India Morning Report: Dollar Deposits refinancing may bridge CAD, What Taper, Fed?

Commodity markets are as their predilection , totally dependent on news from the Fed in a few hours and present very simple shorts in Gold (trading below 30k), Silver ( network picks to 48k, we feel the 44k mark is a long term ‘ambition’ target in the market). Fixed Income yields too are dull despite the great news of $20 Bln inflows in the remaining six weeks for the swaps on Dollar Deposits offered by the Central Bank. Also the Dollar refinancing thru Swaps has precluded any possibility of higher interest rates and raised the bar for liquidity tightening measures to remain in place longer, except that those measures remain India’s only defense to the Dollar in this situation.

A Taper announcement less than $15 Bln is very likely and that would still leave the Fed a net buyer of $70 Bln in MBS and Treasury (twist) securities. However the returning emerging flows have to the consternation of destinations like India, Turkey and even Thailand and Mexico, have again found China to be a serious option, laving India with net reallocation from ETFs alone unless faster moves create the opportunity for Indian Gilts to be part of the Global Bond Index.

Banks are ofcourse on the edge but the overall equities are happy enough to move back up to Friday levels. Globally the Dow and the S&P 500 in the US traded near all time highs intra-day at 1550 and 1709 respectively. The Banknifty and India’s fixed income yields could probably jump down a couple of notches to near 7.5% yields if not for the global question of reducing Dollar liquidity as one feels banks have been unnecessarily trading down given the advantages of a higher interest rate scenario for them Interest subvention in collateralised personal lines like Home and Auto loans also mean better margins for the banks exp Private Banks like HDFC Bank with the network and those depending on wholesale overnighters for funding like YES Bank who can finally return to supernormal profits in business, normal to Asia ┬áthan worrying about cost of funds

News was good to the markets lening on reforms in the morning. Apart from the Rajan announcements from the RBI on Home and Auto loan subvention, we also ad action reducing MCX directors from promoter Financial Technologies to one ( four earlier) and undercurrents of liberalisation in the Higher Education sector including FDI. China again rushed where angels fear to trea, taking the Property markets 8.8% higher in August month on month, with the first shoots of recovery, staring at the Asset bubble again as a credit squeeze fails to channel flows to the renegade property markets

Bank Policy Thursday could well see R Rajan starting off on reducing banks’ dependence on Government investments redcing the SLR if not CRR as well to fast track his outlined reforms

India Morning Report: Here it is, the day of the bounce back

Of course, we are still correcting to a lower range and I would even think the market could now top out at 5850 which would be dangerous as that would probably break the market uptrend for good.

While some of the unsure network analysts playing safe including Mitesh Thakkar on ET have opted for upticks in Wipro and Lupin, I would rather the markets are indicating secular break from the vote down mid week and banking and autos would lead the comebacks.

English: To Munsiyari on a Maruti, Uttarakhand.
English: To Munsiyari on a Maruti, Uttarakhand. (Photo credit: Wikipedia)

For the markets to sustain on its strengths now that India inc has discounted the political storms as no more than the morning cuppa, it should retrace higher than 5950 and thus the afternoon session or midweek next week could again see this morning session being negated to start from a better ground but around the 5600 mark only.

The bull picks in M&M, Bajaj Auto (Sukhani, TV18) and Maruti would be the big winners and ITC IDFC and ICICI Bank continue as bedrocks of the long portfolio. HDFC Bank seems to be still battling issues of Foreign limit being exhausted but is up in this mini trend while the short on DLF (Sukhani, TV18) is a great pick as the markets finally do not want to take a directional trend in the remaining series and battle overvaluation in the remaining scrips.

There is no solution for India’s daily challenges but it is to a degree, the sustainability that comes from middle class and bureaucratic institutions and cultural mores that keep it going and keep business and pleasure immune from political and social pain.

Financially, forcing RBI to cut rates would only keep the fixed income markets moving higher on yield especially as there is a fracture between the higher floating yield curve’s tough love and the macroeconomic indicators actually pointing to growth that remain bereft of real investment support while neighbours and not so young markets like Thailand and Turkey stay with carefully worked out long only bets sweetening the long only trajectory of economic perspicuity that was associated with India for some time.

The short bets in the March series should have been closed in yesterdays pre closing session and no new shorts in options could yield much as the time value of decay takes prominence this week. However, though it is non intuitive, a sell in 5600 puts is likely to be the strategy gaining coin the rest of today and Monday, esp if you are willing to wait out expiry on March 28. Selling calls would build up above 5750 only.

Up ↑

%d bloggers like this: