Not much going on for this report thought as the Markets are sstill at 5500-5600 not looking to move much higher. Inflation on Food for the week ended July 16 reported a fairly reasonable 7.33%, and even Primary Articles tclose to breaking lower from double digits at 10.49% but with Fuel inflation stayign on at 12% worries still continue. Bank Policy Tuesday rocked some guns with most Economists sinking their teeth into the policy after the deed, while Banks and Autos spread losses alongwith the newly crowned real estate sector.  

The Debt deal drama in US is still on and  the weak dollar putting paid to most results in Europe while US earnings look bright and sunny, even the banks reporting an ok result for each

European Banks may have cleared stress tests but all hell has broken loose otherwise, most reporting half the earnings from last year and Credit Suisse, and HSBC announcing fresh job cuts today ( 2000 and 10000 respectively) In fact except for Shell the European Earnings today from the big companies also pointed to a very mosrose economic situation for the continent and the British banks reporting on Friday already a lost case.  Bellwether Siemens and the largest Chemicals maker BASF reported subdued earnings while unlikely European Pharma Giants Sanofi and Astra Zeneca reporting better than previous results. All these would vbe reviewed in dsue course at advantages.us but the Indian pharma midca story looked like it was getting better with Glenmark and Lupin reporting good results as molecule approvals for $1-2 bln drugs keep coming through and each adds poential sales of $100 mln to each company

Returning to India, with bank rates in a new orbit in a week after day before yesterday's policy announcement, prospects for growth have dimmed up and its time to be cautious though India remains insulated from most of the global currency troubles outside establishing a steady rate for the Rupee and a healthy exports target.  

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With Sales growing in India, Japan and South Africa and progress on three dfifferent molecules Lupin ended June 30 with $1.5 bln run rate for the year scoring Rs1.5 bln in Sales.

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However, India concedes a new inflation orbit

With imported inflation running through the basic inputs for well over a year and price rise now taking place in Consumer Staples, RBI raised its inflation target to 7% and in fact market commentary s likely to concede it to a consensus of 8% in the next 5-6 weeks. The current rates of 9% never expected to abae steeply will thus be the immediate reason for the rate hikes but soon even that will be left out of the mechanics as this imported inflation component is persisent oand out of control thru monetary or fiscal policy. However, RBI has committed in seriousness to controlling the same as far as possiblem setting a new orbit for India's interest rates as well.

Thus, India has a new Interest rate regime, akin to the nineties

A lot of us as commentators or Fixed Income practitioners have been observing that we are not at all comfortable as a nation with the temporary low interest rate regime in our banking transactions and more. What will happen with this 50 bps hike in Repo and REverse Repo rates is that India will climb into its more comfortable high interest rate regime, and thus credit growth projections are also down to 18%. Of course, one cannot say this with certainty even now with the MSF at 9% and yields on Treasuries thus immediately moving up from 8.29% to above 8.5% but it is unlikely that with such stronger steps one can call it quits to the spiral of rate hikes we have unleashed/. Our secular growth thus will survive despite the monetary dissincentive and not grow by monetary incentives. However, India now has to be clear and careful on the fiscal front as any overages on Fiscal policy will be the only thing detrimental as we move along the same policy path we set for ourselves in December with inflation coming down bu tmay be not continue a downward trend as subsidies are excessed out of the government system by cash or by  market pricing. And that is the tightrope we must walk

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The latest in FII troubles for India Inc is that the $1-2 bln odd that has come in has been found to be patterned on coming results season for a play starting 30-40 days before results announcement and exiting 3-5 days before results. ICICI Bank is a case in point today for example. But then the SEBI investigation will yield more pertinent data.

FII clubbing is a deletirious feature they have not even tried to curb, and we face it when live in the trading room everyday. In fact some good practices ground in the same gentlemen's club kind of action may be resisted more by market "operators a" and set up many an unequal battle in the ring but WITH RETAIL UNWILLING TO SPONSOR ANY KIND OF INVESTING RIGHT NOW, the markets are a transparent cornucopia of malfeasance from hawkish clubs where in trading it becomes dfficult to discern any line between a good trade and bad trade except when you can take cash to the bank.

Thus when FIIs get together for an idea arbitrage opp, it sticks out like a sore thumb

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To be fair, credit growth has been exceptionally rosy for aggressive players and those with the capacity for raising more profitable RWA should in fact be put to task by the markets in this quarter from among the banks, we have alrdy traced DCB, ING and contrasted with Indusinda nd HDFC. Now we observe the biggies in action as ICICI Bank comes out with Q1 results and HDFC Bank's score seems a tough enough ask to verify whether performance is intermnal to the company or a fabrication of circumstances for a nearly public sector monolith.

Axis in the mean time paid 200 bps higher on term deposits to shricnk the NIM to 3.28%. Themanagement feels it likely that they will manage NIMs between 3.25% to 3.5% On their overall loan book of $33 bln or Rs 1.32 Tln, the bank has earned Rs 1730 crs in net income or $432 mln. At a CASA of 40% deposits are up to Rs 1.84 tln or $46bln and CD Ratio thus just above 75% fairly safe for the overall book

NPAs were pretty big however at 1.06% showing improvement but no where near ideal, the bane of its public sector history with weak controls and may be even corruption as prevalent in the industry sector. At Basel I Cap Adequacy of 12.53% the bank is barely ewell priovided for the traditional model esp as its NPA folio despite 50% lower provisions of Rs 175 crores, is still a near $350 mln at Rs 1500 crores 

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After sifting thru monthly Auto sales nos. ith great aplomb in 2010 and much muted in 2011, we did warn you that the Indian retail consumption story and the car sales are no longer tracking and are way behind the $5 Tln chinese economy where $2.5 Tln is the Consumer component. India's $700 mln consumer consumption yet relies a great deal on two wheeler sales though and while Honda now sells 100k a month on its own, its partnership with Hero Honda was always the leader in the motorcycle segment since its advent in 1991.

Its quarter's sales are up to $1.4 bln ( Rs 56.38 bln) up 33% yoy Profit Margins remained in the double digits (<10%, but almost there) with a Net of $139.5 mln. Its Apr-Jun sales were 1.31 mln motorcycles as reported earlier this week(BS Motoring) with June coming at 512k much a consistent 20% jumpp  year on year despite Honda moving on into an independent motorcycle producer, which terminates their active role in the JV later this year

Hero honda did give an ant i indication before the uptick when the markets opened and we will look for whats amiss here too as we adopt the Indian Auto and Motorcycle consumption story as a leitmotif of our India research here

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The penciled results of Yes Bank in the wires finally managed to escape me as I started scratching aroudn for today's Defense summits and the $4 bln C17 procurment from the US instead of the F-35 Lightning IIs that the USAF is making for itself..but it seems the networks are otherwise busy for the moment, Mr Kapur to appear sometime in the late afternoon as usual for the results commentary. 

Profits are up 40% at $54 mln and Net Interest Income at $88.5 mln The Basel I Capital Adequacy at a tired 16% showing a lot of uptake in Credit to come can be easily absorbed even with a steeper incline of RWA. No data yet on Fee income and growth in Deposits etc yet but we are on the prowl..

 

 

 

(MindTree is celebrating quite a pop after its accidents of the last few quarters with a $92.53 mln revenue quarter, IT services and BFSI each growin gin double digits quarter on quarter..nah! we won't eread too much into it..in fact without YES and Opto, we would not carry any others , even PE , without a $1 bln bang in the quarter - largeky because of the no. of threads running here that have to be taken care of, The Euro for example uis a great investment at $1.42)

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The HFC from the $35 bln topline Life Insurance Corporation maintained its new found growth momentume and is hopefully still in purchase for a new banking license when it happens in 2012 or 13. Its sales grew 22% and profits 20% to Rs136 bln and INR26 bln. A TV18 poll predicted even higher profits of INR 29 bln but the earnings miss should not affect the mortgage specialist's prospects as it will retaiun its advantage in a high interest rate scenario against rate hsopping banks like ICICI Bank

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Currently running a co branded campaign with Farhan Akhtar's Zindagi na milegi Dobara, the ING groups life insurance subsidiary has a niche positioning in the South. It is exchanging Indian partners for a start with Exide and Enam as Piramal Healthcare gets a leg in to Financial Services ING Life targeted a $1 bln turnover as late as 2006 for 2010 but the latest quarter's gross t/o isprobably around Rs  1500 crores. Selling over 80% in traditional life, the ING Life company is known for its high bonuses over the last 5 years (8.23%) It is seemingly in theTop3 in death claim servicing. SBI Life has a Premium income of $3 bln, Tata AIG $1 bln at 3980 Crores and Future Generali also 660 crores in th eyear ended March 2011

Reliance Life is also looking for a bancassurance partner to which it will divest its equity from the promoter group,. Mukesh Ambani has purchase Bharti's stake in the AXA life Insurance JV

India's Private Sector insurance in 2011 is worth INR 60,000 crores or $15 bln and total Life insurance market including term, long products and variable life is a $50 bln with a $35 bln share for LIC  

Global partners could prove to be fickle as recent European stress tests itself showed a Capital Gap of $35 bln in banks and most governments continue to enforce competition laws asking banks to exit international businesses

 

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Q2 results destroyed Cadila ont he exchanges with virtually no growth in domestic sales coming thru despite it being 38% of the business for Cadilla

Earlier Rakesh Juhnjhunwala completed his exit from Lupin for a 50% portion of his and his family's holdings.. Sun Pharma has been unable to capitalise on its increasing returns asmarket waits and watches it in tandem with the Sensex P/e and /or questions its diversifications while Dr Reddy is still recovering from operational fall throughs and DEPB wischeme withdrawals as merkets teeter on the 5600 mark itself for the sixth or seventh time since new muhurat trading

Wipro in the mean time played true to form destroying profits ( down 3%) and losing steam with a $2.15 bln topline ruling out too quick a recovery under new management and likely to drop out of Top 5 indian It positions sooner than later

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After Devyani International's much publicised plans for an IPO started with an infusion of PE cash from ICICI Venture even as Yum brands finalises its $1 bln investment plans to grow into Tier II towns, Varun Beverages that bottles and markets Pepsi and its sister brands incl Aquafina worth Rs 800 crs thru subsidiary RJ Corp bagged a block of cash from Standard Chartered PE

Devyani International also runs Costa coffee and Disney artist franchises in the country. RJ Corp has a JV with InBev's Anheuser Bosch for Budweiser and Beck's and another with Castle Icecream. These being Pioneers and Nirulas to follow will certainly keep financial markets busy as even basic infrstructure has been lacking in the country in retail . After food franchises the other move needed to make India's Retail Lifestyle consumption up tick happen is multi brand retail FDI 

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Sometimes a DNA India can give you more quality than an ET copy with your morning cuppah! 

Though that also means the daily offers more economic analysis than the insides of the political theater, it is a pleasure to read the DNA and to just create fresh content based on that analysis without complimenting them would be a menial job, right!. The analyses in question are on 1. Banking, Personal Loans market on pg. 11 then the Real Estate Market growth specifics in FY2011 and now and thirdly an unprecedented effort to catch all of  News Corp ventures in india in a factual manner on page 12.

The last one esp because though it has all hppnd in my post MBA career, I have no way to piece it together myself, India's data archives being a solid non starter and discouragement for those of us willing to make a career out of it. That includes the distribution business which was instrumental in discussing the norms for satellite, Direct and more, the content business including 18 GECs and news ("broadcast from foreign soil") and more..Now back to an effective commentary on the Banking markets

A good quality analysis of the Indian Banking Markets

Deposits rates have been growing in India after a savings rate increase and deposit rates increased by banks since the rates began rising in more than baby steps (raised 10 times in 18 months and still rising) In Q4 i.e. March 2011 we had reached nearly 88% in Credit Deposit Ratios,  Incremental rates since may bring the Loans ratio to Deposits to a more manageable 75% close to the RBI target Still the excess Deposits need to be deployed and with cost of deposits increasing, the Indian Bankers, used to a high NIM turf will try to revert abck to the retail market for loan offtake. 

As per the DNA analysis, India's Personal Loan (Unsecured only excl. Autos and Equity loans and without incl Credit card debt) book is close to INR 7 tln ( 10% of 2011 GDP ) while many banks had shut down this 16-24% rate business in 2008 HDFC Bank is looking for customers again with a current book of Rs 10000 Crores or Rs 100 bln, a wealth bank like Kotak ay behind at Rs 15 bln, looking for existing relationships only.

The personal loans market is growing at an annual rate of 20-25% again but MNC banks have totally exited the business, with runoffs on mortgage portfolio compoundeed by the problem at Citi's servicing unit Shelters

Apart from the Personal Loans opportunity, banks will also naturally gravitate to rebuilding its real estate portfolio, this time thru refinancing of NBFC loans to the sector. The real estate market growth has however topped off in 2010-11 due to the lack of fianancing early and then the demand shock from high prices hitting the sector. The sector relies on staying power to negotiate and there is a distinct inelasticity in supply making lower prices virtually impossible to achieve in 3- 6 months. thus both the opportunity taps in Personal and CRE loans, being against the grain of those who think the crisis was a sign from God against greed, will face a distinct resistance in credit unfriendly Indian markets but with good underwriting banks can continue to make good profits on the business. NBFC rates are already benchmarked at higher yields and that means Real estate players are aalready making lower profits this time. 

 

 

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But then there would be no down days for the Indian Economy or markets if they were to just follow in the financial figs of HDFC Bank. The Bank stuck to a defining growth rate for itself and thus for its bigger brethren in the Public Sector and in ICICI Bank and SBI. Gross Income grew to close to $1.75 bln at INR 70.98 bln and Cost Income Ratio a stupendous 48.3% both banking on the historically high NIMS which even as they came lower stayed at 4.2% after giving away increases in Deposit rates and attacking /creating demand after large increases in lending rates higher than the industyry norm and increased at aa higher pace, likely for the risk weighted basket

With Net NPAs at 0.2% a release of Rs 1.12 bln in profits from provisions gladdened many an investors' heart, even as the bank investments bled 600 mln over the last quarter to lose INR 400 mln largely in its fixed income portfolio. With income higher by 17% yoy, and Operating costs (on gross income) also higher by 17% Net Profits still zoomed 33% to reach a run rate of $1 bln for profits for the year. The last quarter Gross income of INR 67.24 bln compares well even as QoQ growth is restricted to less than 4% with given industry conditions.

The Bank's fee income including comml banking fees has grown to $300 mln for the quarter, Net Interest income at INR 28.5 bln, 18.6% higher than june 2010

The press conference is on right now  

 

 

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Though Indusind continues to walk the talk under the new management, it was one of the 4 smaller privae\tes sector banks too report in the opening week. Indusind put in a creditable performance with NII jumping 30% and Fee income 40%. ING Vysya with similar sales has a different story to tell however.  ING vysya has 515 branches, a streamlined process and recently refurbuished retail branches. However Net interest income is yet 26-27% of its Income statement and has been growing at just 10% . Advances crawled yet slowly to a quarter of a trillion rupees to $6.2 bln.

DCB on the other hand has Rakesh Jhujhunwala as an investor since it also announced a restructuring a year earlier and advances and deposits have grown at 22% and 17% for DCB also at the cost of profits and a CASA fall to 33%, 267 basis points lower than Q4 ended march 2011. In both ING Vysya and DCB NIMs have fallen to 3.1% and 3.06% and comml banking fee income has shored up the income statement. Though ING has grown smartly quarter on quarter from an Income of 857 cr in Q3 to 950 in Q4 and 1100 crores today, it seems to be unable to catch deposits and loans despite a base rate of 9.7% after two increases in April and June. The three banks have all moved smartly on Gross and Net NPAs, DCB now highest at 1.1% NPA and ING down to 0.35% Net NPAs. Indusind also improved its CASA scores for the quarter.  DCB has an aasset base of INR66 bln compared to INR 246 bln for ING Vysya

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Monday deserves another chance

Though with dull broodings from last week continuing there was nothing new to the week when it begun today. And a dull Monday has become quite commonplace with facebook being the leitmotif of the current generation. The adventures of the Euro peripherals and its banks having already been quite overdone last week itself and India's results season had nothing going for it. Also hostile conditions keep tempting me to preemptively convert all storylines to daily journals of my brushing , my other chores and even the supermarket ride instead of trying to  earn myself, and in fact with lot of freeloaders circulating like old bad air in my A/C, it is equally probably right now as I have a chance of making big too. 

But then unsurprisingly, the ETNOW bulletin took it away foir Monday. With Andrew Ross Sorkin opening Squawk box, Reuters Insider has to work harder and I have to make more perceptive analyses to get read while ET and CNBC US coast on blue eyed forecasters..and CNBC India continues to stay mid capped about the current market run(!?)

Important changes are underway..

Firstly after squeezing modern retail and after planning it since inflation reared up 12 months agao, retail lifestyle companies started cutting serving sizes led by Nestle trying to keep margins healthy on its Maggi Noodles with a 20% price cut..

CEOs of Biocon and others swinging guitars was also quite an awakening for this dull week.

In the US, as always, banks are crashing, debt deals are stuck and in Europe the Euro has become nearer to a United States of Germany coinage with private investors in tow as stress tests show up a gap of $25 bln based on the rather transparent sharing of data by EBA and Andrea Enria. With two Italian Directors on ECB board incl Commissionaer Mario Draghi and EBA's Andrea, Europe seems to be reverting to a subcontinent's favored nephews and uncles model of governance to rebut Moody's after just one big overstep by the ratings company too..

Critically, BJP's Sushil Modi took over as head of the GST panel. Being forom BJP his buy in probably ensures the FM's goals of bringing home the DTC and the GST will finally be realised.

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Our consumption sector is less than 1/3 of GDP and goods and services in retail thus need to grow even as Services are close to 60% of India's GDP. These numbers are 50% and 47% for China where the consumption extra boom is draggint he country into consistent "Heat wave conditions" Though our inflation is strong too, it is nmore rooted in imported inflation and in intractable supply side gaps in food and energy. However, all that advantage from an overarching services economy and a pin pointed inflation woodoo doll, is just enough to keep us away from a slowdown.

A real jump in growth which we have consistently failed to achieve can come only if our Services exports which have a nearly 40% surplus already can be tractably grown into a monster than the woodoo dolls we keep creating for other monsters. With $11 bln in exports and $7 bln in imported services, our services sector needs to be stronger in other bases after the first fillip from the It Outsourcing and BPO sectors. And that might become increasingly difficult for us given that only TCS and other basement bargain sellers or distres sellers are theonly ones growing in the current global economy! 

TCS grew its distress sales in disaster happy sectors like Telecom and High Tech and I do not think that is an enduring advantage, disasters ( esp of the bargain basement variety) having a habit of coming back to bite the 26.6% Net margin and 76% utilisation which incidentally is better than Infy. Also the first generatiuon guard has left at the other majors as well, Pramod Bhasin leaving Genpact with captive business capped at 50% from GE, Infosys living wihth 70% utilisation and 10% wage inflation(8-9%), and domain process transformations giving way to simpler telewriting and voice businesses from the US coming offshore. H! also remains unutilised with high penal fees and stricter enforcement by the US on immigration covers like India's other Outsourcing strategy..

The Services exports need to mean servicing the high end global strategy machine which adds value to local unemployment of 10-20% in developed markets, often because and consulting services depend on these markets as export destinations for our knowledge edge whether in Oil or Finance or other manufacturing and management disciplines. Our exports in services still lag the staple Gems and Jewelry businesses and others where we do not even have the depth of resources and are already importing more Oil, Coal and other Energy and mineral resources for domestic production 

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Mumbai Attacks

The deplorable Mumbai terror attacks of 13/7 reset the bar on India's war with terror, regaining old alert levels and adding geo political risk to the equation for a fragile recovery already under attack by inflation. It was a sorry commentary with attacks on Khao Gali(Opera House), Javeri Bazaar and the Dadar West blasts targeting office goers and using high end explosives incl Ammonium Nitrate. Markets opened today with trepidation and came back as India's preparedness and the intensity of the attacks seemed to not threaten the rest of the month.

Inflation in the sun

 The June WPI inflation at 9.44% was mostly driven by that very visible uptick in fuel at 12.85% and the rest with Primary Articles at 11.58% and Food at 8.3% (Week on Week) seemed very much out of the red zone. Infact the weekly inflation figures ticked down mostly including the fuel basket at 11.85% and Primary Articles at 11.58% and July and August have already been given a grren by most in house economists. April was revised upward to 9.7%. With our IIP at 5.6% in May and unlikely to rise too high in June, we have hit a plateau and there are a lot of good things on that growth plateau, not in the least our FMCG growth at more than 7%

PMI, IIP and FDI

India's PMI at 55 remains much healthier than that of China, UK, Australia and US with that in China and UK playing ith deceleration and degrowth in manufacturing bu thte 50% Services component keeping the yard organised and busy. the US and Indian economies continue to be in the middle of the growth moves and not ready tog o down very soon but unless our IIPs catch up the GD pfigures are going to continue ticking down. Fiscally our health is unbeatable with large ticket factors like the SBI rights issue and subsidies not as worrisome as thought and flexibly calendarised to avoid unnecessary pain

Our FDI story has ticked up in April and May a cool $5 bln added and rumors of FDI in media and retail strong. Pharma is now capped at 49% (not done yet) and banks may have got a similar cap spannered as MSCI reworked India's low weight to even lower for July onwards 

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India's April, May and June IIP s are 7, 6.3 and 5.6% and show that inflation has indeed caused a slowdown. But at a granular level the capital goods figure is very volatile with the infrastructure IIP this time at 6% and last time at 16%, The Electric sector IIP remained a healthy 10%, and basic goods a really good 7.6% with consumer Goods managing 5.5% within that. At a granular level, the data probably will not stand close scrutiny and taking that to mean that we have hot pockets in the system like any banana republic would be detrimental to the analysis. China andthe US on the other hand have shown a distinct demarcation between manufacturing and services the higher changes easily explained as on the PMI US and China manufacturing tracked to 50 and lower showing a virtual full stop but Services maintained a rate of nearly 55 in both economies a heartening observation for jobs and employment. Can we get the same detail here please?Even on the MarkIt PMI index which is not government copy!! 

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The economic planns of a few are still chugging along but India's investment bankers have been busy trying to spin the few remaining miracles with them as source for and with the networks in tow. The bankers are busy reaping in the benefits with faster disbursals avoiding the equity capital markets stories as they crumble every quarter around the same time and place and traders are getting tired of the short stuff ( not the shorts though, they extend inoto anther month of bearish hegemony) After the respite of June and dominos as staple on F&O, the traders can also take a break as the ADA group and Axis bank, the Sesa Goa and the Sterlite waterloos and the great Infy results marathon have all come and meant exactly nothing for FDI inflows. FDI for real business has improved though in May and June and we are suddenly looking at agreat $40 bln inflow for the fiscal. PE deals are uninspiring buying and selling Flipcart and Snapdeal in $200 mln valuations (Flipkart at 10 times revenue) 

The revival will take another couple of quarters to find its feet, and all the stories we have had in the last six months good afor a great cabbage sale. We are on it too, discovering for everyone the real element of that Indian push into the strato sphere. Welfare, anyone?

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With Aadhaar well under sail Nandan Nilekani's hands are full. And with all the other founders saying buye to executive positions , Shibulal and the new CFO turned out witht he Infy ethos core well on display. We are just doing our jobs..no grest plans..In that light a $8 bln giant in IT services seems almost certain to keep its leadership position and will need to show all members of the press as lead, that sector groth prospects are not the same as they were in the last decade, no automatic revival of prospects waiting for them but the existing outsourced business is staying. And that is a humongous portfolio in itself. 

India's IT services will always have an annuity business of $64 billion or INR 3 tln every year on the trot and that is all the industry might amount too as Exports take off in other sectors including Gems and Jewelry

a 5.3% QoQ decline in net profit is significant but only till lesser mortals from HCL and maybe Satyam's new owners TEchM catch up on the yield. The rest are doing the wafers business in new york already, eh! CTS strategy being the volume of discussion here..

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The reshuffle exercise in a little noticed move got on board all the party mouthpieces and "ground" activists in Jayanthi Natarajan, Jitender Prasada and Milind Deora among others. The old time politician is passe and the Rural development portfolio has a great voice in Jairam Ramesh. Again in the surfeit of media criticism, mint's take stands out as the fresh dose analysis needed. The rural development ministry has to be the critical one for the Cabinet going forward, what green could never become because of the Welfare and development issues left ont he table. 

similarily, the networks did not seem to realise the importance of missing action in Health, Social Welfarre ministries, maybe Food security should have been a viusible portfolio and VAT and  GST, the lack of which means the government is just chugging along on its voices already known and heard

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Prudential of America, In India with DLF as Pramerica, is changing partners as HCL fulfil's its scions plans of moving into more effective areas of business than the last decade's story in IT services. DLF Insurance will come for a price tag slightly higher than $100 mln and would mark a new cornerstone for the HCL group. However their investments in education already outweigh any other new plans when it comes to making a significant statement about their vision. I am particularly impressed by their efforts in primary and high school education in mid town UP and also a surfeit of management and engineering eduication thay have in the cramped Indian education sector which ihas applicants waiting to enter once FDI is approved with Chicago mirror campuses in Delhi and Bangalore and much more planned for long. Singapore and even Shanghai can be expensive for Top tier US universities plans..

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The new agreement on from last month on Opto Circuit turns out to be for at 10,000 nos. of $10-$12 million worth AEDs with a EBITDA margin of $1250 per unit for the FY12 results adding $12 million to EBITDA based on management projections from March 2010 earnings

With a turnover run rate of nearly 750 crores or $185 mln for the company without these AEDs sold thru Omron in Japan The Q3 and Q4 revenues could well be north of 100% over last year, getting to more than $200 mln for FY12 

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There are stats for everything, from the days when itswas The flexible indian Consumer, to The times in the nineties and oughts when he was the Durable Indian Consumer and now when he is simply the Tired Tired Consumer. With Rural spending growing 65% year on year in the Household Consumer Expenditure survey, we finally have a welcome report that actually validates why and where all the Durable goods companies and the FMCG ? Food majors have been peddling wares anew in the last 2-3 years.

Most consumer surveys are either pie in the cloud hopes translated into numbers like the TAM ratings much maligned yet curiously always ont he right mind maps..or on the other hand they are like the census making us rely on 2005 vintage statistics of durable sownership, even the wealth ones have no idea on month to month or even quarterly movements before turning in an annual update

The fact is the National Sample Survey led by both ET and MINT does show athe numbers for the economy, but as ET and mint chose, it could yet mean different things for different people. Mint argues we are still poor and growing on a small base in the hinterland, while ET argues we are in the middle of the revolution. Given distribution costs all discussions on moving to the hinterland are likely to be miore media hype for even the next 2-3 years as we have seen for the only viable distribtuion systems like e-Choupal and that women networked example from HUL/MFIs which really cracked up since 2008

ET

Urban India did better with the MPCE rising 68% to Rs 1,856.01 and prices, according to CPI-IW, rising 49.92%. The National Sample Survey, done every five years, was carried out between July 2009 and June 2010, covered 7,524 villages and 5,284 blocks. The data suggests there have been gains in real terms, as the rise in incomes has offset the rapid rise in prices during this period.

Mint

 Despite the much-hyped rural consumption boom and all the social sector programmes of the government, the income inequality between the rural and urban consumer widened to 91% in the first five years of the United Progressive Alliance coming to power in 2004.

According to the 66th round of the household consumption expenditure survey released by the National Sample Survey Office (NSSO) on Friday, the per capita expenditure level of the urban consumer is now 91% higher than his rural counterpart, compared with 80% in the earlier 61st round of the survey conducted in 2004-05.

Mint rings truer to the heart in the first whiff, also with newspapers showing me the survey and having to wait 5 years for the next one, I pass on much more original commentary and analysis for the issue. A much in depth commentary from both, alas my advertising and marketing friends in the agencies do not get much from this even for media planning

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One ofcourse is a bellwether and the other a mid cap strategy trying be the big boys sooner than later.  Much like Tech services' and BPO's nondescript rudderless focus on groth, both organisations have been called on for their slow rebuttals and non descript performances many times.

HDFC continues to be a mortgage giant schooled in higher lending and lower deposit rates for its brand premise as it derives the ask from its own retail pool, making underwriters always look for such a sky where the close shave problems on an individual's or corporate's earning and repayment capacity are much taken care of by the rates he has to pony up.

With Low LTVs and margins of 2.3% in the latest quarter, HDFC is a strong suitor for FDI investors except that as MSCI would let you know it cannot absorb much more investment from FDI pools and needs to reduce a little weight in the MSCI along with the big banks already at 74% FDI ceilings.  Indusind on the other hand still has to establish trust in the market coming from a legion of non performance and no deposits to speak of till ABN AMRO's Ramesh Sobti came here to restructure the bank's early Twenty first century legacy and build a retail bank on deposits and a dollop of fee based commissions and charges on its income tab. 

Both have managed to outperform and the markets knew it very well when they spent the week in a higher orbit in a precursor to the results

HDFC net jumped 22%, income a 5-10% less than a $1 bln quarter even by the Dollar Forty Rule, Cumulative loans disbursed up to INR3.02 tln or $750 bln at more than 80% of gross approvals.Disbursements grew 20% for the quarter to a loan book of INR 1.24 tln or $310 bln

Indusind NII jumped 32% and Fee income 44% for a profit of $45 mln, a jump of more than 50%. Apart from consolidation in its ne CC portfolio it is also keen to show much higher CASA scores for the fiscal

here are the financials for both 

HDFC

IndusInd Bank

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With the fuel component moving more than 3.75% to 166.7 from 160 odd in the previous week, the overall inflation ticks remained stubborn, even as Food dipped to 7.6% from 7.8% on high base effect, vegetables scrawning up 4% for the diesel costs, on which more will come. The FAO Food Price Index for India has moved up 39%  year on year to 234 globally Primary Articles moved 11.56% year on year with non food articles up 18% again. With LPG tat 14.6%, Fuel moved to 12.67% (incl power) The June reports come next week probably between 9.3-9.4% after a 9.06% in May

I did not really track that news about redesignation of India's scrips based on limits of Foreign ownership in the MSCI Indices but it seems we are going to cut our limbs in the indices with residual interest in most bellwether scrips looking like low interest in % terms SBI and CICI will lose weights and Bharti Airtel will be among those whose weights will increase at least 5% Also overall we will be onlly 5.3% in the Emerging markets Index with Taiwan, Korea and China continuing at the top for very wierd reasons in 2 out of 3 cases above

the Mining Bill was a great relief for those following the infrastructure reorms story. 26% of Profits to farmers seems something everyone can be assume to be a stable solution going forward. And of course, sorry the weekend took its time coming, have a nice one. 

 

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Despite paltry box office pickings of just Rs 1300 Crores for the Corporate Finance teams, private sector banks are set to make a profitable killing for the quarter's results led by Investment based products, bancassurance and commercial banking charges on Trade and retail customers. The kicker is almost 40-50% for Private Banks like Kotak and HDFC Bank while even PNB and UBI will bolster their effective interest income growth with 20% growth in fee income.

Banks have recently been allowed multiple ( up to 4) insurance partners for their cross-sell desks in wealth management and even longstanding wannabes like Indian Bank will pursue the course to bolster their banking incomes. Axis and HDFC Bank expect almost a fifth of their income from fee based lines

Also deals may be looking up in the latter half of the year if retail regains color and FD"i approvals come through 

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With the noise for credit growth gladdening the hearts of the stock markets and that of offices in the RBI, Bankers have already announced that further rate hikes in India would likely be counter productive as they suggest for and on behalf of the RBI that the inflation cycle itself has already peaked. Though my economist brain refuses to accept the same(and my daughter is one too!), one can see that the knock to commodities from the IEA 's interjection worth 60 mln tonnes and the down tick in China's manufacturing output has really dealt a death knell to the commodities inflation cycle.

However a retail inflation uptick is more than likely and the rates are not coming down for a long time, increasing the probability that this is merely a delay in further rate hikes of even a 100 bps further down the road. Also the Credit growth thru the NBFC and directly has been increasing RWA assets in Construction and Real Estate. While someone like ICICI Bank with 19.4% CAR may well go oall out for such RWA to soup up margins, the others may not be that lucky esp with SBI continuing 2-3 quarters of delayed provisioning from 2010 For May Real Estate has grown 24% directly and thru NBFCs may have added another half a trillion in credit and 20% more for RWA

 

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Global banks are planning cut-downs slashing salaries and staff to gain back lost ground as revenue take a dive in 2011(avdantages.us). 

Interest rates rise in India on the other hand is creating another bag of worries for banks like HSBC whose demand is very much dependent on prevailing rates vs a vis stheir offering. Public demand for credit in India however has been shored up by NBFC loan demand(up 56%) and that is personal loans(unsecured, 17%) as public sector banks hold on to larger market shares in the domestic market. 

As of June 17,  when outstanding balances rose to 42 lakh crores ( a dip from an even higher 44 lakh crores in May) and deposits grew to 54 lakhs crores ( 56 lakh crores as of May) the incremental credit deposit ratio had come down to 44% from 88% in March, implying that banks would now be more conservative in the CD ratios even as higher rate deposits interest payous do not mean any significant dent in Net Interest Margins. With Credit growth at 21% and closer to 22% for the quarter, Banks are set for a surrise showing in the quarter. However HSBC and Stanchart would continue a slower, tougher and less prfitable showing along with other MNC banks for their urban 10% namarket share as swapped credit ratios were higher than 25-26 in relation to their Net worth in March

NBFC s are being used as intermediaries as 30% of NBFC loans get securitiesed by banks and realtors make a bee line for NBFC loans that come at a similare cost in the higher interest rate regime when compared to any bank offers if were still available to real estate. 

 

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As expected Auto sales are down to a run rate of 160K for 4 wheelers but 2 wheelers continue to report an uptick. Bajaj has infact managed a 20% share in that for its sporty bikes in the monthly saga showing a unique cross segmentation from a good jobs, good pay economy running thru the channel of inflation pain and food supply chain destruction Maruti sales are back to 71K for domestic and Tata to 23k for the month of June. Further competition from Figo and now the Liva from Toyota will strain Maruti but it remains a profitable and efficient operation in a growing market and will also benefit from cars it makes for VW. Auto sales at both domestic champions are down almost 10% from May 2010,. In two wheelers Bajaj Auto is expected to maintain its sterling May numbers of 360,000 and a healthy MOM growth as well Hero Honda has already reported a yoy up tick of 20% to 420,000, with Honda following at 300,000 units

Update: Toyota and VW walked away with the honors in June more than doubling sales from ?June of last year but still together selling 17,431 cars and with Ford and GM likely contributing another 10,000 cars, this number is ahead of Tata Motors for the month. Despite a 10-day strike and a maintenance shutdown, Maruti primary sales for the month ticked down only 4% plus inventories would have been crawling back after the year end fest. Hyundai seems to still present the accurate picture of the market with 30,000 cars sld, 10% higher than June 2010. With most high income groups already possessing a four wheeler, he global big 4 share may nw continue to increase while investments in small town/rural India made by Hyundai and others may bear fruit too given higher incremental employment in those sectors and not in urban inda where banking and finance / consulting jobs have considerably cooled down and entrepreneurs are fighting the inflation monster

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The HSBC MarkIT PMI for China and UK has already ticked to 51 and 50.6 already while US and India are still faster and higher at 54-55. the official PMI for India was above 55 as well, which is much better than any other global economy. However the concern it raises is the same, that our trade deficit at $15 billion caused by an import bill of $40.9 bln is stilla tougher story than the growth

As the pitch has slowed down considerably, India is paying dearly for Industrial growth. While manufacturing stays around 6%, the uptick in infrastructure has maintained hopes for India and the MarkIT PMI on tuesday might well signall a bullish Economy. But as Auto sales falter, the Oil import bill continues to drag India down and even create a winbdow for fiscal and monetary rebalancing much more than the hawkish anti inflation stance adopted by RBI and MoF

A commonplace yet very effective analysis from the India WSJ team threads it together thus: 

 

In April the trade deficit had narrowed to $8.98 billion from $11.03 billion a year earlier.

Last month, federal trade secretary Rahul Khullar said he would be concerned if the trade gap continued to remain as wide as May for the next two months.

"The big increase [in the trade deficit] is clearly not sustainable and could lead to volatility in the Indian rupee and can make the economy vulnerable to existing and potential external shocks," said Jay Shankar, chief economist at Religare Capital Markets.

India, which imports nearly two-thirds of its oil requirements, is witnessing a consistent rise in non-oil imports.

Falling Oil prices may take another 6 months to even more to make a dent in India's Oil basket price and the reliance on gas is not yielding much results either. Mangala fields expansion may also be a far cry under the new royalty scheme as Vedanta opts to consolidate its new fief. However, our own fuel stocks and a constraint on retail consumption might well answer our fiscal troubles albeit with a necessary retail downtick in the GDP.

 

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Trading sentiment on the bourses is coasting but the May Exports up by 56% to $25.4 bln are still crying a sorry state of the economy. Up 56% on a bad start to last fiscal's stellar journey(yoyo basis, pun intended) , the cost of imports has finally negated all the good from that ride. Imports are also up 54% and the monthly trade deficit a $15 bln compared to the fourth quarter drivedown (seasonal) to $6/$5.8 bln)  An annual 25% increase in Exports would see exports rise to $300bln but the deficit is said to rise to $150 bln for the year unless India's crude basket gets successfully renegotiated downward. India is also growing its deficit with China much like the US now near $12bln in May(inchincloser.com) Oil imports are up 18-20% for the month

As expected Auto sales are down to a run rate of 160K for 4 wheelers but 2 wheelers continue to report an uptick. Bajaj has infact managed a 20% share in that for its sporty bikes in the monthly saga showing a unique cross segmentation from a good jobs, good pay economy running thru the channel of inflation pain and food supply chain destruction Maruti sales are back to 71K for domestic and Tata to 23k for the month of June. Further competition from Figo and now the Liva from Toyota will strain Maruti but it remains a profitable and efficient operation in a growing market and will also benefit from cars it makes for VW. Auto sales at both domestic champions are down almost 10% from May 2010,. In two wheelers Bajaj Auto is expected to maintain its sterling May numbers of 360,000 and a healthy MOM growth as well

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