India Morning Report: Portfolio investment highs let India story dominate

Investment percent gdp
Investment percent gdp (Photo credit: Wikipedia)

As investment flows confirm net positive investments in India on a regular daily basis, making the total for March closer to $3 Bln or close to $150 mln per day (INR 900 Crores) , India and Indonesia keep hopes alive for Global equities and EEM flows remain negative with exits from China, Japan and Korea closing out on any hope for recovery in North Asia with China remaining dull and Japans deficit imports coming at the cost of lower Exports being kept on deficit mirroring the phase of growth investments without concurrent investing flows.

 

6590 levels obviously proved daunting for India Inc and markets returned the gains out of the morning trades after a buoyant day for equities all around, looking for new levels not belying the sad events of 2012 for Corporate India Markets stay away from Banks as markets had a big open on Monday and new levels in private sector banks seem to wait for PSU banks that continue to be neglected for their larger than life NPA sores and aches.

 

Reasons for cheering the performance of Auto and metals however still seem t o be further ahea d on the road to recovery and have hardly earned their stripes. Bank License hopefuls that still include the Aditya Birla Group and a couple of other corporate houses are probably caught unaware by the extra scrutiny imposed by the Poll panel ahead of a new government in steed at the Center. RBI has enough reason to deny corporate houses a chance to play with the banking system but it may be difficult to deny claims of available NBFC models like Aditya Birla Money ( Diversified Financial Services ) AND M&M Financial Services ( Retail unsecured/Auto Lending ) after satisfying the NOHFC structure requirements, giving the CEntral Bank a tytough decision as it probably wants to hand over no more than 4-5 new opportunities

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Fixed Income Report: India back as flavor of the year

Global sentiment has again turned in favor of India as a leader of the trend of survival led growth, thaat is bleeding the best of developed world markets dry with expectations of QE fuelled growth that are increasinglytemporary growth humps on the chart and trending down like a dampening whale’s breath on each injection of liquiidity.

हिन्दी: ताजमहल English: Taj Mahal, Agra, India...
हिन्दी: ताजमहल English: Taj Mahal, Agra, India. Deutsch: Taj Mahal im indischen Agra. Español: Vista del Taj Mahal, Agra, India. Français : Le Taj Mahal, à Âgrâ, en Inde. Русский: Мавзолей Тадж-Махал, Агра, Индия. (Photo credit: Wikipedia)

Put in simpler terms the yields from $100 in first round of QE is probably as much from $230 in the second round and now that most have more than $1000 invested and are getting half the strength expected to continues in housing and treasury markets, the Indian yields are good to be shopped leading a trend down, though RBI was also mopping extra liquidity out from the markets in today’s run

Indian spices
Indian spices (Photo credit: Wikipedia)

Happy Thursdays! Paying market prices for Spectrum

Telcos would now be paying $250 mln per MHz as a likely average price for new spectrum, including 122

Bharti Airtel Lanka
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canceled licences. Even if 61 of those licenses are purchased at the new price of upto $2 bln on average per operator , that is $12 bln more in the government kitty and hopefully larger at $20-24 bln with all licensees buying the regional spectrum in the new dispensation.

However that also means an expensive mobile bill as ARPUs below 100 Airtel educates us to grows back in billin grates by 60-70% to pay for the new spectrum and in the case of new telcos making older pricing plans virtually impossible to emulate even though someone with a reputable network like Uninor ( among the newbies) only has 36-40 mln customers and at a much lower ARPU, Airtel and Vodafone taking the opportunity to attempt the 30% higher new bill rate as probabilities for retaining and growing market shares improve after the action against Raja culminating in the cancelation of 100+ licenses

Chidambaram may not be arraigned by the court later this week (today/tomorrow) but irreparable harm may have been done to the Indian Body politic with or without Sibal Prices can easily cross 4 times the bid (not bid) auction prices used in 2008

Uninor
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Inflation is coming back too and so are dire predictions of slow growth for India as Rupee’s best is barely below 50 against the Dollar. All in all time for banks to start the nose down from 5250 to something near 5000 to assess and predicate the course for the rest of the old fisc in waiting for the budget.

PSE Auctions are still likely a good thing but the government receipts could close on the Spectrum deal faster. Also with the new plan period in action, Infra plays being financed by debt funds  and inviting new participation around the globe are also likely to bring the cheer back as interest rates start the climb down in 2-3 months.

English: Indian singer Rekha Bhardwaj at the 2...
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Services growth pushes composite Growth

By PMI numbers alone Services PMI A full percent ahead at 54.2 and composite HSBC MarkIT PMI

India Gatereaching a 54.7 high even as india Services input and output inflation kept pace with each other, this bein g the 32nd consecutive positive for New Orders in India at great divergence to global aftershocks except in china whre also Services PMI kept ahead of Manufacturing which nonetheless improved from a November low

India’s services exports will not be growing too fast but the exchange  rate kicker has brought in $500 mln of new business to the Top 5 IT services players alone or INR 3000 Crores in revenues for TCS< Infy($115mln)  Wipro CTS and HCL Tech ($69 mln)

Divestment by any other name..

Securities and Exchange Board of India
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..is still filling state coffers under duress

SEBI’s pronouncements allowing “Top 100” Listed corporates to fulfil conditions of the Listing by ensuring 25% pbulic float euphemised state sponsored filling up of fiscal deficit and much likemedical measures to force ellbeing and welfare of the poor class, the government’s plans fro buybacks from Public Sector Enterprises brought more blowback on to the governemt as the Top 100 companies include MMTC, NMDC, Coal India, ONGC  and  many others who have more than even 90% while SEBI requires them to hold not more than 75% with non public categories of investors.

English: Logo of National Thermal Power Corpor...
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However while earlier dispensations disalllowed transferring of the overages or the extra stakes from promoters or other associates thru QIPs now SEBI has sanctioned the same as two additional measure of Institutional Placement programme and an OFS ( OFfer for Sale) thru stoc exchanges to enable the government to sell down its stake in these companies and bring them 10% closer to the 75% mark while it helps the government achieve its Divestment target for the year.

As neither cross holdings nor use of company cash to buy back largesse in equity was planned as such by the PSEs , the government still faces an uphill task in getting the quorum and using these PSE proceeds ad the Top 10 companies on the bourses today include 3 such Public sector players

English: Logo of Oil India.
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Apart from ONGC, Coal India and NTPC i n the top 3 by market Caap, the next 3 incl Sail India, Oil India and NHPC may also not be a good source of cash reserves for buybacks of the government’s excess holding while NALCO and Neyveli Lignite management is likely to reserve their judgement against the ideaa to save cash for productive business investment making government’s task difficult  yet this approach would have been a feasible opportunity and is likely the only reason why our fiscal creep will remain below 1% to 5.5% of GDP

India IPO: No retail, no gains

Even as QFIs allocation and direct investment by foreigners become India’s crowning glory, its IPO markets seem to have rutted into a big logjam ahead of action by SEBI to revise regulations for verificaation of IPO mechanics and catching 5 promoters and investment bankers for manipulation.

According to Assocham, separately the 26% FDI in Pension funds could add $166 bln in investments and management participation by established funds could also increase the local funds for Pension schemes by

Mutual funds in India
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an equal amount. The $320 bln odd would be 30% of India’s GDP and would greatly add to the 14% of GDP coming to mutual funds currently, another market which has plateaued early

The IPO markets could thus remain liquid but with a record of 2 out of 3 IPOs losing 50% of the investment, it is unlikely that retail will wean away from bank deposits and the great capital appreciation in Fixed Income as and when yields fall off the cliff and bank conditions are eased in a couple of months. Already yields are down 50 bp since November.

IPOs helped mobilise $16 bln in 2010 and only $3 bln in 2011 ( based on ET data, pg 9)

This year will again be a much higher amount albeit due to PSE divestment  even as buy back guidelines get finalised for this month

Securities and Exchange Board of India
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Bollywood, India too expensive to make money from dreams?

Mission: Impossible
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Indian Media and Entertainment posted a string of positives though listed bullionaires like Eros and PVR continued to struggle to prove their worth on a perceived high cost base, being measured against some unreasonable expectations.

While Ra.One was a blockbuster but fell on being second to Sallu’s antics despite a $17 mln weekend at opening (domestically at $1=50) , The Don 2 and Mission Impossible concurrent successes of this month are being compared on equally tenuous marks despite $3 mln of daily business as Indian entrepreneurs in their bid to fund the global majors have set a high watermark for profiting from the success of this entertainment. 

To a funny bone it might seem its corporatisation is a s much a dud as that of Foreign banks like Stanchart to harness the Indian Capital markets, with IDRs that do not have the rights for investors to enjoy the company’s performance. 

However the string of blockbusters is leaning on 2d and 3d prints as well as FX studios in LA making scenes between MI4 and Don 2 , both unworthy sequels almost seamlessly part of the same shoot. The international runs are farther with 50 mid east prints in 3D for Ra.One that cost SRK’s studio INR1.5 bln to make and at least 4 metros share screenings at INR 1500 a pop in Gold studios ( incl expense on snack time cuisine from Pepsi and Dogs to Tortilla wraps vying with Shawarma rolls and falafel)

Don 2 collected $15 mln in Domestic markets in Week 1 and $10 mln overseas while collections from Tamil and telugu added at least $ 3mln or 12.5% of its Week 1 collections(12/30)

G.One (character)
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India Infrastructure: Changi gets in

Changi is also a Temasek/GIC investment of the Singapore government that wanted to prioritise its entry into

English: An aerial view of Parliament House in...
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india’s aviation infrastructure projects. Having lost 2 bids ( at least) with tatas in a JV it has finally agreed to buy 26% of GVK’s aviation business. given that GVKPIL itself is only worth $320 mln odd on the exchanges, the stake’s valuation of $800 mln for the aviation business should lead GVK out of a potential debt trap even if condition on syndication of infra debt is not corrected esp with respect to NPA considerations for debt to the sector.

NPA marking after 6 months, apart from its long tenure and thus unsuitability for bank books, none of which have stopped banks and infra projects from announcing financial completion and consequent delays in land acquisition, escalation of project costs and delays in project execution, even after operationalisation, ground results and financial projections are yet divergent as adoption of pay as you go by retail consumers is slow at best.

Healthcare remains free – 100% FDI

India Gate

India’s Pharma market is a paltry INR 565 bln currently, Just cardiovasculars and diabetics constituting less than $ 2 bln each across a universe of global MNCs and Indian diaspora supplying generics globally. In a nation of 120 bln people or 25 bln households, 10 bln households of which are below the poverty line, it is a quandary not many can resolve. The pharma companies already see only one strategy to increase the per capita usage. increase prices so much that even if they bought half the medicine they bought last year they would end up with a higher per capita consumption. The CCI is apparently reviewing this unnecessary price increase in the system, A Food Security Act in place may further improve longevity ( at least for the common man / analyst leaning on logic to make an infererence)
English: GSK Factory Glaxo Smithkline manufact...
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However any larger study will show that by back of envelope calculations if we looked at the 98% uncovered population of the country without medicare as spending a per household 15,000 on medicines for the year for children, OTC, prescription and the stereess related disorders for the husband and wife the 24.5 bln would end up spending INR 367.5 tln or $7 tln on medicines and I dare say hospital care would be an extra amount more than this consumption expense. Of course the 10 bln poor families would depend on state sponsored insurane and low cost care for these requirements.

100% FDI has been persevered with in this sector. Both for greenfield projects thru the automatic route and brownstone projects thru the approval route

However, Lupin and Cipla do not seem to have a buyer after being on the market. The global situation could well be to blame for that and the fact tat sales of $1 bln barely are hardly the scale someone is looking for to enter the market. Like in automobiles, the lack of scale just whets the appetite for global players to explore independednt plays from scratch and market realities stop them from taking the plunge as such a large market does not forgive mistakes easily

On the Hospitals side of the Heathcare sector, players such as Fortis are still trying to take advantage of the amorphous nature of an emergent industry , valuation and transfer pricing issues likely to continue to plague the industry as a whole as for other sectors with Vodafone again taking the fall in one of the first decisions by the Tax man

MNC players have hung back till now in poharma, but they do not have any more reason to do so, India by itself could be a bigger market than Africa as a whole and while GSK and others have moved on to growing NGO initiatives in Africa (GAVI) for the immediate scale possible, the India market is likelier the more profitable market with and without NGO participation and sponsorship.

English: Wordmark of Cipla. Trademarked by Cipla.
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State funds however are unlikely to come this way till Food, infra and defence are paid, both healthcare and education eternally waiting for the state and the planning commission to realise their importance with higher more tangible contributions. India’s state owned low cost health infrastructure is one of the most well spread across the 3 lac odd villages with many still outside the ambit of affordable healthcare comparible only to banks without India’s ‘large unbanked population’ still ominpresent in towns throughout the country, not even accessible for weeks at a time in certain cases

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