India stayed busy with the price of Onions and potatoes for the week, with WPI stuck at 9.78% Navratras having begun and RBI releasing selective additional data with Onion and Potatoes rising 18% for the year ended September 13 The fuel price inflation kicks in nextthe fragile supply chain system absorbing a 5% hike in energy fuels. APMC Mandis could be stripped in between as farmers trucks are allowed to sell inside cities for tactical respite from the pricing for both farmers and consumers. 

FI yield is surprisigly steady at just 8.35% desptite the sharp 10% depreciation in the currency in one week, Food inflation retrned to 9.13% from 8.8% within the week but Primary articles including Oilseeds and minerals (28% of the index) came back apercent to 11.5% and fuel topped up at 14.69% (15%) 

This dusshera, even as Onions and Potatoes bring back health to the Indian family, one could see the readjustment of expectations to the inflation peg and the interest rate story we have been taliking abou tand that is the one we worry about with the next cuppa

Only inflation it is this Friday as the 12:30 European opening starts wishing the markes well in India, and the Dow stand erect to come back to last week's tip off for the slide. If you are buying and selling, selling Coffee has been a good idea this week. Selling Braxzzil and OpeC is still high on the agenda even as crude starts back from 82. Indian agri production, as we tipped in last week's export releases, is the other big story india sold out. 

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India stayed busy with the price of Onions and potatoes for the week, with WPI stuck at 9.78% Navratras having begun and RBI releasing selective additional data with Onion and Potatoes rising 18% for the year ended September 13 The fuel price inflation kicks in nextthe fragile supply chain system absorbing a 5% hike in energy fuels. APMC Mandis could be stripped in between as farmers trucks are allowed to sell inside cities for tactical respite from the pricing for both farmers and consumers. 

FI yield is surprisigly steady at just 8.35% desptite the sharp 10% depreciation in the currency in one week, Food inflation retrned to 9.13% from 8.8% within the week but Primary articles including Oilseeds and minerals (28% of the index) came back apercent to 11.5% and fuel topped up at 14.69% (15%) 

This dusshera, even as Onions and Potatoes bring back health to the Indian family, one could see the readjustment of expectations to the inflation peg and the interest rate story we have been taliking abou tand that is the one we worry about with the next cuppa

Only inflation it is this Friday as the 12:30 European opening starts wishing the markes well in India, and the Dow stand erect to come back to last week's tip off for the slide. If you are buying and selling, selling Coffee has been a good idea this week. Selling Braxzzil and OpeC is still high on the agenda even as crude starts back from 82. Indian agri production, as we tipped in last week's export releases, is the other big story india sold out. 

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July data for payments spending thru Cards, a payment format yet chosen by only 10% users worldwide must be a relief nevertheless for sunny bankers looking to grow the respobnsible use of own account debit cards. though the number of debit cards in circulation have always been higher with 240 million card holders compared to the 150 million odd ( 180 million in 2007) credit cards bu twhen sepnding rose in July , Credit Cards scored $7.5 bln out of the $9 bln odd spending committed thru cards.

Online payment services would be happier as they released figures showing a healthy domination by the online payments industry among the young(presumably) accounting dfor a healthy $3-4 bln , more than debit cards in the month. Debit card spending rose a healthy 50% from a year ago period and counted for a $1 bln before the rupee broke its trot ahead of It results in the offing in October

Debit card spending for April to July is thus reported to nearly Rs 16000 crores, and with festive season approaching. Credit Cards / Debit cards for the four months reached a 60-40 proportion a healthy partake by any standards and portending an explosive fgestive season. The spending ratio in the festive season may yet skew back to credit cards but reports of heavy debit card spending in this fiscal and the growing supersizing of groceries as a budgeting exercise is a sign of strentgth int he consu,mption sector as usual , a first for the nation. With cards accounting for nearly Rs 1.5 tln for the year or $30 bln - $40 bln depending on which weeks exchange rate to take :D, a payment s spending of over Rs 15 tln with nearly half a tln or more spent online means innovation spend in the sector has been vindicated and will continue as further investment frompauyment service providers. 

Mobile cash spending has long been portended as nirvana for the unbanked and may yet pull through giving a leg to the growing pace of rural spend over urban spend. 

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July data for payments spending thru Cards, a payment format yet chosen by only 10% users worldwide must be a relief nevertheless for sunny bankers looking to grow the respobnsible use of own account debit cards. though the number of debit cards in circulation have always been higher with 240 million card holders compared to the 150 million odd ( 180 million in 2007) credit cards bu twhen sepnding rose in July , Credit Cards scored $7.5 bln out of the $9 bln odd spending committed thru cards.

Online payment services would be happier as they released figures showing a healthy domination by the online payments industry among the young(presumably) accounting dfor a healthy $3-4 bln , more than debit cards in the month. Debit card spending rose a healthy 50% from a year ago period and counted for a $1 bln before the rupee broke its trot ahead of It results in the offing in October

Debit card spending for April to July is thus reported to nearly Rs 16000 crores, and with festive season approaching. Credit Cards / Debit cards for the four months reached a 60-40 proportion a healthy partake by any standards and portending an explosive fgestive season. The spending ratio in the festive season may yet skew back to credit cards but reports of heavy debit card spending in this fiscal and the growing supersizing of groceries as a budgeting exercise is a sign of strentgth int he consu,mption sector as usual , a first for the nation. With cards accounting for nearly Rs 1.5 tln for the year or $30 bln - $40 bln depending on which weeks exchange rate to take :D, a payment s spending of over Rs 15 tln with nearly half a tln or more spent online means innovation spend in the sector has been vindicated and will continue as further investment frompauyment service providers. 

Mobile cash spending has long been portended as nirvana for the unbanked and may yet pull through giving a leg to the growing pace of rural spend over urban spend. 

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That's the sarcasm right there. In the pop of the title. As you chew on total global correlation with a 0.97 correlation and mor ein September, and 0.7 in early August, some migh be excused for thinking a basic increase in the knowledge of the markets all around and thus gains in terms of tranparency and reform. However, that is not the case at all. The sensex tanking today was a sign of globall correlations nearing one but we are decoupling as we speak as inflation draws lower on food at 8.8% but fuel persists closer to 14% for the week ended Sept 10 As primary articles tick down and India becomes the harbinger of i in inflation globally it would stablilise in India at not much below 8% while crude prcing irrespectibv eof the dollar Economies' giving up after hearing of another 'stimulus' The reaction to the stimulusi in global markets will be variesd as OPEC now gets to price itself out of a depression for its own, 'US stays at its lowest growth levels with consequent 20% unemployment and Europe deals with new strife and gets used to a regular shrinkage in its production whether at UK and Germany or the GIPSIs 

Yet righ now, everyone was listening to the same, almost stupefied, wih a not so material and much expected Bernanke speech and mini - program somehhow making the way clear for everyone to see the bleak future in its totality without hope. So commingle while going down and beter have a differentiator worth its name on the way up , because nations like people are all alone..

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There's a brilliant analysis by  Gayatri Nayak, in the Economic Times today. Brilliant because that is something in plain data and in plain sight what every Corporate indian and even every Indian citizen otherwise or any other species observing India ont he Worldd stage wonders. We are the I in BRIC like the I in Team, we are the I in interest rates when the world is reducing them with alacrity to avoid a depression. Outr oil still costs a $110 a barrel, 2 of the BRIC nations almost get it virtually free from their own energy resources, the third and the first citizen in every economic miracle now is China.  even if everything in the Local Infrastructure run for China collapses, the 25% LGFV default will just reduce its growth to 0 when it is going through its slowest phae in manufacturing. nary a hope of a recession. And there the similarity with India ends, but with others it has much more in terms of dependence on commodities, energy, and hot money flow magnitudes that just d not compare with the rupee trading at its lowest. 

Read the ET article here: http://economictimes.indiatimes.com/money-banking/with-high-inflation-and-weak-currency-india-not-like-other-bric-countries/articleshow/10060355.cms

The foremost problem is the speed at which the prices are rising -- from assets to commodities to manufacturing to services. This could deal a long-term blow to businesses, making them unviable. Prices have been gaining more than 8% for more than a year now. The main reason for the fall in profitability at companies is rising input prices and not finance charges as it is made out to be.

 

"India is less integrated with the global economy" was the argument then. While it may still be true when compared with many Asian emerging economies, this advantage has narrowed down over the years. While the overseas debt has gone up to $306 billion at the end of March 2011 from $221 billion at the end of March 2008, the cushion of foreign exchange reserves went down to $305 billion from $310 billion over the same period.

As far as decoupling is concerned, the bottom is the same for everyone bu thtence everyone of the global economies from the G7 to the G20 to even Mongolia would have decoupled on the way up . The great contrast in each competitive resource advantage and each strategy in Brazil, China, USA and Europe will determine very different trajectories of growth seenand supported in the Financial markets. 

At stake is the order of magnitude of investment and infrastructure which others have harnessed earlier than India. But while the others may be volatile in responding to global stresses, India just becomes a sub standard risk to carry without the heat of a growth running up that order of magnitude. Others have much more command and control mechanisms as witnessed in Turkey and China, to ensure transmission of policy do's and don'ts. If we do, it stays confined to one single Corporate group or region The regional imbalances are much greater in china and Russia, even Brazil and the smaller economies are exclusively better risks for the global investor because they are entirely dependent on that investment and deliver  abang for the buc k like Coal in indonesia and iron ore in Mongolia, but smehow that focus continues to deliver a faster sustainable growth while our discussion of imbalances makes evryone a victim in the end?

We could very easily bve at the same stage as China if we had better transmission of policy cash and of policy mechanism to channel the growth. We may still be doing much more for our poor than China which has apparently been focussed on just the coastal "districts" ( urban conglomerates) that were already trading with Hongkong and the rest orf the world. But what we miss is the global demand or investor interest which cannot be just delivered to those shouting fromt he rooftops or those taking to the streets by fast and by suicides. 

An administered rate of exchange with 10 rupees to the Dollar can bring it though. It will bring into focus our strategic decisions and investment in growth to a direct returns comparision with global investments. It is also the rate at which PPP trades for India to the Dollar. And it is probably the singular reason  why no one bothers to hear us on the table or give us preference or deference in trade.

Probably why we are so happy at rupee depreciation so we can get more value for our immediate quarter from IT exports when export growth in cotton, tea and even coffee and oil could mean so much more to us. In non It exports we will still remain satisfied with 2 - 3million tonnes of Rice, wheat, Onion and some other crops but we remain the top 4 producers of those and fallin gbehind every year.

Probably our priorities for infrastructure investment also need that push to file up behind the Exports doing the best and easily sustainable as in agri-commodities and gems and Jewelry

but that is the cliched argument no one has acitoned for the last 60 years. never.

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RBS had committed to HSBC towards the sale of all its 31 branches and 100 retail / wealth staff to HSBC. It is yet questionable if HSBC could have absorbed all 1800 staff which continues to operate as ABN AMRO in the country since License transfers are a throny issue that from the point of view of the regulator should not have risena s the occasion to sel lin each case s in question. 

Since the deal signing in 2009/2010 when ANZ lost to the HSBC bid in India and Malaysia, here has been speculation peculiar to the Indian regulator's national requirements. None of th speculated objections have yet been resolvedm ,,aditionally with RBS and ABN planning to come back to the country RBI has taken a harder stance on this apparent tomfoolery with buying and selling branches and networks . Among the first nonsensical results of imediate interest to RBI woul dhave been the multiplicity of licences for the acquiring bank and the lack of branch approvals for HSBC once it as acquiring bank had surrendered the second licence per law with RBS. Even befor ethe non event though RBI has now found itself troubled by the fact theat RBS wll continue to live in the country in isolation as also ANZ ( in its TV appearance by CEO Mike Smith on Bankers' Trust - B-UTV) plans to remain only in institutional business in India. ANZ, ICBC have one branch each in the new avatar, the most planned by RBS in its new role as a exclusively wholesal player in the country. 

Media reports make it clear that RBI has made a unitary objection on the sale - that of the 32% priority lending commitment which precludes any option without retail branches and in factas the new charter sugggests, new branches in Tier 5 and 6 town. 

Priority sector requirements are not new and all the 32 license holders in the country manage the same lending requirement without their own branches in the rural hinterland. Obviously those wholesale approaches are not the objective of the Priority sector lenbdiong regulation. 

Other thorny issues still remaining to be sorted out thus he picure that emerges is the following :

1. Each branch still requires explicit RBI approval and none of the 32 players have been forthcoming in unitarily capitalising the India subsidiary for its leverage commitments as currently we all go by Internal Risk management approaches that count on a single Asia Pacific Balance sheet to selll loans to India corporates esp as the competitive advantae for us in Foreign banks is in arranging cheaper ECB loans and FC denominated swaps

2. Licenses being onditional to Priority sector lending apart , there needs to be dialogue between banks and the local regulator with the Indian operation commiting that it has the authority and the reach to complete all its India commitments and RBI observations. For example Swaps create unseemly leverage and banks do not resolve the same as per tehir own internal risk management where approvakls are already received?

3. Banks may feel stretched by the current requiremetns to commit 12 new breanches in a year as are automatically approved with the 32 foreign banks surviving on 320 branches for their nearly double digit share in Indian banking assets a\nd having avoided the changeover to WOS formats suggested in 2005 with INR 3 bln capital minimum . That this capital would hgave to satisfy basel and RBI norms on CAR locally queers the pitch for effective pricing for these banks and also in terms of global business sructures where entire regions operate on economics of large volumes that they will have to indeopendently build in India. 

4. The banks do remain commited to growing in India, HSBC for example and till recently Citi heavily recruiting in the country in retail and wholesale. Banks remain the preferred stock recriter of MBAs led by Foreign banks in India

5. A roadmap for ringfencing national operations has not been committed by BCBS ( Basel Committee) and banks have already calendarised ramp up of Capital per new standards till as late as 2018 and 2019 in view of the adverse strains on their global operations

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F1 comes to India this month with much anticipation. Indian logistics teams have a brilliant opportunity to manage the crews and the cars with the equipment which has already started making its way to the Buddh international circuit soon to find permanent sponsors and Moto GP customers at the track. The Airtel India Grand Prix that is slated for the Diwali weekend ( Oct 26 , really) would apend aparently $40 mlnonly on the logistics of the teams apart from the suspenseful last minute redevelopments inevitably proposed in our last minute nation of sport fanatics looking for a release after the big fall of the World champions in cricket to the measly English lads. 

And the headline is bvorrowed from a friend who is also a subscriber to the Post

CLT 20 of the IPL fast cricket family comes first also gets Airtel as the global sponsor ( Lead) and has managed a 5.5 TVR on its own last year. Seeing that stars come out only for airtel, maybe the English will look for Airtel sponsorship next time, and maybe Airtel will let me hook them up ( or should I say conference them in..) In Finance terms though, the balance in Sports events and Marketing expenses is very delicate and the India n Franchise would have many watcvhing from the sidelines waiting for the inevitable bankruptcy f the promoters/ investors involved as for F! itself of late, un;less the hype is balanced with real time efficiencies in production and even Celebrity management. The potential for glitches in man managers falling along with this ultra new destination are probably 3-4 times our new Asian partners in Korea and Bahrain and even 8 times more than the not so succcessful night grand prix in singapore suffering from the cultural shock in an otherwise ultra efficient tourist friendly island. 

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Here's the case for a rate hike in a nutshell:

a. Rates up 475 bp since march 2010. this means the Governor has to start SLR cuts now, which RBI has indicated as possible this time. It does not mean rate cuts or that thee rate hike cycle has topped off because 

b. non food inflation at 13% is not in control and the new inflation target of 7% may already be too old as rindia's crude basket for one remains one of the most expensive in the world at $110 and even in September $106( indiainfoline.com, UBS for the crude basket data)

c. food inflation control has meant plateauing and not fall in inflation

We are here and would be posting the bank rate update

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Inflation reports first..The sun rises in the east and so does our fuel bill. UBS says its because we lag global commodity and energy cycles. More than lag we have the price swaps for oil done at the rwrong time, the import deficit rising in the wrong months and an almost perfunctory wish t even move any fuel prices down thanks to the convoluted subsidies. The fuel inflation of 13.55% and the primary inflation of 13.09% despite food and non food remaining almost static month on month ( 0.2% and 1% respectively) kept the WPI at a high 9.5% target and we reiterate it will not go down below 8% till kingdom come nowand PMEAC forecasts to begin with change to reflect the truth. Also not expecting Mr SubbaRao to move up the inflation target and the rates is really not fair on him , whatever be the polity of the situation.

For the failing French and Swiss banks, unfortunately india is not in a position to provide an alternative, considering that its a service business and we Indians do well in the same. Somehow a SBI or ICICI Bank just does not look that global desppite our being one of the most open and welcoming cultures.

Also Advance tax estimates are good , IIP of 3.3% was mostly base effect ( we need better classification of cap goods to subdue the waves of -1 to +40% ) No statistical consistency can be gleaned from that Capital Goods sub index at all. Also on Cap goods, at a cursory glance its almost always all the Power infra we are building where's industry? Wheere are the ports, airports and healthcare investments?

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Inflation reports first..The sun rises in the east and so does our fuel bill. UBS says its because we lag global commodity and energy cycles. More than lag we have the price swaps for oil done at the rwrong time, the import deficit rising in the wrong months and an almost perfunctory wish t even move any fuel prices down thanks to the convoluted subsidies. The fuel inflation of 13.55% and the primary inflation of 13.09% despite food and non food remaining almost static month on month ( 0.2% and 1% respectively) kept the WPI at a high 9.5% target and we reiterate it will not go down below 8% till kingdom come nowand PMEAC forecasts to begin with change to reflect the truth. Also not expecting Mr SubbaRao to move up the inflation target and the rates is really not fair on him , whatever be the polity of the situation.

For the failing French and Swiss banks, unfortunately india is not in a position to provide an alternative, considering that its a service business and we Indians do well in the same. Somehow a SBI or ICICI Bank just does not look that global desppite our being one of the most open and welcoming cultures.

Also Advance tax estimates are good , IIP of 3.3% was mostly base effect ( we need better classification of cap goods to subdue the waves of -1 to +40% ) No statistical consistency can be gleaned from that Capital Goods sub index at all. Also on Cap goods, at a cursory glance its almost always all the Power infra we are building where's industry? Wheere are the ports, airports and healthcare investments?

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With Retail CPI at 9.78% and Fuel prices about to go up in this week, the public comment by the Finance Minister to curb RBI's monetary control mechanism is a sign of strains in the fabric of the team that should be proud of having put it together so well since 2008.

It is probably a sign of a tough ask of the Finance Minister from his cabinet colleagues as his bureaucrats that are part of his policymaking team have otherwise been unequivocal in their support of the RBI's monetary policy till now. A high retail inflation definitely needs more interest rate corrections and esp if Duvvoori Subbarao feels so, the Finance Minster should be able to understand the reasons for it as well from Kaushik Da and MSA as both agree with his concerns as well as the primacy of RBI in Friday's ratemaking decision. I still feel we could absorb upto 100bps in rate hike 

Whether Pranab Mukherjee moves out of Finance or not, however, India has to be able to absorb more price hikes in Fuels with or without GST and DTC which are already victims of a dividded polity and a borderline mandate for the government. It does not help that Congress has run out of leaders with a ational stature and that the BJP offers no choices either

Economically, RBI will sweeten the rate hike deal with a cut in SLR and that may also be extended to upto 100 bps ion Friday or in subsequent policy meetings. That should also mean that yields need not move northwards from here and the 18 - 20 basis points move as a result of lower CRR could well need checks and balances with higher rates

However, banks globally also have to put in effort to understand risk ( esp retail risk ) and make an effort to catch up on substantial retail underwriting systems and make sure all documentation is processed with the right water marks  for example, underwriting for Variable rate home loans should be done at the higher possible rate when judging capacity in income etc ) and that operational investment could do more for policy transmission and better rates to good quality retail customers

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note: Though we subscribe to a Dollar Forty rule for Rupee conversions baased on our reading of the crystal ball, we have temporarily been forced to recalibrate at 45 as the Rupee range proves tenacious..

Hours earlier a bidding war has been reported over the last Barclays Bank assets in India. Barclays owns a NBFC operation for unsecured loans and wealth management sales while it had a card unit which has already ramped up to 200000 users without a clear policy it expected from RBI

Each user is being priced at $2.2 or Rs 100 with assets of Rs 30-50 bln or around $1 bln with no accurate information available from the bank

According to the yahoo! lead story, Barclays is merging its two Institutional businesses for cross selling synergies combining its Commercial banking unit with Barclays Capital (investment banking) 

Bidders for the card unit include Stanchart with a 1.2 million cardholder base ( #1 in India) and SBI with probably at least 400,000 active cards in circulation. ICICI and HDFC have pared their cardholder numbers to 600,000 each after the 2008 crisis and there are 18 mln cardholders in India according ot the last RBI data

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Technical notes

The universe of stocks in India that adhere to volume and other quality standrards for trading let alone alforithmic enhancement and HFT program trading e\remain extremey limited. Given the choice and the sesnseless open shorting still possible in most stocks outside the Sensex 30 ( and som einside it yet) it is unlikely that the amount of technical correction on the rebound can be limited or remain slow and sideways is unfortunately not very unlikely. Even a sideways movement gets translated into a binary healthy/unhealthy state and the learning for banks' trading desks and the soon to vanish brokers' client trading desks are both the same, you can select a scrip or two for whichever movement you support, up or down.

Bank Credit and Power

Currently Banks could trade individually too given that Credit has remained up and the market has to take a stance on who (HDFC Bank ) has already been performing on the retail credit and the power credit offtake. Power sector credit has grown to almost 8% in the last quarter according to today's ET but almos t32 GW of it is likely to go downwithout being commissioned from the missing coal produce required to go live making potentially ( and quoting the Economic Times here) Rs 1.35 Tln a non performing loan having been drawn nearly 12 months ago. The Power sector exposure is already over INR 4 tln but Power NBFCs empowered to deal with the sector in isolation are unlikely to face any problems of bad debts from such overruns being on line with the project management in each case.

The Rate Hike

Unfortunately for other Capital businesses banks are unlikely to be able to digest the coming rate hike coming this Fridayfor its corporate borrowers but depth in Capital investments and our Economic hunger for Investments that have been flat may yet facilitate an even keel for infrastructure borrowers both in Energy, Power and even construction yet drawing down he big jump in lending to the sector from the last six months

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There are not going to be any receipts from Spectrum

With India not likely to buy and sell LTE specturum for some time to come (4G for those new to the lexicon) and the CAG working overtime, the disinvestment target and other extraordinary receipts are unlikely to bridge indian public profligacy ( in social welfare and health by any stretch? no, the frozen budgets in planned defence, infra and more) Fortunately for the government more people realise that the current budget document is already optimised in terms of no pie in the sky dreamy allocations unlike the NDA and the tweet hungry leadership of the next gen's likeliest hopes. Though the UPA does not hold too much of an audience no one is close to taking India's geo political stability but the wallet is spending more in the hope for growth and yet with retail inflation holding higher watermarks for 2012 every passing day, it comes back to the budget and its 4.6% deficit. The first rumors of the overkill were early but the likely amount to be overshot by the year end at its least is still coming out from compatriot and global desks at more than 5%, a good 0.5% gap..showing that most do not expect Indian bureaucracy's due diligence to hold within the first five months when it comes to reading the reportcard in February next. ( I am not rewriting that, you'll have to manage with that..and do write back in comments if you can help)  

We need a $10 bln Sovereign fund of our own

The first 5 months data are usually the reason to read the crystal ball, and this time we have already achieved the first few successses with record 30% growth in gross tax revenues and 45% growth in Exports. Further down the road, one will note that there have been no changes in the dullness in Investments since the begininning of the post Diwali 2010-11 season Non Tax revenues in the first quarter were as high as INR 2 Tln last year in FY11 and now in FY12 they are only the usual penalties, fines and no spectrum to count only INR 1 Tln in the same period.  Also with reserves inching up to $320 bln we will likely get a SWF to channelise all the energy investments we are making to further proactively manage the deficit bill

The success of Revenue and Control mechanisms

Though deficit estimates haven't been changed by the PMEAC much, deficit achieved in the first 4 months had creeped to more than 55% but the Government Borrowing program expected to be overshot by detractors has remained well within the targeted segment 50-70% of the much controlled INR 4.55 Tln program. The deficit on the fiscal side adds to the woes of the $55 bln trade deficit and the Forex reserves included our national reserves have hardly grown at $320 bln again much ahead of stock critics waiting to and having already criticised the likely $305 bln number in advance, to ready for the sub 7% GDP performance coming next in pre Diwali jitters 

Banks will have to burden more in priority sector spending to ensure results in the government's welfare program with new 10k loans in NREGA, the last INR70k lacs write off in 2009 a high watermark in this case too. Agriloans have fallen 30% since 2009.

The Fuel Subsidy Bill

The Fuel subsidy bill has been paid out in part but yet more than 2/3 of the government share is  going to be made only in the March quarter after the bill comes right and till then the likelihood of overreaching and ending up with a higher unpaid share borne by Oilcos ( OMCs) remains high esp with crude holding up at a higher peg and the subsidy bill being likely even 20% higher than the high watermark of last year The subsidy bill has likely increased to INR 400 bln or 40k Crores

The Twelfth plan spends

India has after 5 years of dillydallying finally targeted a higher healthcare expenditure ( MSA commited a target of 2.5% of GDP this year) and is still underspending on Defence and even the otherwise regularly "powered" infrastructure, social welfare and even education spending Tourism is likely to get increased allocations as it demands a 4X increase in the 12 th plan ffrom $1.2 bln last year

Managing the external debt

According to the recent RBI report, India's $306 bln external debt has commercial borrowings increasing to 28.9% from 17% in March 2010. That is the real good news qith government debt incl guarantees holding less than $87 bln. The Debt Service ratios have however fallen to 4.2 frm 5.2 showing less covered by the existing reserves and the commercial debt increase has happened mostly in short term borrowings ( growing by 24% in treasuries and overnight foreign debt) and the proportion of borrowings in overseas inter bank markets is more than 21% of all our outstanding debt. india's external debt though is a shining 17% of the GDP lower than most comparable economies and leaving the country with a lot of spare borrowing capacity for non remunerative infrastructure investments.

India aims to spend $1tln in planned and annual budget expenditure on infrastructure in Private partnership incl $60 bln on ports( tripling capacity to 3,000 mln MT, and new allocations for food storage infrastructure. in mst infra heads our spendin g has been less than half the planned spend till 2012 and will come back with cost escalations inthe next plan

Mind the Gap

India's tax receipts have increased to INR 155,000 crores in the period till August but tax refunds have increased disporportionately by 154% or INR 30,000 crores but on a gross basis still growing by 26% in the first four months and faster in cluding August numbers and yet staying almost still as all of it was paid back in refund demands, net collections still under INR 1 Tln. Corporate receipts have grown mre than 30% but probably tax collection ss will crawl back to March 2011 figures as the slowdown takes effect on balance sheets Our tax revenues have been estimated at INR 5.32 Tln of which till now 30% has been achieved. Even Personal tax collections are higher by 10,000 crores y-o-y

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India's Services PMI remianed the most robust globally at 53 and Exports unable to maintain the upward momentum of July still grew 44% yoy to $ 24 bln taking the "tally" for the first five months to $132 billion. Hwever, imports maintained their momentum and the resultant monthly trade deficit climbed to $14 bln and for the first five months eclipsed the planned SWF by 5 times at $56.77 bln India will have its own SWF to materially manage its resource requirements and thence its trade deficits in a very small time if the Planning commission gets a clear signal for the same.

Overseas energy interests of India include rare production sharing contracts in Iran and Thailand by ONGC Videsh and recently BPCL has signed PSCs in 14 global wells including Mozambique with Videocon.

It also has 10 new fields in Brazil to farm its interest in Energy. As of now imports cost the country a good $50 bln in August, the $14 bln deficit eclipsing its gains in Exports of Wheat, Coffee and Cotton while in Tea its monthly production kept growing to nearly 500 mln kgs for the 6 months but was hit by a downward tick of 30% in Exports from South India to just 6.6 mln kgs while North kept exports growing by 18% for another 10 million kgs in Exports. IT Export figures may tick down for the rest of the year

As an ongoing comparison, China produces 158 million bales of Cotton in a return from dull season in august and Cotton prices recovered globally instantly helped by crop damage in US. Global imprts were a 8.1 million tonnes with India lkeeping unrestricted Exports open in Cotton in the new season starting from October. US and Pakistan , the 2nd and 4th largest producers of Cotton have lost most of their crop to drought damaghe and other damages in this season Cotton and Tea prices will likely remain robust thru the rest of the year as Coffee also continues a global high now ruling above $2.2 k per tonne. Cotton exports by India will exceed 8 million bales this year, growing by more than 20% in the new period that started in August for the commodity from 6.6 million bales till July 2011

China had been keeping cotton imports down in April - July as also for Sugar. Sugar imports by china will increase to 2.1 mllion tonnes

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The RBI proposal for making a 100% WOS structure mandatory for existing foreign licensees is likely to get the tax man's blessings if the diktat comes through form the MoF letting Banks bring in unlimited Capital for the new banking company without any tax implications. It still leaves to the foreign banks to set up such WOS structures that bind them to 25% branches in rural unbanked centers. In the draft for new banks for example I do not believe rural unbanked is the term used and they may be just llooking at setting up next to the HDFC Bank or PSB in the village/town when they do get down to implementation. Also with Foreign banks have partnered themselves in Insurance the FOHC/NOHC structure will be invoked with nary permutations to let HSBC and Citi operate for the projected bancassurance incomes in reputed cross sell revenue burst yet to be seen here.

However Banks will have a significantly larger play than just habituating Indian customers to high rates (mostly on loans), to mobile USSD messaging, UID enrolling for deposit accounts and mobile payments interfaces With RBi close to the curve on inflation there is much more rate hike in India's future till we can outrun that inflation or pull it back(not happening till midway in 2012) Social programs in the rural hinterland may become more common and apparently more sophisticated than the public sector loan melas of the 80s

Swabhimaan inititive or rural unbanked villages claims 70,000 villages covered in 2011 till now, while NBFCsoperating int he country are being re regulated to level the playing field in terms of prudential and provisioning norms while deposit taking remains the purview of banks and those already having such a license in the NBFC space while allowing NBFC s access to SARFAESI Acto to allow recovery

It is the urban market increase in consumption which is a fertile grounded seeded by the Private and Foreign banks with renewed vigour. With underwriting norms slikely to be ofllowed diligently at least for some more months to come, the higher rates may not make much of an impact on consumer disposition with Cars and Homes hoping to come back to the top of the shopping list sooner than FY12 end in six months

Contraction in bank branches in the US however and in fact everywhere in the developed world where branch interaction has been a much lower component since more than a decade back, the growth in superstructure may be discouraged by the higher rate structures for the banks themselves. This is exemplified by the transaction charge difference of upto 5 times in a bank branch (40p) as compared to an internet only transaction(8p)  An Asian Banking report recently suggested that Internet transactions in Asia are more than 1 in every 5 transactions including large monolithic markets like China 

Investments in risk process and Trading systems and platforms will likely take uo larger investments on the banks' part yet. However, globally some larger operations in FICC and Equities may be looking for less regulated centers than the freshly reregulated markets in US, India, and China and global expasion to SE Asia's frontier markets and Africa may well shift  the invesment locus from India and China too and thus Indian regulators would have to sweeten the regulatory pie they have to eat at India's party for some time to come. 

The ideal for banks right now is the renewed strength of income from the Wealth segments in Fee and Advisory income, investment income as well as financing the luxury goods consumption channel that seems to have been fairly robust during 2008 and now. Even if retial was to reach an average of 33% to 40% of the banks' income statements it could mean large jums for the banks' balance sheets and for India's consumption pie. Corporate Banking and the likely revitalised IPO market remains the banks' most dependable source  of income even with a more conservative range of products for the dle funds that have been the banks' focus for faster profits to the clients and themselves

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With September already underway and the story of rate hikes toping off likely a thing of the past, banks would have to focus on pruning their balance sheets and maintaining margins as higher fee charges and restricted loan budgets at higher EMIs hit banks retail and corporate customers. The fixed rate home loans that will provide a good segueway for borrowers to get competitive rates are unlikely to be subjected to higher provisions and that is one of the first successes scripted in this case by ICICI Bank without and lead in teasdrer rates. 

However, the obvious changes to the balance sheet and other aggregate statements of the banks may no longer measure the secular growth in Deposits, loans and profits this time around in any segment of the banking sector. Though that does not mean there is a crisis in action, there is already a 12% compression  in demand deposits and less than 8% growth in time deposits as rates moved up in the first five months of the year. Also investment holdings and reported international transactions in Dollar will move back by anywhere between 2-5% with the Euro falling through without any other hardy impact on Indian Balance sheets.

CASA compression has already been showing and the September quarter is unlikely to signal the end of the same in any way, the annual changes in Time and Demand Deposits showing a robust 22% growth in Fixed Deposits where rates have been increased but a 7.5% dip in Savins deposits. ICICI Bank is looking to stabiolise its CASA ratio lower from 42% in June to 40% for the half year. Current Deposits have been moving out to retail investments looking for a higher rate of return to combat inflation with even retail focused banks not looking at extra growth in the sector probably lagging credit growth of 18%

That does mean that NIMS are likely to be challenged though Banks are likely to manage except where asset quality of banks lends to the deterioration n the sector StanC expecting NPLs to grow to 2.6% from 2.3% of the assets in March. We think the NPLs may grow to even 5% with SBI likely tocontinue the higher peg of nearly 3% it reported on its 8 tln book in June. PSBs control 2/3rds ofIndia's credit aswsets and these are spread thru a lot of SME borrowers as well, while he Foreign banks look at leveraging existing arrangements by Swaps and other off balance sheet business

Fee income may not grow again as it did in June but is likely to remain a tthe new higher level achieved , meaning a healthy year on year growth. Also with NBFC lending still on from banks, in July and August there may not be a negative impact in the immediate quarter's financial statements as the NBFCs get down to provisioing it right in the construction sector where growth had exceeded 50% of the new credit in June

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With Anti Money Laundering law a focus of policy and treaty shopping in hand, India is one of the early nations approached by the Swiss to replicate their early settlements with Britain and Germainy. In the new agreements signed with Britain and Germany all accounts hel din their currency for from n address resident in the said country will immediately be taxed at the top rate of 30% and future inflows will be taxed between 15-28% in the British case , the proceeds of such taxed "income" going to the home government and thus capping all revenue leakages. The Swiss also have to sell theIdea to the US who continues to insist on getting a list of names of such account holders resident in the US. With IE breaking the satory however, it could very much be just non news..

(IE)  The Swiss Federal Department of Finance, the counterpart of India’s Union finance ministry, said: “Switzerland is open to explaining the Swiss model of a final withholding tax to other interested countries (including India).” It, however, said that any decision on concrete negotiations could only be done after it finalised the agreements with the UK and Germany.

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The conundrum we have all lived thru has surprisingly not that many on corrporate watch predicting both ends and living through it with most Indiab ulls going all out with the first 4800 breach on buy calls for seectors including banks and auto while deraing IT and then of course banks in the high rate regime. Still there are a lot of bank watchers who gave in to value in PSU banks rather than waitt for the slowcreation of new benchmarks of value. On the oter hand the few who did are ubiquitous like Standard Chartered Research team and maybe one other as  both stuck to the falling apart at 5600 and the bottom at 4800. Others on the network include Traders and Technical experts who know when its too early to put a buy call.  Standard Chartered today reiterated the oe obvious fact that the recovery is not here and "it will take time for the investment cycle to bottom out" Ofcourse a lot of the intermediate recovery already seems to be topping out at 5150 and the weekend may not offer anything spectacular.

Interestingly, recruitments at banks have picked up but as IT / ITES slowdown did not impact recruitments that much in August the incipient online emploment index has a lot of analysis for the funny nbone between the lags for job seekers while employers do need to keep a watch on the changing hiring trends usually a sign of the consolidation and a different set of strengthened ssectors may emerge from there as well, Banks will take their time though as rae hikes ar ealso not quite done and instead of the famed one last 25 bps hike going around between economists and wealth management desks, I am going to aver there are going to be 2-3 hikes where I rather agree witht he HSBC Global commetary. Thus with Speptember 16 rate hike almost certain, alikely spike in the market will only vcome frm that hike not being 50 bps, or at least not being resupposed to be 50 bps by the markets. The problem is with Food and Fuel inflation singing the high notes consitently and continuing to stunt the Indian Economy's on stage performance. DSespite robust sales, September is going to underline a stad corporate performance by India as input prices continure to rise steeply and more than undersline higher prices in the Economy. Home loan tenures are crossing 40-50 years where therey are allowed to but there is no respite from inflation and no way rate hikes can trn down readily at this time

Also where India remains consistent is in growing toplines at Corporates and Expense registers at households increasing by more than 20% plus, thus such a green salad analysis for all you out there reading our research products

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The Services PMI hit a 53.5 a good 5 points lower than the 58+ in July primarily on new orders going down 6 points from 59+ for India in the HSBC MarkIT survey. In fact, IT export orders for the month of August hit $19 bln from $32 bln according to a ET report today and Goldman Sachs , Citi and lo and behold led by BNP last month, derated Indian IT with earnings downgraded by 10-15% by Citi and Goldman Sachs and Citi bringing down their IT price ttargets by nearly 20%. IT of course is a sterling non performer, due to noted reasons of US export market dependance but also due to non availability of a match of skills or preponderance of lossmaking beachhead contracts in the Domestic IT business which has just about been swept in the corner but this time shows up as an ugly hump on the carpet , very much in the room. Where irrespective of muted statements or lack of belligerence in recommendations, everyone has expected a 20%+ growth even in leanb times, IT and Autos are reporting double digit reductions in business. 

Despite the loss in business in Autos, down to 70000 cars a month for leader Maruti and less than 150k for two consecutive months for the Industry, the indusry has simply substituted the 500k a month and 300k a month two wheeler satraps in Hero and Baja to sell the India story which remains the most likely top 10 positive market destination in 2011 behind Indionesia and a couple of other Asia Pacific economies not yet hit by high inflation. Even Singapore despite its great uinfrastructure is off the charts for the volatile June quarter GDP of -8% over Q1 and 2% yoy. So you need to defend the indefensible and the resulting climb in Two wheeler Hero and Bajaj and the new SUV killer M&M growing sales in this market is alreayd what would have been deemed healthy in an aggressive stock leave alone the defensive they must be deemed right now. 

From the commentary of course Pranab Da is already a vindicated man, other staking the lead from him and defending the India growth story again not because of unjustifiable emo nationalism but serious funds flow issues as a minimum number of large cap investments are a required lot and the Healthcare sector or the mid cap banks may not be able to justify their growth prospects in the next six months

Banks are the leading indicators of growth in any country's scheme and even global banks which are themselves reneging on their international commitments with trouble on home turf And with them reneging on their 2011 numbwers with no respite in sight it is rather futile to runa technical rally in the markets to 5200 on such short of braeath ( breadth in market analysis terms) investing anlysis. Like they force the optimist day trader on a sunny day, the bears should be in the room, ready to and consummating the reign of the Kauravas on the Indian Sun in the next few weeks and ou should let them do it. As would turn in Europe over the next few days and as hedgies licking their wounds in July and August can see globally, whether it is Paulson or Einhorn or the smaller India boutiques which are the only ones canvassing for funds right now. 

The Land acquisition bill is definitely a good deal for those on urban and rural property as land registered values are woefully behind marjet and despite the lobbies already screening their disgust, I would sep out and say their is a lot of profit left over for infra and steel companies depsite the 6 fold increase in land prices, that number still being an insignificant low double digits of ther project cost. 

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"HDFC fixed first" leaves a good taste in the mouth

As TOI said, OP Bhatt must be a happy man..Though the HDFC/HDFC Bank scheme follows in the foot steps of ICICI Bank it is unlikely that this will be christened teaser by the regulator without raising a few eyebrows as Fixed rates are inherently smarter in this ruptured leg of the Economy. Though we may not enter a recession and even US may avoid Japanization and the double dip threats with strong consumption, the conditions in the Economy are far from rosy and with the Land acquisition Bill more than one expert may even trim GDP forecasts further as Corporate costs climb back to above par and have to shoulder the burden of  the rising inflation. 

More disinterested participants in the market - but no recession

I do not see how Goldman Sachs' prediction of rate cuts from next year is even hopeful of being achieved as the political situation is at its most "non performing is mandatory" right now in the middle of the term of this executive and surrounding each leg in corruption scams already. In a true return to 2008, the paeans to luxury goods spending and wealth have started doing the media rounds showing that everyone in the writing business is done writing and is now just waiting for the inevitable report card for the Q3 showing a series of collapsesin PMI, IIP and GDP , even Exports as the benefits of lower crude also have not percolated down yet

And the buying is already in process

Ofcourse,  the optimists rule the roost right now with so much value available in the market but most know that their purchases of today may not give even a normal trading profit beforre returning to the same levels next month and it is i the easiest to be a mealy mouth right now and keep buying everything insight

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india's new Banks are likely to have 25% branches in the rural regions, 40% promoter holding, a listing within 2 years and a FII cap of 49% for the first five years before being granted the freedom to sell the excess promoter stake that will no doubt hinder capitalisation for the first few years, and tak eon the interested FIIs to the extent of 74% as for other banks. Not a roster of choices the NBFCs wanting to be banks would have chosen.  

So why is it that LIC Housing, L&T finance and M&M and Shriram Transport are interested in seriously becoming a bank holding company as per the new regulations. Apart from sacrificing their interests in broking and real estate that are more than 10% of revenues ruling out Religare and Indiabulls, the new banks will hold higher capital at 12% and hold all their interests tied together in Financial Services in a single holding cvompany, apparently from the point of view of preserving Capital. Of course, Real estate exposure will finally be allowed indirectly as and when LIC Housing and Infra Cos are permitted to egt abanking license but then even L&T Finance is hoping forr a nod for inorganic growth to kickstart its banking foray and that in itself may turn out to be a pipe dream despite its stakes in City Union Bank and Federal Bank.

However, the cases for Auto finance companies of Shriram and M&M may seem t be the most germaine and with substantial global bank interest in India, there may yet be a JV of interest with the 49% holding model allowing FIIs to explore the Indian territory rather than jump in with 100% WOS models with unlimited branch licences and retail expansion for banks holding more than 0.25% of banking assets of the country.

Then again, that is an exploration the right dealmaker in the right place can just about broach to a prospect. more likely would be a staid NOHC set up by these corprations and by LIC HSG to tie up their current Auto/Home finance companies and then set up aberand new bank limited to a NW of Rs 5 bn or more translating to a RWA of Rs 200 bln or $5bln in its first 5 years for every multple of 500 crores it brings in along with its FII partners ( at a debt equity of 5:1, and presumably with a higher tier I weightage in the first 5 years)

This will then serve a s a base for expansion and transfer of existing profitability from the NBFC portfolios may again have to be navigated with the regulator handholding them every step of the way. The ROE targets of global banks are just 12-13% now and these banks being an emerging market proponent with M&M having even an international presence int he more interesting EMs and planning for more would be under pressure to deliver much more

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Even as a fdip below 4800 already happened and a rise above 5200 seems remotely unlikely, you would note that at least 5 foreign brokerages have gone bullish on India below the watermark of 5k for Nifty. With Goldman Sachs and Citi following outliers like Credit Cuisse and UBS heralding a bullish seniment but not bullishness from theirIndia desk, the critical point to look for that iskeeping everyone busy ids not to get investedd too early during this phase of Healthy FDI and let economic conslidation culminate ast what everyone concedes will be a high watermark for recessionary period limited growth in the Indian Market.

Yes, this one is a complicated labyrinth as knowledge that we cannot grow less than 7% keeping everyone ready or buyers but the old warhorses of IT are not going to be bellwethers of this growth and with Autos ringing the bells at the Fire station instead , banks are likely to be watched with considerable distrust too, everyone wanting that low growth to translate into a firm bottom for the Indian Financial Markets and sector specific calls tentative at best before the worst passes us by. 

However, in the long run we have won as India shows it will continue growing and banks and retail have been rinigng the cash registers in July and August, even recruiting shfting to Banking in August. It is the right time for value picks and don't run out of dry powder as more buying opportunites will keep presenting themselves throughout the quarter

And yes, we at The Initiative/Advantage zyaada are very much here with the right direction for the opinion of the day, the week , the month and right till the opnion of he decade. 

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