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

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India Morning Report: The lack of political prowess of the Nitish Modis and the NaMos, Advanis and Dear Rahul!

The General Post Office and Reserve Bank of In...
The General Post Office and Reserve Bank of India building from across Lal Dighi in B.B.D.Bagh, Calcutta (Photo credit: Wikipedia)

India Morning Report: And after 5600, is 5500 ..then 5400, 5300, 5100, 4900, 4500, and on it goes pegging poor buyers..

That would be one loose definition of retail investors currently ready to be pegged as not so germaine and India being resilient and a winning post even as RGR takes the board at the Reserve Bank of India. Vallabh Bhansali tried a valiant effort while MF managers ( again to be free non academic and interested in discussing with the educated layman who has other professions to tend) can be loosely ascribed as the educated investors’ abode and banks as continuing bulwarks of pressure for enterprise even as the NPA saga will not bleed anew but will extend its lasting periods well into 2016.

However if you do not ascribe to these notions as a first party or as third party notions of whats ailing india, which we would happily accept is not so, coalition politics to come and the lack of political prowess of the Nitish Modis and the NaMos, Advanis and Dear Rahul are going to cost India inc dear. One of course does not mean this as a crutch of benefits of stable seating charts at the RBI here but the ailments of the system will not be solved by monetary policy and one sees , like the continued selling of infracos and infra NBFCs even as banks rebound on the news of the new Chicago educated governor taking over (Deepak Parekh also was prominent among those welcoming the change). Fixed income Yields and more promisingly CDS spreads could respond to the timely change of regime at the Reserve Bank

Beautiful Gold Jewelry Designs from Golden India
Beautiful Gold Jewelry Designs from Golden India (Photo credit: epSos.de)

JLR results will be down this term, the defensives have been hit hard with HUL and ITC responding negativey to being tagged defensives after just having broken into growth on the trendline for the 3rd time together in a decade. Its a wonder SESA Goa , Sterlite and Tata steel are still falling sharply and that just means the market is unlikely to quit correcting till the CAD measures yet to be invented by us or experienced Economists like RGR and CRA (Rangarajan) are implemented to sustain the Rupee. Pharma and IT, the big white hope of those living and operating other Indian businesses from outside India, hardly seem geared for growth, most sticking to just small additions fom conversions of Fx and Exports though a stable share not growing fr pharma including the continuing risers in Stride Arcolabs o rthe youngest pig to the slaughter , Torrent even as Glenmark and not Sun pharma look great investments for the future

DIIs are still not biting and rates will be hiked sooner than later even as RGR tries to keep the bridge between the politicos facing elections and rolling out the first entitlements bill (in cash).Imagining Jet Airways at 300 levels while celebrating the final inking of a 24% stake from Etihad would have been unlikely even for those who started 5, 10, 15, 20 or 25 years ago.

The Sensex could not keep its morning cues intact going into the 11 AM post morning session and may sjow one more steep eigenvalue of fall on th Nifty and Sensex even befor the weekend comes but then it is becoming likelier at these levels after 12 sessions that the markets will not be freshly bet short and that this time means you should take one big short but it is improbably improbable that from here the hedge you take in buying the Banknifty will possibly probably and without virtual nanobots, make likely more money in the period to August end of series. So, come ray with me the markets last at 5500

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India Morning Report: The future path to robust corporate governance was lined with crises

Holcim and Jet Airways continue to test India’s commitment to robust corporate governance even as the Rupee’s shallow provenance means that the Central Bank is still per force holding Indian finance sector to ransom and channelising Gold Trade to exports. Talking just about India further , the Holcim deal ‘s 7.4 /6.6(after funding Holcim into Ambuja) share exchange ratio shows also the potential exits for Foreign investors not looking to be good governance leaders that cannot be covered by loophole based laws from a nearly dozen regulators, instead of a full investment into India”s new priorities much like relayering a road than taking each pothole out with a “minimum valid quantity” of tar and a pass through roller every time it rains

Infrastructure investment aside there are other parallels with the missing wholesomeness in India’s corporate governance story here its policy leadership and a crisis less 2008 fail to cover the basic lack of provisioning for Good business practices, Good Employment Practices and Good Investor practices that remain yet valid shareholder criteria in India to find out stories head and shoulders above the others who will thus sustain better growth and power. Ideas that are good on all three eigenvalues are probably not overvalued but some (Havells , Heromotocorp ) have been disproved for sustenance from their consumers in their expectations much like Jubliant Foods that could grow higher than 50% for a year or so only and one round of Capex subdued the tiger in it unlike previous examples at Bharti and HUL in the eighties

India’s triage of these Business practices, investor practices and Employment practices  is unique despite there being global movements in the three areas as in india there are barely a Dozen from which the Top 10 lists of employers, investments or businesses to corner among the variegated field (motley crowd) of unlisted, unlisted MNC, Globally owned, Indian Globally owned, outward investing (Bharti, ONGC) Indian Global , Private, Private-Public (ICICI, SBI), Public (Coal), internet only ( ecommerce) , Private Equity, Cooperative , social or other holding structures  that dot India’s Business landscapes. Some sectors like india’s Higher Ed defy any such categorisation as well and have no link to the Corporate ends of the trail to synaptically make the neurons work together.

Hardly 10% of our “interest sample” is even listed or accessible to investors precluding complete sectors like Advertising, Information etc instead of the global sample of a few mutual or private businesses which are nevertheless well-defined with market pricing control policing them much more effectively than any government However shorting private banks like Axis and ICICI Bank in today’s conditions is a n unforgivable error brought on my such extraneous pressure  in the Economy as such banks losses on short funding squeezes are eminently reworkable into their secular 20%+ topline and sequential bottomline growths except for the immediate quarter ICICI Bank esp seems at a bottom at 930 levels and the trader short interest is basically an overwrought hedge for knowing that their is no lower mark than 5980

CNBC’s The Firm ( Menaka Doshi) and citizen denizens like Anil and others defending minority shareholders are a new breed and barely survive in the noise on promoter manipulation, Sahara and Jet’s revenue headquarters migration to Abu Dhabi. We wish all of them the best

All said, Bank Nift’s holding at its bottom, there are no ears to speak of an if you still think the above scenario should somehow affect India’s valuation further negatively, give me a call and I’ll try again.

ITC results will be an eye-opener as Yogi leaves and ITC indeed transitions back to  Tobacco led Consumer behemoth, making profits at Ashirwad and Sunfeast( I hope! for my noodles’ sake)

Wockhardt is still in a bigger soup for its digressions barely days after investors returned to the stock and Bajaj Auto is the only one among auto majors whose Export story has worked throughout from 2006 onwards without a break despite the challenges

India Morning Report: Auto exports pick up at Bajaj, PFC, L&T and IDFC lead plays

The headline tries to get at the difference in the consolidating market of now vs. that of three years ago in a similar situation i.e. within this cycle as the prospects of infracos having taken a nosedive and that of auto sales having hit a rock or two still have not dented or revived the case for an explosion of demand and the few selected beneficiaries in each sector. As always the moves are helped by Banking, in this case new bank licences even as Bharti, ITC and YES retain investor interest but have lost their lead as momentum creators in the market. Jet Airways was repurposed by Tony Fernandes’ claims countering Jet’s path to growth in the last 10 years taking unused Tier 2 cities and airports as model bases for its expansion starting at 3 aircraft and proposing to add 10 aircraft a year. Vodafone’s unilateral attempts on the other hand remain wierd and misrepresented to say the least s they make no sense of price or commodity in question probably trying to get a buy one take one free from the judicial process with the tax case still not settled on the m&a either.

at Airasia fair
at Airasia fair (Photo credit: Wikipedia)

In Energy, brokerages try to play catch up and set a mini trend but with 10-12 more hikes in diesel any fundamental rerating except the positive drfit up ensconced currently is unlikely. UBS upgraded BPCL and Citi downgraded ONGC to neutral. In Auto xports, Maruti continus to scare with losing the plot over old established exports continuing 2 years after the shift t diesel and D’sire models in the Gurgaon and Manesar plants but the MNCs and two wheeler/three wheeler companies ride growing marking of production to exports

But back to index based investors and statistics, now would be the time to reassess the significance of India in Asia and global indices though company based weights have been switched around earlier in April. Volatility should subside and give rise to a positive volatility based move sooner than later after core growth was par for May at 2.3% and Energy prices were realigned without protest. Global Oil and gold prices continue to trace lows and new banks from muthoot finance or others however be unable to get out of the success of their nbfc counterparts while establishing retail having to take existing operations to the bank.

That should also mean more new licences as each of the 26 is also a regional in one way or the other apart from leading from one business segment.And, importantly there is still chance for finance m&a albeit after grant of licences, while Sundaram finance /Shriram finance continue to try and refashion their book to get RBI’s nod currently not available for the deleterious mix o securities from refi considerations. India may ass this lull for ECB finance sooner than later as it materialises that the rupee level is unlikely to improve and thence investors, already back for the ride may get to cook more for the gravy train than 2012 offered.

Also, a note to sovereign asian investrs, this could be the last chance to get into the India story at these levels, and more attractive with a weak rupee as these funds hld more of foreign currency than local currency losers in fixed income and currency

India Morning Report: India needn’t have worried about Fed pronouncements

The only island of yet positive GDP growth with near 0 domestic investment, India could have easily ignored Fed pronouncements overnight but instead as the currency fails to find any buyers fell through at least two credit buckets in a single sweep with the Indian Rupee progressively targeting a 60 mark twice in this week and Oil imports continuing to drag the CAD warnings to future quarters with General Elections admittedly not recognised yet by the market as the proverbial ‘blinders’ to any further cognitive thinking and not many options left on the straight and narrow

The FII investments year to date are unfortunately a never before $15 Billion and the debt market continues to see withdrawals. Yields hit a circuit breaker as the old 10-Y bond was trading aat 7.57% and the tracked 10-year yields have hit 7.37% and will be moving north to track the new Oil bill expenses from here

Coal India Limited
Coal India Limited (Photo credit: Wikipedia)

Though markets would like to believe LIC is standing buying against a whirlwind of sales in equities as well, the situation is much easier in equities with the 5750 breach in the morning probably still the last move of the index south if indeed tomorrow markets recognise that it is much the status quo for India Inc prospects in the entire schema developed by liquidity flows and Europe’s demise in the last few years

Deep cuts in Foreign ownership rich stocks target private banks with ICICI holding together a motley crew of foreign investors and telcos barely surviving with the new FDI proposals lifting the cap to 100% by ordinance. the SS (S2 Analytics), Angel Broking and Ashwini Gujral comebacks today were effective I in particular paying attention to the Coal India short by SS that  should yield Coal India to 260 levels Also BOB may breach 600 but may not have further downside and Cipla and Lupin shorts should be ineffective as also further shorts on Banks despite the new market levels prognosticated to 5100-5300 levels by the Bears who finally caught a break after paying hefty carryover and I am still buying the banks, IDFC and Bharti and ITC for the bang on the upside. Jet Airways is also running the thin rope easily almost on predetermined lines to switch agreements on the Control issue allowing etihad powers commensurate with its 15% holdings.

Also despite the FDI in retail, one suspects most of the domestic investment has already been predated in the new bout as Walmart was already a back end partner and many others arrangements also have not sported fresh investment and thus this marks the deeply worrying sign tallying with the bears that indeed Fresh Domestic investments and thus fixed Capital Formation has yet to find any viable grounds or sources. However, in our final analysis this has all been discounted and equities will not see any money leaving after today’s cut making anything like 5600 impossible for the markets to fall to and even if indices fall to those levels it would not be linked to actual investment withdrawals of note and scrips already selected on the long side will not be impacted.

 

India Morning Report: On your marks, the rally is set to gooooo..

5850 levels would of course cede thru the week as correlation is reestablished and an agreement around the RBI call yesterday seems to have been on target to set the H2 rally in motion. Institutional investors have been selling the index futures hitherto a transparent look ahead hedge initiated for the select longs that have been holding the market above successive water marks since August 2012. Index futures selling aside, the Rupee move should also stop here at 58.50 or above that back at 57.90 whence long buying in scrips thought to be carrying their sectors and the indices are in fact treated to further quality buying

Godrej Nature's Basket
Godrej Nature’s Basket (Photo credit: vm2827)

However in concrete terms shorts on Godrej are a great idea as are longs on ICICI Bank and M&M. The side tag wars of Godrej and M&M in scrip selection if any for both promoters based from ‘amchi mumbai’ are non existent primarily because fo the inconsequential daily volume of 304k in Godrej Industries and thus for your institutional desk it is a single trade scrip, one position ruling its trend and thus will be a short beyond 20 levels too if one wants. M&M and USL similarily lead the remaining value in the market as some smart promoter moves, especially the M&M deal with a foreign promoter scaling up its auto ancilliary units in a single consolidated operation. USL is as good as a iDFC but as the network pick presented (Dimensions?) it is in a strongly invested position. M&M is also important because consumption will also come back in the second half once the recovery is in play.

Banknifty drift is transcendental and unlikely to impact the prospects of private banks leading the rally.  SS had a great pick in Dena Bank and PNB is also a great long. Air Asia and Jet Airways take off on new India inc rides that are definitely more significant than mere exploration with Ramadorai in the chair at Tony Fernandes’ Air Asia and SEBI following up rigorously on the 51% Naresh Goyal controlled Jet and the “???” Indian controlled FDI by Air Asia in almost an established Malaysian treason habit in India investments

The sudden jump in Gold imports still does not mean good redeeming news for Titan or the slip on the CAD but is probably a last hurrah of the clampdown/controls. Jubilant’s correction looks like could continue another 20% down after the move back from 1300 to 960 in pre-open today one also feels that shorts on REC or Jet are misplaced at these levels of 200 and 460 respectively. Buys on ITC and Bharti Airtel are likely t o hold for longer term though minor corrections from these levels as for YES Bank have to be watched for, including any newsy disruptions to them. FDI increases in Banking and other sectors ( though not Media or Legal sectors) are looking likely but within 2014 H1 after government formation is cleared and not in going away policy presents which would e intemperate for the coalition at this point and more importantly for India Inc.

India Morning Report: 5750 is here and it’s Friday

The week will close out thus with FIIs exiting some equities occasioned by DIIs entering the market finally buying 3 days into this Friday and likely to end the day near INR 25Bln in buying ( ` 2500 Crores) for the week

Mid term traders would do well to avoid exploratory tips like SS bidding out BOB into a new spin after it hit 630 yesterday which is unlikely as Markets respond strongly to the week’s closing glad to go home with no outstanding positions and no Rupee trades left. As shorts exit the Rupee ( if they were still on after the GOI move mid week) there may be even more bullishness to close the week. EM bonds as of now do not equate to India and with DIIs also buying, any resumed buying will mean quicker move up in volatility providing keen traders new choices in scrips going up not down

Jet Airways and the sharply corrected YES Bank would be my picks to start and if none of the two work for you, switch to ICICI and IDFC or ITC and bharti as each of these twoples are likely to work together on different sentiment days on the upside not unlike Axis and Bajaj Auto or Axis Bank and Idea two weeks now. F&O straddles at 5650  were a great pick or strangles at 5600 (sell puts) and 5800 ( sell calls) but should be ripe in today’s open , vol having moved into the 2s.  The safer ones going by the network pick recommended at 55/59 should let it sink till expiry and pocket the 44-50 they might have turned in in the setup yesterday

Europe and US should not have much of a move left  to close out the week.

 

 

India Morning Report; Rupee hits final free fall, Equities avoid snag

English: First Rupee, a Rupiya Silver coin, is...
English: First Rupee, a Rupiya Silver coin, issued by Sher Shah Suri r. 1540-1545 CE. image from personal collection (Photo credit: Wikipedia)

 

Rupee responded to the 57 mark hit on Friday and this most of the week will continue to manage all the reations to new level of the rpee before it probably heads towards a new “equilibrium” range for 2014 with RBI intervention missing till Friday evening being a minor risk to the prognostication of the leves around 57.50 ranging back to till 56, if the Equities funds flow impact is actually turned into seas of green this week or early next week itself.

 

The news of US having recovered based on the z1 report (Financial accounts) of Thursday, is a Fed push again from better days of 2013 and the recovery in retail and requirement of a more robust sustainable inflation has pushed the QE withdrawal to 2014, but a token notice is likely to weigh in on global funds tracking in 2013 esp towards Q4

 

The Banknifty is very pliable from 12150 es the bad boys of PSU led by the surprising bite on BOB books, which have probably bottomed at 660. Justdial is unlikely to be jettisoned by IPO investors in a hurry,  Dominos (Jubilant Foods) and even Jet Airways holding a good “precedent’ for them and thus social networks are likely to keep JustDial levels higher above 600 for another 90 days before a call can be taken for Secondary investors in terms of post IPO investible levels

Yen is crossing 100 again on the upswing from 95 level and will be backed by GSAM among others to new 110 levels esp as US hedge funds may not exit April May shorts on JGB and as long as the interest rate risk on the same is managed well by BOJ, Koruda taking over in his last six months from PM Abe whil currency falls could probably now sustain with a lower level of sales of JGB

Day Trader picks have moved on from trying to short the Top 40 visible, high capitalisation scrips to probable better success rate in small and mid cap picks. Yes Baank corporate governance hiccups with the succession battle not being insignificant keeps it out of trading orbits likely ranged  while flying passenger miles this month or retail and real estate credit jumps at ICICI Bank and the rest are unlikely to be very strong in May or june despite the pressure on the Rupee not tranlating into consumption economy pressures for India Inc or its consumers, imported components driven only by the movement of Oil rices, getting better if oil prices in fact continue correction

 

 

 

Where the Rupee is used
Where the Rupee is used (Photo credit: Wikipedia)

 

 

 

India Morning Report: Cheerful markets for FDI inflows, Pensive memories of a growth phase of IT industry

Jet Airways IFE
Jet Airways IFE (Photo credit: Wikipedia)

 

If IT were a mere product than employment for millions, it would be seen to be in its mature post growth phase ready to be phased out by a new product or business. That is not a valid hypothesis, and perhaps not a valid criticism but yet a good attempt at slang , street smart catch up with the good times. Even as HCL Tech follows Wipro as Wipro opens the week headed to more than 10% lower at open, HCLTech will likely lead them back once they reach a sub 300 level here. As long as we are on the out tray, ( out of fashion vs being the ‘in’ of the last two decades) one might also reserve judgment on the golden M&Ms, Mannapuram Finance and Muthoot, both actually having been thru worse in the last two weeks but that we’ll underwrite as being on the up and up from here, calling not just a bottom but an active clawback, though one might rule out active recovery in these till results season stars are over and infact the same can be ruled out in most of the midcap.

 

On individual scrip recommendations apart from commending the HCL Tech short by Mitesh Thakkar and exhorting my readers to go forth and make profit on HCLT.NS corrections, to join the stream and strengthen it for bigger payouts I would just add one bit of caution against non recommendations by Ashwini Gujral on the Jet Airways story. Anyone who thinks Jet will remain in this channel and not reach 550 again is flawed or limited by their prior analysis of a different fundamental and as Technical chart Guru Ashwini G. will just exit this limited (non) trade idea of his once the scrip beats prior targets and resistances and Jet Airways per se remains one of the strongest MidCap non Blue chip picks in the Indian markets on par with pharma midcap plays which realty speculators and chart gazers run easier with because of studied volatility and proclivity to oscillate in SHM around the mean traded price almost at beck and call.

 

Similarily Mr Sukhani’s view on banks and the nifty are always a little tentative at ‘U’ turn moments and one should not discount them in a hurry nor excessively mind them while looking at even positional trade except when one expects to run in for an intra day bet or two. Bank of Baroda may not grow faster, higher and stronger in a hurry but Banks per se have been out of favor unnecessarily for long part of the 2013 trade and as they remain half the market cap and two thirds of the liquid market one would venture its the easiest pick to grow with if one chooses YES Bank at this time, headed to unknown heights on its stock price.

 

The April series has seen a 14% decline in IT till Friday and the index is safe for 5600 puts sold positions to build further as booking profits on sold puts of last two weeks is likely happening in the first session (before noon) as we speak. The Land Acquisition reform Bills are to be keenly watched before the market tires of this brief comeuppance yet to be characterised as a rally while Fixed yields weather down to 7.75% in grudging admiration of the Rupee’s performance, inflows and the fiscal accounts. If the yields had indeed been leading the trend basis the conomic forebearance of India inc and the improving data, they would have fallen to closer to 7.25% even by now and thus one sees a lot of strength available to equities if the results and statistics can keep the faith making a mid week tentativeness a good point to start a big positive institutional trade even as HMT restructuring is approved and coal supply agreements signed. Coal India’s divestment plan is still threatened and complicated by the LRB (Land Rehabilitation Bill) being on the table in parliament and the Food Security Bill precariously close to being threatened by a cornered but fragmented opposition

 

 

 

India Morning Report: Value breakdown continues to reassign Nifty weights, banks in trouble

Of course Banknifty still has another 1000 points to go but the ramp down in PSU banks comes at a price for ICICI Bank and HDFC Bank specifically and PNB’s rise similarly would cost the markets more understanding for the non performing PSU Bank portfolio that will also rise, PNB having no real score on NPL performance either, clubbed with the worst of n=”government owned banks” whose non reporting of NPLs in time earlier costs the Bank capitalisation a good 10% on more than 5% of the Loan portfolio having to be put to waste immediately.

Delivery flight to Gander 737-700 Boeing Field...
Delivery flight to Gander 737-700 Boeing Field – Seattle, WA August 9, 2007 (Photo credit: Wikipedia)

Jubilant Foods has a short call on it finally even as Jet Airways continues its uptick and IDFC also corrects till policy execution calls die out or are converted by the government positing as always more on fare hikes which can be rolled back and diesel hikes that cannot be implemented from the looks of it. Add to that , traders and investors (foreign) would also like to see actual divestment in Hindustan Zinc and BALCO as Vedanta has already made a good offer for the residual stake and legal issues bogging down this government would not be easily tolerated. But then the spectrum discussions have already panned out for the government after the setbacks from the Judiciary almost a year ago.

A Jubilant Food, Titan and JP Associates move down could also signal today being the last day or the endgame of the correction as the weekend would likely be positive for the markets when they open on Monday. All in all a lazy Thursday and a reconnaissance up for markets on Friday tomorrow as they figure out any new costs of arbitrage on fundamentals as we remain part of a high interest rate economy in terms of market structure with growth concomitant with inflation and depth of market  ( as opposed to nascent high-speed growth in Indonesia, Thailand and even Pakistan) coming at the cost of lower available floating stock with only 3% of the population at high tide estimates investing in equities and Domestic institutional portfolios and Asset allocation strategies well-worn with two decade old picks.

Pharmaceuticals are doing well as they are not undone by circumspection or saturation at lower levels of penetration still dogging both Discretionary and Non Discretionary consumer plays

English: ICICI Bank - Leeds Branch - Roundhay Road
English: ICICI Bank – Leeds Branch – Roundhay Road (Photo credit: Wikipedia)

India Morning Report: Standing on a vertical ride at closing..

NSE Logo
NSE Logo (Photo credit: Wikipedia)

Does not leave much to imagination or prescience after the Nifty travelled the Vertical Flights of Fantasy to 5950 levels before closing gong struck at the NSE terminals and the soon to be public BSE that the markets are a settled lot in the morning and a final big correction is being ramped up in commentary to a big killa round hopefully over 6100 levels .

That means the Nifty and the exchange has another big weekly move  and probably not immediately next week though looking at the eagerness with which the House of Elders vote on FDI brought to profit taking it is obvious the wait and consolidation has been a long one even for FIIs or as some mention, most of the floating stock is yet gone.

In true indian market fashion I can duly see without undue overanalysis that it leaves opportunities like Jet Airways and Orchid Pharma ( as it negotiates with late lenders like IDBI Bank) for a grand capital appreciation burst. it also shows that markets have matured to the virtual exclusion of retail players though US markets can still claim to over90% retail invested in equities , but one guesses thru discretionary and non discretionary forms of institutional and hedgie managers.

As mentioned yesterday, globally alpha is back in vogue meaning India is likely to remain in currency and the market has thus that upside led by players like YES Bank and other private banks wwith double digit growwth left in this rally for them and other blue chips for the mass of your portfolio to settle down with.

Ramesh Damani looks to be in good form as always making the next level of case for a big correction for indian / DII buyers after the likes of Ashwini and SS failed to get markets to see any worthwhile correction in the meantime but it is probably time to see some institutional buyers move or rather churn their portfolios to the new limelight , even though they might feel like still holding on to Indian Pharma and even dabble in fiscally imprudent PSE banks on their indian panel’s whims.

Stride Arcolab continues its run it missed last week as Maruti and Baja Auto stay with Biocon to catch more idle profits on the take.

 

India Morning Report: Really, you want BHEL and L&T back – the new bust cycle

Bharat Heavy Electricals Limited
Bharat Heavy Electricals Limited (Photo credit: Wikipedia)

 

The previous one of course was having to sponsor harmful, noxic ( noxious, toxic and a mouthful of names for the new knowing breed of Indian broker houses) but powerful psu banks even though they were improving on NPAs. This cycle though we have consolidated well, so called speculators find an excuse for misgoverned and misadroitly travelling comets ( limited shelf life, bound to fizzle and skizzle near ones) in BHEL and L&T governing models of both are beat and got propped up only temporarily for a few and now do nothave the dime to last the bad times coming probably. Un fortunately, that also gives the excuse to the noxic PSE banks to be speculated from their “new” bottoms but they remain negative accretions to your portfolio and India GDP even at the new prices

 

However, that bust cycle could be a long hill trek away as India manages to snag the plus flow cycle from competing assets in the nearby shallow and giant yielding emerging markets with the same return with the slightly elevated interest rates around 8% at their best. Fixed Income markets would repsond positively to this expected change in flow as the change is a stable one. Bajaj Auto remains a top pick but would be a slow accrual apart from its speculative bursts and more or loss maintains a very small edge over the Munjal company ( Hero motocorp) even as the Munjals hope for more motivation for their dime in the compete with Honda which will continue to ddrain the big bellwether

 

Deutsche Bank has lost its banking mandate int he subcontinent and as boutique firms are now few and far inbetween in dispensations like India one should be careful of their current foray of picks into the india consciousnervously ready to get forced to withdra further despite the increasing eight for our diaspora in Asia governance and Anshu jain’s inspiring knowledge of Emerging market superiority in the new equation.

 

But then this opinion was probably wasted in a morning report and further detailed analyses are unlikely to follow unless pulled into the dime

 

Biocon is on loose but so is Stride Arcolabs Orchid and Optocircuit as also the Lupin Lab and the Cipla teams which thankfully seem to have let go of a divestment opportunity because they realise more premium is deserved and were not clubbed into a distress sale as was Jet Airways lasting the seige to come out with a 24% stake for etihad. Of course, that means that Spicejet and Indigo have the best possible premium likely in the hunt for the next deal esp as Emirates egts into a twirl over etihad’s close on the deal. Meanwhilw, thankfully the rush for Africa has not resulted in new redfining markets as the India story has hardly corded into the move to build and operationalise the right infrastructure

 

 

 

 

 

The 2:30 PM pre closing update August 06-10, 2012 – Jet Airways, Euro, Pound, Reliance and Healthcare

 

 

Monday pre closing looks dyed steeply in the after effects of a turnaround in Dollar fortunes from tokyo close to London open and the equities are just about holding their opening tricks. The Rupee will likely fall through to 56 all over again, but the Pound Sterling may have better luck in keeping Britain competitive as its data is weaker and the strength in the Euro has been cut short so look for the Pound to let the Dollar a good lead and indian stocks to continue rerating on results. Wockhardt and Divis Labs were eyeopeners , likely moving the move from CIPLA and DR Reddy and SAIL(EBITDA of 13%)  and Britannia not so good. Reliance is hoping for better GRMs in Q2

KOTAK and HDFCBANK brought up the cream of the post morning rise in a surprise move in the last few minutes, HDFCBANK hitting 600.

English: JAI210 arrives SFO Jet Airways – Boei...
English: JAI210 arrives SFO Jet Airways – Boeing 777-300 ER (Photo credit: Wikipedia)

PE transactions have increased volume of resales as these secondary transactions could create additional liquidity of upto $100 B in the Indian deal market allowing PE firms to update valuations based on market price and look for a better profit than ina long drawn out listing Airports and Aviation scrips are getting rerated again, at least I think both should even as BAML tries to jump Jet Airways and Spicejet on the Sales and Lease Back profits. Jet profits of INR113 mln include INR500 mln in sale and lease back and apparently some defered tax credits. Jet Airways revenues are up only 5% in Dollar terms to $847 M (INR471.2B) but have a clear line to add to International Star Alliance for code share push to profits and has a seat factor of 82.7% in Q1  FX losses of $31mln could not erase Net profits either.  ATF prices actually rose 13% over Q1 FY12 International operations have made a minor pretax loss of 2-300 mln

Annual revenue of the quarter is up 31% still under $1 B ( lower by $52 mln) but EBITDA MArgin has doubled to 16% on Konnect rollout and ATF decreases will roll further in Q2 . Jet lite yields are up 43% on the year ago Q1. Passenger growth of 10% domestic Y/Y ith 4.86 mln revenue passengers flying an average of 1749 Revenue kilometers

Ofcourse some bank results did spoil the day in Andhra and dhanalakshmi but nothing out of the ordinary and ING, indusind and Kotak look well slotted for the froth of this run, if there is any while YESBANK and ICICIBANK lead wwith HDFCBANK consolidating another big move

Resturctured Assets bought into equity by majority foreign owned banks like ICICI BANK and HDFC BANK will not count to FDI and will be allowed while new subsidiary stakes (strategic investments ) willnot be allowed beyond the FDI cap in the secotr as Indirect FDI

100% FDI is allowed in Commodity Broking however. In new regulations, Insurance Cos have been allowed to purchase and sell CDS contracts as part of hedging portfolios

 

 

 

 

The retail lifestyle champions: Jet Airways saves face , buys new Boeings

Jet’s Q3 losses came at a low INR 1 bln as it saved up from asset sales of INR 1.7 bln and kep itself in operating profits. The jet order for 17 boeings will also help india’s Capital goods indices this month

Jet Airways ordered 737-400s and 500s for its fleet, probably exchanging out older Jet lite planes though it was its fourth straight loss since September /December 2010 conditions worsened in fuel cost overheads, wiping out gains from Jet Konect saving plans and this being their first of many sale and lease backs adopted by the Industry at Indigo and Jet Airways

On sales of INR 3437 Crs in December 2010, the airline flew 13% higher year on year and expects to keep growing sales if hikes are passed by AAAI and if no further costs imposed by DGCA action, the airline will keep posting cash profits

According to mint, CAPA revealed a loss of $30 per passenger in domestic flights in India. Kingfisher and Spicejet may not be able to hold their bottomlines to a sane number as they allow losses to reflect their financial uncertainty, demanding policy action/handouts

Godrej Properties purchase of INR 1.06 bln from the BKC premises and FX gains of INR 1.76 bln also stopped out losses but the airline bucked expectations of INR 3.5 bln in losses

  • Sale and Lease back allows it to keep Debt constant and it cana lso start paying the INR 14 0 bln debt from the SLB proceeds. The 17 aircraft are on options thus guaranteed at a good price.

How to make money in Lifestyle businesses!!

Coracias benghalensis English: An Indian Rolle...
Image via Wikipedia

Both Automobiles and viation industry are strongly hit by the current banking slowdown but more so because of energy and fuel costs as well as staffing costs making profits unlikely for the latter.

Both industries, however , remain the bright spot in India’s fabric of the future, leading growth segments in production and services. The car industry makes money in this unlikely scernario by passing on price hikes , with concurrent big doscounts of upto 10% while airlines wherre discounts ar part and parcel of all ticketing platforms till the d ay of travel, money ois also made in the usual charter/laundry list of udealised safety requirements as the DGCA report.

While Jet’s not running one third of its flights after announcing them because of poor occupancy, Indigo is reusing entire engines and forced to announce “premature engine removals” to keep its aircarft flight worthy. KFA reuses spares from grounded aircraft while it is avoiding paying salaries, both practices likely last

Departing on a test flight
Image via Wikipedia

resorts in a bind they only are responsible for. Spicejet int he meantime is yet to print or operationalise Flight operation manuals and thus does not spend much on quality assurance currently.

I’ll give you a dime, if you find this chaos live during your business/ personal last rush/ economy flight except if you have paid large diiscounts on your ticket (then also, only for certain personalities) It is mostly int he service, f course both industries spending on talent and retention in various ways

English: Logo of IndiGo Airlines.
Image via Wikipedia

Energy costs pulling the Indian skies apart

Kingfisher airlines, taxing in Bangalore Airpo...
Image via Wikipedia

Kingfisher Airlines is on the verge of a breakdown on all counts, with losses of more than INR 7 bln every quarter and 1 in 3 flights canceled from the planned 469 flights by the airline, with only 36 announced as rescheduled and none noted to the industry regulator.

Jet Airways losses are the worst in its history at INR 7.13 bln and Spicejet has already reported earlier in the day at a INR 6 bln in losses , the two being in profits albeit less than 1 bln in the September of 2010.

Unfortunately, the only thing you can pin down is apparently something you cannot control and that is the 50% of the costs going to fuel, which goes thru even more hikes than at the retail end. ATF prices are a lowest of INR 61k per kl in Delhi. Energy costs are INR 14.8 bln for Jet Airways on Sales of INR 333.2 bln, and a even higher INR 4.78 bln for Spicejet on sales of just INR 7.2 bln

Airlines woes have led to losses after losses since October 2010, as losses of INR 29.5 bln were reported by indian airline companies last fiscal and have already reported INR 33lbn in losses in the first half of the year

Aviation as a sector needs a lot of gestation and a belief in cash profits. Foreign investments can help and first and foremost the regulators and the Ministry needs to help the beleaguered airline, with only INR 60 bln or $1.2 bln in debt and a fleet of 140 aircraft, it would be unfair for the airline to leave midway. Vijay Mallya’s Kingfisher has asked for more operational credit to run the airline even as dues mount uop for ground handling and fuel with the state oil companies. Some of its staff seems to have gone AWOL yesterday forcing it to cut more flights.

However that the government has to help is also prima facie an issue with india’s bankruptcy protection laws from the examples of GM and United Airlines that has come back multiple times from bankruptcy and earned fair profits. KFA had already restrcutured part of its loans and mismanagement if any has to be monitored and weeded out. Banks already own 23% of Kingfisher. UB spirits is processing a sale of more equity to its global spirits partner Diageo

But all these are just bemused observations as Aviation remains a requirement and unavailability of cheap and extensive airline connections in a country like ours or without quality from being a state carrier make our enterprise no better than that of Greece and its wayward ways. and Indi ais much better off. One cannot dole out aid at will or single out Kingfisher for its cabin amenities at this juncture as the cost charts show up the problem of keeping fares low in an incendiary fuel price on the ticker. Till last year, more may not have been said, but operational efficiency at all the three airlines mentioned can be seen to have been maintained and no cash saving avenues seem to have been unexplored, leading to an inevitable uptick in fares which governments have not alllowed them in the last 2-3 years as also rules of flying low fare competition.

(mint) KFA will now run 300 flights daily to 54 destinations.

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