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: The Rupee, it counts 62..63..64..65..66..67..68

English: Cumulative Current Account Balance fr...
English: Cumulative Current Account Balance from 1980 till 2008. (Photo credit: Wikipedia)

 

Fixed income Desks at Banks of course would like others to believe everyone was trading the 9.5% -10% range probably but closer to the market after a small tweak in SLR and the confirmation of lack of MTM losses excet for the 5-6% in AFS, desks returned to trading 10- year yields between 8.33% – 8.5% and the OMO tomorrow may revert the auction yields to same levels after the 12.27% auction on Monday. The FOMC was crystal clear in its depositions as seen in the minutes that the markets were in for a leaner September and so it will be, will be as Asian currencies suggested in the morning before Indian markets opened. . There may not be many trades at the 64-65 levels even as the interlinked ‘100% plus’ correlations pushing the volatilities out have receded esp with fixed income yields above.

 

The lesson for traditional Economists and probably our Chief Economist C Rangarajan also that the Indian Economic Cycle does not really lend itself to the trade deficit being the Consumption Gap. As one might see in this year’s turn of events in June itself, the drying of consumption had absolutely no relation to the high prevailing CAD which is more directly linked to Investments in the Economy and Savings, leading from curb on Gold for lower deficits till such imports uncoil again and jump the deficit forward propelled by high Savings and zero investment. CPI again showed that Non durables will be able to transmit pricing shocks but all is not well with Millers as they pay for pampering farmers in UP across successive state governments.

 

Energy Companies lead the second tier of the rebound stocks as Bharti and ITC reach their true value at 300 levels and metals lead the banks to improving cognition of the market ( witness Banknifty at 9350, though the 9600 mark was reached and lost as if in a dream) There is actually no way to call a bottom of a currency where nothing is bought and domestic consumption is so independent of imports. And the Dollar will stay strong thru September from the looks of it. So, 70 is just the mark they can see right now probably without pooling selling interests across the dozen odd active desks that at least follow the currency. Linking that to NPAs may similarily not work because the stock of Private Dollar debt is mostly fresh and definitely ss than even $50 Bln despite all the new issuance. If old models were to be followed, the irascible Oil market’s considerable control in price increases is all but lost and Rupee could eve start rising back but that is no longer a valid reason for anyone to hold as a single seller could control the market till even 80 levels and Export volumes are not corresponding to increasing import requirements

 

 

 

 

 

India Morning Report: Unfolding Political Drama alienates Capital investment opportunities

English: Map of the British Indian Empire from...
English: Map of the British Indian Empire from Imperial Gazetteer of India (Photo credit: Wikipedia)

 

The surprising and unfortunate saga of the returning bout of political stability that landed last week has caused India inc some serious heartburn as market mirrors waning confidence levels of corporate India which was looking at raising cheaper money and deploying into new industry and infrastructure this year. Though observers still stand on the sidelines trying to peg Economic forecasts to the agri output as monsoon season also prepares to make its pronouncement and the comeback in core metal and mining sectors will be long lasting and is already underway.

 

 

The consumption cuts after a brief comeback in December January are almost inconsequential as global equities will correct and even out only some of the withdrawing Emerging market ETFs with India being a safe haven yet for equities, valuations at 5600 pointing to an almost extreme low on current profitability set to improve in the last quarter of the fiscal. But the 10 year  yield is already nose up after having forced the RBI’s hand and is likely to land near 8.1% another 14 bips in the next month or more. Japanese capital investment flows are probably striking Asia again with Myanmar starting Rice exports to Japan after a good 40 years and that is good news to the region strapped solely by Chinese FDI. Though unrelated, the India story will also depend on these FDI flows as its own Corporates battle the post rate cut bad scenario.

 

 

Further relaxation on FII investment limits in bonds are only likely to bring in more investments in the 3-5 year horizon as precious MTN products become a possibility to increase available choices for those evaluating Indian company CDS’ in the Asian trades. Indian ratings could improve in the next 5-7 years if such depth is indeed possible as another batch of QIPs though distinctly less than the volumes from Indian ECB in 2009 and 10, remain likely in 13 and 14 banks and infracos being the hitherto winners. The steepening curve in the meantime as India’s long term yields falter and demand comes to shorter maturities could infact be a boon to low lying infra SPVs as their structures shift to quasi one year rolled over paper and trap sub 5% short term pricing of debt. Their overhang of 30 year debt continues to be a big rating concern and government is likely to be unable to backstop more of it.

 

 

The political uncertainty in the meantime will only bring Nitish’s Bihar to the fore in the governance camp and DMK itself will be softer after the change in Foreign policy stance. Our own UNHCR confrontation on Kashmir, long hidden might still get political ambitions strewn but on the whole Capital investments will withdraw to a wait and watch mode in India 8 months before due election unevenness could have otherwise been expected to strike India inc’s investment habit. In the meantime, markets offer attractive valuation opportunities with most identified sectoral leaders including YES BANK, IDFC and ITC holding on to new levels. Jet has struck another wet lease deal with Etihad to channelise its quantum of investment adding the Brussels routes to the Heathrow parking spots already in the sale and lease back with Etihad.

 

 

Stanchart’s prognostications for the Rupee may have hit a rough patch in their own term forecasts but JP Morgan and Deutsche Bank sell side units continue to invest in timing the Indian recovery with other foreign brokerages from UBS and CIMB to CS itself still holding local expertise in sectoral mid caps and even banks. Helion and Samir Arora ofcourse stand a little more guarded in light of their closeness to these political forecasts on the nation but they and other India bulls remain exclusive specialists, a breed strange enough for its loyalty as is India’s own secular growth rate still nose upward from 5% last year.

 

 

 

India Morning Report: And the market survives a cut to 5900

Tried and tested , yet new mechanisms of 2013

Of course, the markets could still decide to browbea

English: Wordmark of Tata Steel
English: Wordmark of Tata Steel (Photo credit: Wikipedia)

t the equities segment further from here despite the mild recovery at the end of the session. As of now my plans for going to Ahmedabad are on course and the indian Ph D programs are getting better lookie loos again with Ahmedabad “Management” ranked in the Top 100. More importantly for the markets, delivery based buying cannot be expected to ramp up in this rally as retail investors are not just stung by 2008 as journalists perceive or want to name the shroud, but are infinitely better placed by investing in inflationary spending than in equities for the future canvas.

Mutual Funds, Insurance and Bank savings still come next and pretty importantly yesterday’s negative IIP score and a near 11% CPI inflation clip ( more than 11% decidedly in urban areas, but thats just the trend) are unlikely to matter to this question of volumes. A slowdown in bank deposits could be an interesting quasi middle management at 100s of growing India corporates and IT investors could take to watching as it mirrors the real response to the production slowdown even as investment makes a faltering return to the Indian Economy and the Savings Investment gap recedes.

sinbadRevival of fortunes in steel seem to have hit an “early call” WALL a new block and tackle strategy likely to hit traders nah speculators in the F&O segment and though I normally desist but the morning call on JP Associates straddle buy invites my derisory attention by the spades. The JP Associates stock is unlikely to tank from 71-75 levels and if one expects action in the scrip in this series further it would be a clear positive, likely kicking off the pre budget mini rally instead of the rally we were going to have at the start of the series. Of course those promoting this market hiccup were the ones betting on fundamentals instead and thus calling off the big pre budget move.

Are Sun Pharma and TCS yet Defensives?

Much as Consumer goods led by HUL had been lumped in Defensives with Pharma, so also today while Pharma while awaiting the Domestic breakout remains defensive as a sector, stocks like Glenmark and Stride Arcolabs aren’t and Sun Pharma is probably unlikely  to last in the Defensives list too long (it ould not be shifted on account of Taro, however)

Similarily IT as a sector and TCS as a defensive remain sectoral strategies or more Big Pig strategies at the start of the macro uptrend where Trendlines can be drawn and in such moves as are in 2013, the stock probably would move out as a mainstream investment much like Infosys earlier. Either way those watching for a bottomed out markets are right in prognosing the comfort moves in stocks like TCS and Sun as a likely vote for no Bull run than the other way around and thus the to get cast in the same leagues as HUL, Sterlite and SESA which would be the Defensives the markets could ascribe. While Axis Bank may not get rebranded as the ‘defensive’ for 2013’s mini moves, Airtel still likely will be as the corporate gets shafted out of bull only and 130-30 portfolios for lack of a volatility linked move in the stock

Tata Steel

Meanwhile the Tata Steel calls are good to sell off probably as JSPL and SAIL indicated a slowness in the sector which is to be shed in 2013 and 2014 so it is also the time for buying this defensive as well for Domestic fund houses avoiding buying for so long since August as they get another Start of Rally point to invest surpluses.

Banks say meeooww

Banks are the move I am waiting for as PSU banks finally acquiesce to getting re-rated instead of trying trading jumps to catch up with the gap created by the NPL imbroglio in the last six months at Banknifty 13500. Thus the move from 12,400 on the Banknifty and it is not made today, will be a decisive one as Public Policy recedes and Finance takes over as the bete noir of the India Comeback strategy for 2020 and beyond.

 

India Morning Report: And the markets realise the “limited release” reform is severely limited

 

The Epic reforms in Insurance and Pensions started off the day adversely affecting the existing Insurance plays from Max India to Bajaj Alliance and other likely as markets were still excessively optimistic of action despite temperin gof expectations over 6 months. The cleared Companies Bill ith a 2% PAT surprise “social tax” is unlikely to not add to the bottomline challenges for the Nifty 50 firms whch are ready to rebound in profit growth by next week when results start pouring in.

Q2 will provide more impetus to the running recovery board and then the inevitable reaction from higher levels as we come to terms with Economic armageddon as it continued from August and thus pretraces another reality check for the markets which will unlikely try to get to a reaction before the last week of the year.

Indian insurers have been relatively more comfortable with 26% FDI as that keeps stakes higher for them and thence control. However the 49% limit may be subsumed by FIIs with portfolio cash

 

The :LATE :LATE MIDCAP REPORT: Where promoters wreak havoc, is there a reason to formalise insider networks?

Securities and Exchange Board of India
Securities and Exchange Board of India (Photo credit: Wikipedia)

Indian promoters as Anil says so often on CNBC India (On Menaka’s The Firm) promoters control so much of Capital that trading in the so called Mid Cap segments here the Daily Volume is in a few thousands is an exercise in futility as the promoters manage in a bid to secure their Rupee funded investment which does not track global investment valuesin Dollars consistently. More than that domestic investors would probably like more investment opportunities but can be stopped out any time by short interests or market makers’ floating stock on whims and fancies market participants are so eager to drive home. One wonders with such a prescient SEBI and a tough act for others in terms odf trading regulation and ground conditions, is not there a way to formalise insider information on those not unlike the Russell 1000 in the US which has a pretty accurate information bag to play to facilitate long only trades in such counters and list specific qualification for opening short trades on a counter esp if it passes muster on a score of negative buzz. Eminently doable if one decides to do it. After all, these are investments and everyone ants investments to grow. Apart from unreliable balance sheet data, fine line items on export and import regulations, and somewhat transparent FCCB/ECB obligation sets which are yet among the most opaque, promoters like Ajay Piramal for example are not balanced by yet unieldy and larger controlling powers of the retail investors in the Indian market than comparable trading only investors in the OECD world

To note: The author dissociates himself from well wishers and ill named friends who use proclivity as a

network to illegallly monitor and destroy relevant and irrelevant information and decision making equally.

To note: The author dissociates himself from well wishers and ill named friends who se proclivity as a netork is to illegallly monitor and destroy relevant and irrelevant information and decision making equally.

Promoters that try are probably equally to blame

JYOTHY LABS (SPIC)

MAX INDIA (33 B inflow inc 9 BLN from unrelated sales not unlike DLF – A split could make businesses worth 50B int o two orth 150 B) and not ready because ‘insiders’ would know but likely promoter stake diluions etc as it did not start abull move at 188 ( CMP 194)

PIRAMAL LIFE

ORBIT

TALWALKARS ( expansion plans are 3 times slower than offer document, always known so yyyet stuck..because of a standoff with operators/institutionals)

PRESTIGE ESTATE

M&M

MAHINDRA RESORTS

GUJRAT GAS

FDI hungers for India’s growing consumer markets – What are the challenges?

Baytree’s investment into Godrej consumer underlines the long pending second line of investments to be made by the Asian SWF in India and other growing economies of the region.

While Malaysian Khazanah has just changed its charter from a Energy rich SWF to a diversified fund and may be more interested in smaller/monopoly plays in smaller Indo China economies, Temasek continues to farm the big money in China, Singapore and India.

Korea will probably make its own surplus SWF investments but still needs some inward interest from other SWF funds while india’s Top 20 in the Private Sector have been a matter of considerable Interest for Temasek since 1999.

Temasek Holdings
Image via Wikipedia

The use of so many subsidiary vehicles for Temasek however incl Cedar , Baytree and directly as well as the bigger sibling in GIC is likely to make governance complex however for the coming generations of investment from Temasek as well.

As more non staple entertainment products like Hollywood blockbusters have noted india’s liberalised market offers extreme challenges for inflation sensitive products and upsizing/super sizing of SKUs and price realisations there on. In such conditions, Godrej’s new structures are a tentative experiment and an early vote of confidence from Temasek must have been a long standing argument for the country managers and the Godrej management per se.

Neither Dabur nor Godrej are guaranteed any success, Airtel branded soaps and agarbattis may have a better chance even in africa ina few years as Proctor & Gamble with global brand recognition stays in consumer discretionary spends in its predominantly staples portfolio and remaining counted in super premium brands in their value Tide portfolios

English: Logo of Godrej.
Image via Wikipedia

L’Oreal’s Body Shop chains and super premium men’s range have a better chance from the sheer profitability of their ‘slower’ product lines in the luxury market as India’ s penchant for super brands and luxury hotels translates into a supersized lifestyle premium “for those who can afford it” and thus its $1.4 bln JV with Lotus is a much more sizeable investment as Jawad Habib’s and Bounce like salons grow into the mindset of the new salaried executive hungering for a sumptuous weekend fare outside just dining experiences and mall entertainment.

Can’t read these men, Can’t read what us indians want women will probably welcome Oprah’s OWN on indian territory as these second line of FDI investors from global organised consumer industries from retail and media to consumer aviation and luxury automobiles are much better positioned to make real efforts to break into the India n market, their first line having blamed everything fromt he unhygenic Mumbai to government babus yet not really having the policies to blame and having turned around villages with a few dollars of investment .

100% FDI in Single Brand Retail, Aviation and Multi Brand FDI also on the anvil

As the drop in investment rate of more than 47% in both investment proposals (CMIe data in ET lead – ) and

English: Logo of Ikea.
Image via Wikipedia

government infra project approvals shows up in negative cap goods and low GDP growth, the FDI saga is likely to be brought back to finish off positively for this government to keep the India growth agenda with itself.

An invitation to Louis Vitton, Cartier, Armani, Rolex and Ikea

The 100% single brand FSDI approval came through in the morning headlines, adding the usual 30% local sourcing rider allowing that sourcing to be from”Indian” providers” and necessitating the allowed limit of $1 mln( It could be $5 mln so easily if enough lobby pressure is applied) to be invested by the brands in developing such SME (Village industry/SMEs) supply chain themselves and there is hardly anyother option available for Ikea and others with the rider in place to develop such supply chain locally and/or limit participation to 51% and come in with a partner whence they can sell 100% imported units/itsems/SKUs for clothes/shoes accessories or furniture as the case may be.

Ikea for example would think of suppliers for joints, nuts and bolts where applicable/possible or some wood panels for specially introduced furniture lines ( highly unlikely!) or an apparel brand would set up finishing units as India is already a known exporter with a definite quality benchmark in fabrics/leathers/readymades or accessories

Multi brand FDI and Aviation FDI face state and coalition pressures from Mamta Banerjee and the

Election symbol of DMK
Image via Wikipedia

designated DMK State Aviation minister, already facing tough corruption action in Telecom.

Indo-Japan trade data

Japan hardly imports $30 bln annually from India an dis almost entirely dependen to n Chinese imports for its local economy. However it has been developing India with annual Capital investments of INR 90 bln or $2 bln and an almost equal amount of INR 88 bln or another $ 2 bln in development aid this year.

Japan is providing $4.5 bln in the Delhi Mumbai Industrial Corridor looking a  developing more than 12 new citiies on the route amongside the larger Dedicated Freight Corridor which encompasses the nation across its two legs Delhi – Kolata and Delhi Mumbai,. The Eastern corridor of the DFC itself costs $10 bln while the DMIC is envisaged to cost $90 bln. The freight corridpor speeds up our Logistics gap while the DMIC undertakes urbanisation in new zones to catch up with the China equation

The Japanese and Indian governments agreed Wednesday to set up a three-year, $15 billion bilateral currency swap line in an effort to buttress their economies against Europe’s sovereign debt crisis.

Yamini Chao | The Image Bank | Getty Images

The new swap line–five times the previous arrangement, which expired in early summer–follows a Japan-South Korea deal in October to boost their bilateral swap pact to $70 billion from $13 billion.

The moves signal spreading doubts among Asian economic powerhouses about the ability of European leaders to fix their problems anytime soon.

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