India Morning Report: The Capital Goods chimera fools no one

Markets settled in to a subdued Friday even as the now almost regular double feature jump in Capital Goods sub indices in the IIP caused IIP to flare up to a 2.6% closelt following June’s 1.8% growth. Though the jump in Core industries reported last week too signifes a likely higher mark for GDP than the June bottom, the jump in IIP itself needs to be ignored with care as the Capital Goods number in the positive is now habitually likely followed by an equally sharpp negative in the August series when it is reported next month or at least before the October festivities mask production growth, if any For those interested, such volatile jumps are a regular in the Durables orders data series in the US and the component of Aircraft orders for example is thus repored separately rather diligently than a black box number up 5% once and -5% the next month almost without reason

Industry investments are not back and thus markets have given in to high PCRs (Put Call Ratios) retreating to 5800 levels in the Friday Morning trade. .Another consumption major McDonalds and on assumes the continuing saga of Walmart signify strained battle lines between Global majors and those who know India at the helm, all in the name of corruption and many other equally obvious slogans India panders to in the global arena ( Without being best at any) Connaught Plaza, seemingly owns not many restaurants and McDonalds obviously as always wants to be unfair while buying out reality partners an moving to another hase of growth,. The valuation battle will be difficult to disengage for any private company but a $100 mln ballpark looks more  feasible than the company sponsored $10 or $300 mln valuations and it is going to be a long battle. Walmart too is apparently not driven by valuation in its current revisit of the decision to Invest in India, at stake the Best Price business with $500 mln turnover and a prospective equity buy in Easy Day which will allow Walmart to become a household name in India

The Rupee is not getting any sponsors this week beyond the 64 mark, but with indices nearer 5750 or 5800 n Monday, it might be another bullish week of te Indian Rupee making up to the benchmark EM currency moves which are more than 10% smaller than India’s 25% move since May 21 in the absence of any buying or sustained investment into the Indian Economy

India’s Mid Cap IT like KIT and MindTree could probably use his time to gainfully grow in size but Enterprise space growth is definitely overdone for them and bigwig Indian outsourcing. IBM is exiting India CRM (Voice) centres too but in a misguided bid to grow portfolio profitability without a synergistic picture as is the Elephant’s wont.

Power NBFCs started the week well an may well help the banks lead Indian equities into the 6300+ zone as the dismal days are following a very standard script and business could be booming before you know it without improving the Savings rate at an all time low of 30% currently

BTW, the PMO mentioned most PSEs (94%) have hit the Capex targets for the June quarter and Government expenditure, well targeted could keep us generating that sub 4% peg of growth on which Private sector investment may build. It’s a long weekend though and Oil could also be at a much lower level on Monday


India Earnings (Retail Lifestyle) – Earnings Surprise: ITC reports INR 71 B revenues but static EBITDA

Sunfeast 10K - Thrill
Sunfeast 10K – Thrill (Photo credit: Tamal)

The growing strengths of ITC again aided by a price hike in tobacco products in this quarter, gave cause to investors and market makers inthe stock to push northto unheralded levels a sthe rally from infracos receded almost as expected after the bid to 5650 bbecame stronger in the afternoon trades this Friday.

ITC toplines ( excluding Excise) finally seemed to gro respectably after getting flatlined for a few quarters around the $1 B mark with a $1.2 B mark at INR 71 B helping PAT grow another fifth, breaking the jinxed 2-3 quarters for India Inc as well which have almost straitjacketed India Inc to GDP growth and IIP growth levels and consisstent downgrades on earnings.

While the retail lifestyle consumption growth still did not herald the breaking of the “Limited Feature” score of $1B in Consumer Brand Valuations that seem to cripple most Discretionary and Non discretionary branding

Dabur (Photo credit: Wikipedia)

stores, the significant growth provides hope to those entering India as investors in the Consumption story that indeed Multi billion brands are possible to be built despite the experiences of HUL, P&G, Dabur, Marico, Britannia and now even McDonalds and Pizza Hut in India’s prolific competitive spaces filled ith 85% unbranded/commodity plays or the hitherto Mom & Pop space that seems to hit these brands like airbags deploying early on crossing a specific speed

Marico (Photo credit: Wikipedia)

Bajaj Finserv growth and the resurgence of Insuranc e and NBFC consumer loans stories also underrite the same hopes with Bajaj FinServ posting a INR 10 B income and INR 2.2 B PAT

ITC Net Sales were INR67 B a linked/sequential quarter ago in June and seem to have grown more than 6% sequentially as well. Slower increases in COGS and Trading goods purchases coupled with good cycling of current inventories have been growing ITC margins

Sunfeast World 10k 2010 Logo
Sunfeast World 10k 2010 Logo (Photo credit: Abhijith B.Rao)

in the last two quarters and the same seemed to have stood ITC in good stead as will be cleared on detailed segment results being avalable on the earnings call/ review



A reality check that augurs well for those willing to stop and take a breather | Earnings Insight

Earnings Mid Terms crash on All India and US

Mid Cap IT and Infy looking for avenging the transfromation space with Indian business providers were again usurped by larger BPO deals and a good showing from unhedged HCL Technologies and one hopes also TCS leaving one critical movement in currency which is good for the larger economy as the ones hanging for dear life.

Similarly consumer plays like Coke paid 11% in Currency headwinds against a ¬†strengthening dollar in the first two months of the quarter as global corporations report the halting recovery in the US. Intel is down and the world as we know it unchanged thrashing ahead for those not playing in such currency movements , not necessarily wanting to be shackled with Nationalist interest. However even as IBM looks at an inevitable yet steeper falling hardware sales and the ones that missed the housing recovery at Citi look at a continuing salvage operation, the world has moved on whether it desired to or not. The gap between the peers that have performed in this quarter and the rest is likely to keep growing and one must recognise those that have failed in this perfectly competitive quarter as having strategically misaligned themselves and needing a relook at their global and domestic business strategy. Globally this will soon include BofA by today evening when they report before US markets open but the winners may not necessarily include McDonalds’ , Starbucks and the resurgent Wells Fargo. What has probably happened is that those running with a perfectly operational strategy and anticipated free fall in this quarter have been singled out by us and we stand by our observation as we see the various forces of human endeavour trying to come out of the ever elongating crisis and note that no one has caught the envisioning of this new normal whether those still prognosticating a recession or those just hoping to ride on more growth allowances to make a comeback.

The changes at macroeconomic level mean that older ties between economies in critical businesses including banking and auto have probably been running on the saame tenets as the nineties yet and that they have changed only no as have been expected since 2008/9. Investors thus would have more hiccups ahead and would likely need to pull back from equities and reassess the situation and a second round of deleveraging will now likely hit global economies only later as European banks re-enter the arena.

However, this article does not have the answers we need to ‘move on” productively, except that even without regulators’ forcing it banks and global companies would do well to be more careful and are likely to be weaker to future economic crises or as observers noted, black swans could be a more often occurring event in the coming days. The growth of consumption as variously noted by Intel, Fedex, Starbucks, McDonalds’, Coke ( incl New York’s ban on supersized drinks) GM, Facebook, Dominos and Pizza Hut is not the same as it was a decade ago into which you added a health fad and a mobile. The Euro will survive but European corporates are still not ready to come out with performances worthy of a standing ovation including growing Healthcare plays like Roche, Novo Nordisk and US based Sanofi and JNJ

The going is going to be tough and the tough better get going!

India infrastructure Health & Welfare: European Development funding for India thru the SWF route

India has long relied on welfare funding and low cost development funding from non World Bank and IMF

The World Development Report 2011
Image via Wikipedia

sources like Sweden and UK for its welfare, health and construction / infrastructure spending, relying almost totally on the same during the phase China over sped on infrastructure to create highly leveraged municipals and new ghost towns where no migrants moved from rural areas

The entire DMIC project is highly leveraged on funding by Japan to the extent of more than $ 4 bln, and European counterparts have been fallin gbehind because of auditing concerns and local political maelstroms even before the crisis.

More than 60% of China’s sovereign investments from one of its 3 funds is invested internationally. That means China already has $360 bln in investments including equities like McDonalds and Coke which are doing well in China itself

UK, while cutting back on its development aid commitments to India, has committed for the next 4 years channeling the $2 bln program budgeted at $420 mln a year thru its SWF the Commonwealth Development Corporation fund of dunds for upto $200 mln a year or half its 5 year commitment. CDC being a SWF will be answerable to U staeholders on safeguarding of UK taxpayers’ investment and return parameters and thus will go further to grow UK’s debilitated international franchise as it has all but walked out on the Euro after 20 years. Germany gets 60% of its market for exports of machinery and consumer goods from within the Eurozone , a little ahead of UK and France

The reorientation of the aid as been summarily done in London as Tory MPs do not think a nation disqualified from IMF development aid parameters should qualify for developmental aid

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