India Morning Report: The mechanics of T-2 trading, USFDA, GMP withdrawal

In the spirit of all that is wrong with overseas monitoring of drug manufacturers and the known woes of overseas drug manufacturers quality plans, Wednesday started with a bang for Wockhardt as the GMP certification was withdrawn by European agencies last week and USFDA followed up with an Import Alert. Apart from hurting an export rich sector of the much tarnished Indian Economy, it remains an isolated play in the day’s trading.

However despite ranging puts and increasing percentage of the next series participation in Options etc now appearing towards the end of the series, the waning decisiveness of the Nifty may continue into December as markets deign to rally intraday and close above 6100 as Monday forecasted an easy reach for the same. Slow and sluggish markets despite the strong rate recovery action in the bond markets in the illusion of changing from old benchmark to the new has kept shorts in business. Markets are on wait before pushing the Banknifty in the last two sessions back to 11k levels. The Banknifty levels are definitely encouraging for a rollover induced good beginnings to the historically over priced next series (December in this case)

However back to things that can be read as making sense and are a watermark for the next events in India’s robust Financial markets, seldom confused with the Fragile Five before the preponderence of retail investor targeting left only Institutional actors in play over emphasising index trades as the only safe flows.

The December series again will continue the experimentation with sectors trying to avoid known good plays in Energy and Metals as brokers and agents seem to have set a high benchmark of participation while trying a little of this and that and that will impact rollovers as Index options go out of play and passive funds remain shortlisted on a very high ground with ITC, Bharti, IDFC and Banks like ICICI Bank, HDFC Bank and YES alongwith Axis Bank and LIC Housing Fin.

Traders are also unlikely to let LIC Hsg off without it reaching below 200 levels so buying should be attempted only around 197 levels and if 196 breaks then 192-4 levels. REC, PFC and PTC have also made investor lists only though they execute perfect range trades between 188-221 for REC and corresponding levels in other scrips. Cipla and Sun Pharma remain good scrapbook material for traders too and trading will return to the banks if robust flows are to be had in the markets while FMCG, Pharma and Energy and Metals present strong sectoral opportunities.

Despite the new midcap entrant Just Dial and Jyothi Labs where prices are robust if not trading volumes, Midcaps remain a Notice to stay away from India with the inability of research to overcome stop and start news flow and sensitivity to just one factor in most individual midcaps that keeps money from following the opportunity

However the mechanics of the T-2 trade, remain to find the level at which to screech into the next series optimum levels or in more mature months with broader flows optimum entry levels which usually allow shorts a large window to stand in, but once they are caught playing with fire, there would be no stopping this market having just woken up to an Indian recovery around the corner. Investment flows looking to be the harbinger however is a cruel fallacy esp as it lets investors on to the Capex companies like L&T and BHEL which in line with Global conditions are nowhere near their recovery with flagging order books and delayed execution.

Remember Modi is only one of the shortlisted candidates in the POTY sweepstakes at Time Magazine (Person of the Year). Investment positions should continue to be advised strongly in IDFC, ITC and the selected Banks you trade. Also Tech MAhindra may be an easy exit from MSCI too after an easy entry this week, within the next 6 months and markets wshould note missing fundamentals in pushing volumes into any such specific counter as it brngs a laser focus on to the players, used to making a mover out of a Satyam or a Rolta. Most money flows have safety in following Corporate Governance reports and big contract losses do not help as the commodity marke flexibility does not spill over to equities or even Real estate any longer.

Lupin, Cadila and Glenmark continue to get quick drug approvals and also make the cut for bigger investments

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: A sudden rush for crossing 6350, nipped again

Corus trein 823 Tata Steel train
Corus trein 823 Tata Steel train (Photo credit: Wikipedia)

The Banking system’s woes are fresh wounds , blisters nary a bluster with NPAs at most PSU banks except BOI and PNB likely to cross 5% on Net level. Despite market’s favour for State Bank vintage in equity markets , the SBI scrip may provide most fuel for the Domestic Institutions who prejudicedly also treat the scrip as the holy grail along with operators. As we noted earlier within this fortnight, the results showing bolstered by reduced provisions for banks generating PAT growth mid year is a mirage.

Apart from the fact that NPA and AFS loss impacts have been spread over the remaining two quarters to March 2014, provisioning may be updated one shot by FY14 at all such banks and as yields continue above 9% the results will speak for themselves.

However, that is not the reason to be bearish at 6200 levels, neither is the bluster on ITC and Tata Steel by Network analysts likely to bring markets back to last week’s 6000 levels again. ITC is a good trade and Tata Global and Tata Steel seem to be capped for now. AS expected, YES BBank has moved on trading supports and IDFC is also maintaining 108 levels instead of 100 a week ago

Results from Sun Pharma last week, though not the digital upstarts like Sun Tv (SpiceJet) and Dish TV (reported today) are likely tobring rosiness back to the markets. One winner as markets tie of the Maruti move at 1700 levels will be Biocon, both scrips from disparate sectors, especially found in favor in Institutional and ALt trades looking for the India  Shining flavor along with the alpha ( which undoubtedly is missing in both stories) However a rerating further upward is likely only for Sun Pharma, having posted 58% growth on last September and having grown some claws at long last in the Indian Domestic market and margins of 33% (ex-Protonix) are good for the mile. Six month FY 14 EBITDA margins are a healthy 44% and the stock can well bring Cipla and the Midcaps out as well into more international baskets. R&D spend is likely to increase in the Indian markets in the short to medium term but current provisions, reasonable as % of sales are not good for a longer brush in the generics and domestic markets. A lot of those investments across the rest of the industry are likely lost in Process repair having been cut by FDA riding them even as Brownfield investments in the quarter exceeded $1.1 Bln and guidelines have been further revised allowing more such investment again.

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: State Bank and PNB ride off BOB, BOI earnings

A Maruti Driving School in Chennai
A Maruti Driving School in Chennai (Photo credit: Wikipedia)

Markets remain equally challenged after a victorious close to the series as there is no sign of retail investors ever coming back to cash equities let alone Futures and Options but BOB’s great recovery earnings built on the same devious Syndicate Bank strategy of reducing here to fore provisions to a large quantity as they are no longer legally required to keep higher provisions. BOB gross and Net NPAs continue to grow sharply with NPLs reaching more than INR 105 Bln, and still rising ven as the street celebrates its doubling of Net from a year ago after a long hiatus of subdued quarters. BOI seems to have really made inroads but here again the restructured asseets shot up to more than INR 10 Bln on advances of more than INR 2000 Bln in the September quarter. Net NPAs actually climbed down for BOI and prompted the big rally that took markets to record Sensex levels since Jan 2008. Unlike US banks making profits out of reducing revisions, BOB will likely have to make fresh provisions in the coming quarters as the NPA rates keep up.

Sun Pharma has grown to 5X times its prices in the 2008 boom and mor such rerating in the index shows a more focussed approach in the Indian markets as retail faded away in this edition of the Global crisis, Tapering fears still on tap after having induced a crises from withdrawal of excess liquidity over the summer. Lupin has also rerated up 6X times

PNB has climbed a further 5% in the morning after a 8% climb yesterday. SBI which is still unlikely to report a great comeback next week gained a further  5% yesterday to near 1800 levels developing into a ripe short even a s performers like PNB finally get their due from the stock markets after having survived on a dedicated core following as it gets sidelined in favor of the macabre theatre of the underperformer s who apparently provide more value from the sharp cuts they faced. Bank nifty  started the morning beyond the 11,500 levels it closed on expiry Thursday. BoI is a good investment. Allbank and BOI both reported 2.93% NIMs for the quarter below par but rising for BOI while ll Bank continues south in further NPAs that are likely to hit the INR 100 Bln mark before  the rot stems

IDFC as expected has taken to the bulls in this month’s series at 108 and YES Bank broke 360 levels to go north. Meanwhile as moneycontrol informs automakers Maruti have jumped turnover 2.5 times to INR 100 Bln since Q2 FY09 when the Sensex last saw these levels. As F&O analysts informed the Network audiences yesterday thi s series is likely to see further inroads into the Sensex and the Nifty will easily cross the 6350 levels. Th long term targets of the Nifty will thus be closer to 6600 peaking between 6650 – 6750 come 2014

India Morning Report: Weekend results from Cipla, Sun, vs the ultimate low for india’s production statistics

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

 

July and August data that comes in the next few weeks could make the data for June and an almost negative IIp at the cus p of the biggest Rupee depreciation move since May 22 seem like next to nothing in comparison as Services crash in on the devolved growth mandate and curbs on non essential imports kill any remaining Hindu growth consumption in the Economy. Auto sales reports for July from Siam are as low as 131,000. Mauritius and pakistan could robably account for more cr registrations in a day but that is not rater affecting India inc.

 

The day has started well, with the obvious move back in Power NBFCs that could well merge into any revival of demand even as investment lags in corporate India have no end in sight. The revival of demand in such services could lead the way back to growing inventories , before they become a hangman’s noose around dealerships and the robust credit is used to demand off take back to a positive IIP. Today’s IIP reports and Q2’s first GDP estimates next month could thus see their worst data to come . Cipla’s results for example showed a 17% domestic sector growth, a continuing island where branded goods in both FMCG and Pharma will continue winning share at the expense of the unorganized market in sch a slowdown and Corporate India and Banks could easily maintain a non negative topline in the September quarter

 

Hero Moto is already responding to the covering rally as if its worst is over but then that is just a n ver motivate d market looking for trading gains as sBI results bringing in the last wreath for this quarter’s rituals on a continuing mourning for unreported asset losses being absorbed into the system even as the banking system gets ready for new stresses on asset quality as interest rates rise even before the coming injections of liquidity once the rupee stabilizes, but Corporate India performance and the continuing unique growth measures of India ensuring that things do not continue n the worse vein but grow back a clip from here even bringing back investments as Savings and investments have both been cut to the bone.

 

Jyothy Labs reports another big jump in profits to 287 mln after a` 4920 mln profits from Cipla even at a bare 25% EBITDA shining as Sun Pharma’s EBITDA after a bad quarter is still a giant 44% on almost a $1 Bln in Sales but needs to be penalized for the ` 3000 mln loss this quarter from the settlement

 

 

 

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

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