India Morning Report: July series catches with investors, Investors coming back?

Large moves in ONGC and Coal india restarted the bull fuelling of the markets, traders assiduously avoiding the to be rally heroes and leaving value on the table in YES Bank, IDFC and other banking applicants while taking the recently hammered value picks in the indices back with defined pairs available to sophisticated and wealth investors and shorts avoiding the markets.

It allowed frustrated “no go” traders like Angel broking who tried a short pick on IDFC yesterday to leave unnoticed while long cash equity futures seem to be a prelude to another rally in the bank nifty. Of course 5800 could still be a level to short the index for the pronouncements of today for coal India and gas prices could still not translate into concrete action in the election year but that looks increasingly remote.

The turnaround is here in process but there is unlikely to be immediate jump in economic data except that future months could see better traction from investors with sticky inflows from the last take on the markets seen in the June expiry above 5700 around 2:30 pm

Gas prices are set to rise in 2014 to market linked levels starting at around $8.4 mmbtu according to the new policy. Bajaj auto has recovered smarty in 2 sharp moves of 2.5% and is still agood nvestment and trade at 1880.  iCICI Bank similarily has a good value at 1050 levels

 

 

 

India Morning Report: Sharp cuts ensure quick bottom in India around 5650

Bombay High, South Field. Undersea pipelines c...
Bombay High, South Field. Undersea pipelines carry oil and gas to Uran, near Mumbai, some 120 NM away. (Photo credit: Wikipedia)

A more than expected negative reaction in  the Indian markets yesterday may have subdued analysts into a negative whirl as they were waiting for the same, but post the subdued slightly positive open in global markets, it increasingly looks like today’s move in the Indian markets is more a positive search for value than just a reaction to yesterday’s sharp negative move.

Though your favorite superanalysts may be recommending shorts at 5650-5700 levels on the markets , I would invite you to use this rare opportunity to further sign in to Indian markets in scrips of value except that though banks refer the most value potential they are not ready for a move up yet. ONGC and Tata Motors are good shorts too, and apart from the index shorts one can see the visible analyst reaction actually picking out rare weaknesses for shorts as Ashwini Gujral recommended in Option spreads shorting Tata Motors and ONGC . Telcos haev nearly recovered the positive sentiment almost immediately and exporters are mobing in the positive zone including Bajaj Auto and Sun Pharma

The heavily discounted PER multiples in the Indian indices also ensure further ETF outflows do not negatively impact Indian allocations and one expects debt market outflows to stabilise soon as well as the yields in the Fixed Income Market spiked n small volumes itself yesterday and there are only higher opportunity losses for further exits The Rupee can obviously not last at these levels having failed to establish any zones in the three breaches in last two weeks but as the “correlation backward catch up play has lasted almost all week, the rest of the markets are unlikely to oblige Rupee’s bottom making move in the next few weeks and is likely to be ignored in equity and debt///government bond markets

Shorts on UCO, Karnataka Bank  and Vijaya Bank will work singly and can be tried as pair with buy in Banknifty once BOB and SBI bottom out as the big movers in this move. A Direct air with pvt sector ICICI bank and HDFC Bank would be riskier. Nifty short strangles with the Nifty bottom at 5600 is recommended y IiFL which would be their first positive trade in the quarter (joking!) but a great one Short 1 put at 5600 and use to buy puts/sell calls at 5800 . Selling 5500 put would not be bullish for this market nor very remunerative.

 

Food and Fertiliser Subsidies, No FDI, Oil bill and state elections

Indian Rupee Symbol

Banking and Infra dominated Nifty and Sensex was shocked into its monthly / quarterly ‘uprising’ from food and fertiliser stocks as fertiliser subsidies are intact in run up to the late yet dull and desperate Budget Report for March 15, 2012

RBI is under pressure again as MOFCOM forces all loss of FDI on PE rules regarding options to selll back to promoters. Such rin built options are attributed to 9 out of 10 FDI deals and are strongly objected to by the regulator and banned since September 2011. RBI insists such exposure with sell back options be treated as loans

Meanwhile the Aviation auditor’s report singled out the cash strapped airlibnes for “glaring deficiencies” in the safety standards was not a CSI style water borne success in destroying the sector. Thence the watchdog has changed chameleonic colors to put profitable indigo in the dock for “dancing around” with the rules

The UIDAI meanwhile has no hope for resurgence being out of funding and at danger of being chopped off in the middle of implementation again as budget parleys bring back other ministry’s demands for a parallel similar scheme out of various single data registers like the central pension organisations and the tax men The Oil bill has become hard to pay even otherwise with reserves accounted by Corp India’s money markets splurge abroad.

Kissan cards could get alignment as financial inclusion vehicles also counted as debit cards represeing a deposit account giving banking access to the 100 mln card holders. SUUTI will continue to leverage its assets “to keep liquidity for redemptions” and no other leveraging is planned says Finance Secy ont he tube ahead of budget. Also though unrelated to the budget only 7 out of 10 billionaires survived 2011 according to market cap recomputations by the “ETIG”

While the Rs 1 Tln extra borrowing ( announced 992 bln ) may not fill more than ordinary expenses,

200 px
Image via Wikipedia

without buy backs swallowed by State PSUs, the spending of Rs 1.5 Tln on food subsidies already made this year and the new 1.6 Tln on energy with INR 475 bln planned for ONGC and a INR 100 bln for the rest of the producers  leaves another 1 Tln hole in governance even as Mamta stays centerstage ahead of elections in NaMo and BSP ridden UK/UP twith Punjab Manipur and Goa. UP elections will go on thru February.

Divestment by any other name..

Securities and Exchange Board of India
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..is still filling state coffers under duress

SEBI’s pronouncements allowing “Top 100” Listed corporates to fulfil conditions of the Listing by ensuring 25% pbulic float euphemised state sponsored filling up of fiscal deficit and much likemedical measures to force ellbeing and welfare of the poor class, the government’s plans fro buybacks from Public Sector Enterprises brought more blowback on to the governemt as the Top 100 companies include MMTC, NMDC, Coal India, ONGC  and  many others who have more than even 90% while SEBI requires them to hold not more than 75% with non public categories of investors.

English: Logo of National Thermal Power Corpor...
Image via Wikipedia

However while earlier dispensations disalllowed transferring of the overages or the extra stakes from promoters or other associates thru QIPs now SEBI has sanctioned the same as two additional measure of Institutional Placement programme and an OFS ( OFfer for Sale) thru stoc exchanges to enable the government to sell down its stake in these companies and bring them 10% closer to the 75% mark while it helps the government achieve its Divestment target for the year.

As neither cross holdings nor use of company cash to buy back largesse in equity was planned as such by the PSEs , the government still faces an uphill task in getting the quorum and using these PSE proceeds ad the Top 10 companies on the bourses today include 3 such Public sector players

English: Logo of Oil India.
Image via Wikipedia

Apart from ONGC, Coal India and NTPC i n the top 3 by market Caap, the next 3 incl Sail India, Oil India and NHPC may also not be a good source of cash reserves for buybacks of the government’s excess holding while NALCO and Neyveli Lignite management is likely to reserve their judgement against the ideaa to save cash for productive business investment making government’s task difficult  yet this approach would have been a feasible opportunity and is likely the only reason why our fiscal creep will remain below 1% to 5.5% of GDP

A State sponsored SWF

Bharat Heavy Electricals Limited
Image via Wikipedia

While the planning commission has apparently detailed all sector expenditure till now, the forex crisis is likely to continue for the state as the Indian rupee looks for levels like 65 and 72 while hanging on to 50 rupee levels.

India’s 117 bln deficit ( for the first eight months) structural disconnects from the global scenario and the inability of monetisation as a tstrategy to fill shortfalls in even a single head of expenditure means that the government is trying everything in the book to avoid the fisc crossing 5.4-5.5% against a target of 4.6% Excess expenditure on food and fertiliser subsidies amount to $10 bln by itself, and the bill goes on to include many other subsidies incl the one on energy (fuels) Stae Electricity Boards and infrastructure providers like BHEL have long employed barter in economic trade domestically and internationally as well as sale and lease back. States are running higher interest bearing $1.5 bln and more of bonds to pay for their deficit this year

The impact on our forex reserves of $310 bln ( Currency reserves are more than 90% of the reserves) can easily be imagined and thuis automatically there is more pressure on the rupee to go down rather as warranterd by the transactions required much like any of the midcaps trading in our own market with hardly 1% volume in traded shares

Bombay High, South Field. Undersea pipelines c...
Image via Wikipedia

All the above reasons cannot preclude one from using some of those reserves for the state sponsored infrastructure debt fund and thus the SWF india still does not own. Those investments will fill critical gaps in Indi’s social and physical infrastructure and are a required head for planners to cement and excute in the period till 2017. The fiscal deficit in the mean time will be funded by such interesting propositions as cross ownership of equity of PSE already employed extensively in traditionally developed economies of Europe and unlikely to cause much more discomfort than having state enterprise managements on their toes. even if ONGC, SAIL and BHEL are taken first and buybacks in COal India also considered we will more than cross the over spend on food and fertiliser subsidies and reduce the burden on OMCs However PSEs might want to wait to find like minded PSEs for cross holdings like the OMCs int he same sector with ONGC and if such patchwork can be arranged in the next 4-6 weeks, I daresay people would be willing to wait. NMDC already employs cross holdings ina  lot of erstwhile mining companies and the plan for buybacks and cross ownership is as old as the concept of BRIC economies

India’s Energy ambitions in cost woes

CENTRAL PARK AT NTPC DADRI
Image via Wikipedia

POWER: Of the 15 Mega and 5 UMPP Power projects almost 12 are beihnd schedule or tied down because of inability to complete land acquisition. Coal shortages dealt the final blow and with a lot of noise on rationing of coal for running and soon to be commissioned projects most have expected a slowdown and even fear bad debts forom SEBs to impact lenders in the sector  who would be delaying shchedules at most UMPP and mega power projects. Not only that only 39GW out of planned 60 GW was possible in the eleventh plan till this year, but also that not much is expected to change during the 12th period for the above mentioned constraints sthough funding and PPP models are likely to have more traction if such impediments were not the expected lot

OIL:  Energy major ONGC withdrew its FPO in the AM today, with the rupee falling through most earlier

Mukesh Ambani at the India Economic Summit 2007
Image via Wikipedia

bottoms or stops and unlikely to reverse trend in a hurry. reliance will soon be asked to reverse costs of $1.8 bln it has already claimed from its public partner in profit sharing as its methods and practices, long questioned have been nailed down by the DGH and instead of $7 bln expenses it incurred it will only claim $5.2 bln. Though there are more details to how reliance has managed to claim more costs, and how it will not be able to claim discovery which it has hidden from the government, it will be under duress and disfavor most of this decade as Reliance and BP are unable to find new production levels int he KG D6 fields where production has fallen to 38 MMSCMD, much below the levels of 50 MMSCMD last year and the promised 60..

Oil and Natural Gas Corporation
Image via Wikipedia

Currently, BP and Reliance are looking to rope in a state partner going ahead in the same fields (to bear costs of new production techniques? )

Mukesh Ambani is also rumored to pick  up a stake in kingfisher airlines which despite his protestations., seems mor e and more like his expression of disinterest in the core businesses of his flagship Reliance industries and his choice to go into more brand reliant businesses from the same flagships cash reserves

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