A Q2 GDP growth in Services of 9.3% led by Transportation and Hotels  (Travel) growth of 10% (Q1: 13.5%) and Financial Services of nearly 190% as well anchored expectations of growth in the future on Services itself. While industrial production was 3.2% in line with IIP esimates, aonstruction was stable at 4.3% and Capital goods thugh lower still grew, manufacturing was a low 2.7% growth (Q1: 2.9%) and agriculture was not that fasr from the 3% mark either.

Interest rate environment is hardly going to get a reprieve in the stretched liquidity conditions as only money investments seem to be trending to output. The social services growth of 6.6% is also good and as spending in a challenged fisc environment barely going o budgeted lines, this is good for the welfare economy

Unfortunate noises on GST, DTC and now retail and aviation FDI indicate more challenges even as FDI for the first half has climbed to a comfortable $20 bln with state deficits unlikely to be met by service tax collections alone and government spending programs will now have a coordinated effort on increasing yields in the fixed income markets 

Q4 growth will be more of the "shock and awe" variety with dull business in Q3 and Q$ a mater of fact. Top line sales in the US in Q4 (December) is a tough 3%and a similar crunch will travel American to India as well, unhindered by hitherto 20% topline growth beyond what could happen till here

 

 

 

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A sea change

The global credit markets are no longer a quest for safe haven nor are they any longer carrying any lesser risk premium than the equity markets. While global correlation stepped up in the last few months in equities, it has increeeasingly become tied at the bone to moves in the fixed income markets with terms like sovereign risk or spreads between sovereign and corporate risk making a good hot fudge and no business.

Opportunity for Indian Bankers

Indian Private sector banks have long struggled in the international arena but despite foreign competition in structured finance and leverage products and a norma regulator-local bank close relationship in USA and Europe have ventured out and established foreign branches in 5 continents. While the earlier propensity for choosing non resident indian customers for credit and deposit products , the current opportunities in Transaction banking globally and their comfortable liquidity position are the right fits for a global custom. While they will have to start out by buying foreign credit portfolios as customers are equally choosy in these uncertain conditions and the banks must choose quality credit.

The quantitative leverage in terms of Tier I Capital of 11.5% and Capital raitios of 18-20% for ICICI Bank and HDFC Bank would be wasted on Indian credit as quality borrowers are not available in the local market and public sector bnanks already carry nearly 66% of the share of business, ICICI Banka nd HDFC Bank contributing to a 30% share of Indian credit with Axis Bank

Though a much more detailed analysis is planned, this much is beyond doubt and not much in terms of options is available to Indian players, India's tiered international access in banking and insurance having long created untenable costs in their being branded as risk averse and or market unfriendly in inter bank markets unnecessarily

 

THIS IS A PRELIMINARY DRAFT

The bitter pill for Indian Private Banks

India's Forexonomics ensure that india's capital and outward ambitions automatically make its best large cap efforts look like mid market plays for the global audience. A bitter pill to swallow but one India and I myself among others of mine and the next two generations have long resisted. The behemoth of an ICICI Bank or that of HDFC Bank, being from Asia have long been identified as new players in the global arena and because of risk parameters self defined, they are yet to use their international businesses to extend credit to international companies, not that many quality businesses would approach them for syndication either. 

Having all the research time I need at my disposal though

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SBI revamped AIR India's loans to an average 15 year tenure as per a recent plan approved by RBI the company alone accounts for more than half of Indian aviation's debt overhang and over $1.5 bln of working capital and $3 bln in term loans were restructured in the latest exercise. The bank accepted CCPS issue against the working Capital loans allowing the airline to pay the bank thru redeemable cumulative preference shares, the bank still not becoming an equity holder for the sole reason that it is a government owned airline. 

Air India is also getting Govt equity of $5 bln over 10 years with $1.35 bln issued this year ( we still use USDINR=50 as rupee tries to make a 48-53 range)  

Something tells me that will only pay for the airline's immediate default and its daily operational losses will continue nothing changing about the management and operational staff habits that make for the demise of the airline. In the mean time fare hikes by private airlines will happen as highly efficient companies like Jet and Indigo bleed and or resort to sale / lease back despite being anointed full service airlines liable to charging "full fares" for their service. Low fare airlines like Spicejet and premium experience jugglers like Kingfisher remain stuck in the middle, having adopted most global best practices and created sumptuous fare without being able to carry home any profit

 

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As HSBC , Citi and SCB continue to target large private banking accounts in India they ar eunlikely to step up price wars in retail as all 3 are struggling to break even,. Others hardly have retail operations at all, Deutsche Bank also having sold its cards division to Indusind. Savings bank rates in the meantime have been upped at the new premier competitora , the  crop of private banks given licenses earlier this decade and last, with Kotak and Yes offering 6% on the daily savings balance computation alongwith Indusind esp on deposits above $2000 (Rs 1 lakh would translate oto $20k in PPP terms)

SCB's 100 and HSBC's 46 branches (incl any RBS branches allowed in 2012) as wlell as Citi's branches are about to break even inr etail after the 2008 purge. Corporate and Transaction Banking continues to bely hopes in the September and December quarters as the falling rupee makes syndications in eCB/ FCCB impossible to justify for most India corporates hurting from the forex risk already on board

However growth in personal loans and other unsecured lending in the festive season as also the jump in debit card spends is likely to sustain With structured transactions their coup de detat in the Indian market their retail CASA ratios and "real lending" remains a lower priority with a CASA of nearly 45% in all 3 cases

SCB also lost minutea moiunts being bullish on the rupee in September 2011. Dealmakers have been shifting  mandates and jobs at foreign investment bank units with revenues down 40% for the year and the Indian market fee reduced to less than $500 mln iin 2011-12

However, the talent is likely to stay with India / Asia given the new FDi regulations in retail and xpected soon in aviation. the interest from foreign PE firms also remains only temporarily suspended as FDI operational concerns and issues with standard safety clauses / control clauses awaited for resolution ( nomination of independent directors and rofr etc could trigger requirements for 26% open offer) 

 

 

 

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Though we have tried to cover all companies yet on Sales and Potential in the Healthcare segment, we are really short staffed to push out first in class updates on the same. Suffice it to say that with Orchid Chem FCCB redemption coming up, bonds will be called and the fear has driven the scrip down from 186 levels.

Current TV18 interviews with promoter K Raghavendra Rao confirming that feears are misplaced as a further ECB has been ted up to return the earlier FCCB debt as also domestic arrangements have been made. The company is profitable with a 10% NPM and good Q_O_Q and year ly growth int he september quarter, running to $500mln + run rate Derfinitely no worth dropping and somethign you should buy and keep with Glenmark, Opto circuit (devices) and hold Biocon if you have any

Lupin and Cipla ar e the bigger ones in the area who were actively looking to sell out ahead of changing FDI regulation in the sector where earlier M&A has alreaydy sccooped out much local infrastructure and biggie Sun Pharma is adding inorganic marketing and research strengths. Dr Reddy is a stable business with sales intact a a $2 bln run rate

In most cases the domestic market is relatively small,  but that is more of a limitation for MNC pharma stocks still listed

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The Last Thursday of the month, promises among them a "sequestered" trading week in the US as the markets close for the holidays today afternoon. The promise  of lower short positions on the Nifty also seems a little possible as only 51% of the contracts have been rolled over, and the markets may find enough reason for extended short covering in today's move down and post Cabinet meeting in the upward shake off

That is at best a hope. 51% FDI in multi brand retail, a reality. From 5000 SKUs in Mom & Pop stores to growing more 60,000 SKU modern retail franchises, India would have certainly come a long way when we check again a year later. Walmart and Bharti Easy day retail have been around for 3 years now, Carrefour and others waiting to start their emerging markets experiment and the Sun has been rising in the east for most paranoid investors as valuations calm down to underbought and oversold in India. A thumbs up for all those who are active on the short side too. The breakdown means that the bottom is much lower, so do not start large cap  trades right now. Appollo Hospitals though struck me as an enigma that could last. So could IGL and Concor and in two weeks he aviation guys could come back. 

In consumption stories, HUL has reached its optimum at below 400 levels (and UBS  got that)  while Jubilant has raised Pizza prices by 8.5%. A 100 pizzas a day still means a lo of profit for each branch so the Dominos' decor would survive competition from other brotherly brands they add. 

Inflation is riding high, India a systemic story and will not be coming down despite the trending down  in non food inflation over the last 2-3 weekly readings. Manufacturing flash PMI plunged in China to 46 levels with double digit drops in input and output prices and new orders for the monthly figures but China is in the home plate, the last lap of the tough times to surpass before June and global indices will continue to plunge before the US markets reopen next week, A big bang on Monday is likely as Black Friday flash figures gladden the hearts of US watchers

There will be only one pullback in the rupee, either now or two weeks later if and when Jet signs up more FDI

 

 

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The market sentiment today after the Euro's integration was exposed to the pulic as nohing but  a rear guard defense throughout the coming decade, was a perilious wait and watch buy the buyers with the indices giving in to another one sided move after 8 days of unguarded hostility, broken for a brief lull yesterday.  The market also sees everyone else as unwelcome intrusion, just that there are sellers in both equities and currency markets , not to forget bond markets who still like to see the government's face on the other side before stopping the spree.

Whether in currency markets stemming the Yuan rise or the Rupee breakdown, most would look at the woeful example in Europe and stay away from intervention as nothing good comes out of it eventually. However, the sellers are very clear in their actions and verbal speak that their selling is not based on fundamentals and they do not think that matters. Hence, given our unlimited patience and the propensity of going bankrupt by going shopping for Rupee or Dollar at the wrong time, we would stay away till things settle down. and right now, the nifty after breaking 4700 down, may just swing back tomorrow for 5 minutes before staying down till Europe realises how much it is left with after the margin calls and how much it has to print. Unless China gets a new breeds of FIIs. Though, none of the money that enters India typically leaves ( After profit booking, more is inside than it is outside in this entire 2011 spectacle) 

Not to say that the markets can't rise vertically after they do end the fall, but as the exploding turkey in the oven, it is hardly going to be championship fare when this selling gets over. The prognosis therefore is that the markets will stay dull enough and you can wait even more before you do start buying. And, right now shorting any of these would be committing harakiri, in equities or in currency As even newly converted Indiabull JP Morgan mentions, we are still overweight on cash.

Sector wise, no one who is overweight on Comms can be without skeletons to hide and I would not suggest going overweight on Comms or tech. Except that Airtel scrip, which has a lot more going for it too and a sthe only player with muscle,  in its main markets, it will turn out well. I hope my readers have been buying on fundamentals, as there are a few stars out there . Also, apart from the intermittent interest in consumer staples and healthcare, sectorally, the market does not get into a secular upswing till the best sector there is i.e. infrastructure and banking, get up and get going again

Just getting the morning coffee to work..

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Though the equations are well off as Domestic Indian It business does not contribute to Dollar income or exchange rate risk that is giving a lot of IT companies more profit, it is true that despite protestations of growth including the latest Gartner report professing a $79 bln business in India at 9% growth in 2012, there are considerably dull days ahead for Indian IT.

While the US offshoring market and even Europe has been near saturation and has gone into a policy twirl, the domestic business has slowed down to lessd than the expected $8 bln as policy making is held up on crucial issues like UID ( Accenture and Wipro among other bid for a $400mln piece of UID business, that may be over budget and is waiting on the bid , probably only to scratch it).

The situation with the UID business is by no means unique ads most public contracts , even more so (if possible) for public spending contracts outside India remain stymied in current economic environment, labor friendly policies being the only saving grace of any government trying to last its course

However non IT exports other than Garments are likely to be more profitable in Gems but more than that are likely to grow in volumes across otherwise restricted lists like rice, iron ore and more. Also the $71 bln business already in the door in India will stay and earn 4-5% more in profits over the year ( A quick calc by HMT CFO KV in he media today is on the mark at 40bps per 1% depreciation)  assuming the rupee at 22% depreciation over the year yields a minimum 10% extra in profit ( esp at companies that have not applied hedging to more than 1-2 month revenues..)

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The FM was fiscally positive in tone earlier today reiterating that a lot of pressure would be released on the government from reduction in Energy prices and subsidies due on Fertiliser, Oil and Energy. To expect inflation to subside to 7%, unfortunately it looks little more than the ineffective posturing politicians have to resort to as the mouthpieces of a government working with is hands tied. What is immediately needed is good liquidity in the money markets and the inter bank markets otherwise yields could climb even further from 9.1% of last weak 

RBI has immediately opened a Floating Rate Bond sale that would help but probably needs to look at reducing CRR/SLR options as well and probably release at least 500 bln from banking reserves of more than INR 45 Tln that banks have handed over to it. 

Reserve Bank of India is poised to issue floating-rate bonds (FRBs) — for the first time in two years. Come this Friday, and the country’s central bank will reissue Rs 3,000 crore worth of FRBs that are set to mature in 2020.(BS)

10 year bonds, in the new series issued last week are already trading lower at 8.74% after the announcement but much more needs to be done as the pressure on the rupee is unlikely to be let up

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POWER: Of the 15 Mega and 5 UMPP Power projects almost 12 are beihnd schedule or tied down because of inability to complete land acquisition. Coal shortages dealt the final blow and with a lot of noise on rationing of coal for running and soon to be commissioned projects most have expected a slowdown and even fear bad debts forom SEBs to impact lenders in the sector  who would be delaying shchedules at most UMPP and mega power projects. Not only that only 39GW out of planned 60 GW was possible in the eleventh plan till this year, but also that not much is expected to change during the 12th period for the above mentioned constraints sthough funding and PPP models are likely to have more traction if such impediments were not the expected lot

OIL:  Energy major ONGC withdrew its FPO in the AM today, with the rupee falling through most earlier bottoms or stops and unlikely to reverse trend in a hurry. reliance will soon be asked to reverse costs of $1.8 bln it has already claimed from its public partner in profit sharing as its methods and practices, long questioned have been nailed down by the DGH and instead of $7 bln expenses it incurred it will only claim $5.2 bln. Though there are more details to how reliance has managed to claim more costs, and how it will not be able to claim discovery which it has hidden from the government, it will be under duress and disfavor most of this decade as Reliance and BP are unable to find new production levels int he KG D6 fields where production has fallen to 38 MMSCMD, much below the levels of 50 MMSCMD last year and the promised 60..

Currently, BP and Reliance are looking to rope in a state partner going ahead in the same fields (to bear costs of new production techniques? )

Mukesh Ambani is also rumored to pick  up a stake in kingfisher airlines which despite his protestations., seems mor e and more like his expression of disinterest in the core businesses of his flagship Reliance industries and his choice to go into more brand reliant businesses from the same flagships cash reserves 

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With bold and happy pronouncements on how FDI in retail is being considered as per plan to 51% in Multi Brand retail and 100% in single brand retail, one would think all is well. But the GOM approval is hardly the known factor in these last minute proclamations from persons close to the fire adnd should be observed and followed uop for their real strength if any. The FDI of 26% by Foreign airlines for example is already in a soup between 24% requersted by the Ministry of Finance and 26% that DIPP wants as it would promote at least a power to pass special resolutions accruing to the global airline investing. Not that that should be much of  afactor but it makes the paranoid Ministry's position suspect in both cases as it regrets issues of control in FDI. both Retail FDI and Aviation are eagerly awaited to be approved in the next 2-3 days

On our part we back all circumspection to the hilt, the recent crisis underlining the fickleness of Foreign investors and their propensity to look for leverage and scamper away with the booty like the banks getting rid of global assets inspite of their profitability as they face a shortage of capital

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From a FC  article of two weeks vintage, it becomes clear that not all the $10 bln FCCB debt holders in India ( FC says $8.5 bln outstanding) including Power sector projects, Kingfisher and the others like GMR Infra will be lost when interest payments and outstanding debt eat into their profits as FCCB / ECB debt holders contemplate the sharp fall in the Rupee. From 52.4 right now  which is beyond the March 2009 lows, the rupee can probably not find a range till 55 with many caught  off guard by the pace at which rupee positions had to be liquidated in the market,. Lets hope SCB is also trading the new trend in profits since October 2011.

The 22% fall in the markets this year may see a further breach though the morning's signs of trying the 4700 levels are encouraging for a falling only market trend. The ECB debt holders have already reported large 300-500 crore losses on their mark to market of Debt in the September quarter, but the silver lining is that players like Reliance Power have actually repaid $300 mln in October itself. The FCCB holders will be asking these companies to pay out on their ECB/FCCB in 2012 alongwith a host of other companies to the tune of $2 bln saving them the atrocities of the currency movement likely to continue in the future right now fo rth enext 6 months given the surprise and the pace of the downward correction this month. 

The problem is that 2 in 3 importers are not hedged on their position and likewise the small advantage is that IT companies unhedged on the Dollars earnings and Gems exporters who paid for their imports in Cash are going to add to cash profits to the extent of at least 10% of the 14% movement in the Rupee since July and veven more if the rupee tries to get to 55 quickly

 

 

 

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Vijay Mallya's refusal to caall his Air Deccan purchase a low cost airline addition to its portfolio, is not without reason. With sales taxes of 30% and more (depending on state jurisdiction over and above federal taxes) ATf costs are nearly 50% of the airline's revenues, more for Kingfisher. ATF prices were further increased even as petrol prices were cut nationally and the OMCs reported a huge bleed in Q2 results from subsidising even Diesel and Kerosene and Gas majors flunked the test of bearing the LPG and CNG burden and refused to put up more for the required expansion of India's energy infrastructure. ATF prices were last cut in September and October at Delhi (livemint.com)

Just a year and a half ago , Jet fuel prices were 33% lower at nearly 42k per KL including taxes. Internationally too the quarter has been tough for global airlines, ATF prices averaging $4.2 a gallon for American over $3.3 last year but still  these costs were only 35% of its operations and they are at an equal risk from unionisation and staff costs from the same  

With fleet rationalisation one can hope for a little economic respite for the otherwise 350 flight srong Kingfisher day schedule, but it needs more Jet Konnect features and efficiencies other than interest rate cuts to show up with a winning plan for that INR 6 bln working capital enhancement/ conversion of overnight lines to LC backed lines presumably for Aircraft lease costs  and the inevitable reduction of debt and interest loads that will let it fly high and join the thin ranks of airlines turning in a profit. United Airlines has testified twice in the last decade that it can be done, even if Vijay Mallya finds the thoguht of comparing with profitable cousin Naresh Goyal who may have more investors signing up when Aviation policy is released this week allowing 26% to 49% FDI interest in the Airlines incl. from Foreign Airlines.

However, after Kingfisher, there are others and the Airlines sooner than later have to pay up for new aircraft and order 100s more as the current fleets are hardly likely to contain and run with India's air traffic requirements as passengars continue to grow at double digits every year, enough to warrant continuation of the airport's expansion plans int o Phase II in Bangalore Mumbai, and even Hyderabad and Delhi to handle 20-30 mln passengars a year as was originally envisaged.

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Or, What you should be doing when the markets go dropping off that Pirate cliff:

1a. If you are thinking about buying gold, do rethink about that one as Gold has to wait for strong bearish pronouncements to move from here. However did you know that Central banks have bought 150 tonnes of the metal in one week and are still at 10% of the levels they held in the 90s when they sold and everyone else bought gold.

1b. As Central banks count as the most followed buyers right now, Gold's meteoric rise in the last few weeks may restart Also India becomes a candidate for taking everything down right now as it gets into a tighter inflation high, currency weaker every day and deficit unsent kind of tougher twirls with a higher and higher downside, but then we would still do 7% growth so do not think of a a market below 4500 Nifty, really ( even if it breaks down to 4420 you can beasar with me, right!) 

1c. Did you recheck your list of stocks to buy: All time lows everyday present great opportunities for investors out there to verify at leisure. You have at least 2 - 3 weeks to select, drop and re- select winners..

2. Watch that hollywood movie that gets released in India on time during market hours..You could not get a more predictable market direction with no trading bumps mid day since last to last Friday. Also Disney and ESPN are doing much better this decade than their worried little India doobies of a decade back, esp as Pizza and China surge

3. Reorganise India's infrastructure priorities, find time to review M&M and Unilever (Despite a fundamental change in the fortunes of these two companies from directed strategy, they get good results and attention on a tough down day only, talk about predilections) 

4. Teach other knowledgable friends - Who being optimistic on India esp during MSCI re organisation will be full of 'know all stuff' you can bear down on with gloating dripping from your eyes and mouth dfor weeks on end..(like the savoures you cooked for Diwali but did not last)

5. Figure out the Economic Indices: Wierd Inflation and IIP volatility, not to mention the staggering deficits not every month but every other month, the winning margins of a UPA government motion in parliament, the no. of public losses Anna is unable tyo bear and other ..Most of the economic ones we have dissected and detailesd over the last three years here

6. Tell everyone to "Take a virtual dive": Right now is the best time to  start on somehing you have never done before..In the AEs (RBI term for US and Europe - Advanced Economies, the latter have become cabndidates for REMs now - Re emerging Markets) they have even stopped asking people to start blogging, it's so passe. You could take a dive into a shopping all too, a good crowd as always 

7. Ask people to figure out the probabilities of a recession in India: No one will put a blame at your door now that India is going to get tougher in the next2 years and who knows your chances of a recession in India may have just improved from 1 in a 1000 to 1 in a 100

8. Review your family's eating and drinking habits: Especially those zombies and moose heads who are still stuckj in your head and inner year without turning you into aschizophrenic, tring to imagine themselves as a fund manager

9. Pay attention to India's Defence budget we are getting everything we need even if so late and even though China's spin counts in the media we don't

 

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And remember something else about being India. About being a nation of 1 billion cricket happy audience who were relieved that despite Marlon Samuels, Chanderpaul and the Bravo, we are still ahead 2-0 at home after having destroyed ourselves in T20 and in foreign tours of England

 

Also lets remember that Indian corporates own the Blackburn FC and I'd say even the Liverpool FC for all practical purposes despite no business for Stanchart in India after its stunted listing Also that Vijay Mallya's sports teams are still the toast of quite the world looking at India. 

 

Apart from that just that fuel inflation is now 15.5% for the week ended Nov 02, 2011 and food inflation is still over 11% and the Nifty tanked a 98 points despite the Primary Index going down from 11.43% last week to 10.4% to 204.7, Food Articles are at 199.8, Fuel at 171 (from 169)and Non Food articles at 175.9 still up after a dip int he food index from last week. 

 

India remains a bastion of growth, cricket and Coca Cola 

I do not understand how India can practice any fiscal consolidation with Oil, fertiliser and food subsidies hitting it below the belt and crude at above 100, though the spread between WTI and Brent is down (in the US hemisphere, because of a new re verse pipeline from the WTI hub in the north to the Gulf of Mexico) and in here as the low cost transport channels via Singapore and some de-bottlenecking in the Americas below in the shipping routes (as far as I could get this) 

The mood seems to be , even during the falling knives in the markets from 9 to 3:30, that I can see some with good value to hang on to, for the eternal sycophants there is HUL and Airtel scrips for the uncaring there is the dropping stock of Oil and mineral companies showing a lot of space on the way down, aand for the IT friendly just a word of caution - there is no business there except for that from depreciation of the rupee and that is halted he(e)re at 50-51 for the quarter. 

The banks are traders currency though, even at their best value in prices do not hld to positions very long and try and carry trades overnight though after judsging wthether long ofr short helps..opening a position after 9:30  is going to  a. be in the other direction b. lose your profit from the point it worked on today in market hours. Happy investing! 

 

G-Secs

India's additional $5 bln FII limit should be exhausted by the end of this week itself, we need much more.  Also if you have been following my writings since 08-09, it is the time of the season when central banks are buying gold..if anything else is falling that one won't and global trade will remain robust and on the up for US, China, Europe and India despite every other suffering knocking through..

 

Heavy Fuel

UB sold 31% of its Spirits/Beer operation to no. 4 Heineken and SAB Miller and InBev must be snooping around these small marketing havens(India/China) for growing the "footprint" of beer and fuel..Did I hear a nother offer on the table for KFA?

 

Growth in Coca Cola

Consumption stocks in the non-discretionary sector / food stables / FMCG non durables seem to be doing OK on sales though Dabur and Marico have fallen on the way. In particular praise and investments from Dominos, now one of many brands at Jubilant Foods, Coca Cola, investing $2 billion ( 20% of our defence allocation on the China Border across 5 years) and veen general insurance and healthcare businesses like Max India or fitness studios from Talwalkars

 

 

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India reported its October figures for inflation still near the September's 9.72%. The 9.73% figure was stuck with a high food and fuel component of 11 and 14.5% The core inflation figure remains equally tense at 7.7% India has lived with historically higher rates than most economies, its nominal growth always outpacing inflation by 7-8% since the 90s and even before at higher inflation figures and short term borrowing rates of even 21% .

India's shadow banking system has also been in a perpetual declines unlike its counterparts in China or elsewhere  is Asia and Europe. However, bank rates are crrently capped at 8.5% and borrowers do not have to fork out more than 10-14% across the 5 different credit worthy rating baskets. Credit growth is however slower at less than 20 %with RBI targeting 18% and consumption sectors have again slowed down after 11 straight months of 9+ inflation

Also linked to the monetary and fiscal systems is the fact that less than 5% of Indians fall under the tax code and/or file returns and GST has not been mplemented across the Federal structure and /of fiscal measures monitored along with welfare scheme as systemised data s usually at variance with each other and not connected across different silos

Food and Vegetables have not dropped below 10% in the year most times, a category of vegetables or pulses landing an annual rate as high as 25% and never lower than 15% for 6-8 months on the trot as supply measures and inaadequate remuneration of farmers disturb the welfare mechanism. Almost 2 in 3 of farm advances are classified as bad loans bu remain recoverable for most bankers by experience

Tighter liquidity has taken domestic yields in the 2-5 yr range to 9.1 - 9.2% recently and banks have stopped subscribing to new Govt auctions , small amounts of $220 mln devolving last week on the new 2023 security as banks are already loaded up on SLR securities as well as the 6% CRR

Rupee has also broken on the downside decisively across 50 this month after the 15% down move last month

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The weekend has been super busy fo rthe management of the airline at Bangalore as they rush to make amends with various stakeholders, governments recommend their case, FDI in Airlines gets aproved. None of the banks have a large chunk of the exposure as one round of recast touched only 1000 crores in April-June 2011. The 65 bln debt then grew back to 75 bln and the airline seemingly never got around to issuing mor eequity. 

A t this stage however, the airline has been quick to line up assets for sale, the banks having asserted a requirement of 800 cr or more in equity before restructuring is taken up and lines are extended for working capital(operational costs incl fuel and Salaries) 120 pilots ahd not turned up for duty on Friday and govt oil marketing companies assert that 2 months dues are pending. Lessors for the 120-140 aircraft fleet want their aircraft back as leases are treated as monthly rentals and each day costs the lessor more than KFA, es as bankruptcy administration becomes an option.

Sale of Kingfisher House (Mumbai) and even UB real estates KF World towers luxury residences in Bangalore will be mulled and prioritised  and the airline management has come back with a plan to reduce debt by half. It is not clear however how much of this will be restructured and how much will come from asset sales. We also mistakenly mentioned Diageo as an equity partner for UB, the flagship spirits and beer business of the company worth $1.5 bln in Spirits and $750 mln in beer sales annually at 60% and 50% national share of business. (India's alcoholic beverages industry s at less than 5% of evental market size today as beer consumption comes to less than 1/2 case a year (per capita) 

Unsurprisingly, promoter Vijay Mallya finds govt taxes and regulation to be the basis of all his troubles. FDI in airlines is probably out by next week as an option for the airline. Nevertheless, quick government and management action has reassured markets with 200 cancelations by the airline on the weekend of iots 469 flights a day schedule

 

 

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With credit picking up only in end September, the IIP figures for September trolled to an unimaginable 1.9% with consumer non durables reporting a -1.5% contraction(growth) from a 6% growth of last September and mining reported contraction of -5.5% The base effect and nature of bulk orders etc played truant with Capital Goods at -6.8% down over 1020 basis points from 3.8% growth in August.

Exports in October grew 36% only but will not limit bounce in IIP next month(October) Basic Goods grew at an expected 3.5% agst 4.5% in August while intermediate goods scored a low 1.5%. Consumer Goods grew 6% while Consumer Durables managed to grow at 8.7% though against a14% score in September 2010

MarkiT HSBC had reported a good tracon in the PMI figures at 5 with even Services PMI falling but staying above 50. The August IIP was 4.1% but observers had expected a jump in Utilities / even manufacturing numbers to a 4% IIP rate as per PMI indications and leading indicators tracked. Exports growth has slowed in October but remains a large $320 bln run rate to March while the trade deficit governed by the jump in Oil imports to a deficit of $19.9bln for the month

Infra output reported growth at 2.3%in the month September manufacturing PMI was India's lowest at 50.3 PMI growth in October points to IIP recovering again in October with a good jump again in Capital goods..(no one likes the Capital goods series anymrore. one wonders if another redesign is planned) 

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In another structural repitition of our impregnable GDP growth rate ( at 17% nominal and nearly 8% in a down year) the Fiscal deficit overrun because of expenditure on Oil and Fertiliser subsidies and / or revenue shortfalls from divestment may be compensated by robust tax collections despite protestations to the contrary despite porotestations to the opposite from economist desks affiliated with the media. 

We oursellves have found pragmatism necessary in the face of stalling growth but the Indirect Tax collection reports for April - October as well as the Advance Tax collection reports till now have been crossing the required 15% uptick in revenues. This year the small Service Tax tab has already generated INR 500 bln in seven months till October (April-October)

Also, Customs and excise collections have netted INR 820 bln and INR 875 bln well on way to the combined target of INR 4 Tln for the year from indirect taxes, stupefying hawks. That is $16.4 bln customs, $17.5 bln Excise and $10 bln in Service Tax collections till date. Advance Tax collections have to be netted for refunds later near the end of the Fiscal year Collections have grown at a rate of 19% ahead of the 'optimistic' target by a few points

the Exports continue to stupefy the hawks too, RBI making it clear that the numbers till now seem to be verified for correctness and India looking at a $300 bln collection but a $160-$180 bln deficit conservatively from the first two quarters of the fiscal year.  

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Kingfisher Airlines is on the verge of a breakdown on all counts, with losses of more than INR 7 bln every quarter and 1 in 3 flights canceled from the planned 469 flights by the airline, with only 36 announced as rescheduled nd none noted to the industry regulator. Jet Airways losses are likely to tip the scales at INR 3 bln and Spicejet has already reported earlier int he day at a INR 6 bln in losses , the last two being in profits albeit less than 1 bln in the September of 2010. 

Unfortunately, the only thing you can pin down is apparently something you cannot control and that is the 50% of the costs going to fuel, which goes thru even more hikes than at the retail end. 

Aviation as a sector needs a lot of gestation and a belief in cash profits. Foreign investments can help and first and foremost the regulators and the Ministry needs to help the beleaguered airline, with only INR 60 bln or $1.2 bln in debt and a fleet of 140 aircraft, it would be unfair for the airline to leave midway. However that the government has to help is also prima facie an issue with india's bankruptcy protection laws from thee xamples of GM and United Airlines that has come back multiple times from bankruptcy and earned fair profits. KFA had already restrcutured part of its loans and mismanagement if any has to be monitored and weeded out, but all these are just bemused observations as Aviation remainsa requirement and unavailability of cheap and extensive airline connections in a country like ours or without quality from being a state carrier make our enterprise no better than that of Greece and its wayward ways. and Indi ais much better off.

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Wihth credit picking up in end September, the IIP figures for September rtolled to an unimaginable 1.9% with consumer no n durables reporting a -1.5% contraction(growth) and mining reported contraction of -5.5% The base effect and blk nature of orders etc played truant with Capital Goods at -6.8% down over 1020 basis points from 3.8% growth in August

MarkiT HSBC had reported a good tracon in the PMI figures at 5 wqith even services PMI falling but staying above 50. The August IIP was 4.1% but observers had expected a jump in tilities / even manufacturing numbers to a 4% IIP rate as per PMI indications and leading indicators tracked. Exports growth has slowed in october but remains a large $320 bln run rate to March while the trade deficit governed by the jump in Oil imports to a deficit of $19.y bln for the month

Infra output reported growth at 2.3%in the month September manufacturing PMI was India's lowest at 50.3 PMI growth in October points to IIP recovering again in October wi a good jump again in Capital goods..(no one likes the Capital goods series anymrore. one wonders if another redesign is planned) 

 

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The PFRDA apaarently, though the issuer is not clear from coverage, is coming out with new Pension fund guidelines. The new guidelines allow fund managers to promise guaranteed returns , principals at maturity or yields without having to promise a minimum 4.25% annuity. The Annuity is not readily understandable by the customer esp if it is a good return on his investment and the new guidelines take care of that. These are quite close to operationalizaton and the finall announcements must be for Jan or April 2012 onwards

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Leading the news today is a cascade of TPO orders for Transfer pricing practitioners, as pricing becomes another bone of contention for Corporates struggling with slow orders and higher basic inputs in the quarter. Vodafone recd a draft order here thursday after it reported Sales of $3.3 bln from India operations. Vodafone had just declared its India operations profitable in March and is nowgaining from SMS termination charges and 66% increase in Data traffic / 25% increase in customer base this fiscal till September. Vodafone WW grew EBITDA but debt repayments landed it in a loss worldwide Indian EBITDA is $800mln (INR 42.55 bln) for the half year out of a global $15bln guidance on $65 bln sales runrate. india's contribution to sales for the half year comes to nearly 10%. Costs would rise as Intra roaming on 3G are also looked askance by TRAI and 3G Licence loans come up for active repayment schedules

DLF

DLF reported sales of INR 23.8 bln or $470mln but failed to report growth in profit and sector inventories having risen others based in Mumbai instead of DLF Delhi / DLF Gurgaon may not even have that luxury of reporting any profits, still reporting healthier profits on sale of TDRS before prices went down The others are of course responding to the nation's lawmakers and enforcers in a myriad web of encroachment on regulation

Mahindra Satyam

Reports a qoq growth in sales to INR 15.78 bln vs 14.4 bln in June and profits to an EBITDA (low) of 15.33% for INR 2.42 bln. PAT is up 5.7% over June to INR 2250 mln or $45mln

TCS did report good news for the sector with a new $2.2 bln Friends life contract for 5 mln + policies for 15 years  at London based Diligenta set up in 2005 after transfering business and staff from Pearl insurance. 

JSW Energy / Voltas

JSW energy reported sales of INR 9.5 bln frm 11 bln lasty ear, Voltas reported sales up 37% to INR 11 bln or $220 mln but profits of 1.3 bln talking to a loss of 1.09 bln this quarter , a downtick changing hands at around INR2390 mln or $500 mln

GMR Infra

GMR Infra sales are up nearly 50% to INR 18.1 bln converting profits of INR 710 mln to losses of INR 650 mln, a downtick of $23.2 mln

Tata comm

The company reported loses of INR 1.65 bln against INR 2.1 bln last year in September on sales growth of less than 20% to INR 33 bln

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Ranbaxy's brilliant $1520 mln loss in Foreign exchange as it has not yet settled with FDA days before it starts its exclusivity period on Lipitor. The long term contracts , much like the State's Oil contracts are going to cost India dearly..as can be visibly seen this quarter. Even 75-100% hedging of receivables by Big Four IT like HCL Tech will be something to shed oil on, fueled by the others willing to run Double or Quits options on Rupee;'s appreciation again. The Rupee has already crossed 50 and with no state intervention and all trade flows mapped out to outflows, India is singularly vulnerable as runs on Europe wipe out investor capital and militarily active China remains a sad trade option at best Indian Oil IndianOil produced a giant $1.5 bln loss at INR 74.56 bln, bucked by State Oil procurement expenses of INR 957.88 bln for the quarter, a huge figure even when sales rose by 15% year on year as the subsidy bill becomes an alarming figure for ONGC, IOC and the state that has to decide how much it will be able to afford Ranbaxy Spurred by the FX loss (pun intended) Ranbaxy reported a INR 4.65 bln or $93 mln loss for the quarter, wiping its slate clean of all evil capitalist trappings. The Japanese owned Pharma majo has sales of almost a $95 mln in North America without its exclusivity prd sales from Lipitor-generic-X out of a total of INR 20.27 bln or $405.4mln. Europe is another 16.3% of Sales at $66mln or INR3.3 bln (Figures courtesy livemint.com (mint)) Domestic sales grew slowly but remained a cool $103 mln in India PFC Comparatively, India's slow and ugly Power sector continued to spur a large expansion and good NIMs in Power lending as PFC grew 24% to sales of INR31.45 bln even as profits were limited to INR4.19 bln or $84mln REC infact managed to keep NIMs stable while PFC has grown Income and old loans apparently may have been sloughing off than restructuring issues for its customers(lendees) PTC Sister company PTC meanwhile could not hold on to Sales reporting INR 23.69 bln in Sales and a lower INR 355.7 mln in profits, but the company has not done much from its year ago portfolio yet CESC The RPG owned Calcutta utility had trouble in profitability too much in lin e with industry as it still managed a profit of more than $22 mln or INR1.1 bln (25% lower than FY11 September 2010) as Sales grew marginally to INR 127 bln or $2.5bln OPTO Opto is a great buy as it jumped profits on to INR 1.21 bln from 0.77bln last September with Sales of INR 5.56 bln a healthy margin and assured sales on contracted export deliveries till 2015 Sales grew 70% and Profits 56%. (A lot of help from myiris.com for the figures)

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This bonus market holiday however, a second disruption within the week and directly attributed to India's diversity. Those millions lucky enough to hold a job in this economy would continue to get a glimpse of Low IIP, High Food and Fuel Inflation and that will remain their pet rant, disillusion unable to convert them to a pessimist with respect to India's growth.

China, the virtual candidate for Big Brother in every Asian government has managed to grow exports by almost 20% this month and is still figuring out ways to deals with a surplus and we are ready to combat twin deficits of 3% on Trade ($19.5 bln for the month of October) and the Fisc likely to be moved to a 5% target, 5.3% achievement after the ONGC equity offer gets through. SBI keepss saying the government will fund it $1 bln this year and one wonders, every now and then.. 

The inflation figures for the week are unlikely to report any surprise in the food articles numbers for the week ended Nov 3rd and the fuel inflation may even creep higher in the coming months from the current 14-15% levels

The Auto Sales figures finally trickled in at 138k and with exports would come to around 150k , a travesty for such a huge economy, it will change charging pods at every street corner, back to the games till then..and books on paper!

 

 

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After a season of low profits from correctional provisioning, this quarter's growth in provisions to INR 29.2 bln (21.6 bln Sep 10) or $0.55 bln was more easily absorbed as NII from loans jumped to INR 104 bln or $2.06 bln at the new extreme dollar rates. 22% jump on the Gross NAs and 46% on Net NPAs being still a pressure on growth.  Last year in September they had scored 81.14 bln in NII and Net NPAs were still high because of the bank's customer profile at 1.70%, the growth to 2.04% in line with the sector's results

Thus the PaT is a good INR 2810 Crs or $560 mln a growth in double digits over last year September. Now SBI has stepped into a negative spiral of sentiment on the sector Moody's choosing this time to derate the Indian banking sector even though it is insulated from global harakiri in the sector (apparently as indian corporate encourage limited ratings business) The sectoral rating by Moody's as the downgrade on the Standalone Financial Strength rating to D+ earlier do not affect any credit offerings of the banks, incl PSU ECBs and Infra Bonds by the InfraCos

The market could have expected a 30% grow back in profits but that does seem unlikely from here Fee Income is apparently flat from last year as expected. According to reports, NPAs start climbing down in the second half odf the year as Pratip Choudhary had recommended / guided since the wipeout in March 2011 Grodss NPAs at 4% however mean the bank will be held to close scrutiny from here

 

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The ratings downgrade by moody's seems to be a political ploy addressing their own desk inadequacies as the creep on Non performing loans is unlikely to affect the private sector players and a sectoral downgrade makes no sense. Even some of the PSU banks barring UBI or Bank of India are fairly healthy producing an uptick in results without loss of discipline and despite new reform creep

The NHB announcement allowing HFCs to mark only 04% on Fixed 2 year variants of home loans will come in good for majors HDFC and others like LICHSG who could not keep up with HDFC in results

Glenmark pharma seems poised for a great jump with arnd 40% growth in sales to  a $500 mln run rate for the year even at th e new Rupeee Dollar benchmarks. Opto Circuit already shows a grand 50% revenue jump to a $500mln run rate with the device orders from Japan

IDFC continues to surprise , money market eficiencies boosting its Net Interest Margins as its frevenues rose 55% mostly in the loan book and many entering a paying interst period on their loan helped NIMs too,. IDFC maintains the lowest NPAs in the business and a revenue of $2 bln annual run rate gives me confidence to carry it my portfolio always

 

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For some strange reasn we are dealing with September Data by Segment after getting (flash) data for the fortnight ended Oct 07, 2011 instead of the Diwali week, but do not get confused by that. Out of the INR 16 Tln non food credit, growing by the predicated 18.7%, Credit to NBFCs has grown year on year from INR 1.16 tln and INR 1.56 tln sometime in June to INR 1.83 tln or $36.5 bln Total creit had grown to 42 tln to the last week of September as already covered. 

ET carries a detail table based on the RBI release not carried online The misguided analysis by the young ET analyst still shows an ability to review the data though home loan growth has actually pretty much slowed things for banks everywhere and it holds right now for India oo and any patriotic assertions not backed by data do not do good to India's investment inflows

The gold mine of data is apparently located at http:/dbie.rbi.org.in. The segmental breakdown (thanks to the villains of all financial confusion at moneycontrol.com)  

As margins in retail industry contracted, food supplies incl Tea and Sugar companies took credit off the table in 2011, while credit to industry grew at 22.7% and Personal loans at 15%. From looking at the Auto sales data, it is apparent that the trend in personal and NBFC loans will continue to grow in October as well but at the expense of mandatory big ticket spends of the festival season: House and Car. 

Infrastructure credit to Power is up 11% over the year to INR 4.8 tln New Infrastructure credit requirements at NIMZ under the New Manufacturing Policy could include INR 3.6 tln for the DFC and another INR 3.6 Tln for the DMIC builds However work on the greenfield projects is unlikely to take off any time soon as even in Power, 5 out 15 UMPPs are 'indefinitely' delayed ( nice B-TV analysis) 

Growth in Credit is lower than the overall 18.7% growth in all industries except Mining and Gems and Jewelry and sub segments like growth in NBFCs credit by 46% stand out. This growth will be mostly to real restate projects already sanctioned and retail unsecured credit, not encouraged at banks like ICICI Bank but fueling a lot of NBFC and even banking credit growth

Personal Loans are a 18% of the Gross RBI credit at INR 7.02 Tln or $140 bln outstanding as of September 23, 2011. Over the year Vehicle and Home loans have also grown at 15.7% and 19% but to INR 3.06 tln and INR0.86 tln out of the Personal basket

Credit card spend has started ticking upward after three years since February 2008 from this month now at $4.62 bln outstanding credit and a monthly spend that is about the same.. 

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PSU Banks deal a blow 

PNB , Punjab National Bank followed with great results after IOB, UBI and others excl Canara reported great sales upmoves yesterday limiting growth in NPAs at the gross and net level. 

PNB reported a NII of almost $ 700 mln at INR 3454 crores or INR 34.54 bln to post a large operating profit of almost $ 500 mln and a net of $ 241 mln at INR 24.5 bln and INR 12.05 bln respectively. Though Net NPas grew from 0.69% they were limited to a creditable 0.84% Though going by ast records these results may not be replicated in the coming quaters, the bank has again posted great half yearly numbers and profits

Systemisation of their Credit mechanisms has led to a larger NPL hit for all PSU Banks and the same is expected to ease off from this month as UBI even continues posting its profits ony from reduced NPL provisioning in the last two quarters

PNB and BOB are preferred PSU banks from an asset quality point of view

PNB has also posted a 30% + Net Sales(NII) in Q1. Interest Income topline is a 8% growth over Q1's INR 83.5 bln at INR 89.5 bln, and net profit is 9% ahd of Q1 's INR 11.05 bln

PNB's total Advances add up to $50 bln just ahead of Pvt Sector leader ICICI Bank and Deposits (as of June 2011) were a large $65 bln or INR 3.24 Tln

Other Results

India's cement story seems to track to a full loss as ACC's doubled profits of 1.86 bln were still a far cry from a successful year and Ambuja thus tracked down since morning. I could even think osf some non Cement / Finl Services stocks to replace them in the indices..

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Exports continued their healthy growth in September growing 36% but even as the trade deficit came back to $9.8 bln in September and imports grew by 20% only, the trade deficit is galloping to a $42 bln gap for the year at a $10 bln over run per quarter

The growth in exports, verified to an extent by data on port shipments (RBI:Governor's Interview on B-UTV) is a welcome addition of $6 bln to India's topline everymonth, coming to $24.8 bln in September after a $18 bln September 2010 

Going by Q1 's example, as also Q2, 2 out of 3 months in the December quarrter may end up reporting a $15 bln deficit in trade each

India now expects to triple its global trade by 2025 and even pip China as largest trading partner in the Middle East (Abu Dhabi) according to a HSBC rade conference in Abu Dhabi. Trade with Abu Dhabi is expected to grow to 100 bln and India's overall trade bill $977 bln / $1T

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