India Morning Report: TESCO gets in the door, Another rally on the brink and a few kinks in the Bank Armor

Whatever be the State of the Bank Champions, Banknifty has bottomed out at 11,200 effectively esp with HDFC Bank hollowing out the tube on a 2% cut in MSCI weight to just above 5%. Coming back to the fundamentals then, it’s a beautiful morning when Banks and lendees have to get into line for a little justice being served. Though ET very adroitly , slipped out of mentioning any of the technical line items by the NPA sub-Comm at RBI Headquarters, the NPA guidelines will go a long way towards getting the banks to wake up to a new, faster era where they cannot use just proximity to the promoter as cause for underwriting. Specific colour coding of the timeline to NPA forces a beautiful transparency onto the banking system.

Currently Banks are prone to getting CDR notices around the 90-day deadline when the loan assets sour into NPA and the current accounts with more than an INR 100 Lac overdraft exist in such plenty that they are not duly raised as line items fraught with default risk for the bank. RBI draft guidelines also propose red flagging the Promoters and Directors of such businesses that are prone to turn purple in 90 days from the first Default so they are not wont to hop from enterprise to enterprise or engage lending officers into such a scheme that encourages adverse selection.

Au Bon Pain logo.
Au Bon Pain logo. (Photo credit: Wikipedia)

ET actually would be one such enterprise forever on the brink that has to prove its Financials and its intentions and has limited its own borrowing capacity but that may not be interfering with editorial ethics and it is not unlikely however that the same will be one of the discussions in this CDR friendly patch of Indian Banking’s jump across Futures and Fortunes from the casual officiousness of the nineties to the brisk professionalism with Corporate , SME and Retail borrowers in the 21 st Century post a global crisis

A last rate hike is coming and the rest can be entered in the post policy announcement today, in a few minutes as markets last without any cash trading in the first hour and some.

The IOC divestment is good news even as Markets drive the stock down to possibly the lowest realisaations from the stake sale. The Trizivir approval is coming through for Lupin while  the same USFDA has akso approved Lupin and four others including Sun and DRL for Cymbalta($5-6 Bln per year) generics in the US domestic market (anti depressants ) Sun’s SPARC lost a generic application (LV/CNBC18)

Auchan
Auchan (Photo credit: Wikipedia)

IDFC and ICICI Bank as mentioned yesterday have righted the price trend amidships. If you are looking  at other rate sensiives suriving the coing high interest regime and leading thus this India recovery, apart from ITC whose core business showcases highly inelastic high demand for its products any consumer staple business especially in Foods is an equally good proxy as Food inflation will continue strongly thriu 2014 whether rate hike or not and GDP growth restrictions continue to bracket very few non performers except the NPA ridden PSU Banks. NPAs in the system rightly would correctly jump to 16% of the assets in the high rate scenario

And yeah, I belong to the minority that likes the sharp reaction from India to US trapping of Devyani Khobragade. Even PPP does not cover half the gap between Service costs in the US and in India

TESCO right timed its entry apparently in JV with Trent. The London based retailer is a welcome substitute for Walmart in a touchy state -Center source of friction in an iportant policy hot pocket. TESCO lands in Maharashtra and Karnataka with its first two Large Format stores ( though thyey are really bigger than the Auchan Hypermarket format) Other non stock market related news for retail came from the otherwise listed Spencers’ owners RP-Sanjiv Goenka who are taking Bangalore’s own Au Bon Pain national. They are the first Master Franchise looking to own all the coming India ‘stores’ of the Coffee/Sandwich chain (QSR). Apparently national footprint for Au bon Pain entails more 1800 sft investments whereas they have rationalised on size in home district of Bangalore except for the flagship restaurant on MG Road

The Bank Policy Date goes by without a change in rates as the RBI advises against an over reaction to the good news while they wait for data

India Morning Report: 6220, then, true bottom, market move up please.

Namma Metro
Namma Metro (Photo credit: ashwin kumar)

More impressive than Horn OK Please, but then two wheeler riders deserve beter(sic?!) or not, National Highways are safer for Trucks and Four Wheelers and so no, this headline is not about the mow down of two wheelers or by two /three wheelers in the urban meltdown. The 1000 odd rich families in the People’s Republic are treated with such disdain twice as vitriolic as attributed to the rowdies on Indian roads and they are definitely equally cognizant of the traffic rules as the four wheelers. As I write S&P seems to have marked India’s rating to stable.

More often than not, these urban snarls on the way to work have lately been marked by spots of new construction hanging because of bankrupt cities and states or other EPA/non EPA but documentation relation bottlenecks the construction crew is pretty used to. The BMRTC however, continues to break the mould in setting the benchmark for delayed and inept project handling, while the Bangalore Metro remains the only pristine mass transport crew in the world, after 15 months for nothing else but the 3.5 km distance it covers in totality to the CBD.

A “Dadi Balsara” inspiration that could work for the city and other Indian cities, is to break Bangalore into 3 different urban entities, not a loose conglomerate /federation of municipal divisions/organisations like in Delhi but cities with passports , if required, to travel in between. Singapore has managed very well with the urban transport problem and along with the Scandinavian cities that started it, London and Singapore remain great examples of how to create and grow a city infrastucture and plan urban Transport

But then, I am in the 9 to 5 mold like most Indian 18-40s and more or less wait for work to come to me because that is the smart thing to do.

English: COMPULSORY SOUND HORN sign
English: COMPULSORY SOUND HORN sign (Photo credit: Wikipedia)

Markets are dull, lifeless and the nose is pointing up as 6220 held and will declaim into the biggest rally yet as Earnings season successes have put the GDP growth residual to the crisis into a proper perspective, India becoming one of the most undervalued domains and like US equities, the depth of the market gets its own sponsors while Currency and Fixed Income woes almost strike a t will, the lull taking again a single seller to push a sharp toll on the incumbents, the currency lopping a wide ball to 63 and yields kissing 9% . The RE60 quadricycle will be good for the Indian soul and perhaps sponsors like Prince RJ will even push for it to displace the 800 (in the minds). Bajaj Auto, suffered a setback despite  adding export numbers in October as markets remain uneducated about its portfolio and expectations are at variance spurred by the single line item hope of the return of Hero in this Festive season. Three wheeler sales are strong again and M&M is making a comeback in the Global Auto sector citizenry where they have made a unique impact ( not from 60s history but here and now)

Those who watched it will be carrying it home as Rajeev Gowda handed the BJP and CNN IBN an apt rejoinder on the Poll /Survey action initiated by the CEC ahead of state and General elections. Results season is over not just in the USA but here as well. The remaining PSU banks and Dhanalakshmi Bank and Dena Bank report over the weekend. Next week sees more MNC Pharma results and Sun and Stride Arco labs  report big earnings quarters, Sun Pharma closing on the 14th. Both Cipla and Sun Pharma report on the 13th and Sun could wait for 14th morning before appearing on the networks as Stride Arcolabs reports. Tata Global (Starbucks) reports with the Reliance pack on Tuesday/Wednesday

RBI guidelines on Foreign banks entering thru the WOS structure plug in the statutory gaps  but cannot more than show their good faith and welcoming arms for Foreign banks who are already staring at cutting themselves out of more regulatory capital holes cropping up to bear the expense of global expansion hitherto unfathomable in an industry used to being welcomed on the strength of an opaque global HQ without farming Capital to such “territories” Even as the regulations are required and Indian Bank sector will expand and mature with a growing debt franchise , India has already been bracketed into an “exotic” category with the likes of Brazil for its reliance on traditional lending products in the credit basket and the split from shadow banking ties or one still believes even the lack of depth in wholesale funding. Also none see India as a pioneer for having always kept the inter bank market to a minimum as global banks fight the war with regulators for drying up the inter bank market. Credit continues to contract in Europe at near double digit levels, the single most factor affecting banks even as they stabilise the new era of growth and the best in class retain double-digit RoEs.

India Morning Report: A sudden change of heart(afternoon) as Banknifty breach closes up

English: Logo of Bharti
English: Logo of Bharti (Photo credit: Wikipedia)

It wasn’t a wren and martin breach however as the morning saw weak NPA stories slitting from private banks in the Banknifty components, but as that grouped SBI and performing PSBs such as PNB with the weak quality ethic portfolios the breach rather filled up and the traders move on the Nifty south frrom 5950 itself has been closed by the afternoon before morning FTSE and European trades took business elsewhere in the global 24 hour timeline for today’s markets.

Trade data showed exports up to $27 Bln, a nice growth dividend , though a one off in the year  also leads to shoring of sentiment as the weak India story tries to grip old India pockets in Financial centers like London, themselves struggling to make a mark in what started a s  a benign year of recovery.

EMs are back in portfolios and Services Indices n India and US are under pressure from spending cuts with Euro still hot in afternoon trades as the October FOMC passes by tonight with a mandate for Yellen. SBI got a shot in the arm after the duress long exected in the stock, as the SBI GM in place and a likely future Chairperson, Arundati Bhattacharya explained the process of shoring up quality  in detail and IT investors and other traditional India trades tried to ngulf the bank’s weak asset quality in a single south trade on all government owned banks

One still wonders if changing norms to release Government Bills and long dated bonds from controls will work for India wih such strong anti-measures from the  “India Bull” community

Also on the credits is the way Bharti managed the press bytes and the non devolvement of the story around a crushed Walmart in the run up of a Modi inspired changeover at India’s helm in the 2014 General Elections

India’s growth charts currently continue at a flat minimum under 4% and the same was confirmed by IMF in yesterday’s report leading to the morning clouds as Rupee slipped back to 62.5 levels. Since then the Deposit story is back with NRI swas and more and the Rupee is back at 61.7 levels before infy results later this week

India’s exports at $26.8 Bln were nearly $2 Bln ahead of the staid $5 Bln average rate we hit early in 2012-13 wih the plunging  bottom of the growth story and were fist signs of growth in exports let alon import substitution after the currency went thru serial pangs of double digit depreciation from 47 levels

Bharti will easily survive the retail FDI wind-down while it remainsan important ndia focus brand to own as does ITC. Yes Bank and HDFC Bank also remain great picks with a lot f investing capacity for foreigners and IDFC is catching fire again to fill any gas from “lack of confidence” in India’s branded consumption stories like Bharti, ITC or Bajaj Auto

 

India Morning Report: No Taper and Nifty on to 6100 levels

A rather unexpected reticence by the Fed, allowed Global markets to uncoil their expectations of a taper and the Indian Rupee opened at its best price of INR 61.5 today barely hours after the announcement. the shorts on banks disappeared overnight as did the opportunity in depreciation lit IT with the Banknifty finally moving 650 od d points to above 11000 today and the 7% increase in ICICI Bank to 14% in Yes Bank possibly still allowing steam in the rally to 6300+ levels and a long awaited rally in the banks with the liquidity measures likely to go away. (what if there’s no taper?)

Apart from the bigger damage to shorts on Banks, the rally has caught most by surprise and thus some may wait out for lower levels to start again, but stopping market enthusiasm at 6080 levels itself is likly to fail with the momentum of the event generated uncoiling allowing immediate 6300 levels. Also the taper remains on the horizon for the US Fed as it tries to tackle the question from a new structural cap to growth in the US and the  Rupee may be allowed to break below  to erase the damage since May

F1 Australia Grand Prix - Thursday
F1 Australia Grand Prix – Thursday (Photo credit: Wikipedia)

Indian yields are back to 8.16% levels. ITC and  Bharti have continued investor fueled upmoves at 350 levels, while Sun Pharma and ONGC and the Energy companies rebound to 2010 levels. Investors also found the chances to get back into Hero Honda and Maruti, both of which may easily by rejected later for Bajaj Auto in the Auto/Two wheeler sector

The Rupee might close a little lower but above 62 till 4pm and in RBI trades after.

Monday Trading strategies – India October 22-26, 2012

HDIL
HDIL (Photo credit: Wikipedia)

 

Festive week bodes well for expiry as markets open dull in trade and spectrum buys or the prospect of refarming existing spectrum do not put undue presure on the surviving retail lifestyle stories of Idea , Airtel or London listed Vodafone

 

In fact indices have come up well since markets opened in the red pre-expiry and the vacillation could be a unique opportunities for all investors Left Behind in the July August scrimmage to load up on Indian festival savouries and McFries from traders’ favorites JP Associates, HDIL and new bulls in ITC (FMCG story) to more “Bombay Club” M&M and Bajaj Auto in their new Asian/Oriental winning Forms

 

TCS results were uniquely dismissive of margin and volume issues for the coming success stories of Hexaware and Geometric and the ongoing wins in Persistent as they pander to demand for firmware. MindTree and HCL were the only losers in the Infy/ Cognizant wars or as HCLT would like you to believe they actually grew profits despite the currency wars they lost for 19 crs at MindTree and 65 Crs at HCLT

 

That also brings back as we said last week, winners from Cement and Textiles supporting the north pointing directional pillars for the next few days for a rally and 6000 a clear target for December

 

However, watching the F&O series for volumes and not the directionality of the bets or the propensity to risk in OTM puts or Calls for bullish bets is critical to that 30-50 points a day nifty move till 6000 comes. Lack of clear Volumes in F&O despite new exchanges and a clear bull in the Rupee keep both Equity and Currency segments under pressure as funding calls become directional shorts on the market.

 

Bharti Airtel Lanka
Bharti Airtel Lanka (Photo credit: Wikipedia)

 

After KFA’s oblivion and on good results on the weekend, JETAIRWAYS, INGVYSYABANK and INDIAN BANK are likely to bring back investors into the Indian markets even as other Asian markets start getting competitive interest from fresh bank liquidity and interest from Europe

 

 

 

Happy Thursdays! Lets see, Ronjan Sodhi, 25kgs lost, Leander Paes, Sania Mirza lost and me!

Thursday
Thursday (Photo credit: bob8son)

Firstly, the confession that this Thursday afternoon missive was written 24 hours in advance while I was wondering if it was already Thursday, and no I was not drinking or too snowed under from work. I just thought things were chugging along fiine through tidbits like our best medal hopes at London had been dunked, our best Economic leads have been wiped out, we never had the infrastructure and no educated man has one elected democratic fights ever anyways, or that Leander Paes and so many more including our boxers and archers had crashed out with below par performances and it was the perfect day otherwise, these being the usual muniton of the logical mind on home ground.

The Global Economic slowdown has hurt us the least till now but I tell you trading can hurt every now and then in moments and shutting it down just makes me wonder what I am going to do for a livelihood. The bear trade on india though is still not on not after where we came down to just months ago. That does mean we will see the least of Goldman Sachs’ allocation, but then that might be good for us too, because we do not seem to do well when we have more as ew never get more than one good year in any business cycle unless it is for odds and ends and all things not written down. None of indian businesses or policymakers can stick to even rudiments of the written word, and while it happens in more than one place the others in Europe and the US have already passed on their golden age and the ones coming are too poor for their meteoric growth to mean anything at all. and I mean when compared to India. Thursdays, the usual, it is FUTILE.

Are India’s Derivatives Norms sufficient and battle ready?

Bank of America Plaza
Image by Frank Kehren via Flickr

While india’s central bank has been rolling out reforms at a slow pace even without significant market acceptance as desired, from Fixed ?income Derivatives to the current CDS approvals, it has also been concurrently cajoling foreign banks to stop overextending non funded lines and off balance sheet exposure among other actions that are a sure sign of a shallow market on ransom for each Golden Dollar that continues to hold us enthralled because of the asymmetrical flows.

The last in this series of a dissatisfied regulator was a series of penalties imposed on SBI, ICICI Bank and others  for not having any norms for their derivatives desks in place. Shortcomings include a non-existent risk management system, and inability / no desire to conduct due diligence on suitability of these products. 19 banks were penalised and have been served show cause notice.

Thus on top of already scarce demand and skin thin trading in derivatives, we have also had our top line banks being accused of not understanding their products and we do not even see any speculative profits or

English: Kundapur Vaman Kamath (born December ...
Image via Wikipedia

even losses from the alleged transactions as no disclosures were required for the products, probably engaged on an OTC basis and contract documentation never completed in tradition of the big desks at London and New York 10 years ago.

Really, we need to invest in the human resources and the infrastructure to make these thriving businesses for banks before we go looking for retail participation and this depth will not come from one off trades like India’s Olympics medal haul by the Kamaths and the Kochchars.

India Earnings Season: More Enterprise without profit (Nov 10)

Vodafone metro
Image via Wikipedia

Leading the news today is a cascade of TPO orders for Transfer pricing practitioners, as pricing becomes another bone of contention for Corporates struggling with slow orders and higher basic inputs in the quarter. Vodafone recd a draft order here thursday after it reported Sales of $3.3 bln from India operations. Vodafone had just declared its India operations profitable in March and is nowgaining from SMS termination charges and 66% increase in Data traffic / 25% increase in customer base this fiscal till September. Vodafone WW grew EBITDA but debt repayments landed it in a loss worldwide Indian EBITDA is $800mln (INR 42.55 bln) for the half year out of a global $15bln guidance on $65 bln sales runrate. india’s contribution to sales for the half year comes to nearly 10%. Costs would rise as Intra roaming on 3G are also looked askance by TRAI and 3G Licence loans come up for active repayment schedules

DLF

DLF reported sales of INR 23.8 bln or $470mln but failed to report growth in profit and sector inventories having risen others based in Mumbai instead of DLF Delhi / DLF Gurgaon may not even have that luxury of reporting any profits, still reporting healthier profits on sale of TDRS before prices went down The others are of course responding to the nation’s lawmakers and enforcers in a myriad web of encroachment on regulation

Mahindra Satyam

Reports a qoq growth in sales to INR 15.78 bln vs 14.4 bln in June and profits to an EBITDA (low) of 15.33% for INR 2.42 bln. PAT is up 5.7% over June to INR 2250 mln or $45mln

TCS did report good news for the sector with a new $2.2 bln Friends life contract for 5 mln + policies for 15 years  at London based Diligenta set up in 2005 after transfering business and staff from Pearl insurance.

JSW Energy / Voltas

JSW energy reported sales of INR 9.5 bln frm 11 bln lasty ear, Voltas reported sales up 37% to INR 11 bln or $220 mln but profits of 1.3 bln talking to a loss of 1.09 bln this quarter , a downtick changing hands at around INR2390 mln or $500 mln

GMR Infra

GMR Infra sales are up nearly 50% to INR 18.1 bln converting profits of INR 710 mln to losses of INR 650 mln, a downtick of $23.2 mln

Tata comm

The company reported loses of INR 1.65 bln against INR 2.1 bln last year in September on sales growth of less than 20% to INR 33 bln

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