India Morning Report: There is no hope trade in sight

But I’d say keep accumulating as the indices break through a critical 6000 mark. Many blue chips, like in global markets offer extreme value in buys even as the speculative trade fails to take off on a delayed recovery.  Gujarat’s downfall over the small matter of a receding poverty line not helping the cause of the markets rich BJP is a puerile coincidence for the markets, but correspondingly there is no Congress faction left in the markets to buno the tanabana, Markets selling the stable BJP proposition backing out for an increased negative momentum(undesirably sharp)  on the downward side

The IT trade coming into profit taking for the almost first time except for a pre results redenomination, there ae buyers out there who are ok with the premium on Infy to a low 3475 market price and HCL Tech is good for a move of Rs 100 or more. Thus if all sectors move together like the Tuesday open, markets could see almost unheard of hlevels receding to 2012 levels no longer required by the New Dolla r prices. That also means these exits will cascade the Rupee even as it holds at 62.50 to 63 levels , that being a new fresh level for the currency. However it is still possible that with DIIs coming back as markets sell off that the gradual sell off can indeed turnaround and complete the prophesied ( by certan others , also old hands) pre election rally in India. The sell trade on ITC will likely never exit 290 levels an such picks abound with limited downside even in the correction which will confuse buyers into making losing commitments so a wait and watch is necessary. F&O markets return back to index only specials and i the downmove is to be arrested by Vols at 14 this will be a small enough move, but that is unlikely leaving vols (India Vix) ranging between 14 and 16 till the first buyers return whence new VIX levels would only see increasing volatility

However as we were stock specific going up and DIIs look for bargains to pick up pieces, there are gaps in how the markets will rebuild momentum most buyers holding on to prior 2013 selections including the new Aurobindo and Sun Pharma trades( a great defensive for mopping up your prop liquidity) in IDFC at 90, ICICI Bank almost ready at 930 levels ( the next levels are around 871), Yes Bank ( bottom at 267 will likely not reach the same so accumulating should be ready  – like a dark pool premium),  Bajaj Auto, ITC, Bharti and no – not ttk and titan currently as there is much more going down in that specific market despite the penchant of the self funded margin traders in our domestic brokerages like Angel, SMC and Centrum including the overlap with commodities wealth accounts. There will be no dlf trade north, none in Jubilant foods, titan or ttk and none in HDIL or unitech much later. Axis Bank’s orphaned again being misused in the prior rallies, leaving nay of the F&O speculators heading there at great risk from those targeting their brand of stupidity after getting on the right investments. Trading as a game may try not to suffer though sharp bear phases and quick bull recoveries are not ruled out with brokers and traders living the cricket dictum of well left alone even for great value picks in Midcaps The trades are mostly in Spreads, Bear spreads in your choice made by buying Puts at the just OTM (ATM-OTM>= 0) and selling a lower put to part fund the trade. Bull spreads, which wold be due n a couple of weeks, go bought Call just OTM (ITM-OTM>=0) which reflects better liquidity as well and thus better premiums, and partly funded by distant OTM Calls ( nly one or two will have  tested and liquid quotes where you do not pay excess liquidity spreads)

 

India Morning Report: FDI flows bolstered in 13 sectors including Defence and Telecom

English: Manmohan Singh, current prime ministe...
English: Manmohan Singh, current prime minister of India. (Photo credit: Wikipedia)

Pending Cabinet decisions, Parliamentary Debates, Ordinance and Laws

A welcome decision was announced to increase FDI limits in state of the art Defence equipment to 49% from 24% through the approvals route and base cellular networks in Telecom to 100% from a 74% currently removing an important roadblock in the plans of Global Services companies to enter the lucrative Indian market which created unseemly compromises in corporate governance and issues of under priced auctions. These two sectors can see immediate fDi commitments  The decisions were pushed by an ebattled PM and Economist Manmohan Singh likely to be singled out if the UPA fails General elections in 2014

The reforms initiated yesterday, unlikely to be rolled back in the long term except for political opportunism by new governments were long expected and remain important for India Inc, even in sectors like power exchanges, commodities exchanges and Stock exchanges where the existing 49% limits have been brought under the automatic investment route.

Importantly, the long-standing increase in FDI limits for insurance to 49% meets private insurance companies requirements and the sector looks for IPO issuance in the next 2-3 years with heightened participation from investors adding to solvency ratios and potential new business underwritten in a market growing at a double-digit CAGR

The removal of brownfield pharma projects from 100% automatic FDi stands as Ranbaxy reports a new FDA strictures at an Indian plant

The rupee will likely continue to trade above 59 but there are unlikely to be further selling pressures on the currency at this point though the depleted FX reserves and continued demand spiral for Oil necessitates careful watching

Banknifty was under a lot of flak from RBI intervention yesterday but will likely have bottomed out at those levels and those short during the day would have to close out without recourse especially in the DEivative markets as the thinly traded contract that creates the highest tradable volatility correlated to market directions depends on large discrete moves in the options trading its direction and as and if strangles were formed late at 11200 levels they would suffer from the positive semivariance similarily as the bear cut of double digits on individual private bank sotcks was much more thant he losses to the banks from the Monday/Tuesday interest rate shock event

Bank Results Season: Earnings Surprise(India Earnings): LIC Housing Finance (Q2 2013) Grows Loan Book To INR 690b

Though RBI ‘s new norms for banks may not be par for the course for the LIC subsidiary, it is growing strongly in loan assets after having controlled its growth of Developer portfolio shares on RBI insistence. NIMs fell to a low 2.1% but the ‘bank’ remains one of our top picks in the sector at its current prices

It had a minimal share of retail exposures in its retail growth and after the current rationalisation, it will go back to getting  to the richer Developer portfolios as it boosts its Net interest income to INR 3.54B and is likely to post INR 16.54 B for the full year

Provisioning has dropped 5 out of 6 to just under INR 7 B keeping profits high at INR 2.47 B Business Standard reports its best growth of 36% in the loan portfolio came in June / September 2010 hence it has been falling.

As we mentioned it tried to balance its portfolio from 50% developer to more retail with RBI egging it on.

This quarter the Loan portfolio is a sizable INR 690 B at 21% yoy growth and may easily reach INR 1 Trillion by Q1 2015 esp as it may be able to absorb more crorporate exposure ( Developers) Loan growth of above 20% at this size of assset portfolio underlines the growing capabilities of this

This is the third copy of the posterous blog i am posting as the now twitter company seems to have lost some of its softare contstructs losing my drafts and published documents ever so often

 

Late Morning Trading Strategies – An Update By 10 Am (September 17, 2012)

 

Markets have not gone nose up on news and thus are unlikely to go belly up by next week. As unexpected as it was and as fruitless it might be the sectoral runs in Aviation and Broadcast channels have been well left alone, the improvement in FDI regime resulting in gains of 3% (JET) to 12% (SPICEJET) in aviationa nd 3% Broadcast Cable companies. Sensex is up 100 points.

Holders will gain and it is not really time for fresh buying. The commodities cycles are quite done in the big run up of last month according to us but shorts dio not have a clear run in silver or Copper or even ANtural Gas. Crude should go higher but not ithout a not so shallow correction. The Euro at 1.30 is pointing to a bottom for the Dollar being very nearby though some European investors have again taken Euro into their fold, saving it to 1.36-39 by the year end (HSBC)

The policy data comes out in a n hour

 

100% FDI in Single Brand Retail, Aviation and Multi Brand FDI also on the anvil

As the drop in investment rate of more than 47% in both investment proposals (CMIe data in ET lead – ) and

English: Logo of Ikea.
Image via Wikipedia

government infra project approvals shows up in negative cap goods and low GDP growth, the FDI saga is likely to be brought back to finish off positively for this government to keep the India growth agenda with itself.

An invitation to Louis Vitton, Cartier, Armani, Rolex and Ikea

The 100% single brand FSDI approval came through in the morning headlines, adding the usual 30% local sourcing rider allowing that sourcing to be from”Indian” providers” and necessitating the allowed limit of $1 mln( It could be $5 mln so easily if enough lobby pressure is applied) to be invested by the brands in developing such SME (Village industry/SMEs) supply chain themselves and there is hardly anyother option available for Ikea and others with the rider in place to develop such supply chain locally and/or limit participation to 51% and come in with a partner whence they can sell 100% imported units/itsems/SKUs for clothes/shoes accessories or furniture as the case may be.

Ikea for example would think of suppliers for joints, nuts and bolts where applicable/possible or some wood panels for specially introduced furniture lines ( highly unlikely!) or an apparel brand would set up finishing units as India is already a known exporter with a definite quality benchmark in fabrics/leathers/readymades or accessories

Multi brand FDI and Aviation FDI face state and coalition pressures from Mamta Banerjee and the

Election symbol of DMK
Image via Wikipedia

designated DMK State Aviation minister, already facing tough corruption action in Telecom.

FDI failures

Ikea ContestThe government has lost the advantage it created for itself in retail , but with the market trading at value levels,

Walmart India associates arrive in Northwest A...
Image by Walmart Stores via Flickr

it might get one more opportunity with foreign investors in the near term, a minor window of opportunity in which it has to push the home field advantage with DTC, GST, Companyies Bill, and many more waiting to be fully executed weither federally or in law.

FDI in aviation, in retail and in Cable as identified are now critical to be cleared in quick time and the political pressures will anyway cost the ruling team some franchise share nationally. 100% single brand FDI by itself has Ikea and other takers esp with Reebok’s village plans and high end retailers cutting India out in favor of China sooner as China snows on luxury retailAs with the “golden chidiya” proposition of India a couple of centuries earlier, just that instead of plunder wwe can parcel the rights and sell toi the highest bidders now to get crucial capital flowing.

We have missed significant opportunities inInsurance FDI, new banks ( that need to watch for regulation changes till 2015) and infrastructure and retail where China has out smarted us and now runs a bigger and faster balance sheet

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India approves multi brand retail FDI

Galaxy Mall
Image via Wikipedia

The ruling congress may yet see a resurgence in its poll prospects if a quick 1 mln jobs can be created by investors before India’s own general elections and by the time the 12th Five year plan ends in 2016-17

India has pushed itself out of the regional race in growth with China with slower reforms in a culturally diversified economy. Each state will independently authorize retail investments in its cities A little delay in implementation may also be expected as Metropolitan consumption spending has been dull compared to demand in the hitherto neglected rural areas esp for Non Discretionary spend items like DTH and Autos where MNC brands hardly sell 10,000 cars a month  or 100k motorcycles in a market that sells 1.4 mln cars a year compared to 1.4 mln cars a month in neighbouring China

Multi brand retail extravaganzas are also funding India’s governments in land sales neighbouring metro projects or revitalising old shut down textile mills and their promoters in Delhi and Mumbai respectively

Apart from rural infrastructure investments, global chains would need to eye prime real estate to compete with global brands and high grade shopping malls in larger cities. Investments in supply chain would need to be really stepped  up to hit a 50% investment mark unless initial investments are planned in the range of $1 -2 bln than the required $100 mln

 

Read all the ramifications and the current set up here 

Happy Thursdays! F&O Expiry vs FDI in retail

Gold Key, weighing one kilogram is used to acc...
Image via Wikipedia

The Last Thursday of the month, promises among them a “sequestered” trading week in the US as the markets close for the holidays today afternoon. The promise  of lower short positions on the Nifty also seems a little possible as only 51% of the contracts have been rolled over, and the markets may find enough reason for extended short covering in today’s move down and post Cabinet meeting in the upward shake off

That is at best a hope. 51% FDI in multi brand retail, a reality. From 5000 SKUs in Mom & Pop stores to growing more 60,000 SKU modern retail franchises, India would have certainly come a long way when we check again a year later. Walmart and Bharti Easy day retail have been around for 3 years now, Carrefour and others waiting to start their emerging markets experiment and the Sun has been rising in the east for most paranoid investors as valuations calm down to underbought and oversold in India. A thumbs up for all those who are active on the short side too. The breakdown means that the bottom is much lower, so do not start large cap  trades right now. Appollo Hospitals though struck me as an enigma that could last. So could IGL and Concor and in two weeks he aviation guys could come back.

In consumption stories, HUL has reached its optimum at below 400 levels (and UBS  got that)  while Jubilant has raised Pizza prices by 8.5%. A 100 pizzas a day still means a lo of profit for each branch so the Dominos’ decor would survive competition from other brotherly brands they add.

Inflation is riding high, India a systemic story and will not be coming down despite the trending down  in non food inflation over the last 2-3 weekly readings. Manufacturing flash PMI plunged in China to 46 levels with double digit drops in input and output prices and new orders for the monthly figures but China is in the home plate, the last lap of the tough times to surpass before June and global indices will continue to plunge before the US markets reopen next week, A big bang on Monday is likely as Black Friday flash figures gladden the hearts of US watchers

There will be only one pullback in the rupee, either now or two weeks later if and when Jet signs up more FDI

Food Inflation fell from 11.63% in the last week to 10.01% for the week ended November 10, 2011, though onion prices have come in 33% lower, vegetables and pulses are still higher by 17% and 12%. As the guv’nor mentioned yesterday, this is probably as India moves on to higher consumption needs on the food chain in more proteins(Bennett’s Law), that supply is not ready for. Primary Articles ticked lower to 9.08% as non food inflation hit a low 4.05%. Fuel inflation continues a t the new level of 15.49%

More FDI soup..

Adidas store in Tel Aviv, Israel.
Image via Wikipedia

With bold and happy pronouncements on how FDI in retail is being considered as per plan to 51% in Multi Brand retail and 100% in single brand retail, one would think all is well. But the GOM approval is hardly the known factor in these last minute proclamations from persons close to the fire adnd should be observed and followed uop for their real strength if any. The FDI of 26% by Foreign airlines for example is already in a soup between 24% requersted by the Ministry of Finance and 26% that DIPP wants as it would promote at least a power to pass special resolutions accruing to the global airline investing. Not that that should be much of  afactor but it makes the paranoid Ministry’s position suspect in both cases as it regrets issues of control in FDI. both Retail FDI and Aviation are eagerly awaited to be approved in the next 2-3 days

On our part we back all circumspection to the hilt, the recent crisis underlining the fickleness of Foreign investors and their propensity to look for leverage and scamper away with the booty like the banks getting rid of global assets inspite of their profitability as they face a shortage of capital

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