India Morning Report: The weekend cometh, markets head north for the final relief rally for the week..

Detailed map of Indian national highways.
Detailed map of Indian national highways. (Photo credit: Wikipedia)

Almost like a movie building the relativity of negativity into the eigenvalues, the markets will duly uncoil in the week’s last trading session to entice investors back. Idea’s 50% PAT growth performance on 8% year/tyear growth is probably the best for the industry which makes it Idea’s seventh or eigth such hurrah ina rush order for the street. Data s now pobably double digit revenues after another 100% jump in subscribers. Infra and FT saga continue with the National Spot exchange and the IRB kind of market leverage habits of promoters showing up the small companies into veritable oblivion in 2-3 sessions indian QIPs may watch out as short term debt issuances from Indonesia failed putting markets on hold for the continuing Dollar armageddon even as dollar weakens at home in light of better growth prospects

Jubilant results won’t be so do not bother but some media houses may be back this quarter and the next as advertising revenues will likely imrove after the rush of sports events in India in the last couple depressed some revenues, ( and some other reasons, private to experts in that business sector)

IOC is down 50% from its peak in May when Banks were still in our cross hairs ( we were and are taking India up with the banks, if you sill want to snipe instead into our homes) The December 2012 closing values of IOC far too depressed and ata time markets had not recovered value in that sector, were still near 260 and today’s prices are a quarter down from there even as hikes went through in time.

Powergrid and REC are back and we will continue to use them both in the same breath and thus not in the same pair trade, which would be with “xxxx” IDFC, PFC, PTC are also all headed north but may still have hardly 55 on the downside before markets delink them from bankrupt, over leveraged infra mid-caps as earlier.

This may be your PIMCO year in India even as Al Erian recovers his Bond Fund equanimity with some including me still defining a double digit interest rate scenario in India as not improbable. PIMCO, if you recall lost two years of the crisis betting on interest rates steaming out of their ears when they were taken out by good fixed income demand for bonds in 2010 as I remember. But the Pittsburgh Pirates and PIMCO are since doing well.

Bajaj Auto correction on drop in monthly sales portends of more naysayers testing the automaker for continued sales performance above 300k in motorcycles as the peers give up sales on the auto sector’s trouble with slackened demand and an eye on primary sales inventories remaining too high at this time precluding that Vendor strategy. 6 new discovers are launched from July to December and B A is avoiding invoicing the old Discover for lower numbers this month)

Motor cycles were 280k in July 1, 295k in July 2012 and total , with exports also breaking stride equally, 320k this month

YES Bank and HDFC Bank have started recovering value, and HDFC Bank may well trace the market’s upside trips switching off during correction for a great single stock accumulation strategy for those wealth makers not interested by available SIP and STPs in Funds

 

A breather of such length usually means a desperate short that does not work ( Markets open 30 points lower)

 

A shallow correction to start the trading day

This one though is futile as the market reaching too low a level will disappoint investors who came in more than three months ago and have stayed with another $2B coming in July and August in just a couple of weeks.

The markets are itching to trade down but have no idea if even t expect any new buyers at this stage and the correction is unlikely to be deep unless there is another inopportune exit from unsettled investors which could trigger the move to 5200.

Coalgate’s juicy details have admittedly missed me but the anti incumbent air in the coming bout of state elections would be a blow for the country and commentators would be watching

A leader in mint adds spice about firm funding for political partes in the India election scenario with BSP bypassing 2004 and 2009 poll events without a single donation (above 20k*) Companies fund parties thru Electoral trust singly or jointly with others. Another report on Page nine shows Maruti keeping its market share in August car sales with its 54000 cars still a sizable %centum of the 118000 cars sold excl those in Export markets taking the monthly low to below 160k runrates recorded in 2010.

TV18 commentary has hit a new low with LV taking morning market open duties and destroying more market momentum ( positive or negative) than she imagines(!)

 

The India Inflation report July 2012

 

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

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

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

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

 

Rupee Impact: ECB & FCCB, repayment due 2012/3

Indian rupee
Image via Wikipedia

From a FC  article of two weeks vintage, it becomes clear that not all the $10 bln FCCB debt holders in India ( FC says $8.5 bln outstanding) including Power sector projects, Kingfisher and the others like GMR Infra will be lost when interest payments and outstanding debt eat into their profits as FCCB / ECB debt holders contemplate the sharp fall in the Rupee. From 52.4 right now  which is beyond the March 2009 lows, the rupee can probably not find a range till 55 with many caught  off guard by the pace at which rupee positions had to be liquidated in the market,. Lets hope SCB is also trading the new trend in profits since October 2011.

The 22% fall in the markets this year may see a further breach though the morning’s signs of trying the 4700 levels are encouraging for a falling only market trend. The ECB debt holders have already reported large 300-500 crore losses on their mark to market of Debt in the September quarter, but the silver lining is that players like Reliance Power have actually repaid $300 mln in October itself. The FCCB holders will be asking these companies to pay out on their ECB/FCCB in 2012 alongwith a host of other companies to the tune of $2 bln saving them the atrocities of the currency movement likely to continue in the future right now for the next 6 months given the surprise and the pace of the downward correction this month. Those at extreme risk are the corporates raising fresh “cheap” external debt in October to $2.36 bln incl. GSPC, Mundra Ports and IDFC.

 

FCCB vs ECB vs Rupee

The overall External Corporate Debt for Indian companies has grown to $30 bln in 2011 till date from just $10 bln last year in 2010 as per an ET report. Most of this addition is however on the short term side and many of the FCCBs which are 1/3 of the Dollar/Euro loan folio are due for conversion by 2012/201 when they will be called by lenders and if repaid as is likely in moist cases, they will not present a problem. The last crop of borrowers had a very different set  of objectives and the problem is unlikely to crop up again as not many envisage default or rollover and when given a chance will repay the loans to cut their losses as borrowing costs of 8-11% a full 200-300 basis points ahead of domestic costs get negated by he 15% adverrse movement in the exchange rate for the rupee (USDINR=X)

Some examples of smaller midcaps who issued high conversion price debt 5 years back like KSL, Sintex, Clearwater Capital for Kamat Hotels have been having much more limited success with resolving with either due repayment in May 2012 (KSL) or conversion approved by lender to 24.5% stake with promoter majority intact in Clearwater case and zenith and then Sintex expected to default after taking a 40 cr hit on earnings (INR 400 mln per GS analysis)

IMPORTS ARE UNHEDGED, EXPORTS HEDGED

The problem is that 2 in 3 importers are not hedged on their position and likewise the small advantage is that IT companies unhedged on the Dollars earnings and Gems exporters who paid for their imports in Cash are going to add to cash profits to the extent of at least 10% of the 14% movement in the Rupee since July and veven more if the rupee tries to get to 55 quickly

The inflation impact of the rupee depreciation will be hard and fast with Oil holding steady , All in all an impact

This is a building shaped like a sphere, locat...
Image via Wikipedia

of more than 20% of earnings for those unable to liquidate the external debt on their balance sheets. But new borrowings have been short term heavy in 2011 and those will be purged by 2012 with a 20% of debt position at risk of loss on the interim results / FY2012. Infy has also degraded earnings despite the uptick claimed mostly by unhedged Mid caps and HCL Tech is a big loser as well, with hedging strategies turning upside down and Treasuries sitting on the old ones.

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