India Morning Report: Dollar Deposits refinancing may bridge CAD, What Taper, Fed?

Commodity markets are as their predilection , totally dependent on news from the Fed in a few hours and present very simple shorts in Gold (trading below 30k), Silver ( network picks to 48k, we feel the 44k mark is a long term ‘ambition’ target in the market). Fixed Income yields too are dull despite the great news of $20 Bln inflows in the remaining six weeks for the swaps on Dollar Deposits offered by the Central Bank. Also the Dollar refinancing thru Swaps has precluded any possibility of higher interest rates and raised the bar for liquidity tightening measures to remain in place longer, except that those measures remain India’s only defense to the Dollar in this situation.

A Taper announcement less than $15 Bln is very likely and that would still leave the Fed a net buyer of $70 Bln in MBS and Treasury (twist) securities. However the returning emerging flows have to the consternation of destinations like India, Turkey and even Thailand and Mexico, have again found China to be a serious option, laving India with net reallocation from ETFs alone unless faster moves create the opportunity for Indian Gilts to be part of the Global Bond Index.

Banks are ofcourse on the edge but the overall equities are happy enough to move back up to Friday levels. Globally the Dow and the S&P 500 in the US traded near all time highs intra-day at 1550 and 1709 respectively. The Banknifty and India’s fixed income yields could probably jump down a couple of notches to near 7.5% yields if not for the global question of reducing Dollar liquidity as one feels banks have been unnecessarily trading down given the advantages of a higher interest rate scenario for them Interest subvention in collateralised personal lines like Home and Auto loans also mean better margins for the banks exp Private Banks like HDFC Bank with the network and those depending on wholesale overnighters for funding like YES Bank who can finally return to supernormal profits in business, normal to Asia  than worrying about cost of funds

News was good to the markets lening on reforms in the morning. Apart from the Rajan announcements from the RBI on Home and Auto loan subvention, we also ad action reducing MCX directors from promoter Financial Technologies to one ( four earlier) and undercurrents of liberalisation in the Higher Education sector including FDI. China again rushed where angels fear to trea, taking the Property markets 8.8% higher in August month on month, with the first shoots of recovery, staring at the Asset bubble again as a credit squeeze fails to channel flows to the renegade property markets

Bank Policy Thursday could well see R Rajan starting off on reducing banks’ dependence on Government investments redcing the SLR if not CRR as well to fast track his outlined reforms

Bank Results Season (India Earnings): ICICI Bank flashes positivity for a Nifty re-rating

While not beating expectations, ICICI Bank’s improving fortunes, better retail traction and control on NPAs seem to have paid off for it to score the #2 bank in the country soon aheadof PNB and HDFC Bank (Pvt sector)  with NII coming to INR 37 bln in the quarter and Other income INR 22 bln (standalone) , mainly advisory, dividend and fees and charges in commercial and retail banking totting up from its tarried state two years ago. Since, foreign banks have virtually skipped the Indian unsecured market making a fresh start. CASA has dropped in 2012, with even PNB scoring just 38% in CASA. At their best performance, ICICI Bank CDS still trade at near default scores of 160 bps

With the bank likely to report hawkish NPA policy compared to the PSU units looking to cop out of provisioning at the first sign of improvement, its profit growth in the Q3 of FY 2013 being flashed is indeed muted on year, but much better than the Q4 of previous fiscal and improving in course of the eyar but missing YOY growth except at a 30% growth in NII and just 20% profit growth even in Operating profit terms.

However the bank has already shown the required scale to jump into an imprtant #2 position in all parameters. (Rest after the management advice on the Q3 results)

 

 

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