India Morning Report: Banknifty swings up like a monster trade, already semi-retired

RBI head office, Delhi
RBI head office, Delhi (Photo credit: Wikipedia)

Sorry, I’d rather understand why the party for reduction in MSF and INR 17000 cr (INR 170 Bln)  of Borrowing added in 0.25% of the Deposits. The channel to the low repo rate of 7.50% is still 150 points after the cut and the 10 yr yields are not really expected to move south from 8.6% ‘except at the low rate of’ 50 basis points in the next three months it had already proffered before Rajan made the change.

Anyway, markets at least recognize or get their bank spokespersons/contacts to say banks are at ease again so the 5950 mark has come. already on the markets. The Upward potential is truly limited at this juncture, all the media noise budget (DAVP one mite bite) for showing activity in the Economy not making up for the spending cuts to stay in and the investments still a far way off.

However, markets per se are undervalued fundamentally with earnings positive thru the crisis except that they wait on such changes in fundamentals which are India’s bane for moving up while China gets a free look again just for having underperformed as it finds no legs in manufacturing worth reviving the Economy in goods production and of course the stat spin fails to take the big opportunity off the table

Rajan seemingly has made it clear he will be taking the Repo rate up again, and as the October meet approaches, markets will be equally quick to reach the bottom of the 5750 – 6000 range of the markets. the Repo rate at 7.50% already looks steep enough to me esp as trading markets stay idled to a high rate pre Taper.

I rather liked the Welfare flavor of August & September and wonder if it will come back again. At least its things we can do. The exchange rate is no good at 61.77, and hopefully its just waiting to go u to 60 levels as signs of others interested in the breakdown to 77-78 recede.

The inflation rate Formulatonomics of getting to that ratio as differential to ‘PPP’ are rather lost to most with a real India, Economics or Finance background though. You want PPP, you should go for a reference you can live with and that still counts as the Mac or the Pizza probably where we are definitely looking for a rate under 40 instead. Indian inflation would count as facts show as deadbeat deflation at 6% itself, as the Economy at 4% is almost a dead duck in the water ( in India references, it being the flat minimum of National activity)

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India Trade Report (Flash October 2012) : Deficit Climbs

Trade and Monthly IIP. international Trade is currently 1/5 of India GDP

The October monthly deficit climbed to a $20.96B in India even as larger trade behemoths with monthly export volumes of $160-180 B in China and US returned higher surpluses ($32.5B) and lower deficits ($41.9B) spurred by jumps in Exports.

Indian data is ofcourse skewed by both the rush for Oil purchases and a downtick in imports not just in Europe but in US and most other India customers. While the European contraction is worrisome on an aggregate basis most global trade volume has been replaced by other categories for other customers. However Capital Goods trade remains one of the most severely affected led by downtick in such Exports from Europe (Germany) and Japan

Indian Imports rose $7.5 B for the month and the Rupee as expected inched towards the 55 levels. Indian IIP has been trending at lower levesl since the Global trade contraction picked up force in mid 2011

India Morning Report: Yes, a resurgent festive season and the earnings were WOW!

October's Palette
October’s Palette (Photo credit: dibytes)

will it, won’t it. A flavour thats missing from most mature markets and though SEA markets might still like to flatter JP Morgan and Goldman Sachs for their unlisted and pre IPO equity investments in these frontier markets and the shallower yet tepidly multi bagging SEA markets, the big moolah is in India and thats where most Foreign investors are headed again with the trade winds during Winter.

The US holiday season may be a little marred by the disasters on East Coast with Hurricane Sandy causing $2 B illion a day New York City to buckle under with never ending losses ( of 20% of the daily GDP) we trundle forth after a big ‘flat off’ September and October as the Twowheeler sales data for October pours in. Bajaj Auto starts the day off with a 411,000 sales figure including a 50000 three whler sales across all markets topping its best performance in twao wheelers in October alone with 62,000 Boxers, 155,000 Discovers and 85,000 Pulsars electrifying the market and Hero ‘s resurgence may not stem its market share losses but definitely brings back volumes and margins to that business.

Across the shores, Coke is powered by the Indian Festive season too, though Intel suffers from emptying assembly lines in the December quarter as Atom cannot ramp up to the steep increase in mobile form factors and Sales . Intel alone has lost margins of close to 10-15% in the December quarter to a measly 55% as Apple also takes a rain check on global volumes.

India’s smaller stories on the other hand have the robustness to climb to bigger budgets in Advertising, marketing and promotions and bring the house down with digitization also , with a little official help hitting the required numbers in the metros and increaasing the known C&S market by almost 50% and accruing immediate subscription revenues of an additional 20% to the cable players and available new market share to Satellite players as well.

Retail and Aviation FDI maybe robust stories as well as they seem to have started off on a surer footing though at the infuriating pace India is well cordoned foff for in global investment books. Earnings reports continue to underwrite a consumer and healthcare stock boom in this rally as the banks continue on robust credt growth after the additional provisioning also destroyed the banknifty members except the private banks

Did you know that it would take $1.5 Tln from the Federal Government to take US Trsry interest rates back above 2%.The resulting weakness in the Dollar is also likely to continue thru 2013 and mean that the 105000 Marutis sold in October will come at a much steeper cost to the compan y int he coming months but it seems to be a season for the price hikes everyone had been stalling and Rupee’s strength might well recover all the margin Maruti needs while letting the sun rise in the east again over Japan

Bank Results Season: Shriram Transport Finance Jumps On Leasing Growth

Income of INR 1594 B produced a record INR 3.37B profits for the banker wannabe as Shriram Transport relied on Leasing Income to replace the more lending business friendly Gross and Net interest income. In its core Truck leasng business the industry leader is still moving all the gravy with a dominant 50% market share. Consolidated Net profit is INR 3.67 B

Meanwhile Indian and European brokerages (Credit Suisse) have been upping the ante on the operator since results were announced . Its anual EPS is now riding near 60 at INR 29.14 and the growth clip of 20% of topline and 30% of PAT is likely to be an easy win for the future Bank. Off book AUMs are increasing especially in Q3 with bilaterals to banks making 80% of its securitisation in FY12

The retail market is inspiring improving NIMs for Shriram. Management commentary highlights changes in priority sector definitions to also improve Shriram’s relationships with banks. It had only INR 400 crores in Q2 securitised against an improving market volume of InR 34 B till mid October. Net NPAs are a high 2.89% but have been declining steadily int he last 3-4 quarters from above 3%

Shriram is apparently waiting to season its new leased assets to benefit from an increase to Off book AUMs and tweak new securitisation agreements to the more adaptable PTC mode where credit enhancements are still allowed ( disallowed on direct assignment) while the latest cap of 8% lending rate on priority sector characterisation of a loan might be also apossible change without due pressure on profits as its market leader status allows to maintain and improve NIMs


Banks: Credit up another 31,500 Cr (INR 315 bln)

The fortnight ended December 16 data shows expansion in credit continues at much the same pace reaching INR 4.26 Tln or $82bln approx. having started a w-o-w uptrend since the last week of October. Deposits though shrunk by INR 365 bln, a large sum, even as Advance Tax payments for Ecember were due. Rates of Savings and NRE deposits have been increased over this last week of the year with ICICI, IDBI joining ranks at a 9.25% NRE rate

Rupee Impact: The ECB/FCCB repayment steer ( Part II)

India raised $2.5 bln from ECB/FCCB as late as October. Most of the $2.4 bln in September and $2.5 bln in October is infra and Petro bonds. FCCB pending from 2007 are deep out of the money. Overseas

Bharat Forge
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investors having been caught in a firesale courtesy Europe, have been tough on their India FCCB holdings too

Adding to the list of large and mid sizedc corporates from the ETreport on Monday are the metal and minerals squeezed Tata Motors, Sesa Goa and Sterlite who better pay back their debt or their bleeding financial statements of the last two quarters would look benign in

English: Wordmark of Tata Motors
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comparison to the ones for December and March. Others like Bharat Forge, Bhushan ( $410 mln for cap goods import) Financial Technologies and L&T probably have cash to return the outstanding / buy back their paper in the market (Bhushan borrowed in September/October) Investors are already enjpoying a steeply higher yield at which they are now trading as first investors have sold out.

Mint( has got a nice table for redemptions due:

India gets a good mark up from Investors

As expected the Indian PMI numbers turned around from 49.7 in October to over 52 in November, indicating investors coming back and new orders and production picking up in November even as stock markets turned around faster from almost a fleeting bottom in a fast paced November

Services growth was faster and more confident, PMI surveys bring back the services index to 53 from a low 49.8 in September and 49.1 in October even as China went ahead with easing credit for rural and then all banks with lower reserve reqts. China’s updated reports make or great insights for Financial investors at China’s manufacturing brought down output as the index has plummeted to below 49 in the November HSBC MarkIt surveys but Services remained above 52

MarkIt noted that the new businesses number is a good 52.3 in Services in India, the nag from PMI coming in the last six months in the empty new order pipeline Composite PMI was thus driven up to 52.3 up 2 points. Investors and travelers have responded to India Travel and Transportation sector performance as well as its resilience in Financial services as the “Expensive” tag moved from India valuations. However, as the last 15 years have shown, India’s Capital Markets cover up more ground than the real economy while the Dealscape remains fragile in India compared to the sudden closing of larger deals in the US geography  and FDI in retail is rolled back in India. FDI in distribution platforms ( DTH, Cable) and aviation is also to be considered by the Cabinet

HSBC MarkIT produces PMI numbers for more than 130 countries and measures flash and

NDTV India
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final reports for 3 sub indices each in Manufacturing and Services as well as future outlook. the future outlook numbers remain bleak at 63.6 lowest in nearly 3 years as respondents worry about inflation. Input prices and PPI sub indices are the ones that moved the most in the PMI indices with scores of 57.6 and 56 (NDTV) manufacturing indices overall coming back to 51 but remaining confident ( expanding at >50) in the India story’s likely bottom scores. MarkIT also notes that it is the fourth consecutive decline in employment

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India Auto report (Sales – November 2011)

English: DTC Buses in Delhi, India
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Maruti’s numbers have trickled in at 36,000 vehicles more than October. The 92k in sales were yet 18-5% down from the festive season report of last year.  The mood is sombre as markets find solace in car makers coming back with good numbers but it is obvious that  that’s not enough for India to power forward.

Hyundai’s India sales grew nearly 30% with over 22,000 exports and 35,000 units sold domestically. Domestic sales are up 10% At Maruti the sixth yearly sales decrease in November also showed change in preferences as diesel grew 22% and petrol(gasoline) models demand dropped 14%(WSJ)

Ford and GM seem to be stuck near the 10000 and 8500  cars a month number but this is Ford’s first year with 100k sales in the nation. BMW, Mercedes and Audi have been selling nearly 200 units a month getting deeper into India’s moneyed hinterland and export towns. VW Jetta and Passat also sold 499 units in the festive month

Hyundai’s Eon and older steed i10 both sell nearly the same as Ford and GM in a month with 7,500 units each. Its A3 sedans also sold 8,223 units (Verna and Accent)

Tata Motors did grow Nano sales 10 times over dismal 2010 figures to 6500 for November. It sold only 1000 Fiat units in total sales of nearly 29k domestically

M&M sales of 44,000 units included 17,500 units in passenger vehicles (and SUVs) Its new XUV500 is expected to brighten its chances further with its ventures in Korea stabilising and helping it leverage technology and lever its home grown stability in the global market and in india rebranding it from a home again Tata , desi variety spaghetti

Toyota has grown into a tough spot staying comfortably ahead of Ford and GM with sales of 14k cars for the month, trebling from last year November on launch of Etios and Liva during the period

Newcomers VW and Nissan grew astronomically too on a low base to 6,750 and 2,680 units respectively with new models and support for diesel giving them a distinct advantage in the Indian brands of Ford GM, Suzuki and Korean Hyundai. honda has reduced production for the month drastically as Thai floods disrupt parts production for its global auto plants

October sales in 4 wheelers were a paltry 138k units and 185 k including Utility vehicles. November seemingly has gone to 220k units with good growth at Toyota, VW and M&M

Two wheelers had a brilliant month and India reverted to reporting car and 2 wheeler sales together since October. Bajaj grew nearly 30% at 394,000 units for the month and Hero Moto corp had a more than 5% sequential growth at a high 537k units Its erstwhile partner, that still sells its trusted line of motor scooters, jumped to 200k units in sales in November into the 3rd spot

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Happy Thursdays! November buzzes everyone

English: A 2008 Maruti Suzuki Swift Dzire VXi.
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November buzzes everyone, December is too cold

Sun comes out in the East, but the East is all sold!

All the talk of potential markets in retail and consumption, engendering domestic demand ( in China) and even the imminent collapse of Europe ( not just not happening, in danger of engendering imprudent fiscal expenditure by imprudent politicians, just back from the brink) everything’s come to a nought

US is also going to a nought score but after a $52 bln weekend in Non auto sales and another $36 bln in Auto sales for the month of November, it is rather to get on to a nought in all 2011 inventories by January 2012

India is headed to another ground zero right now, even as China starts betting on expansion without getting a jump in domestic demand. One wonders if stock market investors are correct in deriding Divestment thru buybacks and cross holdings mooted by the government arms, One further wonders if india’s aviation industry will ever get to use bankruptcy protection as a strategy as KFA finds another hole to plug, and one wonders if the yields falling to 8.75% being the end of the move in Fixed Income, if the rupee will ever come back to below 50 on the bat

India’s fiscal problems have batted on a high inflation wicket, with 9.39% in CPI in October and a 8% food inflation for the third week running for November 19, Pranab advertising a fall in the price of Onions by 40% and October Export growth and deficit stunted and expanded by OIL and rupee gyrations Non Food inflation is dead in the water ( includes fibers and oil seeds) at 2.5% but Fuel is still 15.5% and Primary Articles a 7.74% lower but by no means a low number

There are a lot of other statistics including M&M’s jump in November sale sto nearly 41k vehicles incl almost 18k passenger vehicles and Maruti’s falling behind the 100k in Sales despite there being no strike at its Haryana plants and they will all come in due course.

At Happy Thursdays suffice it to say that November was good to pass on for the results showing for any government or corporate but there have been good signs for growth, with Europe solved along expected lines, banks at an all time low globally and the Nifty 4950 a good time to go short on everything, always a better feeling once you decline to wait 10 years for the pay cheque.

China’s landing will not be hard at all, watch for the detailed analysis on, Airlines will not fade away   with US American Air taking a 18 month vacation to recuperate with new pricing and new supplier and cost agreements a good example of the new strategies discovered in this new millennium, the other – central bank pay cheques for every citizen.

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

Indian rupee
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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)


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...
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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.

September the dull month for IIP (Corrected)

A photo of a match between Chennai SuperKings ...
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With credit picking up only in end September, the IIP figures for September trolled to an unimaginable 1.9% with consumer non durables reporting a -1.5% contraction(growth) from a 6% growth of last September and mining reported contraction of -5.5% The base effect and nature of bulk orders etc played truant with Capital Goods at -6.8% down over 1020 basis points from 3.8% growth in August.

Exports in October grew 36% only but will not limit bounce in IIP next month(October) Basic Goods grew at an expected 3.5% agst 4.5% in August while intermediate goods scored a low 1.5%. Consumer Goods grew 6% while Consumer Durables managed to grow at 8.7% though against a14% score in September 2010

MarkiT HSBC had reported a good tracon in the PMI figures at 5 with even Services PMI falling but staying above 50. The August IIP was 4.1% but observers had expected a jump in Utilities / even manufacturing numbers to a 4% IIP rate as per PMI indications and leading indicators tracked. Exports growth has slowed in October but remains a large $320 bln run rate to March while the trade deficit governed by the jump in Oil imports to a deficit of $19.9bln for the month

Infra output reported growth at 2.3%in the month September manufacturing PMI was India’s lowest at 50.3 PMI growth in October points to IIP recovering again in October with a good jump again in Capital goods..(no one likes the Capital goods series anymrore. one wonders if another redesign is planned)

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