India Morning Report: The Taper trade that did not matter and a SAP for Sugar

taper-2
taper-2 (Photo credit: Chriszwolle)

Even our best performance this fiscal is going to keep us in deficit and ECB debt is going to be fiancing thaat to a heavy share for some years to come. But we are not close to getting investment back into the Economy. Though one would specifically request those in the audience paying heed to the new Catcalls for Greed&Fear ( the one from Chris Wood, CLSA) to be extra careful even as India’s weightage rises in the same, the concept of greed & Fear including the other global index by CNN i s probably an important turn on for investors who like to measure a positive performance than just revel in the goodness of equities. The CNN index for one is more like a PMI chart to benchmark against esp now that VIX has shown to be absolutely negatively correlated to good sentiment.

Back on the Taper spooking the markets, I think the markets are being taken for a ride, but a s long as that is backed by skin in the game, the resulting corrections and from here the rally to 6300 are as real as ever. The Taper in its entirety has already found India backers pooh-poohing the European idea that India will shuck itself out from that ONE trade whenever it starts, and the traction for that correction was educative for India analysts to realize the negative sentiment India’s sitting on the fence has created for India.

Again, thankfully it is easy to see the negative sentiment as a European thing because those are really fragile banks and though they will continue to press enough of their capital into Asia in the coming decade too, their role after this taper might well be non existent after two currency crises in Asia and a little of the curry for the home run. Sorry, UBS. Sorry , CLSA. Pension investors and Infra shows like Citi, Macquarie and that HDFC investor(Scottish widows) still remain, but those sharper on the Short trade including HSBC and StanC at times, must suffer for it. That aphorism about Glass houses is meant for them to read into their history of shutdowns accelerated in the last few years

Taper trades are a hoo-haa if 6000 survived. The date for the Taper moving to June 2014 ( We mentioned sometime in October)  and a lower CAD, also star  as the most important factors in the next stage, when the Taper quantity becomes limited and gets filibustered by a non US QE from another OECD Central bank as 2% becomes their growth ceiling and the scare runs back to Bull trades, like they shut out shorts today

Of course markets closed yesterday without any shorts exiting and no one has been caught this morning because they exited the trades or are in the process of exiting the same. Yesterday’s negative FII flow would be a rare moment in the history of this exclusive bastion of Bulls that is India nd e are again ready to move beyond 2007 levels here, especially if the Dow moves out into the 16000’s as it showed last week.

There is no argument 280 per tonne,is electorally stimulating for farmers and ever untenable for Sugar Mills suffering from days they could get it for INR 130 just before the SAP arrangements began. However, it is unlikely that farmers will go back to lower realisations and it is still that SAP’s positive effects continue to out weigh its negative impact on Agri inflation. I’d say till Core inflation starts getting impacted, it is another “sleepy hollow’ strategy that India Inc is more willing to bear than it lets on and will be critical in India’s continuing move to reap the demographic dividend, not just in consumption but in investment in urbanization and modernisation residual to the New World

Those bullish on IT and Pharma for the wrong reasons may be the next in for a rude shock as markets refuse to stay on a particular 6200 or other level in search for the elusive big trade. Especially in IT, those like Tech M may not be able to hide their being disapproved by current and potential customers despite the Dollar Rupee. One suspects HCL’s half hearted transformation may also have found the cliff it was hiding for all the time.

The Taper? It does not loom..Sorry Mr. Doom

Banknifty had a hard call for market soothsayers even as higher than 9% yields tempt everyone to the current Fixed Income market as well .Kotak’s projections for H2FY14 could probably look for sympathisers extending the sam eto the Full year where it a little short sightedly holds the bullishness in earnings to a mere 6%., that probably landing it again in the wrong side of caution tales.  Also one expects Bank earnings to tank the H2 report card for the index as a whole but the double digit earnings score should still be a n easy challenge for Indian companies showing an immunity to global volatility esp with FMCG, Domestic Pharma and Automobiles. The Sun Pharma trade is on the short end right now, more to do with Sun Pharma being clubbed in the passive folios with  Hero Moto and thus probably caching good stock for short trade to use a s collateral. They could thus off and on make the negaive end of scrip pairs within their sector but overall they will still be an increasing part of bull portfolios their index scores likely to go up esp with those not formally keeping to the index components in index tracing funds that will walk away with more inflows

 

India Morning Report: 6220, then, true bottom, market move up please.

Namma Metro
Namma Metro (Photo credit: ashwin kumar)

More impressive than Horn OK Please, but then two wheeler riders deserve beter(sic?!) or not, National Highways are safer for Trucks and Four Wheelers and so no, this headline is not about the mow down of two wheelers or by two /three wheelers in the urban meltdown. The 1000 odd rich families in the People’s Republic are treated with such disdain twice as vitriolic as attributed to the rowdies on Indian roads and they are definitely equally cognizant of the traffic rules as the four wheelers. As I write S&P seems to have marked India’s rating to stable.

More often than not, these urban snarls on the way to work have lately been marked by spots of new construction hanging because of bankrupt cities and states or other EPA/non EPA but documentation relation bottlenecks the construction crew is pretty used to. The BMRTC however, continues to break the mould in setting the benchmark for delayed and inept project handling, while the Bangalore Metro remains the only pristine mass transport crew in the world, after 15 months for nothing else but the 3.5 km distance it covers in totality to the CBD.

A “Dadi Balsara” inspiration that could work for the city and other Indian cities, is to break Bangalore into 3 different urban entities, not a loose conglomerate /federation of municipal divisions/organisations like in Delhi but cities with passports , if required, to travel in between. Singapore has managed very well with the urban transport problem and along with the Scandinavian cities that started it, London and Singapore remain great examples of how to create and grow a city infrastucture and plan urban Transport

But then, I am in the 9 to 5 mold like most Indian 18-40s and more or less wait for work to come to me because that is the smart thing to do.

English: COMPULSORY SOUND HORN sign
English: COMPULSORY SOUND HORN sign (Photo credit: Wikipedia)

Markets are dull, lifeless and the nose is pointing up as 6220 held and will declaim into the biggest rally yet as Earnings season successes have put the GDP growth residual to the crisis into a proper perspective, India becoming one of the most undervalued domains and like US equities, the depth of the market gets its own sponsors while Currency and Fixed Income woes almost strike a t will, the lull taking again a single seller to push a sharp toll on the incumbents, the currency lopping a wide ball to 63 and yields kissing 9% . The RE60 quadricycle will be good for the Indian soul and perhaps sponsors like Prince RJ will even push for it to displace the 800 (in the minds). Bajaj Auto, suffered a setback despite  adding export numbers in October as markets remain uneducated about its portfolio and expectations are at variance spurred by the single line item hope of the return of Hero in this Festive season. Three wheeler sales are strong again and M&M is making a comeback in the Global Auto sector citizenry where they have made a unique impact ( not from 60s history but here and now)

Those who watched it will be carrying it home as Rajeev Gowda handed the BJP and CNN IBN an apt rejoinder on the Poll /Survey action initiated by the CEC ahead of state and General elections. Results season is over not just in the USA but here as well. The remaining PSU banks and Dhanalakshmi Bank and Dena Bank report over the weekend. Next week sees more MNC Pharma results and Sun and Stride Arco labs  report big earnings quarters, Sun Pharma closing on the 14th. Both Cipla and Sun Pharma report on the 13th and Sun could wait for 14th morning before appearing on the networks as Stride Arcolabs reports. Tata Global (Starbucks) reports with the Reliance pack on Tuesday/Wednesday

RBI guidelines on Foreign banks entering thru the WOS structure plug in the statutory gaps  but cannot more than show their good faith and welcoming arms for Foreign banks who are already staring at cutting themselves out of more regulatory capital holes cropping up to bear the expense of global expansion hitherto unfathomable in an industry used to being welcomed on the strength of an opaque global HQ without farming Capital to such “territories” Even as the regulations are required and Indian Bank sector will expand and mature with a growing debt franchise , India has already been bracketed into an “exotic” category with the likes of Brazil for its reliance on traditional lending products in the credit basket and the split from shadow banking ties or one still believes even the lack of depth in wholesale funding. Also none see India as a pioneer for having always kept the inter bank market to a minimum as global banks fight the war with regulators for drying up the inter bank market. Credit continues to contract in Europe at near double digit levels, the single most factor affecting banks even as they stabilise the new era of growth and the best in class retain double-digit RoEs.

India Morning Report: Sun Pharma finally breaks stride (ha! Stride Arcolabs wins)

Sun Pharma is snared into the last leg of mega short trades with Axis Bank an easy six pick this week and next. ICICI Bank has stabilised at 870 and after the Consumer stocks (a couple of hours before Pharma) the Pharma crowd gives up its measures of price vaulted in the continuing over-ownership by 2 or 3 ‘undeserved’ bubble notches by FIIs as they certify to their limited export potential and would be pruned as well. Chennai express could find some financial implications is probably what you would think as we continue to provide a 1005 demystified almost paperless review of the trends both in fundamentals and technicals. However, as far a s we are concerned this is just how the cow will be seen by the robot and we will continue this one off everyday before or after we turn to our day’s work probably in the same business with other banks and academia.

REC (and other infra (Power) NBFCs ) has ticked closer to its 13 levels that should also hold. You can probably safely short that one still from 150(wednesday morning) to 133 levels. 2009 they had established new coasting at these levels for the market and thus they could retain their primacy in leading the market trend horizontally or North deciding the times in between till the next rally

LNG/LPG companies again remain hot commodities with Gas prices signed up to move up by 100-150% by 2015 and following them energy companies, the OMCs could well settle down if WTI balances out new price pressures from OPEC as it increases export volumes

Banks would have no difficulty increasing spreads but may be hidden gems before the broader Economy realises that but nothing to beat bank stocks on a fundamental basis at this point. Outsourcing stocks start the unstemming bleeding today as they are also not contributing to the CAD deficit reduction as the first few investors had ensured in the 2004-2009 phase of its heady growth.

We dealmakers have also noted with interest that despite the hoopla around IPL

This diagram illustrates the Private Equity J-...
This diagram illustrates the Private Equity J-curve in which net cash outlays in early years are outstripped by cash inflows in the later years (Photo credit: Wikipedia)

dying down more corporate owned sports businesses are in the fray than ever before and may attempt India’s unique public financing iPO model even as Private Equity adjusts to the new view of the Economy, once again showing its inflexibility and habituated method of creating big, wide potholes with transplanted models and outlooks that have again failed in e Commerce and any remaining brick and mortar models. Private equity may however, finally be able to make the transformation and invest in local analysts not just for salary expenses but for more akin modeling of the unique parameters. It is a long uphill struggle

Not many private banks were timed to and tuned into HTM portfolios despite the threats to rupee and thus ill be blamed for the losses that happen on their investment folios this quarter. China’s increasing trade surplus similarly does not match its eigenvalues of resuscitating domestic consumption for those waiting for the first early signs from the same since 2008 ut consumer demand there seems more robust than India esp for engendering larger investments

I was also hoping Hero Moto would return to more realistic levels as any motivation for it to be the star of india should be also seen as continuing over-ownership by 2 or 3 ‘undeserved’ bubble notches . Hero tracing below 1700 could very well be the last of the vertical shorts in this market when that move is played out hopefully over next week itself

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

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

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

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

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

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

 

Morning Trading Strategies – India June 27, 2012

English: Wordmark of Cipla. Trademarked by Cipla.
English: Wordmark of Cipla. Trademarked by Cipla. (Photo credit: Wikipedia)

Currency markets expiry does not usually bring much volatility as the markets inherently trade in forwards and futures. However the dollar is poised to hit 56.50 today as the Rupee’s fortunes take over petty benchmarking to a Dollar index fed by the weakening Euro. The Dollar index is itself down despite the Euro weakening as the Yen follows to higher ground on the back of its new revenue measure on a government running a 200% public debt but required for speculators who thrive on funding trades thru the Strong Yen However forward continue to retain all their premium..

English: Bajaj auto rickshaws in Adama, Ethiopia.
English: Bajaj auto rickshaws in Adama, Ethiopia. (Photo credit: Wikipedia)

In stocks, the benched NBFC sector could help the banks surpass earlier week’s levels on the Banknifty while the index rangebound till 5150 is probably ripe for the adventurous to sell a few June puts, but most should have been done by Monday. A couple of network mentions like Jubilant and Titan ind shorts are great starts. On the long side, REC, PFC, PTC and Powergrid should move at different parts of the day and typically ING Vysya and Indus Ind as well. Bank Nifty gets safe to 10,200. Setting up new July strategies should have been disturbed by the seesaw index moves and so one should probably wait before publishing bullish option picks in the segment esp as July options are overpriced. Futures plays in the Bullish sectors are safe including Healthcare which may get a little cashed out as interest returns to other sectors today. Buy Cipla at today’s lows, stay in Sun Pharma if you are already in and exit Dr Reddy

BAJAJ AUTO  is again a long and HEROMOTOCORP could recover a few in the couple of nifty surges in the day but both will likely start back from 1500 and 1960 again in the near future. Use discretion and exit any upmove after 3% for day trading and those staying in should be ready to stay out July. Fresh buys in MARUTI enjoy the same caveat. Banks are at a new level but may not retrace much more except Axis to 978 levels and SBI to 2110

Prime Focus (RJ), Tata Global (Starbucks, Indian promoters) and a few other Mid Cap picks are around including Mannapuram Finance. Reliance Anil Ambani stocks including Rel Infra and Rel Media will have a move each in this run to 5400 if it happens

English: Generic finasteride 1mg tablets produ...
English: Generic finasteride 1mg tablets produced by Cipla India (Photo credit: Wikipedia)

Infra sector is poised for a take off on its own technical steam as well as good announcements from the PMO / MoF. IDFC and GMR Infra remain prized large cap picks in the sector. GVK Power, IRB and LANCO seem to be marginalised by their Capital structure by now but Global infra financing sector would still have to adjust to a lot of India specific projects’ independent performance strictures and it will not be easy except for Development Finance plays from Japan ( $10 B for DMIC), IFC and even ADB to enter India and thence I atch out for others except IDFC

A very tough pre open, Infra may have bottomed out but it is not going to break out any faster

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