Tuesday, May 19, 2015

The earnings' show so far

Thought for the day
"To see and listen to the wicked is already the beginning of wickedness."
-          Confucius (Chinese, 551-479BC)
Word for the day
Cacophonous (adj)
Having a harsh or discordant sound.
(Source: Dictionary.com)
Malice towards none
Can Rahul Gandhi sustain his new found aggression till 2019?
Most of the issues he raising are likely to fizzle out in next one year itself.
 

The earnings' show so far

Asian Paints' 4Q results provide further evidence of slowdown in consumer demand. The company could sustain profitability due to lower raw material prices, which has again been the trend across the consumer segment.
A primary analysis of the results and consequent corporate commentaries brings out the following broad trends:
(a)   The consumption demand has slowed down considerably, and likely to remain subdued for another quarter, primarily due to poor show in rural income. However, most managements have guided for gradual pickup from 2HFY16.
(b)   Both the consumer durable and FMCG companies have managed the cost well and improved margins on normalized basis. None of the management so far has guided any material deterioration in the demand and price conditions going forward.
(c)   Exporters (IT and Pharma) have suffered due to poor demand conditions in some key markets like Europe, and Latin America. The cross currency headwinds have hit most companies. However, unlike 2008-09, most companies have managed their currency exposures well and no material forex losses have been reported.
(d)   Industrial segment has expectedly suffered due to poor investment demand. However, most large companies have been able to meet the subdued expectations. The stress in visible in mid and small cap, especially highly indebted companies.
(e)   Reality sector companies have reported mixed results so far. The well managed south based companies have reported decent numbers and have guided decent growth going forward.
(f)    Financial companies and banks have reported huge rise in delinquencies in restructured assets. The credit growth has been on the lower side. However, the cost efficiencies have improved across the board. Operation numbers are as per expectations or better.
SC clears doubts on obligation to buy power from green sources
In a precedent-setting judgement pronounced last week, the Supreme Court of India has laid down that owning a captive power plant does not absolve a company of its obligation to purchase part of its power consumption from green sources, such as wind and solar.
The judgement implies that the various companies who have not been buying green power by taking shelter under a legal ambivalence, now face enforcement of their obligations.
The case pertains to an appeal of Vendanta group’s Hindustan Zinc Ltd against a 2012 verdict of the Rajasthan High Court, which said that the State electricity regulatory commission was right in imposing the ‘renewable purchase obligation’ on the company, even though the company runs its own captive power plants, of about 475 MW capacity.
 “The renewable purchase obligation imposed upon captive power plants and open consumers through the impugned regulation cannot in any manner be said to be restrictive or violative of the fundamental rights conferred on the appellants…..we do not find any reason to interfere with the impugned judgement (of the Rajasthan High Court),” the apex Court’s order said.
Impact of the order
The Supreme Court’s order brings clarity to the point as to whether or not companies that have captive power plants are covered by the law that mandates green power purchase.
Some other companies had impleaded themselves in the case, filing counter affidavit with the Supreme Court — Ultratech Cements, Mangalam Cements, Binani Cements, Trinetra Cements, Shree Cement, Rajasthan Textile Mills Association, DCM Shriram Consolidated Ltd, JK Tyre Industries and Lucid Coloids Ltd.
“All other interlocutory applications for impleadment/ intervention/ stay/ directions are disposed off,” the order says.
As such, the order will have far reaching implications on India Inc. Vishal Pandya, Founder of REConnect, a consultancy that operates in the area of renewable energy certificates trading, observes that several High Courts have stayed the imposition of RPO on captive power producers.
“With the Supreme Court, these stays will become redundant,” Pandya said.
“The order will provide support to the State electricity regulators to impose RPO regulations more forcefully and enforce them effectively,” he said. (Business Line)
Oil prices rise on Middle East fighting; OPEC output in focus
Oil prices edged up on Monday following fighting in Iraq and Yemen, but Iranian comments that OPEC was unlikely to cut output as well as signs of strengthening U.S. production capped gains.
Front-month Brent futures were up 12 cents at $66.93 a barrel by 0556 GMT. U.S. crude rose 26 cents to $59.95.
Prices were supported by concerns that conflict in Iraq and Yemen could disrupt supplies after Islamic State militants said they had taken control of the Iraqi city of Ramadi in a big blow to the government.
In Yemen, a Saudi-led coalition resumed air strikes against Houthi militia in Aden, a port-city on the shores of key Middle East oil routes.
Despite these Middle East conflicts, analysts said oil markets remained oversupplied, and that the glut could worsen if U.S.-production picked up and output by producer-club OPEC remained strong.
"Oil prices appear to have outpaced the improvement in underlying fundamentals," Barclays said on Monday.
Iran's Deputy Oil Minister Rokneddin Javadi told Reuters on Monday that OPEC was unlikely to cut output at its next meeting in June, and that Iran hoped its crude exports would return to pre-sanctions levels of 2.5 million barrels per day (bpd) within three months once a deal to lift an oil embargo is finalised.
A deal over Iran's disputed nuclear programme between Tehran and world powers could see sanctions on Iran lifted if a more permanent pact is finalised in June. Because of the sanctions, Iranian oil exports have fallen to about 1 million bpd since 2012, mainly to Asia.
In the United States, Goldman Sachs said that despite an expected dip in output in the second half of this year, production would increase by 205,000 bpd in 2016. (Reuters)
...Gold too climbs to fresh three-month high
Gold jumped for a fifth straight session on Monday, climbing to fresh three-month highs, as soft U.S. data bolstered hopes the Federal Reserve would not hike interest rates soon.
The metal has been supported in recent days by sluggish U.S. economic data, which has hurt the dollar and altered expectations regarding the Fed's monetary policy.
The dollar languished around a three-month low against the euro on Monday, after weak data on U.S. industrial production and consumer sentiment.
The weak data bolstered views the economy was not recovering strongly enough for the U.S. central bank to raise rates from record lows. This has supported non-interest-paying bullion, which would have seen demand decline with higher rates. (Reuters)
58% of Indian employers facing talent crunch
Notwithstanding the recovery in job market, 58 per cent of India employers are finding it difficult to fill positions and there is a significant talent shortage in accounting and finance sector, a survey showed.
Globally, 38 per cent of employers face talent shortage. In India, however, the number stood at 58 per cent, ManpowerGroup's 10th annual Talent Shortage Survey said today.
Even though talent crunch persists for Indian companies, they are better off than last year. In 2014, 64 per cent of employers said they faced difficulty in finding the right people.
"The demand index for IT and accounting professionals have been on a continuous rise. Focus on technology up-gradation and better financial access will drive the sectors growth in the coming months," said A G Rao Managing Director of ManpowerGroup India.
Employers in India are finding it most difficult to fill jobs in accounting and finance, IT staff, secretaries, receptionists, administrative assistants and office support.
The other jobs that are most in demand in India this year include, teachers, engineers, communications staff, sales manager, engineers, communications staff, sales manager, executives, legal staff and researchers.
As per the survey, around 13 per cent of Indian employers said talent shortages are having a negative impact on their ability to meet client needs.
However, few employers are putting in place strategies to address the talent crunch problem, the survey added. (ET)
For first time in 20 years, Indian mobile phone sales drop
Mobile sales dropped 14.5% in Q1 (January to March) 2015, on a quarter-to-quarter basis, compared to Q4 (October to December) 2014; from 62 million handsets in Q4 2014 to 53 million handsets in Q1 2015.
The decline in smartphone sales from quarter-to-quarter was 7.14%. Cheaper “feature” phones performed worse, with an 18.3% sales decline over the same period.
 
 
FM seeks rate cut from RBI
 
Trivia
Each crisis that materially disrupts social, physical, or economic life of people institutes some changes of far reaching implications.
For example, a cardiac arrest forces material changes in the life style of the person. The national emergency imposed by Mrs. Gandhi changed the socio-political fabric of the Indian society forever. The currency crisis of late 1990s changed the economic structure of countries like Thailand and South Korea.
The global financial crisis that started 2007-08 is also shaping many changes of far reaching impact in global markets.
While the non-conventional monetary policies used to diffuse the crises are still being tested and yet to find recognition in the economic text books, the new stringent norms for banking, cross border investments, money laundering, and leash on fiscal profligacy of many countries are some changes of far reaching implications that are already coming into effect.
One serious change that is increasingly becoming evident is the global aid for poverty alleviation due to fiscal constraints of the donor nations. The stress and non-compliance in the aid receiving jurisdictions is rising and may continue to rise in coming years. Africa that emerged as favored investment destination a decade ago must be "under review" at investment banks.
You may also want to read the following:
Euro Wreaks Havoc on Carry Trades in Rally Almost No One Foresaw
Tspiras Endgame Nears as Greek Bank Collateral Evaporates
Chinese Maternity Tourists and the Business of Being Born American
Fed's Evans says FOMC could look at rate hike in June
 
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Monday, May 18, 2015

NIFTY: Constrained by a long leash

Thought for the day
"In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of."
-          Confucius (Chinese, 551-479BC)
Word for the day
Rhapsodic (adj)
Extravagantly enthusiastic; ecstatic.
(Source: Dictionary.com)
Malice towards none
Indians are drinking more and young.
The abortion rate amongst Indian teens is rising at alarming pace.
Tell me the catalysts for these trends.
I mean besides, item numbers, item girls, Maggie Noodles, and denim trousers!

NIFTY: Constrained by a long leash

Technically speaking, the Indian equity markets are positioned at interesting juncture from near term as well as short term perspective.
Near Term (1 to 36 trading sessions)
In the near term NIFTY is close to completing a reverse head shoulder pattern (H&S) (see chart on next page). It has also made a higher bottom, suggesting buying support above 8050 level.
A close above 8325 will conform the H&S breakout and will open the way for up move till short term resistance range of 8550-8630.
On the other hand a close below 8120 will negate the H&S formation and trigger a move towards short term support of 7860.
The most likely scenario in my view is that NIFTY may complete H&S pattern breaking 8325 this week and making a move towards 8550 level in next 3-18 trading sessions.
Short term (1 to 108 trading sessions)
In the short term NIFTY appears to be established in a downward slopping channel. The current bounds of this channel are 8630-7860.
Three consecutive close outside these bounds will violate the trend and open the gate for a 7% NIFTY move in the following 1 to 42 trading sessions. This scenario looks less likely as on date.
Medium term (108 to 324 trading sessions)
The medium term uptrend has been violated and must take some time get re-established.
As per current trend the medium term NIFTY range is 7860-9450. Failure to close above 8630 in next 54 trading sessions will move the range lower to 7200-8320. However, three consecutive close above 8630 in next 54 trading sessions will sustain NIFTY in the current range.
At present, the chances of breaking this range are miniscule.
Nifty: Near Term uptrend likely
Selling pressure recedes, breadth better, IV higher but moderate
Global Markets Last Week

 

Fed, data take center stage
Investors will watch for any change in the economic outlook from housing data and remarks by various Federal Reserve speakers next week, while retailers will take over on the earnings front as the first-quarter reporting season trickles to its end.
The highlight comes at the end of the week with Fed Chair Janet Yellen speaking on the economic outlook on Friday. Any hint of a downgrade to the economy could signal a delay in monetary policy tightening; central bank watchers now expect the Fed to begin raising interest rates in September.
Yellen will be preceded by Chicago Fed President Charles Evans, who will talk about policy on Monday and Wednesday in Europe. The San Francisco Fed's John Williams takes his turn on Thursday, a day after minutes of the Fed’s April meeting are due.
Yellen signaled earlier this year that the Fed will likely start raising borrowing costs later this year, even before inflation and wages have returned to normal levels.
"From Yellen, markets want to know whether or not she continues with that direction," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
"Any color that you can give to the debate on expectations for liftoff will certainly be picked up by the market." (Reuters)               
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Friday, May 15, 2015

Should I celebrate!

Thought for the day

"Different men seek after happiness in different ways and by different means, and so make for themselves different modes of life and forms of government."

-          Aristotle (Greek, 384-322BC)

Word for the day

Syzygy (n)

An alignment of three celestial objects, as the sun, the earth, and either the moon or a planet

This is the only word in English language with 3 y's in it.

(Source: Dictionary.com)

Malice towards none

Why "suit-boot" is derogatory?

 

Should I celebrate!

India's wholesale prices fell at a faster-than-expected annual rate of 2.65 percent in April, their sixth straight fall, mainly on the back of plunging oil prices, government data showed on Thursday.
The data compared with a 2.30 percent year-on-year fall forecast by economists in a Reuters poll and a provisional 2.33 percent annual decline in March.
One of the most important piece of statistics, producer prices index (WPI) lost its glory last year to Dr. Raghuram Rajan's preference for consumer prices as primary policy consideration.
As a common man, I fail to understand how something that has been a critical input in economic decision making for decades suddenly become irrelevant.
The people who used to wait for the weekly (later monthly) WPI data with abated breadth do not even register it. Business channels also do not waste much time discussing this out of favor child any longer.
Nevertheless, I see some merit in discussing it.
From monetary policy standpoint, it might have become less important, but from economic assessment viewpoint it remains a critical input.
A persistent negative reading, highlights to me one or more of the following:
(a)   Lack of pricing power amongst producers;
(b)   Poor demand environment;
(c)   Poor capacity utilization; and/or
(d)   Stronger currency that makes imports cheaper.
I do not see any reason for celebration here.
Sadly, contrary to popular belief, I feel rate cut of 25-50bps may not help the situation in any material portion.
Please help me if you could!
Alarmed at the poor linguistics skills of her eighth standard students, my daughter's Hindi teacher advised the class to read a Hindi newspaper daily.
Being a Hindi enthusiast myself, I was thrilled to hear the idea. But within three days I am scared and afraid of confronting the girl who has just stepped in her teens.
She wonders why we should be living at a place where crime is the way of life. People are angry - with themselves, with their neighbors, and with the system. Women, old and children do not feel safe even in their homes. Heinous and unforgivable crimes like rape of children and murder of old parents is considered mundane. An otherwise brave girl, she was feeling scared even in going to school yesterday.
I do not know where the lies the fault line.
*         Whether the system has grossly mismanaged society by raking up their aspirations far beyond the ability to service them? and/or
*         Is the society as whole is getting increasingly frustrated by the system and people have decided take the matter in their own hand? and/or
*         Were we always like this and it is just that these instances of crime are being highlighted now? and/or
*         Media is unduly focusing more on the negative energy within the society, playing with the fear psychosis for short term commercial gains? and/or
*         Is our economic system focusing too much on quantitative aspects of growth, leaving behind the qualitative aspects for a later day? and/or
To make my daughter little comfortable, I took her to a senior police officer. From his counsel, I get a sense that in system's eyes perhaps crime against women, children and old is not even a real problem. It is mostly an illusion created by motivated groups like political parties, rival communities or even religious sects to settle some old scores!
After listening the senior cop, my daughter's anxiety has been somewhat relieved. But, I am struggling to incorporate the fear of my daughter into my investment model.
I strongly believe that widespread social anguish and frustration must reflect on the economy in some way or the other.
Low productivity, frequent disruptions, worker-management mistrust, lower predictability are some obvious implications.
Stretching it little further may help conclusions like maverick political experimentations by people (like AAP in Delhi).
But still, I am intrigued as to how to build all this into an investment model and profit from that.
Please help me if you could!
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Thursday, May 14, 2015

The morning after

Thought for the day
"Moral excellence comes about as a result of habit. We become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts."
-          Aristotle (Greek, 384-322BC)
Word for the day
Hidebound (n)
Narrow and rigid in opinion; inflexible.
(Source: Dictionary.com)
Malice towards none
Luxemburg PM comes out and marries his gay partner. The country celebrates.
Wonder, will someday we also accept that the politicians too have a right to personal life and politics has nothing to do with it!

The morning after

A sense of unease has been palpable amongst large investors since past few weeks. This is a typical case of hangover after a spell of ecstasy and overindulgence. It shall pass over soon and normal market order will be restored, in my view.
In the interim, shooting pain, nausea, wooziness accompanied by sense of despondency and rejection are natural occurrences.
In one such example, the global investment bank HSBC has downgraded Indian equities to underweight, citing "slowing earnings growth, little room for rate cuts and potential negative impact from an unusual weather due to El Nino".
I see more such downgrades over next 3-6months.
The primary reason for this pessimism, in my view, is the Newton's law of motion. The more an investor got excited in post election euphoria, the larger are the chances of his swinging to the other extreme.
I believe, for taking a holistic call on Indian equities, we need to first eliminate the impact of election results from the market statistics. The macroeconomic data and corporate fundamentals are not impacted materially by the political changes.
By assimilating the market statistics to macroeconomic trends we may discover that contrary to popular perception, the market fundamentals might have actually improved over past one year, inasmuch as that (a) the process of bottoming in most macro indicators has progressed well; (b) most frontline companies have achieved sustainable cost efficiencies; and (c) many relevant companies have restructured their balance sheets by selling assets and raising fresh capital.
This improvement in market fundamentals will look relevant and substantial once the stock prices shed the flab accumulated during post election euphoria.
The morning after, I am excited and waiting to catch the pendulum at the other end.
Hangover - I : Political sloganeering giving way to economic reality
 

...macroeconomic indicators bottoming out gradually

 

 

Cleansing in financial system to kick start the economy
The extreme stress in the financial system is hindering the economic recovery in India. Unless the banks and financial institutions take the bitter pill and clean up their accounts, the fresh credit cycle cannot begin in the right earnest.
The recent management commentary of two largest public sector banks PNB and BoB, indicates that the process might just have started and should be largely completed within this fiscal year.
This effort duly supplemented by re-capitalization of PSU banks (the process begins with SBI) should see normalcy returning to the credit market.
Agreed that it is much easier said than done, but inevitability of the process should enforce execution, in my view.
In the meantime however, the investors in PSU Banks and stressed companies will continue to suffer pain. The industry leaders with stronger balance sheet should see good days with decent assets available at bargain prices.
Better fuel availability (Coal, LNG and nuclear fuel) should resurrect the troubled power sector in next 12-18 months.
Commencement of mining operations later this year should also help road traffic and CV sales.
Technically speaking - not worried as yet
The Indian benchmark indices have corrected 10% from the all time high level recorded last month.
Nifty peaked on closing basis at 8834 (13 April 2015), 2% below its all time closing high of 8996 (03 March 2015). However, the fall being broad based, sharp and normal (upto 10%) is not worrying from midterm perspective. It would still be normal if it corrects couple of percentage points further down. I see this as the likely scenario.
However, a close below 7860 on Nifty would rattle a lot of nerves, as it would open the probability of full 20% correction and end of bull cycle that commenced on 30 May 2014 from 7230 level. I see this as least likely scenario.
The benchmark indices however should move in a downward sloping channel making a lower top - lower bottom formation over next four months.
The large cap will materially outperform the mid and small cap in this phase.
The probability of a full 20% correction that would end the current bull market looks remote at this point in time. But may need some allowance to be made, should Nifty closes below 7860 in next 5 trading sessions.

 

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Wednesday, May 13, 2015

Love me or hate me, you can't ignore me

Thought for the day

"It is Homer who has chiefly taught other poets the art of telling lies skillfully."

-          Aristotle (Greek, 384-322BC)

Word for the day

Moppet (n)

A young child.

(Source: Dictionary.com)

Malice towards none

It is perhaps for the first time that PLA has not done any adventure before a Indo-China summit.

Love me or hate me, you can't ignore me

The incumbent government will complete first year in office in couple of weeks. Considering the high expectations it raised amongst all stakeholders, it is natural that assessment of its first year performance is evoking keen interest.
Media, political commentators, opponents, supporters, business, friends, etc. are all evaluating the performance on the parameters that suit them most. Unfortunately, many do not sound objective in their endeavor.
Media and opponents were elated to find ammunition against PM Modi in Arun Shourie's outburst against the government. English media in particular has been overtly critical of the Modi government.
Many businesspersons, e.g., Deepak Parekh and Adi Godrej, have expressed dissatisfaction over government's conduct. Though some like Ratan Tata have advocated giving some more time before a meaningful could be assessment is made.
The opposition parties have alleged in the Parliament that PM Modi is focusing too much on image building through his much hyped overseas tours and ignoring important business.
A India TV-C Voter survey telecast on Monday, found that a majority of people believe that PM Modi today appears anti-poor and anti-farmer; his image has taken serious beating in past one year; and Sushma Swaraj is the best performing minister in his cabinet.
If we juxtapose this criticism from various quarters what we get is:
*         The government has neither worked for poor not the rich. Poor find it pro-industry and industrialist find it too socialist.
*         Media finds that that PM Modi has undermined the authority of his ministers, especially Rajnath Singh (here) and Sushma Swaraj (here). But people find them most efficient ministers.
*         Critic feels too much centralization in PMO is affecting execution. Ministers and bureaucrats feel too much federalization is undermining their authority.
Good, Bad and Ugly of Modi government
Not satisfied with the objectivity of the popular surveys on the assessment of one year performance of the incumbent government, I decided to conduct the one by myself.
Though, my sample is unscientific and tiny, I found the results consistent and plausible.
For records, I spoke to 74 people across 8 states. Profession wise, the sample included small farmers, traders, industrialist, politicians, bankers, students, home makers, government employees, unemployed and petty workers. The sample covered the lower and middle part of the economic strata. The higher echelon went unrepresented. Community wise, it covered six primary religions, and all four caste segments. 12 women participated in the survey. About 10 respondents were from villages.
There was no structured questionnaire. The survey was based on free discussions. Respondents were not prompted towards  anything specific. They were requested to give their free and fair assessment.
The key highlights of the responses received are as follows:
The Good
April CPI Inflation at 4.87%; lowest in four months
*         The global image of the country has improved materially. Though it may not mean immediate economic benefits, the country shall reap multiple benefits in the long term.
*         The government has successfully managed the communal environment in the country. Though, the fringe elements within and outside the government have consistently raked up controversies, the government remarkably stayed secular and neutral.
*         The government has initiated healthy debate on vital issues like corruption, freedom of expression, federalism, freedom of religion, etc.
*         There is a healthy feeling of competition amongst opposition ruled states to compete with center on performance and governance issues.
*         The government has tried to build upon the existing institutions, policies and programs. It has not tried to disrupt the status quo in most respects.
*         It has successfully maintained a corruption free image.
*         The disaster management capabilities have shown remarkable improvement.
*         The government has taken some positive steps to improve center state relations.
*         The government has seriously pursued key economic reforms like land acquisition, GST, financial inclusion, fiscal corrections and improvement in delivery system.
*         PM Modi has successfully managed to keep the BJP at safe distance from the government.

The Bad
March IIP growth slows to 2.1%, the lowest level since Oct 2014;
IIP rose 2.8% in FY15
*         The government is taking too long to finalize the structure of the executive. The confusion in the bureaucracy over the line of authority is impeding execution.
*         The government has not made any credible effort to improve skill development.
*         The corruption at lower level continues to be as rampant as before.
*         The prices of essential commodities are not coming down, though rate of inflation may have come down.
*         The government is focusing on big agenda, ignoring smaller issues that impact day to day life of people.
*         The working conditions have worsened under the current government.
*         The government is planning a shift from established subsidy provision system to enablement in a "knee-jerk" fashion. The transition management is poor and painful.
*         The government is obsessed with image management. It reacts too much and too fast to criticism.
*         The government has wasted too much time and resources on state elections, compromising on economic agenda.
*         The government has nothing for women safety and gender equality, besides routine publicity and issuing appeals to people.
*         The PM Modi has compromised on competence and experience to accommodate loyalty and clean image in construction of his team.
The Ugly
*         The execution on key projects is poor and worsening.
*         The government has virtually nothing to ease financial stress in the economy. The banking system is in similar dire strait as it was in mid 1990s. If not handled proactively, the situation will become unmanageable.
*         The unemployment situation has worsened.

Trivia

Yet another set of tremors rocked north India yesterday.

Poseidon is really angry.

Who is bothering him most?

(a)   Rahul Gandhi

(b)   Narendra Modi

(c)   Arvind Kejriwal

(d)   Judiciary

(e)   India Inc.

(f)    ISIS

(g)   ISI

(h)   EU

(j)    US

(I)    Other, pl specify

Some interesting reads

Productivity Is Down: Are U.S. Workers Slacking Off?


Thought for the day

"It is Homer who has chiefly taught other poets the art of telling lies skillfully."

-          Aristotle (Greek, 384-322BC)

Word for the day

Moppet (n)

A young child.

(Source: Dictionary.com)

Malice towards none

It is perhaps for the first time that PLA has not done any adventure before a Indo-China summit.


 


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