds , blisters nary a bluster with NPAs at most PSU banks except BOI and PNB likely to cross 5% on Net level. Despite market’s favour for State Bank vintage in equity markets , the SBI scrip may provide most fuel for the Domestic Institutions who prejudicedly also treat the scrip as the holy grail along with operators. As we noted earlier within this fortnight, the results showing bolstered by reduced provisions for banks generating PAT growth mid year is a mirage.

Apart from the fact that NPA and AFS loss impacts have been spread over the remaining two quarters to March 2014, provisioning may be updated one shot by FY14 at all such banks and as yields continue above 9% the results will speak for themselves.

However, that is not the reason to be bearish at 6200 levels, neither is the bluster on ITC and Tata Steel by Network analysts likely to bring markets back to last week’s 6000 levels again. ITC is a good trade and Tata Global and Tata Steel seem to be capped for now. AS expected, YES BBank has moved on trading supports and IDFC is also maintaining 108 levels instead of 100 a week ago

Results from Sun Pharma last week, though not the digital upstarts like Sun Tv (SpiceJet) and Dish TV (reported today) are likely tobring rosiness back to the markets. One winner as markets tie of the Maruti move at 1700 levels will be Biocon, both scrips from disparate sectors, especially found in favor in Institutional and ALt trades looking for the India  Shining flavor along with the alpha ( which undoubtedly is missing in both stories) However a rerating further upward is likely only for Sun Pharma, having posted 58% growth on last September and having grown some claws at long last in the Indian Domestic market and margins of 33% (ex-Protonix) are good for the mile. Six month FY 14 EBITDA margins are a healthy 44% and the stock can well bring Cipla and the Midcaps out as well into more international baskets. R&D spend is likely to increase in the Indian markets in the short to medium term but current provisions, reasonable as % of sales are not good for a longer brush in the generics and domestic markets. A lot of those investments across the rest of the industry are likely lost in Process repair having been cut by FDA riding them even as Brownfield investments in the quarter exceeded $1.1 Bln and guidelines have been further revised allowing more such investment again.

India Morning Report: The “growth-inflation dynamic” is getting flustered by the rates

English: The Classic view of Saving & Investment.
English: The Classic view of Saving & Investment. (Photo credit: Wikipedia)

While the equity markets are back from 6000 levels making up for those missing trading days last week, starting the week at 6150 levels, an ongoing investor conference revealed the likely India bull among banks getting the short trade for not being able to lend in Europe. CLSA Chris Woods asserting that the challenged growth inflation dynamic has not stopped inflows into the country. Similar assertions from Barclays in the morning, who quite track to our Top dozen picks as revealed in the last two-three months (previous trades though in very similar scrips are NOT ACTIVE) underline the fatality of Indian policy as presented to the new generation by Foreign investors coming to India at the bottom of the global cycle.

As we have written before India could well find a way like the Phillips cuve in Keynesian Economics to survive n the high interest Economy, but those waiting for a revival or reveling in China’s continuing misery would have realised by now that India having chosen to jump rates in October is now intractably going to ride up the spiral killing off any motivation for investment growth from the bank rates while the rate differential continues to press on the ECB borrowings and increaase pressure on the deficit. One way we still think, out of this spiral was to learn the importance of holding rates and a HOLD at 7.50% would have done the trick. India’s diagramming in the investment /Savings trade are rather inelastic on loan fund supplies or demand in the main stem however and so growth will go on.

However, in the meantime, WPI has hit 7% and so there will be more rate hikes not impacting the residual growth GDP. Rest of Asia struggles as well with Israel cutting its GDP scored in September to 2% and the Oil economies or Africa the only refuge for high growth dependent Capital businesses. India with or without the Modi-nomists has done precious little to ramp on to the unaided infrastructure growth and is barely getting back to fiscal discipline with ratings still stuck in the 80s mode regardless of reform. The etihad $450 mln + investment in Jet including the 24% stake has taken agan crucial time off the managements available turnaround strip an India Inc is also running out of time stuck at 5% growth levels, now probably locked in till June 2014 without an escape hatch

JP Associates is a prime example of price negotiations being a sordid affair in India, Manoj Gaur doing well to hold on to deals on its Cement plants and others despite the markets probably looking for an even better price on the sale. The rresults showed again continuing growth without improvement in the CEment business. Monssoons good impact on grain and thus any residual impact on lowering inflation is again a sordid wait seeing as it is unlikely to stop the farmers or traders from spiraling up our food prices for the time being. CNBC 18 did a good focus spot on Pharma stocks in the morning, and they are doing well in this cycle, including Cipla and Lupin, the still funding trade stocks and IPCA it seems has rerated to 17-18 PER multiples. I hope they have a new drug or corporate news on the horizon. Again on inflation FinMin so can’t do anything about imroving supply lines for agri in this nation

ITC is finally back up again from 310 levels itself and is a good trade. IDFC is done till the election frenzy despite the Fin Min noise for infracos which unfortunately are still running their family businesses on the margin trade of their own stock. Network commentators have underestimated performance potential in Yes Bank and overestimated it in State Bank. The Maruti trade though is back as the Yen spirals down(up) into the hundreds again for a likely couple of months, taking care of the whole quarter

Automobile expors are doing well again so JAnuary will be quite a celebration of the tough times with Consumer Staples (Non discretionary, food and other FMCG) able to avoid pressures to reduce margins and not pass on input costs.

Last but not the leas, we are not issuing more Buys on Tata Steel but it remains a Biggie on the Buy lists and those deciding to take profits with the Domestic institutions at 380-90 levels will likely be deprived of the real cream on the cone.

India Morning Report: A post festival dawn, markets churning sector and memes

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

The Goldman spiel actually are quite a Venus flytrap “MODI-fying” India targets to 6900 on the Nifty as it wanted. However, markets haven’t really closed around any specifics except the “Investment dozen” which could include ICICI Bank and YES with IDFC and ITC among others. however the morning rush of re open advertorials on the networks today, especially saw me frowning a lot at ASK’s shallow commentary on ETNow, and even Sukhani got caught in the vortex of sellling Tata Steel and /Buying Tata Motors ( ineffectual, near total failure in India) as SS tried to look for a deeper correction.

** The investment dozen is our(mine) selection and does not match the broker , Goldman Sachs as reported in TOI/ET/other Bennet coleman properties

On the other side, Cognizant results , till now shackled in their being listed in the US only, were being feted by the market’s unholy trinity in bull spats on the HCL Tech and even “Wipro” counters, showing the day had not only been bought in by the Bulls, the correction strategy was completed midway thru closing trades yesterday before 3 pm and the day is trending in the positive again. Apart from that trading hint, I also have to let you in on the secret that market volumes are still going to be building up till after the Superbowl in the US when all yearly earnings will be over and EM flows will be in focus again. However Q4 inflows will be dominated by Emerging Markets and China is in play again so India will get its due but nary else, romantic fund managers like PIMCO, the Fink or even George Soros being in short supply and having already decided on India a while ago in 2009. One ears Madison Square Garden is a little silent today but its a long way from being a new advertising strategy for Indiaphiles or Global market conversations involving authors. AMBIT is hardly a help , ET Now perhaps looks at shining at this plateau and ceding a little back to moneycontrol/CNBC18 again.

Metals are indeed in the bull ring and contrary to those still waiting for outperformance in results before the stock selection, the metal rush is on. India PMI and Services PMI crawled back to 47 levels this October and china again reported an expansion in the Economy. Singapore is doing well despite curb on overseas investments by Chinese dominating that flow.

New Banks will be a new story in this new year though most will be reusing attempted model plans from 1995, including rural distribution and Home finance or FX and structured Finance with increasing/exclusive attention on derivatives to spin risk into profit and out the door again for more business.

Sells on Bajaj Auto(Ashwini G)  or Tata Steel(SS Investments/Trading) are contraindicated and those on failed PSU banks still accepting deposits and making credit a funny way to establish anyfaith in India stories. There are very few Bank of India stories out there

To reiterate this market was quite done with the correction at 6250, and seeing that it is flow led, it is likely to push forward faster and probably YES and IDFC are better single cash trading picks or Bajaj Auto and ICICI Bank or HDFC Bank pair trades. Bharti and ITC should be investment portfolio stories throughout the remaining December quarter and till June 2014

Petronet LNG(SS) and Tata Global(Trader20) seem to be good mid market picks though overall I maintain idcas will be ignored in this stock selection spree which will still see some victims . 300% Onion inflation is of course an election gimmick and stays one as monsoons create a win win for India Inc

India Morning Report: Markets rest at new record levels, Banks catch fire

Except of course, Bank of Baroda and Bank of India, the PSU Banks who along with All Bank are in front of the NPA tether and are likely to again underperform in results announcements today undermining the market’s expectations with a definite taste of the macabre doing the paperwork accounting for to decades of profligate lending. In more operational markets language, others like Dr Reddy’s also hold the key to big moves as markets let go of smaller volume picks not in fashionable upside with institutional investors chasing Indian weightage in their indexed EM funds. That of course includes Hero losing share to Honda and Maruti making 3X profits with the Yen a big part of the story this quarter.

English: MSCI Logo
English: MSCI Logo (Photo credit: Wikipedia)

IDFC is likely to get a good post results after taste into portfolios (despite its ext from MSCI) and so it will be crucial that it comprehensively outperform as foreign investors come back to India bonds and equities unconcerned about coalitions and hung parliaments. The No Taper refinement yesterday was not material to their return either though it is not a carte blanche as the more optimistic from Asia might have expected of Lady Yellen.

Cipla bore a heavy brunt of the funding trade and drags some of the other (Lupin) Pharma choices with it while Glenmark and Cadila will continue carrying the market flag with meaningful bumps from export earnings and real greenfield growth in market development the mid cap strs have shown to be ey

The expiry day seems to be ignoring the 6350 target in the morning session but it may just become a case of having decided on its own expectations for these results candidates. Retail investors shuld not be expected to return in the middle of Diwali spending season or even otherwise. The Indian AMCs have together more than INR 8 Tln under their belt currently and like the taste for FIPS showed are not averse to increasing enchantment with Balanced Funds as Bond markets xpand(General direction ypothesis to play out till 2025)and pension players get active taste of equities along the general direction set back in 1993/2001

Banking hopefuls like Magma Fincorp and Muthoot report results as things look to get better for NBFCs. Now is a good time to load u on infra NBFCs both Powergrid and REC/PFC/PTC

As mentioned yesterday Bharti has crossed  a rubicon with Africa markets reporting profits as new Telecom auctions also level down on expected prices in domestic circles

 

India Morning Report: IDFC on way to become a financial conglomerate

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

 

If its the currency dragging equity confidence down despite the healthy capacity in the market, wel land good. If the hit is however on the asset quality situation of the banks, it would be a quicker reversal tomorrow as ICICI Bank publicises its bigger Power plant accounts (Dabhol-II) Walmart leaving India, is probably most of the impact.

IDFC already is, one of the most far reaching shadow banking institutions especially since it caught one of those fund houses in 2005 and has been actively floating new funds and operating advances thru its infra NBFC as well as PE funds and others.

 

However, the treatment of NOFHC can be proprietary and thus the only risk to their getting a Banking License as it gets into an endless loop of what can be done without the regulator cutting off the air supply. Their objectives and disparate infra rules have to be kept independent and if the company is looking for flexibility there or some sort of understanding instead as Indian houses tend to treat discussions with the regulator, it may not turn out rosy for their ambitions of a license. Its an independent NOFHC subsidiary of the other non financial services business and Financial services business has to be outside the purview of the NOFHC so it will probably be under the independent NOFHC in the most pliable case but the funding requirements at 51% f the NOFHC equity as it owns probably more than the INR 200 crores of the bank is the deciding parameter of the bank.Tthe NOFHC allows promoters with public holdings to create a tightly controlled subsidiary with RBI denominated investors including 51% from such promoters, but the independent banking compliant structure has far other important functions than just that and may not be dispensed with.

 

There is more than enough of that, with the Dept of Post also turning out to be almost operationally untenable to do the deed and get a banking license within the parameters.

 

IDFC however is one of the best candidates already operating independent projects without mixing up and unnecessarily skewing up exposures. I would proffer LIC Housing too, esp if we actually want enterprises that have the understanding to withstand and grow in the faster growing non metropolitan India. As Foreign Banks have shown earlier, regulatory standoffs are costly for the banking model, and the sooner we get off that hobby horse the better.

 

The index is faltering again and the reason is really not easy to understand esp as the Put Call Ratio is just over 1 as of Friday closing, and really not that weak that everything be unwound. Markets are anyway unlikely to go below 5800 levels for more than a nary second, and the Rupee being weaker is a pretty range bound move. The MCX saga at the commodity exchange with its e series has still to unfold perhaps

 

Infra projects being cleared faster, its still happening as we speak and is unlikely to create any CAD resecting Dollars till the May ’14 General Elections

 

 

English: Kedarnath range behind the Kedarnath ...
English: Kedarnath range behind the Kedarnath temple early morning. (Photo credit: Wikipedia)

 

 

 

India Morning Report: Dead cat bounce, Earnings rebound on the horizon

NEW DELHI/INDIA, 16NOV08 - Klaus Schwab, Execu...
NEW DELHI/INDIA, 16NOV08 – Klaus Schwab, Executive Chairman, World Economic Forum, Narendra Modi, Chief Minister of Gujarat, K.V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank; and President, Confederation of Indian Industry at the welcome lunch for the World Economic Forum’s India Economic Summit 2008 in New Delhi, 16-18 November 2008. Copyright World Economic Forum ( http://www.weforum.org )/Photo by Norbert Schiller (Photo credit: Wikipedia)

And the international  impact of an immaterial shutdown cascading to its third instance in the current crisis after a US downgrade and the shutdown first awaited showed governments globally as it did markets that it was really immaterial. The economics of a shutdown are indeed brilliant and technically still half an hour away(at writing) . It means some  Federal Workers will not get paid and probably more in this instance than earlier when it affected only pensions and some non critical defense spends and not even one third planned government spending which anyway trends down having been minimised earlier

Anyway, apart from the sequestering which will in the long term impact US healthcare and Defense stock, the issue of the Rupee recovery as Oil continues south ( on weaker global /US consumption) and the US Ten year yields looking to bounceback from 2..64% on ‘No Taper’ news, India Inc has had nothing to report. Earnings in Q2 despite the all round scare will remain positive for the few listed corporates that carry India Inc on their shoulders The rebound in software exports in the invisibles however has strengthened the trend towards overweight IT and Pharma portfolios

Mitesh (ETNOW) as usual played a clear long with a pick on ABNuvo in cash that works much better thu the day than the Sandeep Waghle/Gujral technique of trying to short the edges of the bottom as the Dead Cat bounce holds and rejuvenates some banks (Afternoon update: Banks managed well, YES Bank shorts dened and F&O interest likely having picked up in those 6 bank series excl the banknifty index weighed by more than 2/3rds publc enterprises)

The CAD bounce is already in with $21 Bln in a quarter indeed by itself worthy of applause and additionally was abnormally high and the other three quarters of the year will trend barely in double digits if Government estimates for the full year CAD are spread over these coming three quarters at less than $9 Bln each That is due to the reduction of th $8 Bln Gold deficit in Q1 before curbs coming down to near zero ( restricted to 20% of imports  that is not exports thru the regulations introduced concurrent with RBI’s currency control measures in monetary policy

The Trade Deficit keeps growing and again for India as for US the Net Services (Invisibles) Contribution was a surplus of $16 Bln for the quarter gone by, but the blocked imports leading to the same are not available to us to comment on our ‘cutbacks’ impact on growth. Core Industries (38% of the IIP) grew the expected 3.8% after a 3.1% in July, making the hopes of a recovery more substantive as well. Banks like ICICI, HDFC Bank and Axis will reap benefits f any rebound from their larger distribution and shorting SBI is still a neat trick int he market in terms of the looming uncertainty in the short term. In fact I would say it could break below 1500 but for the rising bear trap being locked into by Bulls in India counters selling 1500-1550 puts and looking for a trade positive on buying the 1700 Calls than writing them so its actually a seesaw.

Don’t worry about EM being global victim of the QE and now its withdrawal, the newest setup is on the Euro, with 17 weak countries holding it, as it rises into the bubble-o-sphere on  US Stupidity and is potentially looking to becoming quite a safety wall for all the world’s troubles much like the yen did for three decades since the 80s.

The Banks are trading in the green and this weeks events could possibly split the bank trades between PSU And SBI negative and ICICI Bank and private bank positive in this trading rich sector even as metals struggle to find buyers as the markets still believe in a lower bottom around 5600 (and then lower still)

Tata Steel and probably two more scrips at most merit positive attention and would have accumulation from institution at all levels. The calls in ICICI Bank and IDFC are likely to remain positive though the rest of the week with the low levels of yesterday late afternoon, when the morning’s dead cat bounce ‘resumes’.

 

India Morning Report: Dead Cat Bounce, rebounding earnings on the horizon..

Bounce(game)
Bounce(game) (Photo credit: Wikipedia)

 

And the international  impact of an immaterial shutdown cascading to its third instance in the current crisis after a US downgrade and the shutdown first awaited showed governments globally as it did markets that it was really immaterial. The economics of a shutdown are indeed brilliant and technically still half an hour away(at writing) . It means some  Federal Workers will not get paid and probably more in this instance than earlier when it affected only pensions and some non critical defense spends.

 

 

 

Anyway, apart from the sequestering which will in the long term impact US healthcare and Defense stock, the issue of the Rupee recovery as Oil continues south ( on weaker global /US consumption) and the US Ten year yields looking to bounceback from 2..64% on ‘No Taper’ news, India Inc has had nothing to report.

 

 

 

The CAD bounce is already in with $21 Bln in a quarter indeed by itself worthy of applause and additionally was abnormally high and the other three quarters of the year will trend barely in double digits if Government estimates for the full year CAD are spread over these coming three quarters at less than $9 Bln each

 

 

 

The Trade Deficit keeps growing and again for India as for US the Net Services (Invisibles) Contribution was a surplus of $16 Bln for the quarter gone by, but the blocked imports leading to the same are not available to us to comment on our ‘cutbacks’ impact on growth. Core Industries (38% of the IIP) grew the expected 3.8% after a 3.1% in July, making the hopes of a recovery more substantive as well. Banks like ICICI, HDFC Bank and Axis will reap benefits f any rebound from their larger distribution and shorting SBI is still a neat trick int he market in terms of the looming uncertainty in the short term. In fact I would say it could break below 1500 but for the rising bear trap being locked into by Bulls in India counters selling 1500-1550 puts and looking for a trade positive on buying the 1700 Calls than writing them so its actually a seesaw.

 

 

 

Don’t worry about EM being global victim of the QE and now its withdrawal, the newest setup is on the Euro, with 17 weak countries holding it, as it rises into the bubble-o-sphere on  US Stupidity and is potentially looking to becoming quite a safety wall for all the world’s troubles much like the yen did for three decades since the 80s.

 

 

 

The Banks are trading in the green and this weeks events could possibly split the bank trades between PSU And SBI negative and ICICI Bank and private bank positive in this trading rich sector even as metals struggle to find buyers as the markets still believe in a lower bottom around 5600 (and then lower still)

 

 

 

Tata Steel and probably two more scrips at most merit positive attention and would have accumulation from institution at all levels. The calls in ICICI Bank and IDFC are likely to remain positive though the rest of the week with the low levels of yesterday late afternoon, when the morning’s dead cat bounce ‘resumes’.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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