India Morning Report: Another US FDA bird hit, US GDP caught with high inventories, Markets broadening base

World map showing GDP real growth rates for 20...
World map showing GDP real growth rates for 2010. CIA world factbook estimateshttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html as of Januay 2011. (Photo credit: Wikipedia)

 

Jubilant Life got another US FDA warning taking it closer to the brink though the numbers in the same year (two) may not suggest deepening of in its case a contract manufacturing problem and the plant is located in the USA

 

In the meantime a flat market keeps its promises to the India VIX after a big ‘corrective’ rally yesterday bringing the bull trend forth to another dead in the water lay up at 6250. The US GDP report yesterday was the second successive sub 2% score with inventories taking it to 2.4% in September(for June 2013)  with a 0.4% contribution and 3.6% in December estimates counting 1.8% from inventories in the September quarter. More on the US markets impact ahead of the all important Jobs report at advantages.us

 

Asia and US trends will be the next to break correlation with the India equities, that have corrected most other vulnerabilities with continuing inflows and a 100% vote on chances of a recovery from here. Rate hikes also are behind insular shield for this market as are even coalition credentials despite the markets correlating this BJP win with a bullish market’s highest scores. 6000 levels offer almost single digit index PE within the year and Energy and Metals are ready to support a bigger sustained rally momentum while Bank Nifty seems to be discriminating between the riht banks and the wrong banks without the markets showing strains of very few good stocks as FMCG and Pharma also continue to have backers and brownfield FDI regulations have been recently firmed up while Pfizer and Wyeth merger in India puts more domestic competition on the cards. The first good sized shorts on HCL have appeared even as the Rupee remains ranged at 61-62 levels unnerved by the non story of steps for a fiscal deficit bridge, which from Reagan’s days seems to be again left to the market performance to cover, all expenses being important and budget cuts or clampdowns signs of ceding to another government

 

CLSA remains on the losing side with a seat on the fence and to us a tell-tale indicator is preferring Hero over Bajaj in these market conditions, most such investors and commentators that still prefer the Hero stock preferring to see themselves as waiting it out

 

Powergrid remains open for a great investment opportunity for retail. Just Dial ‘s great success will definitely rejuvenate stories like Prestige, Jubilant (Dominos’ India being its second largest market globally beating the UK) , Talwalkars and even Prestige which remained in most buy lists during the period when Jubliant was still seen as over valued

 

The Power NBFCs remain another isle of prosperity in the compromise between various market factions (opinions, nothing sinister) and with Bank lending revival meaning better traction for NBFCs and banks with distribution power, the banking and financial services sector may offer investors willing to jump in without waiting for decisions like New Bank Licences or overtly waylaid by the habitual topping up of PSU coffers by the government admittedly on time despite H2 pressures on the Expenditure side as it revises its divestment targets upward. India’s GDP reports had good signs with Electricity and GAs picking up 8% in Q2

 

PFC, REC, ITC, Bharti, IDFC and LIC (Housing) remain thus the favorite weekly and positional trade picks.  As mentioned sometimes earlier, Traders on the networks (Network analysts) have cornered on trader specfic plays that seem to be any good company will do kind of trades powered by ‘old hands’ but we do not have expectations from trades in USL, TVS, ttk , Wipro, L&T or BHEL at these levels. We would also prefer SBI get derated before it damages market expectations in sweeping strokes with its abysmal performance bells ahead in the next two quarters or even more. Adani is back in play with all the Adani stocks including ADANIENT, Adani Power and other

 

JP associates is a little silent as has become customary after the first lead of any new trend rally since 2008 but infracos look like getting back in the game hopefully enough for leveraged promoters to exit at fair value else the same can truly damage the markets later. I am not sure if trades in Siemens and HDFC (not the bank) are ready to dial in but Tech Mahindra would be a conviction SELL and i would not touch KPIT and Persistent but they seem to be ready for a big swing up

 

Oil prices will follow Gold’s euphoric comeback into the upper sphere where it starts hurting the Indi story soon, but may again remain weak because of the overall commodities cycle as Europe leads the way down and the Chinese recovery may yet again be short-lived without export markets, which also caps Indian exports in Copper Silver and non-agri commodities.

 

Cipla and Lupin would be good trades on the long side.

 

Futures and Options continue to see volatility trades in straddles ( Buy Put and Call on the same strikes ) but the Nifty seems to be giving strangles ( not Vol sells traditionally but profitable in a flat market) an equal premium so those not in the inner ring or actively monitoring terminals should  wait for better levels in the Banknifty series before jumping or sell Puts at 6100-6200 levels on the Nifty

 

 

 

Bank Policy Tuesday: RBI Governor completes policy action

inflation
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: Energy cos can rise despite Export parity?

Graph of the Gross Domestic Product GDP (at Pu...
Graph of the Gross Domestic Product GDP (at Purchasing Power Parity-PPP), per capita, as a function of per capita Toes. Year 2004. Data available online at http://www.iea.org (Photo credit: Wikipedia)

Here are the numbers the Kirit Parikh committee is dealing with. Export parity is going to impact GRMs by $2.30 per barrel. However, other things being the same (KP) we agree with Quant broking that Oilcos are the major drivers apart from the metals in the new bull run as 5750 settles in after F&O unwinding (hopefully). Quant Broking also reminded us of the important fact which markets latched on to in 2005 and forgot in the melee on the Dollar and the depleting growth rates since.

BPCL has managed to keep a very low price to Book multiple I would add that it also has a better cost base though the numbers have to come from a research desk hour. In reserves according to Quant, BPCL scores upto $200 bln in reserves wich allow it to be a god enough for portfolios even as the rush is already on in IOC on the strong Dollar. BPCL is es superior in btter ROI diversification thru available capital and retail distribution not available to IOC

Coal and other weak Corp governance stories keep falling through on easy catches by incoming investors avoiding a bigger standoff not unlike the Vodafone GAAR standoff in the same President’s times. admittedly, India’s unsuitability has become a more understood variable globally. However we stick to the view that it is still a better non OECD destination than any other BRICS or other markets including China and the Turkey s or Russia and Brazil with obvious fiscal holes that cannot be equated to India’s intractable sub 4% minimum

Again one on the flip side finds the idea that Maruti and M&M can thus be sold on the idea of expanding rural markets laughable though HDFC Bank would be a good idea , eve within auto loans if not for its overall rural and small town breadth, even as PSUs continue with their traditional problems.

Real estate inventory levels are scary and the market (working) definition of real estate as a market whose asset prices cannot come down because of along other things costs and commitments already incurred, make asset bubbles a fertile ground for research even here despite a healthy domestic consumption share and lower incidence of flipping with potential for more salaried young upper class buying better homes than anywhere else except China’s metros.

The other is the big solution of the CAD which has suddenly hit the saffron wannabe ET ( probably because it hates FDI in media or being stuck with sick company notices like the rest of the Indian newspapers)

Though the inflow rush is obvious, the lowering of invisibles in the import bill, the imported services, may not be good for the Economy nor a reason to not know India and would take a lot of time to uncover in terms of components and future trends. The traded deficit contributing so well that the Credit Suisse forecasts or others of just $50 Bln deficit including the public planned target of $70 Bln are both scary in their matter-of-fact-ness as well. The coming rush of export growth in the period to March even as Advance tax receipts fall and SME portfolios at SBI hit large NPAs would only disclose more skeletons in India Inc’s cabinet even as one of the world’s deepest Financial markets seems to rely the least on Corporate product for its GDP

The Rupee however, has seemingly bottomed at these weak 62.80-63 levels an may well rise back to 60 when these performance improvements land on the commentary and analysis streams in just a few days after September data becomes available ( Right now Q1 data is being release for GDP and Trade on the consolidated quarter basis)

India Morning Report: The next sharp move in the Rupee is still nigh

The Oil wars are and with US Supplies stockpile engendering a highlighted war equation, the situation could turn grim. This Friday closing is thus not like the other weekly closes in terms of markets losing short positions and trades, and it may instead see profit booking in larger dollops. One assumes therefore the sharp increase in Open interest would remain with the likes of HDIL and Sun TV and the banks open interest would continue to rise much more slowly and the 5400 cap could in those trading terms alone, define the entire September series hitting the wall at 5300 in favor of short interest to pick up once the market dips from 5400 to those levels, which has started off on a clean plate, only longs rolling over.

The advantages to shorts rolling over are the market pricing more finely in those conditions with the added liquidity(depth) to trades with the premium esp in the Indian market removing rational investor interest rather soon in the Futures and Options derivatives markets. Witness, even in the currency the only trades that made it were structured Double or Quits and higher multiples.. excluding even a lucrative CDS market in India Bonds and Sovereign. Oil swaps come with the caveat that payment problems exist to the same extent with International payment systems complying with bans es for Iran and one can assume Syria

Airtel Digital TV Review [Updated]
Airtel Digital TV Review [Updated] (Photo credit: code_martial)
One can assume also that after a 14% cut in FMCG in August, ITC’s ‘comeback’ would also bring back interest in brands like Bharti ‘Airtel’. Though GDP Q2 data would not be a trigger and long interest remain with such undervaluation

The 75 target for the currency is here from BofA ML and as I said below 68 the box is from 70 to 77-78 levels before the market interest outlasts any post analysis of the fll. Those thus aking this 68 level an occassion for post analysis would likely be lost even without any sizable crossfire in the battleground! Lets face it we actually need exports to grow a sizable bit in response to any depreciation for more than IT profits of the next quarter for India Inc

Watchmen: The End Is Nigh
Watchmen: The End Is Nigh (Photo credit: Wikipedia)

India Morning Report: The Rupee, it counts 62..63..64..65..66..67..68

English: Cumulative Current Account Balance fr...
English: Cumulative Current Account Balance from 1980 till 2008. (Photo credit: Wikipedia)

 

Fixed income Desks at Banks of course would like others to believe everyone was trading the 9.5% -10% range probably but closer to the market after a small tweak in SLR and the confirmation of lack of MTM losses excet for the 5-6% in AFS, desks returned to trading 10- year yields between 8.33% – 8.5% and the OMO tomorrow may revert the auction yields to same levels after the 12.27% auction on Monday. The FOMC was crystal clear in its depositions as seen in the minutes that the markets were in for a leaner September and so it will be, will be as Asian currencies suggested in the morning before Indian markets opened. . There may not be many trades at the 64-65 levels even as the interlinked ‘100% plus’ correlations pushing the volatilities out have receded esp with fixed income yields above.

 

The lesson for traditional Economists and probably our Chief Economist C Rangarajan also that the Indian Economic Cycle does not really lend itself to the trade deficit being the Consumption Gap. As one might see in this year’s turn of events in June itself, the drying of consumption had absolutely no relation to the high prevailing CAD which is more directly linked to Investments in the Economy and Savings, leading from curb on Gold for lower deficits till such imports uncoil again and jump the deficit forward propelled by high Savings and zero investment. CPI again showed that Non durables will be able to transmit pricing shocks but all is not well with Millers as they pay for pampering farmers in UP across successive state governments.

 

Energy Companies lead the second tier of the rebound stocks as Bharti and ITC reach their true value at 300 levels and metals lead the banks to improving cognition of the market ( witness Banknifty at 9350, though the 9600 mark was reached and lost as if in a dream) There is actually no way to call a bottom of a currency where nothing is bought and domestic consumption is so independent of imports. And the Dollar will stay strong thru September from the looks of it. So, 70 is just the mark they can see right now probably without pooling selling interests across the dozen odd active desks that at least follow the currency. Linking that to NPAs may similarily not work because the stock of Private Dollar debt is mostly fresh and definitely ss than even $50 Bln despite all the new issuance. If old models were to be followed, the irascible Oil market’s considerable control in price increases is all but lost and Rupee could eve start rising back but that is no longer a valid reason for anyone to hold as a single seller could control the market till even 80 levels and Export volumes are not corresponding to increasing import requirements

 

 

 

 

 

India Morning Report: The President of Rollbacks, and the nadir of the Rupee

Economy
Economy (Photo credit: yourdoku)

In an extreme show of brinksmanship..India has been taken for a ride by speculators and brought back in an equally unorthodox fashion. Depending on the moolah you get from your editor and or Academic Dean or the strength of the victuals of your audience and that of your economics philosophy, the average high end Economist could turn this review into a one a month policy piece. Any number of breaks can be introduced in the sentence we started with to fill the essay, Ajay Shah for example saying (TV18) “none of it was required” and again falling through the cracks of mainstream and outliers alike among Economists. In any other normal Economic critique of philosophy, one would have added a qualifier “likeminded” before Economists here.

(sic!) Thence we avoid the other tricks of the trade to assume a daily weight to each day’s weights and wait to lookback on this month in a decade and hopefully for that our parsimonious allocation of just a Morning report time-length shall justify the deeper review whenever we do return to full time writing. Right now, Economic necessity of this individual calls.

And in that light, The Rupee hit 64, yields hit 9.5% and like a rubber band returned to pre-crisis yields of below 9% yesterday itself and 8.33% today showing trades have returned to the 10 year bond. Active Demand returning to Fixed Income of course means the Rupee move is a goner and thus one should assume, we will remain at these 63 levels for years to come before the next deep cut moves the currency related victuals of the Economy by double digits again. Incompetency of Exports apart, that takes care of India Inc’s static export volume issues on keel , the government has managed to turn the trick with Government spending too, focusing on the growth in Services in Q2, ET reminding us in time in today’s op-ed pages inside

Another funny one has been the markets stuck up attitude toward, India has FX reserves, it should use it’ almost like a mouse trap the NSEL was, (for unaccounted cash in wholesale transactions). Money stock has largely returned to the mainstream economy through Financial devices alone and it is hardly a coordinated supercomputer timed perfect metamorphosing of the India problem and its solution.

The markets can in the meantime thankfully return to investing in banks, PSU banks likely to score on their 20% of book(Advances) in homeloans. BTW, Rajan is silent because he takes reins formally in September. The King Chidambaram and President Pranab in the meantime look askance at the sharp turn because it does no bring in a single dollar inflow. imagine the glee of reformer in queue Narendra Modi and his ilk

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2.  A political, ethnic, or ancestral division of ancient states and cultures, especially:

a. Any of the three divisions of the ancient Romans, namely, the Latin, Sabine, and Etruscan.
b. Any of the 12 divisions of ancient Israel.
c. A phyle of ancient Greece)

India IIP Report: (September 2012) An incipient recovery may not take monthly comparisons

Though providing monthly updates may have its advantages, quarterly tracking of the monthly IIP itself solves most of the cyclical trading and investment decision needs of the data as the organisations involved mull another ‘restructuring’ of the data series that relies on 31% Capital Goods and 38% Infrastructure production in the series. Ming and Utilities are reverbing as the more critical pieces having benen down from their averages longer and deeper. WPI data follows on Wednesday. CPI was reported a lower 9.42% instead of 9.76% for Octoeber almost concurrently to IIP announcements as overall CPI is 9.75% static over the September data while rural data has tipped to almost 10% at 9.98%

Electricity series has recovered well to 3.9% . Of course year on year figures are really not indicative after the big jump still keeping sentiment at its depths re performance but is up from 3% on August and negative in June 2012

Counterfeit jewelry
Counterfeit jewelry (Photo credit: Wikipedia)

Consumer goods data has gone negative again at -1.3%  from 5% in August and Intermediate goods are almost flat at 1.8% on month and 1.6% in June 2012. In June, Consumer Goods data was stronger on durables growth of 9% at 3.5% and Festive season has been good enough despite the discouraging data for September (Durables -1.7%, non Durables -1.1%)

The overall PMI Composite for India stood at a high of 55 in September and is only 53.5 in October but still among the highest globally. The September IIP data is a degrowth 0.4% after a degrowth of 1.8% in June 2012

June data was sharply negative on Capital Goods at -27.9% The September series continues at a double digit negative clip of -12.2% but policy hurdles seem to be out of the way from the brakes still on in June

August IIP has been revised downward to 2.3% as well, showing up the incipient recovery in the face but Mining sector’s chugging back to normal is reflected in the statistics well at a positive 5.5%

Basic Goods growth was a positive 3.5% in September over 5.3% in August and the overall Manufacturing Sector is a negative 1.5% against a negative 3% in June and positive 3.5% a year ago

Services and Utilities data have been very strong in India’s version of the crisis in IIP since 2009 but have finally hit a big disruption canyon in 2011 which has continued ravaging India’s growth prospects into 2013 as it returns to the fabled Hindu rate of growth of near its least 5% even as China transitions into the Developed World ready to strike at per Capita benchmarks set by Europe and the USA

 

 

 

India Morning Report: Market forgets Hero hit in Reliance comebacks

Image representing Panasonic as depicted in Cr...
Image via CrunchBase

Hero is a forgotten brand today haemorrhaeging 5% market share from August 2012 to 36% in September even as Bajaj Auto maintains its key following of the brand and generates interest in new export markets. While the idle October till now sa markets reacting with aa dropin consumer Discretionary and non discretionary performance on the bourses in almost a synchronous reaction, the consumer brands including unlisted Sony, Panasonic, LG and Samsung with new lasting promotions and discount melas to save the festive season as consumers have not said they do not want to spend.

Financial markets in the meantime were roused appropriately by Axis Bank’s good enough showing though as promised Axis booked another INR 5 B in provisions on top of 2.5B in the year ago quarter, maintaining its 20% growth in Profits and a NII jump of only 16% to INR 23.2  B Both are nearly 10-20% lower than that of HDFC Bank and the bank is expected to lose higher NPAs than the industry in the coming few quarters. Non Interest income is stuck at INR16 B for the quarter. It seems credit growth has plateaued at the bank

Image representing Sony as depicted in CrunchBase
Image via CrunchBase

concurrent to losing restructuring battles and exponentially rising provisions. But as of now ‘like Citi’ this was expected for the bank.

The highlight of the day and probably all week was the jump in refining revenue for Reliance at a new $9.5 GRM for the company. Its other two businesses hasd petchemh holding to its share of revenues of nearly INR10000 Crores or INR100B, overall topline slowing to INR 90.3B down 6% sequentially instead of the usual larger drops due to the continuing reduction in E&P revenues as E&P slows down at KG D6. RIL revenues are up 15% over prior year and the stock has finally got a new range perhaps still redefining ruling Sensex levels after any correction as it moves up smartly from 821

 

RIL Logo
RIL Logo (Photo credit: Wikipedia)

 

 

 

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