Bank Policy Tuesday: RBI Governor completes policy action

inflation (Photo credit: SalFalko)

With the forced liquidity constraints as the currency devolved on the nation in June ( after May 21 announcement) RBI was stuck in the middle of a rate cut leg of its policy to encourage growth. Already hampered by banks using Central Bank liquidity to the extent of INR 2 Tln instead of market, the Central bank’s rate hike onsequently in September even as the MSF hikes were redacted and brought back to the normal line may finally break the back of the markets on the verge of a bullish move from 6200.

The only inflation out of control however is the Food inflation which may not respond to any rate hikes and this rate hike may just be a mechanistic response continuing since Duvvoori Rao demitted office to stabilise the higher rate environment, in which case India may old these levels for a good six months, and in developed markets this new intermediate leg could have lasted years, till the rate cuts can begin again.

Meanwhile consumer staples will continue to see large double digit price increases to correct 2-3 years of suppressed marketing budgets and pricin pressures unrequited to keep basic sales growth alive in consumer markets

The announced policy steps however will increase bank rates and as retail lending has reounded such increases are largely going to be absorbed by consumers and however will have had debatable impacts on fueling furthr inflation now controlled by bank rates. NBFC business is already looking better in consumer durables with a clampdown on 0 interest loans and while that may not segment the market in favor of first time durable buyers that have been an absent quantity fooling marketers and policymakers, it will continue to better control the negative output gap with more advantages for NBFC lending even for banks that have already relied a fair portion of their portfolio on the sector at the expense of obviating the real winning consumer sectors or industry sectors winning n the changed scenario

RBI hiked rates 25 bp and MSF channel has returned to 100 bp over the repo rate clearing the path for a return to the Repo rate as the Bank rate.. WPI forecast has been banded to the central bank’s comfort zone as 6-7%. GDP growth is updatd to 5% for FY 2014

The banks lead the Nifty comeback post policy action as they assume the deed is done and currency will consolidate around 61-62 levels before going back to the trade deficit control led highs nearer 60-61 levels The sponsored rally ost policy is however blushingly even across non actors and non performers in the banks bunched with YES Bank, ICICI Bank and even HDFC Bank and Axis Bank. IDFC has recovered its morning deficit too. BOB is up 15 pointsand BOI is in the positive with Pharma/result candidate DRL also staging a mini rally. The short on LIC Housing ahead of results has also disappeared and tomorrow’s results are likely to see fat positives as sentiment needs a good build up and inflows ontinue to allow market makers to perform as such and the Financials are likely to reward investors who stuck through the unreasonable 2 months pre the last MSF related policy action. Further policy action unless embargoed by inflation is likely to stay with seeing the bank rate climb down from the current MSF 8.75% to the Repo rate of 7.75% ( The Revese Repo is 6.75% where  RBI issues new collateral securities)


India Morning Report: Markets negative ahead of expected rate action

Inflation rate world
Inflation rate world (Photo credit: Wikipedia)


Most economists and bankers are in consonance  that RGR may well post a higher repo rate number from the Central Bank Quarters today and thus Markets, teetering at 6100 levels since yesterday along with our expected markdowns on currency and bonds coming in play are negative on bank stocks and the market is ready for a pitch South of the 6100 mark this morning.


More than $4 Bln or INR 250 Bln have entered the markets from Foreign accounts in the two months of August and September according to ET Data and October will probably see an even higher number having come in as ETF inflows were exceptionally strong.


WE on the other hand still do not find such a motivation in the current inflation data except for the small spat on Onions. If the new Guv of course thinks he cn meaningfully control food inflation as India enters a critical period of recovery , it might well be, but it is unlikely to make a strong case as there are other reasons in the Supply chain and the continuing need to support farmers for food inflation to wave through food, veggies, milk & animal products


We also think Dabur results ae a good portender with Consumer Staples being an important watch category and if RBI policy is favorable the markets must rise with ITC results being seen in that light as well. The exceptional 10% postive reaction to Maruti’s results are of course just a sign for quick profittaking int hat scrip as trades eluded the banks in the cliffhanger again


Glenmark Pharma reports on Thursday with DRL and Torrent and Sanofi report tomorrow, so the Export earnings fiesta is well and truly alive exp on Glenmark. The Master investor’s Jai Corp reorts today


A couple of NBFCs do report today incl Chola and JM Fin (Vikram Pandit) but the market interest is ripe for pickings in the Power NBFCs as again shorts try to climb the wrong tree with REC already trading at 180 levels, REC, PFC and even PTC might react better post policy. IDFC reports on Thursday with Magma and Muthoot. Also, REligare and the PSU troupe with Union Bank and BOB joining BOB report Thursday. LIC Housing reports tomorrow. Each of these will see more than scrip specific impact


DLF, Bharti and bank hopeful Edelweiss also report tomorrow and will be key






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 Morning Report: Markets wait for fuzzy logic to come back as banks get ticked off

The Rupee has continued its climb but equities have taken a break even as Rupee survives end of the month selling for import payment obligations in a benign environment Oil heading below $103 (US Crude)

Bharti Airtel Lanka
Bharti Airtel Lanka (Photo credit: Wikipedia)

FDI Dollars will likely boost debt markets soon, the positive sentiment from that and the promise of removing extraordinary liquidity measures letting the markets 5 basis points off the 10-year bond yield to 8.73% . BofA ML in the mean time agreed that there was no doing anything in India till 2014 came and went so the rally is at a loss still from  a disgruntled bull frustration at this rush for beyond 6000.

Goldman Sachs put India in the same basket as Turkey and Brazil, rather on the heels of the City beating Manchester United and showing Goldman Sachs burnt in putting too many eggs in this basket too. However, we go agree on the Fragile three from Goldman Sachs which will really get stricken not just because of dollar dependence but because of domestic alchemic leadership that continues to drive a fiscal big bang attempt in those two domains as well as someone like South Africa. The Fragile Five however esp India do not exist as those with deep domestic markets cannot be clubbed with Emerging Markets

India’s Dollar dependence is much a factor of the Oil price, so that can’t happen without Syria, Iran and israel. No, India cannot choose to come out of the growth plateau overnight by dissing inaction and is not  sign of weak politics, just more federal than the smaller EMs can afford. Our deep markets still offer much more than even China in most asset classes and Financial market reform is not a steeplechase to be run, or a small sprint but a consistent marathon. Neither is the consumer credit habit overdone in India or hitting the falling Domestic savings except that real income has ben stagnant even negative as non agri GDP data shows us in 2013 ( a 0ve 0.5% growh in since April this year, i.e. Q1)

Reforms did break India’s markets stride yesterday again, as the SEBI panel freeeing Govt Bond investments frm quantitative restrictions has to merely posit the same to RBI at this juncture. RBI in the meantime is busy bringing down growth era economics by C Rangarajan and others who took his place after he remitted office for higher advisory office. The edgy action on 0 percent loans and the continuing waterboarding by banks on using MSF and overnight liquidity instead of interbank markets have got RBI in a fi x of its own and that has definitely been scuttlebutt fodder for the equities.

Those following the soliloquy of Ashwini Gujral however may do well to note that I think neither Maruti is making it higher in this week nor traders or investors are going to wean off Bharti Airtel in this series. Volatility is on a thin leash as October still rushes to 50 point premiums over the current Nifty levels even as barely three days before expiry premium in the current series has been completely blunted off by the trading blades used to bigger prizes in an Indian rally constructed/deconsructed at will

Markets could well bottom out especially if action is indeed seen in the infra sector and more is not thrown banking’s way allowing the sector to recover last week’s trading levels. Inflows from the NRI binge for example have been waned to Deposits apart from the continuing rush on Dollar payments home to the tune of $1 Bln from just three publi banks. SBI in fact is looking at its first woman Chairman in a few months

ITC and YES Bank, along with AXIS on hedgie trader desks, remain in limelight with incoming investors and most wait for a resurgence in Financials to confirm India’s superiority as an Asian investment destination though China remains bigger an d better after another shocking half year of underperformance 5600 does look like a tradeabl market bottom for India, surviving these levels in such economic doldrums


India Morning Report: It’s Monday and all’s upsy daisy in waiting

The Indian Rupee opened near 62.50 levels, a 2% jump from Friday levels well likely to follow last week’s 2.5% crawlback and the prospects of a bleary liquidity hit SuperFed becoming a scrawnyScrooge MadFed retraced as Larry Summers gave in to a Democratic caucus on the Banking Committee, incl Liz Warren and withdrew presumably in favor of Janet Yellen in the Fed changeover. The Fed will go ahead with Tapering as planned and that news is in by Wednesday. Indian Markets of course are then going to take the opportunity to break away from the global correlation and set a few ground rules for an Indian recovery. The WPI at near 6% again and the continuing pressures of the CAD and Bank reforms are likely to cause markets some sleepless nights too ahead on the turn. But before that a 6000-run as promised is nigh and mostly the mark would even be hit in today’s session itself in late afternoon trading given the Rupee level jumps are not adequately referenced in the 70-point Nifty jump in the pre open

Banks , even the lagging PSU Banks are finally in the limelight and the resulting breadth available to buyers is likely to be good tidings for the market. Reforms in the G-Sec market may well continue as caps on FIIs even without auctions are much easier today and probably reflective of the real appetite for Indian debt at $25Bln G secs and $45 Bln corporate debt now allowed to QFIs

LIC Housing is back in the news but if its that banking licence then one is not sure it is right for the market recovery esp with the 80-20 disbursal rule out of action. IDFC may be done with shorts and Power NBFCs may be ahead in the lead. As more debt reforms pick up steam and remaining restrictions on G–debt are removed, it is likely the NBFC sector’s institutions will also increase in priority for the markets. As of now effectively there is only one on the run (lquid, current) 10 year security available and it is issued by the RBI.

Really, though markets are up the traders’ picks on networks could point to the list of mid-caps just likely to gain from the liquidity rush and may not reflect any real fundamentals and is probably sign that these low mid caps list in the traders favorites needs to be changed more frequently. Notably, Voltas, Jindal Steel, UCO and Union Bank, Future Ventres and NHPC are probably candidates for non performance and “no results” in their respective sectors and will be trgeted wins as market favorites because today nothing can go wrong for the pro traders. But many other pro traders now would pick the over NBFCs and other good picks not at variancce with what Foreign desks have also short listed in the last four – five years


India Morning Report: Is 5600 the new 5000? Rupee is holding 65-66

With the  Rajan effect crystallising over the India investor skies, a new definition of India’s winter seems to be up as global liquidity withdrawals accelerate availability of funds from the exodus fro US bonds and a small portion is likely to start trickling back sooner than one would think.

The earlier expected recovery cycle threw up banks, infracos (IDFC, Power NBFCs ), ITC, Bharti  and Bajaj Auto and others in FMCG and Consumer Goods sectors and more or less they will make the bedrock of larger EM portfolios with or without MSCI index dependencies. Metals are good for this cycle and Tata Steel can still make it even if Global demand does not respond the way it is expected to recover in the end

Weightage maintenance is also in play and at 5600 levels that means sizable new buys fr funds that sold just a week back. The volatility till yesterdy will continue to affect timing of new investments and most invstors ahve oodles of time to play out their vaalue and growth leaders in the portfolio .

Now did I hear someone mention Rajan has to perform? Rajan would not be credited with bringing individual accountability to the RBI’s various senior officials but it is happening as we speak and Rajan hmself would know difficulties of thinking of implementing structural reform before May 14 decisions are out for India inc. The rajan effect itself was really areiteration of everyone’s agenda since 2000s , and the currency responding after controls on speculation were lifted is the unnoticed vote of confidence for India as a destination. ECB funding should be proceeding on A+ paper and equity QiPs


India Morning Report: Markets swing to international sentiment on India

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


The proof of the pudding is in the eating. in the weakest correlation ever to its presence n the Global markets, as shared by global investors and markets that largely ignore Indian events already, with mirrors available in east Asia/turkey and even other developed economies, India itself typically stands alone and the imperceptible nod to trend shifts remains the only hint to international investors. again though the banking system has been asked to step up to tighter overnight liquidity yesterday with a 4% CRR now enforced daily instead of twice monthly(fortnightly not bi monthly) where earlier it was required to e 70% now it is 995 That would affect the base SLR stock too but with most in excess on SLR, banks would have additional motive to hawk those securities for others CRR requirements and a domestic mini bond sell off may yet be avoided if there is a real overnight liquidity crunch. Which there is not.


So the entire shortfall of INr 900 Bln pointed out as likely by analysts like UBS’  Bhanu may actually be a mirage for inter bank markets though interest rates will respond likewise the first shock of two weeks ago and a catch up to the 10% mark as the LAF is now available at 7.25% only for 0.5% of each bank’s NDTL. Thus this shortfall may take a whole 6-8 weeks in unhiding itself in the business and a rate hike may yet be unlikely though the range of choices before the RBI Governor is still not large and banks wee on the verge of easing down loan rates when the dollar/oil trap worked them into a corner


What that means for equities is that they are largely naffected as liquidity from interbank schemes and pledges shares has already been minimised. Also foreign flows stay in and increase slowly while letting the Rupee fall. I may be well describing a limitation of this monetary outreach here but no one would play that card to corner India though unwittingly FX flows be unconcerned and pressure maintained on the currency as dollar starts its climb back I still dont think IT sector is going to capitalise on this leg of the continuing rupee depreciation stance but yes those basing their investments on continuing wage hikes factored in will bring in the kudos for the sector always singled out as the flip side of a depreciating currency while exports remain ata standstill falling 5% in June


Markets may not dip further from the 5990 levels Is ee in late morning trading on the screens and the Banknifty dip is probably still just a check on how things pan out and north is the way to bet from today late afternoon. Sun pharma going back into currency or more HUL will still not preclude positive investing in Bharti, ITC, Yes, IDFC and iCICI Bank




India Morning Report: Rupee still juggling the trap mechanics as water boards up

HDFC Bank (Photo credit: [s e l v i n])
 With FDI pronouncements unlikely and more than $170 bln in debt redemptions due in FY 2014, the more policy makers dither on shoring up FX reserves with bond offerings the more the risk to the currency from flat international trade and eager money flow watchers finding it a tempting investment with a small investment and a big payout in percent returns.

However, it is today (and just today’s trade likely) only that the lackadaisical equity moves still risk a big rupee downside as equities are sustaining a large 6000 level in light of the real reassessment of Indian prospects as a flurry of GDP downgrades continue. The cyclical reinforcement of this downside risk aka in Latam and east Asian examples of the past is unlikely as equities are strong and the depth is likely to see the markets after a good show by HDFC Bank yesterday and a likely par for the course from TCS this morning.

Though longs would have to wait for their time , further shorts in this market esp on the banks are unlikely to bear fruit. The money market investments made through mutual funds amount to an expected INR 1.6 Trillion and the Central Bank has immediately provided a reserved window of liquidity for these mutual funds to a sizable INR250 Bln as redemption pressure resumed on Monday/Tuesday. Yields hit 85 on Tuesday market open in the short term instruments but rbi lending to banks is at a minimum of 10.25%

With Foreign banks also reducing their footprint in light of Global Banking regulation of Capital and ringfencing, which exactly are wholesale players in India in the non PSU, well managed banks!! HDFC also reports today and axis a 4%+ margin again on its retail portfolio strength

India Morning Report; Rupee hits final free fall, Equities avoid snag

English: First Rupee, a Rupiya Silver coin, is...
English: First Rupee, a Rupiya Silver coin, issued by Sher Shah Suri r. 1540-1545 CE. image from personal collection (Photo credit: Wikipedia)


Rupee responded to the 57 mark hit on Friday and this most of the week will continue to manage all the reations to new level of the rpee before it probably heads towards a new “equilibrium” range for 2014 with RBI intervention missing till Friday evening being a minor risk to the prognostication of the leves around 57.50 ranging back to till 56, if the Equities funds flow impact is actually turned into seas of green this week or early next week itself.


The news of US having recovered based on the z1 report (Financial accounts) of Thursday, is a Fed push again from better days of 2013 and the recovery in retail and requirement of a more robust sustainable inflation has pushed the QE withdrawal to 2014, but a token notice is likely to weigh in on global funds tracking in 2013 esp towards Q4


The Banknifty is very pliable from 12150 es the bad boys of PSU led by the surprising bite on BOB books, which have probably bottomed at 660. Justdial is unlikely to be jettisoned by IPO investors in a hurry,  Dominos (Jubilant Foods) and even Jet Airways holding a good “precedent’ for them and thus social networks are likely to keep JustDial levels higher above 600 for another 90 days before a call can be taken for Secondary investors in terms of post IPO investible levels

Yen is crossing 100 again on the upswing from 95 level and will be backed by GSAM among others to new 110 levels esp as US hedge funds may not exit April May shorts on JGB and as long as the interest rate risk on the same is managed well by BOJ, Koruda taking over in his last six months from PM Abe whil currency falls could probably now sustain with a lower level of sales of JGB

Day Trader picks have moved on from trying to short the Top 40 visible, high capitalisation scrips to probable better success rate in small and mid cap picks. Yes Baank corporate governance hiccups with the succession battle not being insignificant keeps it out of trading orbits likely ranged  while flying passenger miles this month or retail and real estate credit jumps at ICICI Bank and the rest are unlikely to be very strong in May or june despite the pressure on the Rupee not tranlating into consumption economy pressures for India Inc or its consumers, imported components driven only by the movement of Oil rices, getting better if oil prices in fact continue correction




Where the Rupee is used
Where the Rupee is used (Photo credit: Wikipedia)




Bank Policy Tuesday: 90% expect a rate cut. Sorry, says RBI Governor. India wins.

Despite the political improbability of this being counted as a standoff by the understanding P Chidambaram, this will be the most advocated course by us as Indian Food inflation starts into gear and despite non Food inflation now being below 4% the banks’ predisposition to trust their models earning a good profit in such rate cut cycles and the lack of transmission of last rate cut to bank rates across the board means the RBI governor will have more wiggle room later if he leaves rates untouched.

That is some simple policy math weighed in by a outside in look at the markets busy in the ranged groove. Market economists are hemmed in by the lack of bullish global prospects despite a healthy prognosis for 2013 just two months ago. CAD remains dangerously teetering on the brink and can easily be held hostage by Oil and other imports. Gold imports  have not been capped off. Fisc parameters have not been resolved.

Indian markets have showed the same audacity for a bullish candle if only they  were allowed to bully the experts and the pragmatic Duvvoori Subbarao. Most experts thus have agreed to a rate cut tomorrow as more likely but have correspondingly cut down on the wiggle room for growth in even 2014 and definitely the rest of 2013. While Bank Policy could traditionally go for a rate cut now, the only room it will have in the future is to nod sagely and say ‘we told you so’. The 6.8% WPI is no measure of the 11% CPI and never the twain shall meet.

This is not the last stand for central bank led monetary policy however and if rates are indeed not cut now and market forces continue to engender the positive turnaround in IIP , the Q3 policy in December 2013 could look much more positive and we could be near a good take off point where consecutive cuts could then support growth. A 10 Y yield at 7.75% therefore is no bad news and the guv has all my good faith support if he lets the rate cut go unannounced tomorrow. 

India Morning Report: No CRR cuts did not cause inflation, what about these 50% growth in topline and bottomline..

Chidambaram (Photo credit: Wikipedia)


Is there a way to improve the “weights” of positive results on Bank Policy Tuesday? Colgate for example grew Sales and Profits jumped nearly 50%, Biocon Sales are better by 18% on year though they failed to meet any profit growth expectations and even BHEL which pictured a dismal quarter early on but masked it with growing Power business scream out for more attention in the Chidu vs RBI date we look ahead to.

No, there’s no President Pranab intervention on the horizon and even Chidambaram would not mind if the governor lets it be. The CRR cut may also ease the current low liquidity deficit of INR 0.60 T with another INR 10k – 20k Crs or INR100-200B released on the cut announcement.

The Risk reward has enticed the shorts as we suggested it might but we still think that given the inflows this year were of a couple of orders of magnitude higher and targeted Equities per se as commodities spin out of control to the bottom of the pool, it is unlikely that shorts in anything other than the whiplash mid morning. Banknifty is such a plump target the whiplash alone could cost it a Double century and bring it back only by the day end. However, if you were buying today the odds ( and not the long odds only) are that you would be in the money on 8 out of 10 bets ith a little patience, what you would otherwise employ with a green thumb on a falling knioves kind of a day in the bazaar.

Coal gate in the meantime ( the American strain) could not ruffle Obama out of that battle state of Ohio and Romney is still looking in Wisconsin even as Florida and most of the Eastern seaboard float ( probably in an attempt to shore up Oil prices) and even in light of record inventories of Crude and gasoline, it has meant a green light for Oil bulls after a long time, again, apparently my threshold still says that Oil is likely to continue to crash despite. Festival buying of Gold is almost over and the disaster has brought up prices too and a bull run in Gold will start from here as the yellow metal can outlast thru equities bull cycles as well in an upturn and need not signal a downturn in equities.

Nifty Put Call ratio is still a healthy low at 1.10 and has a long way to go as shorts extend into 5700 calls after the initial interest in 5800 calls giving way to more focussed pressure on the Indian system




India Inflation Report ( September 2012)

As expected, fuel inflation jumped to 11.88% and though Food inflation was below 8% a drop of almost 1.5% to 7.86% and primary articles to an almost respectable 8.77% from above 10% the overall inflation is too high for the government already blackmailed by the prospect of rising oil prices to factor in a rate cut or ask the Reserve bank to implement one as a quid pro quo to policy reform. Manufacturing Products inflation is coasting at 6.26% from 6.14%

The CPI data for the previous month already came in at 9.7% with the Rural data even higher at 9.8% and a rate cut could artifically support the depression of prices with financial costs coming back into alignment

The WPI number for September is at 7.81% and almost threatening to take Injdia into a hyper orbit above 8.5% on the WPI basket itself as Fuel will llikely remain higher. SEB Electricity price hikes were factored into this series’ data as well


THE 11AM UPDATE – MORE NERVOUS ENERGY IN THE MARKETS! (SP pledges issue based support)

A nod from SP as expected and Financial markets actually jumped and are 100 points up on the Nifty today. It just shows when markets refuse to go down after a stinker they really can bounce North very quickly and for literally something that was ” no big deal” as i thas become for players and commentators of Indian polity. This ould have been a chugging along at 550-5600 day except for the move and elections aren’t farther awway than when the day started


As yields dropped on the reform news, good news kept raining on the markets with Duvvoori Rao going ahead with the much pressured rate cut of 25 bp to give industry a chance to shore up the IIP froma low 0.1% last week to better reports than the expected turnaround in April 2013/June 2013. The cut has not been made in repo or Reverse repo rates but CRR has been cut to 4.5% However this rate cut simply cuts possible maneuverability for the Indian Reserve Bank RBI in the rest of the fiscal. india’s fiscal deficit is likely to be revised to 6% from the budgeted 5.1% as FinMin tries to revive a much hated and shelved disinvestment program but is helped by a Diesel rate hike

Losses from LPG and Diesel have been averted to more than INR 50,000 Crs from the INR 1.3 Tln together from last week’s hike and to that extent government will not be reimbursing nor Oil and Gas producers be paying foregone profits to Oil Marketing Companies.

Yield has in fact gone back up after the policy from a 8.16% trading range in the morning to 8.1726% The future of OMOs is quite clearly what is upsetting as the CRR cut implies RBI would not like to provide further liquidity using adhoc operations later in the month though banks seldom use the liquid assets blocked by CRR even when they are freed.

The India Inflation report July 2012


The WPI data begins the catch up with economic data from India for July 2012 after global trends could not break India’s earlier rhythm, though still contused by global shock, with a 52% PMI and a 53 in Services PMI.

The inflation came in well below 7% from a 7.25% revised number for June to 6.87% number for July likely helped by the lack of demand in durable goods witnessed in the IIP and the continuing low basic and intermediate goods that continue to fuel production indices. Markets hold out hopes for aggressive rate cuts turning into a rate sensitive led rally post the inflation data release.

Primary Articles Inflation has settled down to a 10.38% same as 10.46% in June as Fuel price increases have been shelved and Meat Fish and Eggs continue to lead food inflation increases. We believe RBI may hold off on rate cuts till those fiscal changes have been implemented or the alternative disinvestment plan counted as success though the RBI will likely stay away from confusing the markets on the simultaneity of fiscal and monetary impact in terms of its equation with governments.

Inflation values for Food categories have dipped to 10.06% against 10.80% in the previous month and manufactured pdts inflation is just above 5.5% also down from last month


Bank Policy Tuesday: Nothing can be done for now, Markets react


As we mentioned, the markets had decided for the bank last week itself and while it was clear the rate cut was not recommended the market is in position to react unfavorably letting commentary focus on  “hawkishness” of the policy (just listen  to LV on TV18 carrying on live from the dog and pony show) which is unlikely its tone.

Banknifty is down 100, supports for the Rupee sunk in the melee and Nifty don 20 points. SLR has been cut 1% finally after 3 years of dilly dallying. that means with 23% SLR and 4% CRR banks now need only 27.8% in Liquid government deposits and with borrowing from the government already reducing the liquidity will improve albeit slowly as these are sticky deposits. India’s GDP  growth is likely to come below 6.5% and inflation is high according to the policy review.

I am wondering if my short Dollar position will stay in the green in these conditions against the Rupee with markets using every such excuse for running it down and are virtually uncontested in that. The RBI reference rate to the Dollar will move up today. Inflation target is now 7% and credit growth targets are above 18% wiht most of the big four affirming a 20% year


India Morning Report (June 27, 2012) : Dollar loses steam

Prime Minister of India Manmohan Singh in Arun...
Prime Minister of India Manmohan Singh in Arunachal Pradesh. (Photo credit: Wikipedia)

Another of Dollar’s correction days is upon us easing the day trend for the Nifty qithin the flat zone and making the trading day verbose and Recommendation/Tip friendly across experts in market, analysts off market and stock market investors contributing to volumes of INR 2.2 T daily the last two days of nervous boundary wall smacking diatribe from fence sitters not able to get tv slots or investable surpluses before the last bus leaves.

The market will soon be back of course and probably not below 5000 but expiry is safe near 5200 than lower as Sir Prakash Gaba also confirmed on the first day when the policy action snuffed out many fragile hopes.

English: Signatures of Manmohan Singh. Top in ...
English: Signatures of Manmohan Singh. Top in english, lower in Hindi. (Photo credit: Wikipedia)

India PM Manmohan Singh taking over the reins may not change the situation on the ground but it is a material plus, the one on Tv making the posit for him being the Citi APAC MD, Pawan Vaish in end May in “THE WORLD ACCORDING TO CITI”.

The material plus from Sardar Manny taking over is in all the non political attempts filed over the last one year by the Plan Comm, the PMEAC and perhaps even the RBI to redeem the current situation which in various forms had come earlier for India Inc and which is why still sub 6% growth rates are unchallenged by India detractors who actually watch India’s ratings (including Indian citizens)

stock market
stock market (Photo credit: 401K 2012)

FDI got a big bonus with $5 B announced by Coca Cola over the next 2-3 years. It is already involved in social empowerment programs to cling to its early mover advantage and find ways to expand India’s stale but potentially rich soft drinks/beverages sector wwhere it enjoys 25% share thanks to an early recovery by Kinley as Parle’s Bisleri still manages another 25% of the fluids

The Global 5 by 20 program targets increasing the role of Women run businesses in its 100% groth by 2020 and was started in 2010

Trading strategies follow.

HDFC is morally and legally in the right

Finally the details of the Macquarie report “The Last Bastion Falls” are available for the case of HDFC alerted in yesterday late afternoon’s news alerts. Macquarie’s protestations of research may well be comparable to current /industry standards of promoter and financial information access but the research report is the result of HDFC having adopted a practice as an Industry leader might, with due recourse to the management’s judgement call. However the information provided in the report could easily have been shared by HDFC in an analyst group instead of being “discovered” by the said analyst.

The issue at hand in financial accounting terms is simple, while provisioning for standard assets, making capital available against future losses is made by due modelling and expensed thru the P&L, when a new provisioning was requested by RBI on teaser loans, the institution exercised its judgment, made its stand public and passed due provisions without expensing them and held it against reserves of the institution.

Similarily, the institution has passed thru reserves Interest “expense” on Zero Coupon Bonds to raise monies for investing in HDFC Bank and the insurance JVs. In both cases the use of reserves is undeniably justified and the management has not had to pass any deviations to policy or contravene accounting standards The said analyst in question perhaps assumed the HDFC profits already discounted these provisions as ell and needs to just review those Earnings based forecasts here he has made the wrong assumptions

In both questions, HDFC’s NIMS will not suffer materially  even if the expenses are passed thru and as such are incomparable to questionable accounting practices adopted by Macquarie and other OECD based Financial institutions in the last decade with two financial crises in 2000 and 2008 a direct result

HDFC has clarified that current recognition of Income from subsidiaries has been compensated by the said policy as they only recognise dividends and not the subsidiary revenues and profits which will be part of its balance sheet under IFRS.  This treatment does advance the benefit of a new accounting standard but as HDFC has been clear and unequivocal in the use of accounting policy it cannot be said to have deviated from conservative accounting standards or other such. However the question against the company would be that the impact on earnings was not clearly specified at the time of announcing the results as RoE and NIM calculations would have been different for us in following the company’s financial performance.

That also goes to a comment on the Indian environment here such clarifications are always issued after the event and being part of a clique in the know still matters more than your ability and depth in the subject.

India Inflation Reports (May 2012) : Last series for WPI data?

World map showing inflation, updated for 2009....
World map showing inflation, updated for 2009. Grey means no data. (Photo credit: Wikipedia)

The use of monthly CPI data for now more than 14-15 months with Y-o-Y inflation comparisons available for 2 months on the trot, it may now be a matter of time before the WPI data becomes secodnary in the Indian scheme. Consumer point inflation though has been refashioned and some may want to verify it further and the WPI trends at sub series level across Core, Primary and Fuel as well are available for estimation quite discreetly and forecasts may not get market confidence for some more time.

The Core inflation is expected to be the biggest encouraging figure in the May data at 4.7% almost half of the data till no in the past one year, which encourage bonds to move down to below 8% in anticipation of a positive RBI Monday. Fuel inflation though likely to go back to near 13% is s till belo the 2011 benchmark of 14.5% and the Primary Articles data of 12% is actually understandable and does not require more policy action as commodities trend down steeply in many cases despite China’s buying having begun in earnest in May

The rate cuts may be 50 bp as pointed out by current 20Y yield movement but then RBI will be not expected to do more than 150 basis points in the whole year and a 50 bp cut removes the flexibiliity from its hands having committed then 100 bp before JAS and OND quarters even begin and that likely means the markets will prepare for a slow(25bp) of fast ( 0 bp) descent on Monday

The inflation data is a little late but safely bullish for the RBI Policy day at 7.55% Primary inflation at 10.88% was still less than 11% and fuel inflation did not get most of the fuel rise in the last week at 11.53%. The Core inflation was below 5% at 4.99% primary and Fuel inflation ere at 9.71% and11% in April 2012

India Morning Report (June 13, 2012 – Pre market Open) Already discounting the rate cut (Incl. Fixed Income Report)

indian equities started off a rally yesterday to upturn its nose to ratings agency S&P for daring to suggest India was closer to a downgreade two days before IIP announcements and a week before  RBI policy is expected to be announced.

Surprisingly, even naysayers, including us in this cycle who thought RBI need not cut rates now have been silenced by the intervention from S&P. While fortunately there have been India Bulls that have defended India saying this is the bottom of the barrel for India’s raft of bad economic data in the last six months there has been a precocious turning down of yields in the fixed income markets pointing to a massacre on Monday if rates are not cut by the RBI.

India 10 Y yields are trading at 8.06% having started the week at a low 8.14% from before the S&P announcement, thumbing the nose at Cassandras of doom. Again though not unsinged even in fully hedged trades, I recommend staying away for this entire rally in terms of ne positional trades and let your existing holdings and positions enjoy the sunlght till the RBI policy hour as expectations become clear.

Though it has not been opportune to say that Indian Capital Markets are thumbing a nose at short-term flows from India oriented FII investors at these high levels (FII also took positions in January to INR 450 B) it is foolhardy to stop the market to its 5400 levels as the underlying fundamnetals have not changed for India despite the statistics.

Yields are likely to stay below 8% and the standoff ith the RBI trying to absorb more on the existing 10 Y bonds turned out to be till only an absorption of INR 900 B on the 10 Y bond released in November, now having gone for the new 10 Y paper with a coupon of 8.15% Traded vbolumes in the G-Sec market doubled according to a DNA report

Also seemingly RBI is still conducting OMOs to enhance liquidity and the new Government borrowing programme is as much a challenge as ever despite the liquidity conditions being better. That hoever means the Rupee will start trending up firmly after Monday again keeping the impending correction in equities away but this week may trade weaker esp today’s continuation from yesterday’s Dollar rally as the Euro gets extinguished again overnight.

Fixed Income Report: Credit Policy tuesday likely unsatisfactory

It just hit me that with the fixed Income markets moving so tenuously, the yields of 8.44% ruling on 10?Y today will likely be wiped out within 2 weeks of the trading after a 25 bp rate cut, as markets also expect yields to go back to even 9% and RBI unlikely to follow up with OMOs so diligently after the rate cut.

The Rupee fortunately has a lot of head room in the new range , coming in to policy week at above 51, with March GDP likely to stay near 6% than 6.9%

Fixed Income Report(Feb 20, 2012): Bond yields scarily poised or just rangebound (India bond Impact)

Inflation data from the CPI index considered more carefully in global monetary policy is ready  with the CSO declaring data from tomorrow ( see last paragraph)

However as we pointed out in a post minutes ago, the Fixed income yields are almost tentatively poised at 8.2% with the markets a primary reason for the tentativeness as the urge to speculate comes to town on Indianomics. India’s OMOs last week of INR 120 bln and the CRR chop to be worth INR 360 bln has not materialised, the inflation at a comfortable below 7% figure may rear its head again soon as manufactured goods indices are not dipping that well, staying nearly 8%

The 10 year at 8.2 % ansd the 12 and 15  year at 8.52% and 8.55% show the yield curve having steepened bu twith no CDS and swaps market with spread unnecessarily compensating to junk levels without liquidity for the market makers to fine tune the action, FIIs are unlikely to come bareback into a new Asian market. Even new bond issue bankers are getting a quarter of the fee last year.

According to Arjun P in the DNA analysis

Liquidity tightened by `56,000 crore last week with the system borrowing `167,000 crore from RBI on a daily average basis. The rising liquidity pressure led to the RBI buying government bonds in OMOs.

That’s INR 560 bln out of the window even as banks move rates down and RBI borrowing now all corrected to 9.5% the designated MSF by RBI getting higher than India’s high trade deficit and nearer 5 times banks could have released from their Central Bank acocunt after the CRR cut, almost all of it could easily be explained as amounts banks have in excess deposits with the RBI. Banks are moving to cut loan rates, having made affirmative stateements and SBI having seen as reducing Edu loan rates in the press.

The point is that the rates are precipitously poised on yield as rate cuts are months away and moves down could hit growth badly while yields moving up back to 8.5% ont he 10 year bond will necessitate the overtly stretched government finances to arrannge for another OMO

Last but not the least Oil has moved up to $120 levels one spike to $150 likely and 12% of our supply in Iranian oil in as mucha  threat as also half our rice exports and many in tea and fruita and vegetables to Iran. The Afghanistani Oil we have planned for also travels thru Iranian ports huh! wow.

Inflation data on the CPI series is in for the first time as a yearly series becomes available from Tomorrow, and likely coming in near 8% ( watch the lovely rural vs urban vs composite chart at , instead of the feared 10% unless there is another spike in January data. As of December the rural indices have moved to 115 and the composite 113.9 data available from January 2011 when rural was 107 and composite 106. The urban sub index started from 104 in Jan 2011 and ended last year at 112.4

Foreign Banks in India: DBS grows its #3 market to $4.7 bln

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Foreign Banks in India: DBS grows its #3 market to $4.7 bln

DBS assets in India grew to INR 237 bln according to results discussed by CEO Piyush Gupta and reported in ET. The bank is hoping that subsidiarisation nod from the RBI will come with better branch infrastrcture hopes for the bank. ING Vysya and Indusind bank would compare in size with DBS with INR 335 bln in assets

The bank has 12 branches in India. DBS has a 10% Temasek holding. It has 39 branches in Indonesia and 15 in China (wikipedia)

Piyush Gupta operates from Taipei ahile DBS counts Singapore and Hongkong as its largest markets.

India and Singapore operate in each others territory thru the Comprehensive Economic Cooperation Agreement including GIC and Temasek holdings in India and tenets on free transfer of information between the two nations including banking wealth questions

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India Earnings Season: ING Vysya Bank uses the gap, Indusind builds on its early momentum (
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FDI momentum for India’s growth (

INR 18k crores windfall for PSE banks

18000 Crores capital added by government

$3.6 bln has been promised by MoF to fund state-owned banks immediately after the budget to facilitate ramping up the Tier I common/capital ratios on the FY2012 balance sheet. SBI was promised INR 1.6 bln or INR7800 crores

ECB/FCCB funding welcome

The Israeli branch of the "State Bank of ...
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Meanwhile, the changed fortunes of the rupees could not stop ECB/FCCB borrowing as $4.46 bln was mopped up in December on top of $1.58 bln in November.of this $2.7 bln is project based on automatic route across 90 projects , small QIPs of less than $3000 mln from mid cap and large corporates

2G Licenses

The entire $2 bln ( INR 92.6 bln) funding for the 122 canceled licenses was funded by syndicates led by SBI and PNB, both will thus claim the $2 bln refund fromt he government. Telcos pledged the licenses with banks to raise the money

Bank results season : ICICI Bank begets the vote of confidence, PNB grows NPAs

English: ICICI bank in South Road
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ICICI Bank Deposits are now INR 2.7 Tln and only 101% of advances against the expected 125% or the ideal 130% As a proportion of the $ 95 bln balance sheet they are tracking and only 65% are retail deposits That means the NIMs are overoptimised and s and when ext borrowings are added to leverage the balance sheet it might erode further from 2.7% Based on subsidiary incomes and its NII and other fee income it has been growing well however.

PNB grew Gross NPAs , with Net NPAs rising from 0.84% to 1.12% losing momentum with NII growing 10% and NIMs down a fraction to 3.84%

ICICI Bank however grew NII to INR 27.1 bln and Profits to INR 17 bln in the December Quarter. The profits were 20% higher from December 2010. ICICI Bank NII grew at 17% and Net Npas fell to 0.3% , provisions a further smaller 3.6 bln The compoany’s loan book is now at INR 2.31 tln or $46.3 bln

The bank’s 18 international operations still make 50% of the book and mortgages only 35%. Retail deposits are only 65% of the deposits and the loan book will grow at 18% incl the March quarter for FY2012

September’s Profits were a bigger INR 19.92 bln. September provisions were INR 3.2 bln CAR remains above 18% and 13% (Tier I by Basel 1.5 calc) as per RBI directives for 8% CAR reqts. September NII was INR 25 bln and the current is a 8% QOQ growth

The bank plans to cement its growht with recovery in retail growth and the clampdown on corporate lending effectively continues. CRE is less than 4% of the Company’s loan book. The bank’s $100 bln balance sheet is the second largest int he country behind public sector SBI

ICICI Bank NIMs continue to languish at 2.7% but are likely to improve with focus on retail It has grown free income basis in Transaction banking fees and remittance fee income while M&A fee also languishes in current market. Life insurance premium has grown by a healthy margin again

Bank Policy Tuesday: Policy Rates unchanged, CRR cut by 0.5%

Banks might pull back on the liquidity window, Apparently RBI was not worried on the missuse of the additional liquidity  in the constrained liquidity conditions. India’s CRR is now less than 6% at 5.5% and is likely to stay at the lower rates

FY12 GDP forecast cut to 7%. Inflation target of 7% likely to be met but fuel and imported inflation remains high

NDTL Values are nearer $1.2 Tln or INR 64 lakh crores, releasng 32,000 crores

RBI ofcourse still talks abt Manufactured pdts inflatn as area of concern

PMEAC may have bridged MOF expectations to RBI despite a clear mandate to RBI on the subject. We have advocated CRR/SLR cuts to lower levels and many banks have even asked for abolition of CRR to a  lower global Reserve requirements ratio of less than 20% against the now 29.5% incl 24% SLR which has however been denied by the PMEAC , MOF and RBI and banks themselves keep more than the required in Central Baank securities over and aboe the 30%. As and when these securities are actually released, much more can be fed into liquidity which the Centrsal Bank attempts thru NIBD status for these securities with it.


Bank Policy Tuesday: RBI Governor announces policy in an hour

Policy today is likely to disappoint market pressures on the central bank in just an hour while the mood could have been upbeat otherwise, it is now driven by policy expectations and a sharp ‘inhuman ‘ touch on unchanged policy pronouncements can catch market business operators bys urprise.

Policy is likely unchanged even for CRR and even though Sajid Chinoy and Tushar Poddar from GS have been very clearin the coming forecast, the lack of forebearance and the incapabilities of global brands to withstand pressures and lack of trust in institutions at this time added with an avoidance of private bank economists like ICICI Bank and HDFC Bank, markets would negatively dip as FII interest in Indian markets is lower by 13% in 2012 till date over 2010 data and though the buying is on, 5050 is too high a level for serious buyers at this time

Policy likely without changes in interest rates, CRR and Liquidity regime though overextended (thru SLR collateral in MSF, blah..blah)

English: ICICI Bank - Leeds Branch - Roundhay Road
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India Bond Impact(Fixed Income report): No Please don’t cut rates, RBI

Bond yields have cut to less than 8.2% on the 2021 and 2022 10 year bonds and less than 8.5% on the 2032 20 year bond while markets are in a tizzy running commentary on RBI cutting rates ahead of the policy announcement tomorrow. However the bond markets per se have a lot of mature buyers who are pretty confident of no cut in rates and an early start will take yields down much faster from here tomorrow in pure volatility speak if the Guv’nor does change gears on his stated policy early. However our outlook with rating agencies being stable we have definitely grown into a bigger more liquid bond market esp with good returns for gilt investors in the last quarter.

Yields should firm up at slightly higher after the policy announcement tomorrow either immediately or int he next one month before the March announcements of rate cuts hit the wires.

RBI has also repeatedly clarified that no CRR cuts are likely and it has allowed the use of the MSF with SLR collateral , the same may be reitereated tomorrow

Playing on India’s FX rate? RBI is monitoring your treasury again!

English: Diagram of triangular arbitrage in th...
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In a ‘blow’ to liberalisation as old as old wives tales from Delhi ki bhatti, RBI let out a warning from its bag as old hands from Foreign bank desks set out to build treasury positions in Rupee with out Import / Export obligations on behalf of compoany treasuries throughout the country. Right now it may be simpler derivatives, even forwards and cash to play on the weakness in the rupee as the finite returns have quite an attraction for corporate treasuries wilfully blocked from Money maret lending to banks or excessive ticketing in money market mutual funds.

the citi scam of 2010 used such monies thru personal accounts of the bankers concerned in the Equity Capital Markets segment

Business Standard

The rupee has depreciated nearly 16 percent in 2011 against the U.S. dollar.

“RBI was aware that many foreign banks were encouraging speculation in the market. But it could not take any action as most of these trades were done offshore outside its regulatory purview. There was a meeting last month where RBI issued oral warning to some of these banks,” a source privy to the discussions with the regulator, told the paper.

Most of these trades were done taking advantage of the difference between the forward premium rate in India and the offshore non-deliverable forward market rates, the report said.

The RBI, on December 15, reduced the net overnight open position limit (NOOPL) of authorised dealers in the foreign exchange market with immediate effect, potentially reducing capacity of market participants for taking trading positions.

India Bond Impact ( Fixed Income Report) : RBI sticks to CRR, likely no cuts in CRR, SLR

India GateRBI stuck to its plan for India’s monetary policy not bowing to FI market commentators and probably internal pulls as it refused to consider reserve requirements cuts like China in the period it waits out a bottoming of inflation expectations before considering interest rate cuts

The CRR is 6% currently except for CBLO, ACU (overseas USD holdings) , Offshore banking units NDTL and inter Bank liabilities where a 3% CRR is avered. The MSF lends to banks already including their SLR liabilities as allowed collateral at the upper limit of the rate corridor set by RBI, at 9-9.5%

RBI has already conducted OMOs to stabilise liquidity int he market and may be on the watch for unwanted liquidity influx from new QE in US/Europe and UK in that order

Market pressure on yields pushed them below 8.4% as the Electronic trading platforms traded thrice the daily average in the new year at INR 278 bln daily or INR27,800 cr daily, still avery low amount compared to inter bank trading volumes

Moody’s rating upgrade to P-3 allows india some leeway in apportioning its Reserves again as short term liabilities for Corporates keep increasing

The Air india Debt restructuring package – FAIL

English: The Local Head Office of State Bank o...
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The Airline’s debt restructuring package of $ 4.4 bln rides on a INR 74.08 bln preference share issue that will require additional provision under the original RBI dispensation itself. thuis the package is back on the drawing board with SBI Caps the advisor, having earlier announced as being accepted/proposed by the lender(s)

The Investment banker’s proposal required new provisions of INR 96.18 bln for the INR 224.5 bln debt to be restructured and an additional INR 221 bln guaranteed by the government. It also requires conversion of the existing overdrafts to longer term loans of INR 112 bln leaving INR36.5 as Cash credit used ( and not new avl limits)

India Fund Impact: Balanced Funds an ideal choice

While some public data has definitely gone out of circulation after the brakes on fund growth, availability of direct investment in mutual funds without mandatory commissions, such game changing regulation also coincided with the brave AMFI India’s monthly data not being available ( maybe my browser don’t work)

A year since we printed the monthly fund report, the new QFI regulation is also miles away from making a discrening impact on fund flows even as Cash market volumes pick up after a lean 18 months with current disparaging index valuations calling out value equations for many. ( that has an interesting take too, in last week’s post marathon)

Fixed Income offers a great ramp in returns too for those not on board yet, as markets correct yield in anticipation and RBI holds out, taking the rate cut cycle to all FY13 and then some as it is unlikely to be in a hurry to cut rate this time.

Gilts and Corp bonds up front offer good returns, then the unsuccessful floats asds duration management was never put on charter by our Fixed income managers and India’s unique opportunities from the inverted curve lost to many.

Yet the most opportune because of the inattention from investors is the Balanced Fund family. While Fixed income returns will likely be pruned in adjustments to the small amount of investors, some balanced fund regimes have the experience and the intelligence to deliver According to an ET report today, the amount of funds in this family with 40-60% equity allocation is a minor 4.5% of the overall india fund management industry. You could see a couple of fund launches in this sector but I suspect the first rush there is in general equity regimes. You could ccjust choose the Prudence Fund franchise for your cuppa choice in breakfast mornings~!

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,

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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.

JM Financials: NBFC is, NBFC will be (HSBC cards portfolio)

Commitment to a non banking model does give one clarity to operate in the high risk high margin segments that are exclusively revenues accretive to a NBFC. Apart from the big bang in MFIs in the unregulated market earlier, NBFCs may also proceed to have fun in the millions of card accounts attrited in the 2008 restructuring at banks

JM Financials for example , has bought HSBC’s credit card portfolio for its bad assets..and if you are one of the unfortunate ones without income, you may yet get new calling agents to break the rules as the bad assets business is very cash driven and thus highly accretive for exactly the wrong kind if not understood carefully.

You could have bought these assets from the bank for 20-30% of their value and the bank could have recovered most of its debt by continuing posting 50% interest charges in defaulted accounts, the low revenue to the bank from the sale being more than profitable to recover the lost retail banking win. HSBC already broke even last year in 2011 March in retail operations and has restarted unsecured lending

Happy Thursdays! Food inflation corrects

The 14% contribution of the food inflation may well bring cheer to the WPI number as Food caught a -3.36% score for the week ended December 24th to bring primary articles to 0.10% from a low 3% number last week and fuel remained suspended at 14.6% for another 25-30% of the basket. Everyuthing else in tow, Foreign inflows should make it a memorable 2012 for India but our local interests and trades of high volumes seem to have caught the index midway to the bottom. Actually there is perhaps just 15% left but one having to agree at

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these rates and settle down with MTM losses on my 10% risky allocation to the emergin g market play is hardly going to be the likely scenario so one will have to wait considerably more for furious inflows into equity even as markets catch a break below 47 and promptly lose it at 4750 over the last two months. Not a very good advertisement for foreign and local investors.

Of course QFIs have been welcomed, buybacks allowed with direct auctions on the exchanges to bring equity to a 75% cap and individual investors allowed to enter Indian equity exposures from January 15, following on the ealrier invitation to Individual foreign investors in mutual funds. NO one expected an immediate surge but if that is because of no printed word on the how and why, the regulator should have no problem obliging witht hat as well.

RBI is admitting that we need more FX buffers now as companies have picked up large amounts of short term debt and while the rush to repay is on and amany with good governance have survived the MTM losses massacre before it began, India’s current account may already face a stretch to buy the oil it needs every other month

Banking growth: More policy blowback – Subsidiaries refused

ICICI Bank Headquarters
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Where banks throughout the world are now deleveraging having hoped for an extra bit of govt sponsored handholding to survive that was refused in the Inidan and Chinese environment faceoffs between regulators and bankers are more regular as banks alternate between traditional models on one end to unverified arbitrage and sustainable global opportunities on the other. The RBI diktat of merging all subsidiary businesses and banking business to a single Financial Operating Holding Company ( FOHC) some time six months aago is one of those. Banks that have already set up elaborate structures incl. ICICI may be able to do that without much fuss, but unlikely find it critical to their operations to do so and expect the regulator to understand.

Similarly, public sector banks have tried for long that they be alllowed to circumvent uniform compensation

South Indian Bank
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guidelines that apply to them so that specialized talent may be held accountable to existing / new profitable lines of business at middle and senior levels. Bank of India’s proposal to hire such staff at different compensation thru a new people subsidiary was rejected by the RBI according to Business Standard(BS)

South Indian Bank was also asked to conduct business in gold loans directly thru branches instead of setting up a NBFC (presumably) subsidiary and Axis Bank and ICICI Bank were earlier stopped from setting up separate Infracos after differential funding norms were offered to NBFCs in the sector allowing a distinct 15:1 leverage

RBI diktats suggest it approves subsidiaries only for businesses that cannot be conducted thru branches and current licenses such as insurance and securities broking which is now expected to moved to an Operating company rathwr than current conditions where these are subsidiaries of the banks ror have stakes from the banks.

LVB was refused choice to set up a distinct housing subsidiary, probably in which more banks would have used the strategy to ‘follow the herd’ and unnecessarily crowded the space without effective business growth

A separate report highlights how Indian companies have banking business in branches abroad with PSEs SBI and BOB leading with 50 branches each and ICICI Bank having come up int he Private Sector with 19 such offices outside the country. All these offices end up without transaction banking mandates or even an effective market share of NRI deposits and are being asked by select governments to concentrate on local lending in that jurisdiction without any apparent results

NBFCs: Barclays completes process of closing out, buyers welcome

Barclays apparently thought it a good idea to enter India as a NBFC less than 5 years ago as NBFCs can open branches at will. However, as much noted, the model did not quite work for Barclays with a lack of probity and inability to grow in Credit cards forced the bank to sell out and close its operations in India.

It’s credit cards portfolio without its 20% NPSs as sold to SCB and of the 30 odd branches for the bank, hat have all stopped lending further, at least 20 ar ebeing closed down across the country leaving it with branches in ‘ single digits’ to manage the existing unsecured loan book

The loan assets are worth another INR 30 bln or $500 mln on top of the sale of INR1.75 bln in Credit card assets ( from 160,000 cardholders )

Eiko and her credit card
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NBFC lending steams Economy, RBI gets tough

Even as banks have been looking for increasing theiur exposure to unsecured loans, the Auto loans sector and even loans to businesses in real estate sector have grown healthily in 2011 on the back of NBFCs alone. CV financing by Shriram Auto and commercial Finance by L&T Finance alongwith players like Mahindra Financial for in house auto loans have been growing through 2011 even as price hikes creep up on buyers.

In the mean time, the success of Discounts and promotions has encouraged vehicle manufacturers ( see December Auto Sales report) to continue suhc offers till February 2012

While Auto loans may well reach rates of 12-13% to the consumer or flat rates of nearly 10% per month,

Image by jferzoco via Flickr

interest rates are unlikely to come down for the NBFC lenders even when the central bank does cut interest rates for the banks. Also, most NBFC lenders survive on a higher margin as a higher tolerance is inbuilt into their models for repayment schedules of borrowers unlike bank finance. However as of now, RBI applies the same three month norms to recognise NPAs for these players and this might skew their loan book performanc eint he coming one or two quarters, in some cases leading to increasing borrowing costs from banks too.

While NBFC lending has crossed 2.0 Tln in the current credit reporting to RBI, making it 5% of credit assets the same has been pulled up by the Central Bank esp targeting those rejected by the Central Bank from taking public deposits into the ND-NBFCs or Non Deposit taking NBFCs.

RBI is mulling a limit ont he anmount of bank funding available to these NBFCs the MFIs are separately classified, as are Infra Financing Companies. MFIs have recently been allowed to access ECBs internationally to compensate for the dqueeze on lending practices and regulation of margin and amount of loans they can make in their captive rural/urban areas MFIs can be registered as a Society or Trust or with the RBI as NBFC-MFI

Happy Thursdays! A trading thursday before the new series

Inflation & Gold
Image by Paolo Camera via Flickr

As 2012 begins on a low note , market levels are encouraging enough for investors to make a commitment to India for more than a few million and they laso have been able to play the non FII traders in the market who continue to roll over (angel brok) short positions in short of the eternal 4500. Inflation figures were encouraging witha 6 year low on food inflation

Onions were 40% cheaper last week, 60% this week while potatoes are also down 33% as warehouses start collecting stocks and rot starts while waiting for good exports prices.

Primary inflation came under 3% meraning good numbers for basic goods and primary articles supporting the falling nose of inflation with fuel stubbornly continuing but lower at 14.5%

There have been subtle changes in the Dollar – Euro – Commodities links ( see article ) in this month despite the year end low volumes and lack of interest which evidence a great year for equities from next week! Happy new year,e veryone and thanks for staying around!

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

India traders playing in CDS denominations

It is clear that new found love for CDS has empowere India’s move into the mainstream Asian trading markets though RBI has made it clear it would not allow NBFCs to write CDS contracts or short or encourage any “default” underwritten by a CDS contract. This should be direct Net worth criteria instead of class as banks or companies allowing treasuries to play with both sides of the CDS contract. CDS spreads and profits on trade rise when default rating risk increases.

A writer gains when the country’s / corporates’s default rating risk is seen to increase, just like a  buyer or insurer gains when default risk is lowered

Happy Thursdays! Another week, Another crash

Bank of America on the other side and lately some banks here have started looking happier only on days when the market has crashed beyond expectations, making these a regular weekly feature of the market. Though Bank of america has been outwitted by the Euro and will bleed for more time, the india markets and its new found drerivatives losses will bottom out in the next 200 Nifty points as new suspicions emerge on prop trading desks at the end of the local’s route in Mumbai.

Food inflation plopped to below 2% this week and I suspect more higher numbers are stillleft in urban consumption items like fruits and vegetables in that even as the food subsidy bill gets closer to becoming a law. RBI’s FSR was also lined by ratatouille chameli and tom cruise bacchchan as having brought lasting relief in real estate seen by a three hour long rally in DLF, Unitech and HDIL among other strange asteroid fragments in the troposphere currently.

The Air train between Delhi and Mumbai saw Cyrus Mistry in industrial grade discuss throwing with our own MOFCOM with Ratan Tata fadng away in another 12 months, discussions on VSNL land patying up taxes becoming more insistent ( oops, its Tata comm now)

The end ( of the bear rally) is near in India’s case (please do no tbuy before 4400 is broken to a new low)  and my portfolio of trading plus investing is usually a good leading indicator ( from lounging on the sofa awaiting employment)

Our post on the bond Report will show banks using the MSF and yields staying down as the last experts get entrapped into thinking the Bear has finally come to India, Asia being the land of the eternal Bull panda.

More to this ‘short bout of volatility’

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There are miles to go for India to even try a fair chance for GST, DTC and Infrastructure investments to name just three seering gaps. CLSA downgrade of India – biting for Sensex levels of 25% lower near 11000-12000 could be the ‘tru dat’ of a sinking European bank season as it hits Asia at a very vulnerable time. No one should deny the loss of purchasing power of the rupee at a rate of 60 to the dollar . PPP terms should thus become wider from the current rates again

However, Banks are being targeted somewhat unfairly raising old concerns of it being because they are our only liquid stocks that run on financial assets that can be willingly spiralled into submission. And that is perhaps precisely the reason they could be targeted. One could see India testing hyperinflation and other denigrated “IMF tenets” of deficit economics being raise by this hot money tail. As funds lose close to 20% and a s flight of capital also ensures lower than 80% availability of locked capital, it is unlikely that anyone can defend against the shorts that are required by traders to recover income in this cycle for their investors and clients.

Global fundamentals demand perhaps that India understand the downward spiral like the other sovereigns. Of course that still does not deny that we were at least 5-6 notches better than Italy and Spain, whereas we have been alooof to the crisis because the “developed world” of the med had a lot of downward catching up of ratings to do with the emerging stars like India and China. Unfortunately though, we have lost the chance to be an equal with China, irrespective of how proud we are of our distinctive identity

China's FIRST McDonald'sWith the dip in stocks on non conformation by the RBI ignored for a late afternoon sell off, Nifty could well do another 250 points till Thursday. I would suggest waiting and watchin gon bargains with a holding capacity of 10-15% of paper losses at 4200-400 levels

Happy Thursdays! Announcing a sunset for Food inflation

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The weekly numbers for the December 3 week continued on a much higher plane even as governments and markets battled with the 9+ figure for November with Fuel group capped at a 0.3 MOM increase to a 15.23% rate, Food  rate down to 4.35% from a 6.6% in Nov 26 figures, and Primary articles looking distinctly sunny at 5.48% instead of more than 7% last week. Thus mfg inflation / basic inputs contributing to that would have also stayed below 4% and the series distinctly showing signs of beating 8% for December except the Fuels number as prices catch up with our dear dollar basket

Commodities globally have finally entered a decent correction phase as Gold was beaten to the haven by the Dollar, running behind investment allocations as its lower value starts bringing down global portfolio sizes and increasing allocations to equities in just maintaining share of allocation..In case you did not get that, please write..

Discussions of Advance Tax data show the uptick from last quarter’s performance as there is no hope for the frozen December, neither for Autos, nor for those with Dollar loans and the other domestic metals manufacturers and mining providers, leaving the real estate cement and banking downturn not so difficult to fathom

Inflation rate of Japan Economy 1980-2007
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India’s economic contradictions show up, infra investment remains slow

Equities trading near lows, derivatives including the PCR has moved on to a low 1.05 showing that the down move in equities will be limited. However after Friday’s trading at 8.55% yields are already further down to 8.47% very encouraging to the RBI Governor to begin rate cuts in earnest  and there in lies another potential breakpoint for the market after policy announcement on Friday as rate cuts are unlikely to play into the Indian story for another 4-5 months., inflation drops well in progress otherwise.

Moodys’ and goldman Sachs ( Jim O Neill) have already sounded dire Forex payments warnings  with retail FDI having counted as negative. India’s fixed income exposure outside continues to look healthy with recent outward and inward transactions of sizable value completed per expectations so we stil have time to repair our outlook.

Apart from revisiting retail FDI , whence the six months figure of $20 bln in FDI could move faster in the

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remaining fiscal, we also need to get our power sector investments going again. 2012 will be better for Fixed Capital formation as the new 5 year plan makes fresh proposed investments in its first year and briniging the growth imperative back could bring back the same additionally.

Fortunately, India’s banks are sitting on good capital reserves to accelerate credit where it is in the right stage whether for outward FDI or domestic projects thru domestic and International/PE equity. Infra structure projects’ longer gestation from the various Bombay Metro projects to the Harbor Sea link (Sewri) to be bid by Mukesh ambani and investors’ rejection of the same show the challenge ahead of us in investments in infrastructure as both fixed income markets and equities need to vcover short term returns to recover their higher costs for the scarce capital. 30 year capital can come to projects from private players only if longer debt is assured of better financial infrastructure apparently,else funding India’s $2.5 tln infrastructure gap and thus maintaining the growth imperative was well within our reach in 2011

Negative Gross Fixed capital formation after a dull 8% growth in the June quarter has skewed India’s relationship witht he credit agencies. It’s uneven relationship and the last minute slowdown when China is steadying ships is a confusing signal for the market watchers.

Unfortunately RBI cannot do much more right now except sing paeans to the success of inflation being in control

We are not alone in the slowdown nor we ever had any reason for our equity markets to be so optimistic in the last six months, but somehow we missed our growth imperative in 2010 and 2011 before being caught inthe slowdown, looking at the fall now negating our previous accomplishments rather than allowing us a wait and watch period.

India Bond Impact: Inverted yield Curve, inflation turns nose down

With inflation falling, the inverted yield curve ( 10 year yield a point below the short term 8.7% yield) could well be a good thing for india. the rupee depreciation could however keep imported inflation hot for India’s traders and manufacturers, esp as the Fuel basket is still up on the high ledge at 15.5% . The livemint Friday report has good data to back its inferences too, but even if we do not follow the RBI copybook ( playbook elsewhere 🙂 )  and set our own inflation target it could well go under 6% as and when Fuel also tackles the base effect. Prices have stabilised and bond market liquidity healthier as seen in the 8.7% yields at the short and long end a good 25 basis points below the yonder peak of two weeks ago.

For investors yields coming down on the inflation ride mean large inflows into bond and then gilt funds to shore up the neglected funds industry where AUM has dropped from 7.5 Tln in 2009 /2010 to 6.75 Tln this year a slow deterioration as all the bank rolled money for money market mutual funds was exited. For banks and large treasuries however, with the money market fund closed and RBI auctions likely to be discontinued, there would be a limbo while they decide where to deploy their idle cash for quick gains, perhaps in longer term Floating funds eventually

Rate cuts could come sooner, therefore the talk of recession as Capital4 author Deepak Shenoy highlights back in June could well be baloney. In our case inverted curves mean that banks can use that extra tey keep with RBI even if CRR cuts are not effected and bring back the short rate as and when IIP improves based on lower inflation. Believe me, no one else has the luxury of 40% of the banking system’s funds lying with the Central Bank anywhere int he world even if you could go back a hundred years thru the hyperinflation cycles in Germany and LatAm or the recession cycles in Brazil and Venezuela and Russia

China has a more well defined shadow banking system, our own professionals torn between the brand of organised businesses and stock markets and the penny pinching savings they need to build a home nest. We still have a cash based economy like Italy’s south which will apparently keep adding to our tax basket at its own pace regardless of how many investigative journaliusts or how many amnesty schemes are created and expired 56 new tax treaties later there is no inflow from that system into the economy and our taxed remain the lower percent population of the country. Typically, these factors influence the fixed income market which moves on the supply and demand of money, but that shadow cushion in China and elsewhere ( incl in Europe where it has yielded  a15% tax on Swiss deposits) is much more in control

IIP breaking your back

The Ascent of Money
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The Index of Industrial Production has really been the straw on the camel’s back. A Capital goods sector degrowth of 25.5% can not even be explained by the volatility of the sector specific expense volatility month to month. ( Our traded eficit goes up and down by a few billion every month becasue of booking of Cap goods and the fuel bills every other month)

The overall IIP degrowth is 5.1%, mining sector degrowth 7.2% Electricity still growing 5.6% Consumber durable goods would have suffered the likely miniscule contraction after heavy festival buying in October

Similarily with inflation coming down now, it is no surprise that manufacturing tilted towards 6% degrowth as it avoided last minute build up when it could produce at a lower cost later

National Manufacturing Policy / Zones

The NIMZ cities identified in the latest manufacturing policy area compendium of all identified microsites and

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large successes of India in manufacturing policy over the last decade. Japan funded Delhi Mumbai infra corridor, the industrial zone at Manesar or the village Dholera in Gujarat identified for investment can start in quick time. The Dedicated Freiht Corridor needs $7-8 bln, the DMIC even $40 bln or INR 2 Tln for itself, Japanese providing $10 bln and Private sector to be willing ot invest the rest

With a new Land acquisition bill, which nevertheless does not make it easy for someone to single handedly establish or grow a city in the wilderness( attract good talent for one, attract suppliers and ensure all resources in supply for another)  is still as difficult but where land acquisition and construction for manufacturing can begin like in Manesar, Haryana or Dholera , Gujarat can show the way to others if done right. Unfortunately winners do not include last decades export successes like Textiles and Auto ancilliaries and Services will be denied its place in the sun if it remains a National “manufacturing” Policy. The Buddh International Arena in UP near New Delhi with a NCR, Delhi address tag is a great success showcase for others.

Also, like Indian banks being told off in foreign lands, foreign banks in India like ICBC and CCB that have just opened should not be allowed to club their business with that of the parent country as it will stifle local opportunity esp where such large investments are expected by local satraps and a regular scam-o-rama is keeping the media busy from 2G to Mamta Banerjee Europe , in contrast has global companies and diaspora ( not remittances) that make such partnerships with banks global in thei rvery nature instead. Sadly some of them will leave or forfeit plans of growing in retail if they ever nodded to RBI

A couple of other ‘contradictions’ have to be managed in India, including letting farmers a share of real estate profit with the new bill in hand allowing prices without governemnt interference, delevraging required in the real estate satraps specialised for such acquisition incl DLF, JSW and maybe JP ( not delevraging but has hands fuull) or the new crop wlike India bulls and Adani which have to bear the blame for endless delays in the Power sector or the consumption successes like PVR and mall owners who are making profits only in the super luxury investments. Also India’s labor participation rates could soon be dropping below 65% ( nearly a low 60% in the mediterranean Euro crisis owners) and US that provided a great land of opportunity for educated talent from this country, also suffering a low participation rate of 64%

Interesingly India’s export growth, still keeps machinery in the largest categories, and should soon include

The Rashtrapati Bhawan which is the residence ...
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pharmaceuticals as well. Perhaps Farming can be mechanised, along with Textile cities and Auto ancilliary dreams. Loan mela, anyone?

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Rupee Impact: We need immediate liquidity

The FM was fiscally positive in tone earlier today reiterating that a lot of pressure would be released on the

Subir Gokarn (PhD alumnus), current Deputy Gov...
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government from reduction in Energy prices and subsidies due on Fertiliser, Oil and Energy. To expect inflation to subside to 7%, unfortunately it looks little more than the ineffective posturing politicians have to resort to as the mouthpieces of a government working with is hands tied. What is immediately needed is good liquidity in the money markets and the inter bank markets otherwise yields could climb even further from 9.1% of last weak

RBI has immediately opened a Floating Rate Bond sale that would help but probably needs to look at reducing CRR/SLR options as well and probably release at least 500 bln from banking reserves of more than INR 45 Tln that banks have handed over to it.

Reserve Bank of India is poised to issue floating-rate bonds (FRBs) — for the first time in two years. Come this Friday, and the country’s central bank will reissue Rs 3,000 crore worth of FRBs that are set to mature in 2020.(BS)

10 year bonds, in the new series issued last week are already trading lower at 8.74% after the announcement but much more needs to be done as the pressure on the rupee is unlikely to be let up

Predilections: The Organised Mindset of a bear

Diwali celebrations in Coventry, United Kingdo...
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Or, What you should be doing when the markets go dropping off that Pirate cliff:

1a. If you are thinking about buying gold, do rethink about that one as Gold has to wait for strong bearish pronouncements to move from here. However did you know that Central banks have bought 150 tonnes of the metal in one week and are still at 10% of the levels they held in the 90s when they sold and everyone else bought gold.

1b. As Central banks count as the most followed buyers right now, Gold’s meteoric rise in the last few weeks may restart Also India becomes a candidate for taking everything down right now as it gets into a tighter inflation high, currency weaker every day and deficit unsent kind of tougher twirls with a higher and higher downside, but then we would still do 7% growth so do not think of a a market below 4500 Nifty, really ( even if it breaks down to 4420 you can beasar with me, right!)

1c. Did you recheck your list of stocks to buy: All time lows everyday present great opportunities for investors out there to verify at leisure. You have at least 2 – 3 weeks to select, drop and re- select winners..

2. Watch that hollywood movie that gets released in India on time during market hours..You could not get a more predictable market direction with no trading bumps mid day since last to last Friday. Also Disney and ESPN are doing much better this decade than their worried little India doobies of a decade back, esp as Pizza and China surge

3. Reorganise India’s infrastructure priorities, find time to review M&M and Unilever (Despite a fundamental change in the fortunes of these two companies from directed strategy, they get good results and attention on a tough down day only, talk about predilections)

4. Teach other knowledgable friends – Who being optimistic on India esp during MSCI re organisation will be full of ‘know all stuff’ you can bear down on with gloating dripping from your eyes and mouth dfor weeks on end..(like the savoures you cooked for Diwali but did not last)

5. Figure out the Economic Indices: Wierd Inflation and IIP volatility, not to mention the staggering deficits not every month but every other month, the winning margins of a UPA government motion in parliament, the no. of public losses Anna is unable to bear and other ..Most of the economic ones we have dissected and detailed over the last three years here

5b. Count and read up the number of laws still required to be passed in Parliament to make reforms work for India, if only just Corporate India..GST, DTC, apart there are two years of laws to make new banks work, countless banking supervision concessions to be worked with to be international bank franchises including voting rights to be passed as clear as day, Capital controls on Forex vis a vis restructuring for a new indian currency instead of pegging to $1=100, are all end of the rainbow ideas that are not at stake either, the laws need a simple fresh Corporate law basis and has to be apart from all the changes to the M&A and competition code, Bilateral and multilateral agreements and treaties, and include Social Welfare, removal of fertilizer and oil subsidies and funding and execution of PPP projects such as the DMIC, (with NMP), new ports and unlimited gaps in education and healthcare not being considered for private participation and foreign participation to the extent required.

6. Tell everyone to “Take a virtual dive”: Right now is the best time to start on something you have never done before..In the AEs (RBI term for US and Europe – Advanced Economies, the latter have become candidates for REMs now – Re emerging Markets) they have even stopped asking people to start blogging, it’s so passe. You could take a dive into a shopping mall too, a good crowd as always

7. Ask people to figure out the probabilities of a recession in India: No one will put a blame at your door now that India is going to get tougher in the next2 years and who knows your chances of a recession in India may have just improved from 1 in a 1000 to 1 in a 100

8. Review your family’s eating and drinking habits: Especially those zombies and moose heads who are still stuck in your head and inner ear without turning you into a schizophrenic, trying to imagine themselves as a fund manager, not investing with you or paying you for your reports or research bothered with becoming a complete spectacle and proving themselves to be ones.

9. Pay attention to India’s Defence budget we are getting everything we need even if so late and even though China’s spin counts in the media we don’t

Happy Thursdays! The India Inflation reports (October 2011)

India reported its October figures for inflation still near the September’s 9.72%. The 9.73% figure was stuck

Fort Area, Mumbaiwith a high food and fuel component of 11 and 14.5% The core inflation figure remains equally tense at 7.7% India has lived with historically higher rates than most economies, its nominal growth always outpacing inflation by 7-8% since the 90s and even before at higher inflation figures and short term borrowing rates of even 21% .

India’s shadow banking system has also been in a perpetual declines unlike its counterparts in China or elsewhere  is Asia and Europe. However, bank rates are currently capped at 8.5% and borrowers do not have to fork out more than 10-14% across the 5 different credit worthy rating baskets. Credit growth is however slower at less than 20 %with RBI targeting 18% and consumption sectors have again slowed down after 11 straight months of 9+ inflation

Also linked to the monetary and fiscal systems is the fact that less than 5% of Indians fall under the tax code and/or file returns and GST has not been implemented across the Federal structure and /of fiscal measures monitored along with welfare scheme as systemized data is usually at variance within and not connected across different silos

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Food and Vegetables have not dropped below 10% in the year most times, a category of vegetables or pulses landing an annual rate as high as 25% and never lower than 15% for 6-8 months on the trot as supply measures and inadequate remuneration of farmers disturb the welfare mechanism. Almost 2 in 3 of farm advances are classified as bad loans but remain recoverable for most bankers by experience

Tighter liquidity has taken domestic yields in the 2-5 yr range to 9.1 – 9.2% recently and banks have stopped subscribing to new Govt auctions , small amounts of $220 mln devolving last week on the new 2023 security as banks are already loaded up on SLR securities as well as the 6% CRR

Rupee has also broken on the downside decisively across 50 this month after the 15% down move last month

Indirect Tax collections mark the relief for Fiscal deficit

In another structural repitition of our impregnable GDP growth rate ( at 17% nominal and nearly 8% in a down year) the Fiscal deficit overrun because of expenditure on Oil and Fertiliser subsidies and / or revenue shortfalls from divestment may be compensated by robust tax collections despite protestations to the contrary despite porotestations to the opposite from economist desks affiliated with the media.

We oursellves have found pragmatism necessary in the face of stalling growth but the Indirect Tax collection reports for April – October as well as the Advance Tax collection reports till now have been crossing the required 15% uptick in revenues. This year the small Service Tax tab has already generated INR 500 bln in seven months till October (April-October)

Also, Customs and excise collections have netted INR 820 bln and INR 875 bln well on way to the combined target of INR 4 Tln for the year from indirect taxes, stupefying hawks. That is $16.4 bln customs, $17.5 bln Excise and $10 bln in Service Tax collections till date. Advance Tax collections have to be netted for refunds later near the end of the Fiscal year Collections have grown at a rate of 19% ahead of the ‘optimistic’ target by a few points

the Exports continue to stupefy the hawks too, RBI making it clear that the numbers till now seem to be verified for correctness and India looking at a $300 bln collection but a $160-$180 bln deficit conservatively from the first two quarters of the fiscal year.

Predilections (ONGC)

Predilections 2 (FDI?)


India - Madurai - 026
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RBI Bank Credit Review shows small pockets of growth

Diwali celebrations in Coventry, United Kingdo...
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For some strange reasn we are dealing with September Data by Segment after getting (flash) data for the fortnight ended Oct 07, 2011 instead of the Diwali week, but do not get confused by that. Out of the INR 16 Tln non food credit, growing by the predicated 18.7%, Credit to NBFCs has grown year on year from INR 1.16 tln and INR 1.56 tln sometime in June to INR 1.83 tln or $36.5 bln Total creit had grown to 42 tln to the last week of September as already covered.

ET carries a detail table based on the RBI release not carried online The misguided analysis by the young ET analyst still shows an ability to review the data though home loan growth has actually pretty much slowed things for banks everywhere and it holds right now for India oo and any patriotic assertions not backed by data do not do good to India’s investment inflows

The gold mine of data is apparently located at http:/ The segmental breakdown (thanks to the villains of all financial confusion at

As margins in retail industry contracted, food supplies incl Tea and Sugar companies took credit off the table in 2011, while credit to industry grew at 22.7% and Personal loans at 15%. From looking at the Auto sales data, it is apparent that the trend in personal and NBFC loans will continue to grow in October as well but at the expense of mandatory big ticket spends of the festival season: House and Car.

Infrastructure credit to Power is up 11% over the year to INR 4.8 tln New Infrastructure credit requirements at NIMZ under the New Manufacturing Policy could include INR 3.6 tln for the DFC and another INR 3.6 Tln for the DMIC builds However work on the greenfield projects is unlikely to take off any time soon as even in Power, 5 out 15 UMPPs are ‘indefinitely’ delayed ( nice B-TV analysis)

Growth in Credit is lower than the overall 18.7% growth in all industries except Mining and Gems and Jewelry and sub segments like growth in NBFCs credit by 46% stand out. This growth will be mostly to real restate projects already sanctioned and retail unsecured credit, not encouraged at banks like ICICI Bank but fueling a lot of NBFC and even banking credit growth

Personal Loans are a 18% of the Gross RBI credit at INR 7.02 Tln or $140 bln outstanding as of September 23, 2011. Over the year Vehicle and Home loans have also grown at 15.7% and 19% but to INR 3.06 tln and INR0.86 tln out of the Personal basket

Credit card spend has started ticking upward after three years since February 2008 from this month now at $4.62 bln outstanding credit and a monthly spend that is about the same..

Happy Thursdays! Inflation pulls ways and means advances

As Yes Bank signs on to a 600 bps savings bank deposit rate, and food inflation ticks down from 15 to 11%, the refusal of yields to predicate a proposition in the double digits forsooths that the RBI will stop around here if and when inflation trends down. It seems to me that more of the banking sectors participation is at work here in controlling the rise in interest rates. Incessant lobbying apart, the rising IIP and refusal of inflation to tick down below September’s 9.7% could very well still mean a systemic redefinition of interest rate basis in India like in So Africa.

Instead of defining new zeros in overnight and short term rates treasury liquidity like in the US and UK, the new BRICS entrant has simply defined a higher systemic basis by accepting highe3-5% inflation than the US and UK and EZ targets of 2% at the maximum

Some results from biggies Kotak and Dr reddy also make this New Year holiday in India a good segueway to great market speak on the festival of lights.

Kotak outscored by 20% for a new run rate of $800 mln for the 12 months while Dr Reddy returned to its earlier $2 bln run rate with 9.6 bln and 22.5 bln in revenues respectively. Kotak will be with the biggies in keeping SB interest rates down but market sees a lot of benefit for them in the new regime as PSUs are outpriced for the time being and tackle quality issues

Inflation in vegetables remains at 25% but we are in favor of good growth for the hinterland in MSP raises now 2800 for Chana and Masur and increase again in rice and wheat. Also Hamilton must give hope to Ferdnand also to come up in the ranks as the Buddh provides a chance to speed things up on the F1 circuit

India Earnings Season: IDBI Bank results, September 2011

IDBI Bank results


Though we have published in depth reports pursuant to the bank’s quarterly announcements earlier, we rather worry we may have the wrong end of the stick given IDBI’s 8% exposure to the Power sector loans and the historically high NPA rate moving from 1.25% to a higher 1.57% this quarter.


Bank increased profits 20% after relief from 70% PCR by RBI and CASA has improved to 19%


CASA is a low 19% with a lack of transformation mandate from the government for the bank. Its Advances are bigger than Axis with a book of INR 1.56 Tln or $31 bln (20% yoy)


NII tracked a stagnant 1122 crs or $224.4 mln and NIM fell 7bp to 2%, Cost of Funds a high 8.40% for its aggressive retail push supporting its higher cost structure model Expansion is already limited but the bank remains attractive to depositors and reach to good credit seekers remains a plus

A hike up the yield curve is back on the agenda

I'm not entirely sure what the umpire is signa...
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..with so many idle hands on deck, exemplified not just by mid senior unemployment but also by a cash reserve of INR 4.7 Tln as studied by ET and a 200% rise over 2010 there is a lot of going back on the threatening tones adopted with RBI last month. With inflation at 10% levels consistently, the longer yields have already responded, and with monetary easing in fashion inculcated by the US Fed, the market is likely to take a steep hike in yields on the long end till the effects of the easing are finally dispersed and interest rates clampdown can have an effect.

If you see other nations reducing rates, Brazil is the example which should be valid only as it has too high a watermark even at the current 11.5% and at least 2 rate hikes are required before it reaches the levels envisaged by india at the peak. I would stoutly defend RBI till our rates reach 9.5% to 10% as inflation refuses to climb down and expect many more to defend RBI hikes in the coming weeks.

Also, maruti and Reliance performance could be used as an example of how things have gone wrong with India inc and at that time, easing rates may not be good policy for us just to be in line with Brazil , Turkey and indonesia. Israel’s behaviour is always more in line with developed market estimates and growth is a challenge where Indonesia is just trying to blind side investors and policymakers alike with its eagerness to follow first into rate cuts. Neither china nor India should respond to these measures or even treat these as pressure as interest rates in Indonesia (6.75%) or Turkey. Turkey did get a positive response from reduction of rates around the 6% level itself but one must understand its response wis likely 5 times that in India given its nearness to Frontier markets or its newness in FDI regimes and the geo political overhaul committed there in the last one year and India cannot really follow into that policy regardless of the heartburn it has caused to Walmart or Starbucks and other remaining FDI candidates unable to enter indian markets in the middle of the festive season

Happy Thursdays! The india inflation reports for September

As usual, with the monthly WPI slated later in the day, the static 9.32% weekly inflation rate for Oct 1 is not the focus. Policy rates in india will likely continue bucking the global rate cut trends as inflation is being imported from fiscal dilution across globall currencies and RBI is likely to continue its hawkish stance on inflation and September numbers likely to be another high watermark for inflation

The Exports for August continued a 40% + growth but underlined the weak equilibrium wth the increasing fiscal deficit of nearly $15 bln for the month on a much smaller base and the unlikely possibility of fiscal discipline bearingt to the target of 4.6% after a new borrowing program of INR 600 bln chaining market expectations

A likely 9.5% – 10% mark for inflation with continuing rise in food and fuel inflation, shows the independence of policy mechanisms and growth in India’s situation

The August IIP was a dismal 4.1% against July’s more dismal 33% and manufacturing was robust at 5.5% IMF reduced its 2012 forecast to 7.5% while Indian ministers and Planning Commission Dy Chairman Montek Singh Ahluwalia admitted challenges in 2011/12 and that India will return thereafter to a 9% trajectory comfortably

Auto Sales hrt by 2 days of strikes at Maruti were reported near the low 135k mark for 4 wheelers while 2 wheelers grew strongly in September to 500k and 350k for Hero and Bajaj Auto

Foreign Banks in India: The HSBC RBS Private Banking Sale

ABN Amro Bank in Dubai
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RBS had committed to HSBC towards the sale of all its 31 branches and 100 retail / wealth staff to HSBC. It is yet questionable if HSBC could have absorbed all 1800 staff which continues to operate as ABN AMRO in the country since License transfers are a throny issue that from the point of view of the regulator should not have risen as the occasion to sell in each case is in question.

Since the deal signing in 2009/2010 when ANZ lost to the HSBC bid in India and Malaysia, there has been speculation peculiar to the Indian regulator’s national requirements. None of the speculated objections have yet been resolved, additionally with RBS and ABN planning to come back to the country RBI has taken a harder stance on this apparent tomfoolery with buying and selling branches and networks . Among the first nonsensical results of immediate interest to RBI would have been the multiplicity of licences for the acquiring bank and the lack of branch approvals for HSBC once it as acquiring bank had surrendered the second licence per law with RBS. Even before the assumed non-event (buyers/sellers) though RBI has now found itself troubled by the fact that RBS wll continue to live in the country in isolation as also ANZ ( in its TV appearance by CEO Mike Smith on Bankers’ Trust – B-UTV) plans to remain only in institutional business in India. ANZ, ICBC have one branch each in the new avatar, the most planned by RBS in its new role as a exclusively wholesale player in the country.

Media reports make it clear that RBI has made a unitary objection on the sale – that of the 32% priority lending commitment which precludes any option without retail branches and in factas the new charter sugggests, new branches in Tier 5 and 6 town.

Priority sector requirements are not new and all the 32 license holders in the country manage the same lending requirement without their own branches in the rural hinterland. Obviously those wholesale approaches are not the objective of the Priority sector lending regulation.

Global evidence of parochial regulation

India’s own ICICI Bank is curtailing international deposits in most geographies as local regulators want such deposits to be ringfenced for local disbursals. This instance is unlikely to be an isolated one and a ringfenced national structure is already mandated for most banks but expensive to execute. The Indian regulator per force is under pressure to clarify  and safeguard India’s interests in terms of adequate capital for local operations which has been found wanting by banks as they feel strained by restrictive voting and limitation on branch licenses among others, as also their inability to compete with Indian majors in retail footprint

The Original Sale

RBS sold the ABN AMRO business it acquired in the country while keeping the Global Banking and Markets Divisions along with the Global Transaction Services it acquired from ABN AMRO headed by Meera Sanyal.

BS of July 03, 2010

RBS’ retail and commercial banking businesses in India house portfolios with a gross asset value of $1.8 billion(nearly Rs 8,400 crore) and have 1.1 million customer relationships, served by over 1,800 staff through

31 branches currently.

According to the terms of the agreement, 90 per cent of any credit losses incurred on RBS’ unsecured lending portfolio in the two years subsequent to the deal’s completion will be deducted from the $95-million premium to be paid over the tangible net asset value of the businesses.


This was later deemed to be a portfolio sale and RBS was not allowed to transfer licenses as the banks were not incorporated in India and were only branches owned by foreign parents The Stanchart offer for the same sale was considerably lower as it expected the regulatory run-ins to be discounted. ANZ that had earlier sold off its business to Stanchart in 2001 and ABN have planned a return to India in 2011 and again received licenses while being welcomed by their core consituency of customers in retail, do not expect to go beyond Transaction services and Capital Markets/Fixed Income / Syndicate lending

Other thorny issues still remaining to be sorted out thus the picture that emerges is the following :

1. Each branch still requires explicit RBI approval and none of the 32 players have been forthcoming in unitarily capitalising the India subsidiary for its leverage commitments as currently we all go by Internal Risk management approaches that count on a single Asia Pacific Balance sheet to sell loans to India corporates esp as the competitive advantae for us in Foreign banks is in arranging cheaper ECB loans and FC denominated swaps

2. Licenses being conditional to Priority sector lending apart , there needs to be dialogue between banks and the local regulator with the Indian operation commiting that it has the authority and the reach to complete all its India commitments and RBI observations. For example Swaps create unseemly leverage and banks do not resolve the same as per their own internal risk management where approvakls are already received?

3. Banks may feel stretched by the current requirements to commit 12 new branches in a year as are automatically approved with the 32 foreign banks surviving on 320 branches for their nearly double digit share in Indian banking assets and having avoided the changeover to WOS formats suggested in 2005 with INR 3 bln capital minimum . That this capital would have to satisfy basel and RBI norms on CAR locally queers the pitch for effective pricing for these banks and also in terms of global business sructures where entire regions operate on economics of large volumes that they will have to independently build in India.

4. The banks do remain commited to growing in India, HSBC for example and till recently Citi heavily recruiting in the country in retail and wholesale. Banks remain the preferred stock recriter of MBAs led by Foreign banks in India

5. A roadmap for ringfencing national operations has not been committed by BCBS ( Basel Committee) and banks have already calendarised ramp up of Capital per new standards till as late as 2016 (Ph II) and 2019 in view of the adverse strains on their global operations

6. Foreign banks have not been able to get RBI’s specific approvals for any request for voting rights beyond the current limitation of 15% though there is no such limitation on purchase of individual stakes by the banks. HSBC had earlier planned to stay with Axis Bank as partner but had to make do with the solitary ILFS Investmart purchase

7. New private banks are allowed FDI of 49% for 5 years and changes on voting limitations may be made in the Banking Regulation act as per demands. Many in pvt sector insurance also await allowing of increase of JV partners’ equity expected to be approved to 49% since the last 6 years but still hanging fire based on reform to holding limits acrossindustry per se

8. The impression of RBI as an archaic regulator somehow persists in the global bank offices as of last count in terms of capital commitments to India operations being recounted as Comfort letters provided proved to be of no later consequence for the banks

9. Even with local subsidiaries, RBI feels that Foreign banks commitment to the country is volatile with over 16% contraction in credit in 2009 and 8% in 2008 after reaching a so called “dominant” position in market share in 2007

RBI paper on Foreign Banks (2005) suggested a WOS structure be mandatory now for 0.25% of national banking assets or mor ein share (IIFL – RBI  paper )

HSBC global locations
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September Bank Policy review : Rate hike again!

Gold Key, weighing one kilogram is used to acc...
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Update: CRR has been cut 25 bps and there may be more CRR cuts. The channel being fixed the repo rate of 8.25% means a MSF rate of 9.25% and a Reverse Repo rate of 7.25% still be paid out by RBI . A SLR cut of some kind and a SLR deposit rate increase may also be happening while CRR is 6%

RBI says:

– Global Eco environment has worsened

– Pace of Exports unlikely to be supported as weak demand

– Inflation much above comfort zone

– Policy transmission is still weak but inflation is being transmitted to retail POP

yields are now trading higher at 8.37%, hawkish stance takes markets down on news. More details after rBI conference is held

Here’s the case for a rate hike in a nutshell:

a. Rates up 475 bp since march 2010. this means the Governor has to start SLR cuts now, which RBI has indicated as possible this time. It does not mean rate cuts or that thee rate hike cycle has topped off because

b. non food inflation at 13% is not in control and the new inflation target of 7% may already be too old as rindia’s crude basket for one remains one of the most expensive in the world at $110 and even in September $106(, UBS for the crude basket data)

c. food inflation control has meant plateauing and not fall in inflation

We are here and would be posting the bank rate update

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