India Morning Report: Icky Spider on the Wall, why is this the fairest of all?

Česky: short straddle
Česky: short straddle (Photo credit: Wikipedia)

An unheard limerick, coined by yours truly, till some claim is authenticated on the same, roposes the current scenario and the base reasons for the same vacillating non volatility trade winning 6200 mark again. We had planned a kudos for the F&O analyst for proposing the 6100-6300 straddle ( Sold put – sold call) after Vol (India Vix) reported a low 15-17 score befor the weekend and 17 on Thursday. Though the Economic data is baked in however, the index challenged by us to stay the course around 6200, is finally hanging on to its gains after some again ventured freely on the shorts ( even the short straddle is a double short but bets the markets are ranged in 6100-6300. If the markets indeed die at 6200 the strategy would be a magic marker for the India F&O market that will be a good point of reference to repeat in any new intermediate cycle  or waiting time as the case may be. However as of now, the strategy is a little stuck in the mud. Also when switching this strategy in a bull market currently, one can even sell twice the 6200 puts as the never yet suggested bull exit indeed comes to fruition

Long Straddles won the day marginally(Long 6100 call, Long 6300 Put) and Sold 6200 calls are also in the money over the weekend( Open-Open comparisons) The 6300 Call has come down from 270 to 30 from last Monday (Open – Open)  though OI has decreased in the market after a hopeful Friday Ramp by a 3/13 ratio and sold calls would have generated

”                                                                                                                                                                                                                                                              ”

”                                                                                                                                                                                                         GAIN                                   ”

An option payoff diagram for a long straddle p...
An option payoff diagram for a long straddle position (Photo credit: Wikipedia)

INR 24,000 per 2 lots (100 Nifty underlying) as vol has disappeared from intra trend highs and turnover is steady though considerably lower than the bunched OI at 6200. A 6100-6300 short straddle would have gained 1300/- from Friday Open to Monday Open with the 6100 Put losing 700/- [All calculations made at the same 2 lots = 100 Nifty underlying each leg of the straddle].  A long 6100CE/6300PE straddle would bother an INR 26.1K investment and would have been worth INR 23.4 K on Monday morning.

<– LOSS 

Good volumes have been traded in Havell ( as the Morning report comes to you late today for unspecified reasons) as the scrip gets select attention. Similarly NB, PFC and other select universe scrips have seen important moves from Friday levels upwards even as Nifty Calls seem to specify maturity of the short Calls especially at 6100 (still at a premium above 100)

The Rupee closed at 61.75 on Friday and is a t similar levels in Monday afternoon trades and both banks and infracos have seen significant moves after a 25bp rate hike has been priced in by the markets at 8.9% yields as the Bond Index entry for India issues is also under review

The Tech M sale announced last week as Executive (insider sales) Vineet Nayyar, exited half his shares ( Sale of 500,000 shares) timed perfectly with the peak price for the stock and as we expect bigger shorts in the scrip , one should expect the longs on IT to continue iling into the doddering scrip nevertheless.

The Title reference, to dig into the simile, shows up the underlying insane spells in the India markets, showing u more in skeletal volumes and defining why retail and even Domestic institutions have been priced out of this market..I am still to design any research around such a proposition, but it is likely not difficult. Let me know if any of you try.

Tomorrow might be much the same after a second day that the Market opened near 6200 and returned to 6150 before closing trades were executed. HDFC Bank has hit a 49% foreign investor ceiling nd is  losing purely for lack o f allowed buyers today. PSU Bank investors will not be returning for a significant part of 2014.

India Morning Report: I wonder if this freewheeling, Really is an enlightening thing (Dubious , Vikram Seth, NDTV 2013-12-14)

English: syndicates @ work
English: syndicates @ work (Photo credit: Wikipedia)

Homage to Sec 377 controversies apart, it also expresses the universal angst and one shot propositions(Sec 377) that refuse to delineate the difference between the Buys and the Sells and the Holds and the currency and the coin) SELL THAT MIDCAP now (and come back another day)

The markets tried again in the Pre Open today and will sooner than later again snare buyers on a higher price near 6200 but till that happens, Bulls having just defended 6000 levels in the Option premium market, not underwriting 6100 or even 6200 that they had started last Monday on, it leaves an uncertain gap in between.

Market buying will of course definitely ride a 6.5% WPI data in November riding the gain from Core industries lasting around 2% for almost the entire year now, and Primary Articles skewing the deal with a 15% tick, also underwriting that retail inflation is not wont to come down at all in the coming two years of a changed fiscal and political regime either. In India, we follow the natural order of things, yes and in the long run we are all dead , definitely, but increasing rates because Onions can finally be sold for  a better price, it is more autistic than you think and once we are part of a Global Bond index, such follies will get a force multiplier we do not worry about / or disavow when we make that policy.

GSK deal again caught buyers on both sides even as a 30% arbitrage was available on the GSK Pharma stock which closed on Friday at 2400 levels as GSK Consumer tumbles from speculators exiting at 4500 levels. Both scrips are closer to the offer at 2950 and 3500 respectively in the pre 9.30 trades on Monday. Any open offer in GSK Consumer will unlikely exceed 3400 and may even be lesser after the INR 64 Bln is spent on GSK Pharma. Apparently the Midcap deal buying Elder off Torrent leaves Elder with the low margin API business and Torrent stock is unhappy about the value bought over while Elder stock is not so happy about he cash coming in/debt closing out.

Anyway, before we proceed, the other starting up sub text today was Sell the Midcap. A sure fire winner of a strategy given the markets vacillation, as those who are Hungry are bound to die till they are served with Capital inputs and Market responses that allow a rally

Wednesday’s rate hike will probably peak out the ill advised strategy ad retail inflation will continue to iron out the poor gap even if the government can’t spend and hopefully no party feels like lifting the Gold curbs too soon. Europe’s death spiral should wean out some hot money before he Euro peak s out but the Dollar will continue south and thus the taper threat will pass off unnoticed by the non market watchers in the middle of the week. Did you notice the flurry of big bank settlements that have passed us by in November?

India will act decisively to set the global context in 2014 reflecting the markets outperforming in 2014 while US markets follow tamely yet maintain last year highs. The Europe sell off about to begin soon, will leave us unaffected giving the world another chance to dig theimselves in, but ignored india will manage with another $20 Bln – $40 Bln in portfolio adds in 2014 as US Bond yields rise to meet the challenges of a real world.

Also Ashwini is a the cusp of a rash with all his misplaced bear picks again, and you should buy into the banks now. I go with SS(CNBC18) decision on the trading rink, markets waiting at 6175 at 9:35 for the confirmation that 6150 bottom holds and markets will move up thence. All that shucking, it is finally closed so the good guys we all noticed are set to move up ( and no IT moves are expected from here),. ALso, th last headline PSU Bank investors are not coming back, holds.

HDFC Bank ticked in the early bull report on Advance Tx, but then HDFC Bank was always expected to headline bigger growth numbers than the rest and it may well be the contraindication leading India Inc to slower revenues for the third running quarter

Any others eager to read the Drama Queen by Suchitra Krishnamoorthi, it’s a good idea this broadbasing of Indians’ views on their own history

Achha, what’s the deal – Jaspal Bindra wants clarifications on Subsidiarisation? HSBC, StanC < Citi and that other, will they ever come back in India and China retail or is it just Transaction Banking now

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: A dark light envelops India Markets as the longest tunnel is in play

The New Sea Link
The New Sea Link (Photo credit: Prashant Menon)

There is a light at the end of the tunnel. After all Sun Pharma has retraced to 425 and Ashwini Gujral is recommending a short on Axis Bank, with the Axis Bank bulls freely shorting probably the naked shorts that make up a new residual market of speculators as PCRs stay in a lower range with FIIs not adding more short hedges.

VIX India is having fun at everyone’s expense getting back at markets for being called bad all over and staying increasingly bad. The Morning has already see the rupee enter the new range box between 64 to 68 and so it is unlikely that it will recover to 62.50 or that this is the last stage of the capitulation move.

But yet the new negative momentum in the indices is looking to close out this move in this week itself with a $100 Bln exit by FIIs on Friday necessitating a grave distance covered on Monday and now on Tuesday the same is likely. That means the indices could well compete with double digit yields targets on 10 year paper and the currency targets ( if any) to hit 5000 by Friday close and provide a respite week next week.

JP Associates and infracos have not started back and private exchanges and therefore promoters linked to that may not yet ever make positive lists again

I am like a kid, hoping the Banknifty cut today means the Reserve Bank has thrown the banks out to the wolves asking them to mark all holdings to market and push out a mandatory minimum to AFS portfolios. But then there are those that still think below 8 yields will be back

Buy Power NBFCs and Bajaj Auto has also finished its last moves. LIC Housing for one other NBFC can probably not move down after it hits 130 levels

Vidyasagar Setu, commonly known as the Second ...
Vidyasagar Setu, commonly known as the Second Hooghly Bridge or Second Howrah Bridge, is a bridge over the Hooghly River in West Bengal, India. It links the cities of Howrah and Kolkata. The bridge is a toll bridge. It is one of the longest bridges of multi Cable-stayed type in India and one of the longest in Asia. (Photo credit: Wikipedia)

Rupee impact: The Free fall continues, small snag on equities

A world map of countries by gross domestic pro...
A world map of countries by gross domestic product at purchasing power parity per capita in 2007 from the International Monetary Fund. (Photo credit: Wikipedia)

Unfortunately, with India inc again adding only probably less than 10% of its External Borrowing Capacity in debt, the Rupee and the equity markets have consequently snagged on the  Asian free fall, and now pro bably rupee has a trading target of 4-5% in this move to achieve the new 2014 equilibrium. While the stabiity is currently lacking it is primarily because for the Rupee it is not a daily volatility that is germaine to the currency markets and the trading range is much smaller than the other asian markets while it is still not picked upa s foil to the ultimate managed currency the Yuan which is a precipitating event of greed in the “Currency Wars” mechanism

Having said that, if one were to herewith propose a new rupee exchange with its limited degrees of freedom, the government cannot and should not bother about stepping in till even 65 levels and find meanwhile a longer run solution to the CAD, while the markets will take the Rupee down to 65 and fundamentally destroy the entropy required for recovery to resume in the aftermath and while it may be a jurassic/triassic notion of yore , destory the eigenvalues of Purchasing power parity much before the global market engagement is  increased   to a true equilibrium.

Mumbo jumbo apart 58.50 should hold because of the stability of governance and the defeat of inflation but if it is whirled through the week, it will tip to 60-61 levels and thence may not ever return to anywhere near Friday exchange levels because the fifth of GDP that is exports will straddle the rupee for the remaining term of FY14 for Global trade agreements for the year

Graph of the Gross Domestic Product GDP (at Pu...
Graph of the Gross Domestic Product GDP (at Purchasing Power Parity-PPP), per capita, as a function of per capita Toes. Year 2004. Data available online at http://www.iea.org (Photo credit: Wikipedia)

On the equities front, today’s event of correlation in moves actually mirrors the hidden correlation in capital moving out primarily from debt and in probably a stabilised form of market prediction from JP Morgan asking that the recovery bottom has not happened and will happen till now. While the RBi therefore is discouraged from rate action next Monday, it has put in motion a cascade of rate cuts which it must follow through and avoid running into damage control esp as Fixed income Markets will continue yielding lower on higher demand despite FIIs leaving Indian debt in the first pike exit of QE linked withdrawal from Asia as the lowest volatile investment and thus unlikely to produce ‘abnormal profits equated with Asia’. The PPP map of the world in the meantime as reproduced here from a long left to be updated web provider of images shows the fast losing relevance of this indicator and probaby needs a trading measure to it to harness its gains.

 

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: Considering the velocity of the move, it is now improbable that the bull run is yet in progress?

Pivot table NSE Banknifty PSUBank index scrips...
Pivot table NSE Banknifty PSUBank index scrips from OJN for 20110609 (Photo credit: OJN2)

 

The 90 point move on the Nifty yesterday, trying to make spectators out of those opting for not such a roller coaster move means that the classic correction/ consolidation prospects have also improved apart from the secondary improbability of conditions improving as no policy execution is likely.

However markets would woot for Goldman Sachs’ revised targets and Moodys’ clean chit for the subcontinent’s Economic goliath “Mumbai dreams” upping growth forecasts to stratospheric ( and they were so “stratospheric” just 8 years ago) levels of above 6% by FY 2015

The Pre Open went along expected lines, traced the line in the sand for bear traps with fastest rising prices from Bharti and HDFC Bank to Axis Bank among others correcting to Monday levels before the Pre open ended with a sigh above 5730 , cutting out shorts from the lifelines to the next few millenia. Decks are cleared for all cash subsidies and other such tools that would ensure no Old India thus gets in the way of New India but I would think the more things change the more they remain the same as young India hardly owns any mints especially if high priced MBAs ( like us) are as few and young couples that are actually growing Bangalore’s per household income and disposable spend levels are actually as relatively poor as they are with MNCs leading local IT companies in correcting compensation to an affordable baseline suitable for fatter expansion of numbers on call from more working class ratios like teeth to tail ratio ( ratio of solders to commanders) and enabling keeping existing customers happy as possibly only viable strategy inputs including at banks and marketing consumer companies hitherto fueled by top management / boardroom expansions.

Of course for the markets that aside is as peripheral to the rally as the Moodys’ report they triggered to a big high yesterday and as peripheral as the bickering in Parliament led by that able woman on how to lose the no confidence vote to be tabled by the opposition in Parliament

Banks esp Axis Bank and HDFC Bank that led yesterday could exchange roles with ICICI Bank and because the fourth member of the trading independence consortium of the banks i..e. SBI or Banknifty (PSU – not a defined sub index) is incapable of leading from the front without crashing through it is unlikely that the Nifty will easily cross over the 6000 line yet again. I wonder what gives when the Nifty finally does it in a few weeks from now.

 

 

The Goldman Sachs Tower - Jersey city, NJ.
The Goldman Sachs Tower – Jersey city, NJ. (Photo credit: Wikipedia)

 

 

India Morning Report: Another Week, Another Level (5650)

The week closed right 2 points next to the week before last levels on the Nifty and the Bank nifty is technically still able to maintain 11600 levels at its current 11585 banknifty score. The result, humdrum existence for those who thrived on the growth in India inc translating into indices moving up in a definite trend if not by leaps and bounds. An humdrum existence probably made interesting by surgical precision of tv series’ characters in our “day to day lives”  including the clinical refusal to a date for candle light dinner with hubby dears like us.

 

Anyway, equally critical and probably funny is how another batch of shorts is out from market practitioners in a clear derisory preview of a Monday which should be extremely bullish at its key 5650 support on a Monday in the beginning of a series after such a reshuffle. It is likely my bet that the markets are up a 100 points on the Sensex today but that has been precluded by any such move likely snowballing in such aforementioned general climate into a 450 point move or the Nifty similarily running up closer to 90 points. The unlikeliness of the NIfty moiving into such comfortable orbits makes today’s moves limited. Of course there is a faint probability and thus a skew in the favor of a definite move down in terms of risk rewards because of the low probability, which means markets decide to take the south direction today for keeps is rather unlikely fortunately and not unfortunately as followers of risk reward charts might imagine.

 

Really if you deciphered that all, you are likely still less bright than my daughter whose schools reopen tomorrow as markets continue in a range bound equation for the growth in EBITDA this quarter which the TOI reports at 27% for index companiies having reported and includes FMCG and Cement while not giving the thumbs up to the 20% deprecation led 30% eyarly growth in IT and Pharma revenues. Net result, no picks are good for bigger and better exposures in ICICIBANK, IDFC and YESBANK which remain winners of the trend to Indian victory equation (Political and Business largesse and influence on the region)

 

And apparently I would not be inventing any quantitative constructs for such clear diction ona complexly meandering subject when I do start my fellowship at Bangalore/Ahmedabad later next year.

 

Banks however are likely to get more finegrained classification , the subject area being clearly defined and pushed by growth parameters from the potential of the unbanked and the unbranded to the potential of global competitiveness brought by globalising of the Indian Banking brands, no tthe outpost business we do to debilitate the banking brand from India today.

I for one would also give Duvvoori Rao a break and a C-Off for Chidu too instead of forcing anyone on a rate cut.

 

Monday Monday
Monday Monday (Photo credit: soonerpa)

 

 

No QE, no dollar depreciation

The Euro ready to give way from 1.27 levels to 1.26 levels, it is unlikely that the Dollar would get brow beaten and the Dollar Index rising would mean the Rupee continues to settle to new final lows as no fresh probability to assuage the larger revenue deficits in India is seen. However, in a few days our imports will actually start getting cheaper and impacting a lower core inflation. When that will translate into CPI inflation improvements or actual action on the Diesel and Fertiliser subsidy programs is anyone’s guess. The currency is unlikely to benefit from small fills / corrections on the Fertiliser policy. Yields in the fixed income market run north to 8.22% levels too meaning more room for the Dollar to take up

Aviation stocks were back for a fleeting moment when the up trend was in acton Monday, but a Dollar depreciation seems to have put out prospects on them in these uncertain policy times. India specific political reasons like NDA have largely become dried up wallflowers but a hope of Manmohan Singh getting FM portfolio being dashed might still mean more pain for the Rupee. Of course with a majority of the GDP benefitted by the Rupee the stock market might start seeing the Depreciation ride as more fun than pain.

Dollar remains a safe haven and Treasuries continue to surge south on yields.

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