Power...STOCKS....shocks

Power up without shocks

MAULIK TEWARI

Stocks in the power sector have put up an electrifying performance. But there are only some that you can plug into

The Indian power sector has been short-circuited by many troubles. These range from inadequate and costly fuel for some players to un-remunerative tariffs, and high debt and large foreign exchange outgo for others. But, giving a go-by to these concerns, power sector stocks have put up an electrifying performance on the bourses. They have gained between 30 per cent and 94 per cent from the September 2013 lows to now, beating the Sensex’s gain of 36 per cent. The only exception has been NTPC, which gained a modest 8 per cent.

Why this euphoria? Hope that the Modi-led Government will fix the problem of coal shortage boosted sentiment. Recent orders by the central and state sector regulators permitting some companies to hike tariffs too has come as a relief, though the last word is not yet out on this.

Despite the problems ailing the sector, some companies are better placed than others and staying invested in them can reap rewards. So, what sets apart the men from the boys?

Fuelling worries

With fuel (coal and gas) costs accounting for up to 60 per cent of net sales for many power producers, access to an assured and viable fuel supply is critical. India’s largest power generator NTPC is best placed on this front. It sources 90 per cent of its coal requirement under fuel supply agreements entered into with Coal India, which ensure certain guaranteed supply. The rest is largely met through imports. Tariffs set by the Central Electricity Regulatory Commission (CERC) allow NTPC to fully pass-through increase in fuel costs through higher tariffs. This puts it on a better footing. Moreover, NTPC has been allocated 10 coal blocks with a production potential of 100 million tonnes per annum, which in due course can cater to about half its existing installed power capacity. Of these, the Chatti-Bariatu mine is expected to start production by the end of 2014-15.

While Reliance Power is largely fuel-secure, a change in Indonesian coal export regulations has affected the viability of its 3,960-MW imported coal-based Krishnapatnam project currently under development. It also awaits gas allocation for its yet-to-be-operational 2,400-MW Samalkot project. That apart, fuel linkages with Coal India, acquisition of captive coal mines in India and mining concessions in Indonesia for both operational and under-implementation projects, provide comfort.

On hot coals

Tata Power and Adani Power, on the other hand, have seen fuel woes affect their operations adversely. Their respective ultra-mega power plants in Mundra, Gujarat, were originally envisaged to be run on cheap imported coal. But consequent to a change in Indonesian regulations in 2011, coal imports from that country turned expensive, rendering operations at these plants unviable. With these plants accounting for half of the companies’ capacity, their consolidated numbers dipped into the red. Also, Adani Power’s 1,320 MW Kawai plant in Rajasthan, which is yet to receive supplies from Coal India, has been forced to rely on coal imports.

The recent nod from the Australian Government to Adani Enterprises for developing a 60-million-tonnes per annum coal mine there, can benefit Adani Power. But it will possibly be about three years before production commences. Also, the cost of coal will have to be watched out for.

JSW Energy too runs a substantial 65 per cent of its operational capacity on imported coal. That it sells a large part of its power in the volatile merchant market makes it all the more vulnerable to a spike in fuel costs.

Out on gas

Then, take Torrent Power which has seen nearly 80 per cent of its generation capacity of 2,100 MW turn inoperative over the last two years, consequent to the decline in gas production from Reliance Industries’ KG-D6 block.

With State distribution utilities refusing to purchase expensively produced power, using imported natural gas too has not been an option. Torrent Power has also been forced to buy power from outside sources to meet the requirement of its distribution business, significantly increasing its power purchasing costs. Consequently, its profit has taken a big hit in the past two years.

Tariff wars

The extent to which escalating costs can be passed on to consumers has thus emerged as a big differentiator in the power sector. Assured sales to customers at tariffs that are regularly revised to allow cost increases to be passed through, are therefore something to look out for.

Power plants of Tata Power and Adani Power have borne the brunt of sharply rising imported fuel costs that have surpassed the tariffs they charge. Following the companies’ petition for relief, the CERC allowed them to charge higher tariffs to recover costs.

Following an appeal from the state distribution utilities concerned, the Appellate Tribunal recently upheld (partly) the CERC order. With the distribution utilities likely to challenge this order too, the risk that it may be overturned remains.

But leaving aside the Mundra power plant, a large part of Tata Power’s operations (generation and distribution) are based on tariffs that allow it complete cost pass-through, plus an assured return on equity. Also, long-term power purchase agreements with state distribution utilities ensure guaranteed sales. On the other hand, Adani Power sells most of its power at levellised tariffs with no fuel escalation provisions.

Likewise, recent favourable orders from the Gujarat Electricity Regulatory Commission allowing Torrent Power’s distribution business to charge higher tariffs have come as a big relief for the company. But that alone may not suffice. An increase in gas availability is crucial for growth in power generation by the company.

But, it is the state-owned NTPC which stands out among all. It sells its entire power under long-term contracts and at CERC-determined tariffs that cushion it against rising costs and also provide an assured return.

In contrast, JSW Energy sells up to half its power in the volatile merchant market, exposing it to market-determined tariffs with no assured buyers.

Reliance Power has already tied up with buyers for both its operational and a much larger upcoming generation capacity.

While a part of its operational plants earn regulated tariffs, a large part of the upcoming projects are those that have been competitively bid for. But with factors such as a change in Indonesian coal export regulations implying an increase in future running costs of these plants, Reliance Power has already approached CERC with tariff revision petitions. These have not yet been decided upon.

Foreign exchange risk

The direction of the rupee too can play a big role in the fortunes of power generators. Adani Power and JSW Energy have significant outgoes in foreign exchange, exposing them to any sharp depreciation in the rupee.

Adani Power, for instance, spent ₹5,663 crore, comprising a third of its revenues, in forex during 2013-14. Likewise, in the year before, forex spending accounted for a large 60 per cent of the company’s sales. Ditto for JSW Energy which spent ₹3,110 crore, a large 35 per cent of its revenues, in forex during 2012-13. These expenses have largely been on fuel imports.

What’s in, what’s not

Overall, after weighing all the above, at the current market price of ₹138, the stock of NTPC trades at a reasonable 10 times its consolidated 2013-14 earnings. While NTPC’s earnings will take a hit (as they have in the June 2014 quarter) post the more stringent CERC tariff regulations announced in February, its fundamentals remain strong.

After the sharp rally, at the current market price of ₹74, JSW Energy trades at an expensive 16 times its consolidated 2013-14 earnings. Moreover, its large exposure to the merchant market makes it a risky investment that can well be avoided.

But for the loss-making Mundra plant, Tata Power’s operations are profitable. At the current market price of ₹92, the stock of Tata Power trades at a reasonable 1.6 times its consolidated book value for 2013-14.

A positive ruling on tariff hikes for the Mundra plant will give a big boost to earnings and is one reason for holding on to the stock.

While Adani Power too stands to gain from a favourable tariff order on its Mundra plant, investors could stay away given the other concerns affecting the company. Also, after the recent rally, the stock is trading expensive relative to better-off peers such as Tata Power.

Torrent Power, which is reasonably valued, has gained some succour from recently-passed favourable tariff orders. But an increase in gas availability is crucial, which may be possible only two-three years from now, if domestic gas supplies rise, once the pricing issue is settled.

The laggards

With a major part of hydro power producer NHPC’s planned capacities to be commissioned only after September 2016, revenue growth is likely to be muted over the next two years.

Moreover, given the company’s unimpressive track record in project implementation, investors could exit the stock. Indiabulls Power too, which commenced power generation for the first time last fiscal, has seen many of its project deadlines getting stretched.

While it has fuel supply and power purchase agreements in place for many of its projects, the delays have had a significant bearing on its earnings. It is precariously placed with interest coverage ratio of only 0.3 times.

Transmitting high returns

Do you find the current state of affairs in the power sector somewhat unsettling? If so, you can safely bet on stocks such as Power Grid Corporation of India (PowerGrid). At the current market price of ₹132, the stock trades at 14 times its consolidated earnings for 2013-14 — nearly the same as its five-year average valuation. It is, nonetheless, a decent buy given its growth potential.

Assured returns

PowerGrid has near monopoly on the country’s inter-state and inter-regional transmission network and therefore stands to benefit from the thrust on increasing the country’s power transmission capacity. It has set out a capital expenditure of ₹22,450 crore for the current fiscal and plans to expand its existing inter-regional transmission capacity of 36 GW by 7.3 GW during this period.

Tariffs set by the Central Electricity Regulatory Commission allow PowerGrid a complete cost pass-through plus an assured returnon its commissioned projects. The company’s growth prospects are thus primarily dependent on expansions in transmission capacity, something which it has delivered on. The same is reflected in its rising revenues and profits too. Besides, Power Grid’s foray into intra-state transmission is on track.

Gaining trade

You can also consider investing in PTC India, the country’s leading power trader as also the nodal agency for cross-border power trades. At the current market price of ₹80, the stock trades cheap at about seven times its consolidated earnings for 2013-14, less than half its five-year average valuation.

PTC India buys short-term power surpluses of state utilities, independent power producers and captive power plants and sells them to customers (mainly state utilities) that face a deficit. Besides, it enters into long-term agreements for assured power purchases and sales.

Volume game

Sales under short-term (less than one year) contracts account for close to 60 per cent of the volumes. With margins on short-term trades capped at 7 paise per unit and actual margins earned being even lower, volume growth holds the key to higher revenues.

For the nine-month period ended December 2013, PTC India traded 27,645 million units, up 30 per cent from the year-ago period. With a 30 per cent share in the short-term power market, PTC India is well placed to benefit from the power demand-supply imbalance in the country.

Healthy performance of the subsidiary PTC India Financial Services too provides strong support.

(This article was published on August 10, 2014)

http://www.thehindubusinessline.com/features/investment-world/power-upwithout-shocks/article6301355.ece?homepage=true

NIFTY Crucial at 7678-75 level, above 7720 Good..!!!

The markets in India gained by the Auto stocks and HDFC support but there is no short covering seen in the main counters and the OI kept raising...!!!. The BULL market may keep the bears trapped at selling 7660 level if they fail to cover at 7720-7740 range.

yesterday suggested to go short as SELL on Rise will go by a strict stop loss at 7740. any move above 7750 will take us to 7950 level with ease as the Bears couldn't put pressure on the Index to trade below 7550 level. The counters like LT, RIL and ONGC up tick may trigger sharp rise in Nifty level needs to be watched carefully.

The general trend in the Banking stocks is laggard as the BRIBE issues and NPAs weighing. The Bank Nifty may touch 15050 level but it has strength above 15150 level. the SBI above 2440 can easily take us to 2485-90 level and it may touch 2540 level due to short covering. The ICICI bank is the indicator, so long trades above 1442 is strong, good above 1469-72 level. The Bank Baroda shall not trade below 874 level to see 940-60.

The power stocks may get hammered more if the GAS price is HIKED.

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Rajan warns capital outflows will test Indian economy RBI governor expresses optimism that the central bank had ‘done enough’ to prepare for an imminent outflow of capital once interest rates rise abroadMumbai: Reserve Bank of India (RBI) governor Raghuram Rajan on Monday warned that India “will be tested” by capital outflows once interest rates “start picking up” in industrialized countries. Replying to a question after delivering the 20th Lalit Doshi memorial lecture, Rajan expressed hope the central bank had “done enough” to prepare for an imminent outflow of capital once rates rise abroad. “I have no doubt that when rates start picking up in industrialized countries, we will be tested by capital outflows. My hope is that we have done enough in terms of strengthening the macro-economic framework and building up reserves to buffer up the economy,” Rajan said. India’s foreign exchange reserves have climbed to near all-time highs of more than $320 billion, benefiting from huge dollar inflows this calendar year. Money and equity markets in developing countries are worrying over the consequences of the end of 0% interest rates in the US as growth, and hence inflation, there picks up in the next few months. Traders in India are particularly nervous because the last time US Federal Reserve indicated an end to its multi-billion dollar bond-buying programme in May 2013, the resulting outflows pulled the rupee down to a historic low of 68.85/dollar by August 2013. Rajan said that the way asset prices have been “boosted” by central banks in the last few years, a flight of capital from developing countries is likely. “Monetary policy is doing too much. Monetary authorities are boosting asset prices rather than the economy. Especially my colleagues in industrial countries are trying too hard,” he said, while suggesting that other parts of the developed countries’ economies should also contribute to reviving growth there. Rajan said he expects capital outflows from developing markets to resume because asset prices “have been blown up for a very long time”. “I was speaking with Ruchir Sharma (head of developing economies and macroeconomics at Morgan Stanley) and he was telling me that asset prices have risen at the fastest pace he has ever seen. There is clearly a disconnect,” he said. In his prepared speech, Rajan purposefully batted for direct cash transfers to the poor to improve public services. “Money liberates. Could we not give them cash to pay for their medicines and food, and command respect from the private service providers?” Rajan asked. He said the RBI will “nudge” banks to offer simple financial products to the poor at a low cost and, at the same time, be profitable. “Implementing cash transfers does not dismantle public services. It only means that they will pay (for services) and command respect. It is not a cure-all but will help people out of poverty,” Rajan said. He said the RBI will work with the government on its new financial inclusion plan to be announced on Independence Day, Friday. “We are already licensing payment banks and intend to move forward quickly. We have also released a paper on small banks which will be local in nature, serve local communities and employ local people,” Rajan said. Rajan said the debate about crony capitalism in the elections just gone by means that concerns about it are real for the people today. “Crony capitalism is harmful because it kills competition.... Our country suffers for the want of a few good men in politics.... Financial inclusion is important got for both the government and RBI in the coming years,” Rajan said.

Read more at: http://www.livemint.com/Money/zi5eBPCY0VNb4nWQV2cZyH/Raghuram-Rajan-warns-of-capital-outflows-as-interest-rates-r.html?utm_source=copy

Vulture Funds..PREY on...No Pity...!!!!

All you wanted to know about: Vulture Funds

RADHIKA MERWIN

All you wanted to know about: Vulture Funds

A weekly column that puts the fun into learning
Recently, the Sensex and Nifty went through some wild gyrations after Standard and Poor’s Ratings Services declared Argentina a debt defaulter. The country had failed to pay $539 million in interest due to its creditors, not because it couldn’t afford to pay them, but because a US court order barred Argentina from settling these dues unless it coughed up the $1.3 billion it owed to the so-called ‘vulture funds’.

What is it?
A vulture fund is a private equity or hedge fund that buys up bonds issued by companies, countries or individuals in deep financial trouble at beaten down market prices. They then try to make big gains by suing the debtor for a much larger sum than they originally paid for buying the bonds. That makes it clear how vulture funds got their name; they ‘prey’ on companies and issuers who are in distress because they’ve taken on too much debt.
In the case of Argentina, after the country defaulted on its debt of close to $100 billion in the 2001 crisis, many vulture funds swooped in to pick up the country’s bonds from the secondary markets for a song. These were mainly US hedge funds spearheaded by billionaire Paul Singer’s NML Capital.
The country’s financial situation only worsened and, unable to make interest payments, it asked lenders to take a ‘haircut’, that is, waive their dues and settle for part payment.
While Argentina managed to restructure more than 90 per cent of its debt between 2005 and 2010, a few vulture funds held out and refused to take a haircut. They sued Argentina in a US court demanding full payment for their bonds. The court upheld their demand and asked Argentina to pay the vulture funds in full.

Why is it important?
The global financial system has seen quite a few nations either defaulting on debt or tottering on the brink after the credit crisis. Thanks to vulture funds, Argentina has been declared in default a good five years after the crisis, for the second time in 13 years.
While vulture funds make up a small portion of the country’s total creditors, the US court order has put Argentina between a rock and a hard place. Unless they pay the vulture funds, they will be unable to pay others, thus continuing to default.
While talks are on between Argentina and the US to find a compromise, the risk for Argentina may nevertheless escalate, if other bondholders were to wake up and sue as well. Argentina may find it difficult to raise money on the international debt markets due to a steep premium on its borrowing costs.

Why should I care?
Yes, India isn’t the same as Argentina, but try telling that to foreign investors who lump all emerging markets under a huge risky asset class. Debt troubles in any developing nation usually cause global investors to peg up the ‘risk premium’ they assign to all emerging market investments. Events like Argentina’s default make investors nervous and trigger outflows from emerging economies. Foreign investors pulled out close to $820 million from Indian debt markets last week, and the rupee tumbled to as low as 61.7, as if in sympathy with Argentina.

Bottomline
Vulture funds may seem evil, but they do put the fear of god into defaulters. Given the problems that Indian banks face with large corporate defaulters, maybe what we need are a few vulture funds to balance the scales.

http://www.thehindubusinessline.com/opinion/all-you-wanted-to-know-about-vulture-funds/article6305110.ece?homepage=true

SELL on RISE @NIFTY-7668-80

The Nifty which fell by 300 points from TOP can see some bounce due to the USA strong closing on FRIDAY. The strength of markets will be tested on Monday as the negative news at home turf is more than the Global one. If Nifty fails to trade and close above 7620 is a very negative sign to bulls. Nifty fell from 7840 to 7540 level, Bank Nifty fell from 15555 to 14709 level. The Bulls already started un-winding, 15 lakh Nifty OI in the last two days. The BankNifty added OI.

The Bullish counters like Axis, BoB, PNB and ICICI are in the un-winding mode than the Bank Nifty.  The interesting scenario is that majors like ICICI fell from 1512 level to 1411, PNB fell from 980 level to 898 level, Bank Baroda fell from 92 level to 855 level, Axis from 408 to 269 level. The Relinfra fell from 780 level to 715, Relcap from 622 level to 558 level. The strong selling came in Reliance when it touched 1043 level after results but succumbed to selling pressure to 970 level. The story is no different to L&T, fell from 1698 to 1440, a results victim. These counters gave some good results but they are already discounted.

There is very likely that we may see some news regarding AMBUJA CEMENT.

The Rel Power may react to CERC ruling that RPOWER may lose the new pricing offered to other UMPP. IDBI under CBI scanner due to KFA fiasco, may see some selling.

The positive results of Auro-Pharma, ADANI may find some buying interest. But the short covering may be intensified only when Nifty trades above 7720. Above 2440-42, SBI may rally to 2540 level with-out much resistance, where as the only resistance at 2468-72 to be watched closely. This week markets may see some recovery but not sustainable.
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Should Mukesh Ambani be unloved?

Ambani is under attack by the government of India, media, regulators such as Sebi & political parties such as Aam Aadmi party

Dev Chatterjee  |  Mumbai  

August 10, 2014 Last Updated at 19:12 IST

In a recent article "Unloved Billionaire", The Economist wrote about the paradox of why Mukesh Ambani, Chairman of India's most valuable company Reliance Industries, is so unloved in India. 

 

Ambani is under attack by the government of India, regulators such as the Sebi, media, political parties such as the Aam Aadmi party. And now, even the small shareholders are unhappy because they lost their wealth by 4% in the company's shares in the past five years. 

 

On Friday, market regulator Sebi fined Reliance of Rs 13 crore for violating disclosure norms.

 

As a keen observer of Ambani's progress in the past two decades, it's obvious to me why Ambani has lost the goodwill. The company is secretive, does not believe in transparency, and a bitter sibling war has destroyed the halo around the group. The fights with the oil ministry and the negative remarks by government auditor the Comptroller & Auditor General on its broadband licence are not helping the matters either. Many a time, journalists’ queries are either ignored or, when required, information is supplied in “off-record” briefings. 

 

Reliance has become an India-centric success story while its peers like Tata and Birla are now earning more than 50% of their revenues from overseas operations. Ambani’s plans to set up Special Economic Zones outside Mumbai never took off following agitation by locals over brazen land acquisition. Ambani had to beat a hasty retreat from a similar SEZ in Haryana, which the critics alleged, had become a real estate play.

 

But as far as business is concerned, no one can take the credit away from Ambani for thinking big. Ambani was instrumental in setting up not one but two world-class large oil refineries in Jamnagar, Gujarat. Ambani had the vision to set up retail chain across India and is now making money of it.

 

The 57-year-old billionaire is also investing a massive Rs 70,000 crore in the Indian wireless telephony where the Tata group has failed miserably. The telecom business, according to Ambani himself, will create 10,000 new  jobs. This is the second time Ambani is building a telecom empire after giving his earlier venture to his younger brother, Anil, as part of the family succession settlement. His ongoing $10 billion (Rs 60,000 crore) expansion in petrochemical business in Gujarat will add substantially to the economic growth.

 

India needs more entrepreneurs like Ambani who can take risk to set up new projects and create employment. Ambani may be unloved by many but as far as job creation and new projects are concerned, there is no doubt that he is number one. Reliance is loved, at least by new gen, young employees. If Ambani succeeds in creating new jobs, then no one who can stop him from earning goodwill from young India.

http://www.business-standard.com/article/companies/should-mukesh-ambani-be-unloved-114081000514_1.html

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BLOWING TRUMPET...SUCCESS TASTE...!!!

I MISSED MY NIGHT SLEEP (IN 1991-95, I USED TO STUDY THE HARD COPIES OF CAPITAL MARKETS AND DALAL STREET…UPTO 3 AM,ONE DAY UPTO 5 AM…., NOW  SIMILAR SLEEPLESS STUDY…, I NEVER STUDIED MY CLASS BOOKS LIKE THIS…) DUE TO A SERIOUS SEACH FOR TINY STOCKS THAT CAN FETCH 500-1000% RISE IN FUTURE. THE SEARCH AND RESEARCH IS ON………… THE STORY OF MULTIBAGGERS IS A EVER RISING NOVEL STORY IN STOCK MARKETS…ONLY THING WE NEED TO DO IS JUST TRUST WHAT YOU THOUGHT IS RIGHT AND BELIEVE IN WHAT YOU IDENTIFIED/STUDIED……..…….

A SATISFACTION BUILT DISAPPOINTMENT OF MISSING INDOCOUNT INDUSTRIES WHICH I IDENTIFIED AT 7-9 NOW AT 144 A 18 MONTH HOLDING PERIOD, A 1500-2000% RETURN IS A PHENOMENAL CASE TO “BLOW ONE’S OWN TRUMPET”.

AT A SIMILAR TIME FRAME IDENTIFIED MORARJEE TEXTILE AT SAME 7-8 RUPEES NOW AT 44. I IDENTIFIED PHARMA AT 3 NOW AT 35 A 10 TIMES RISE..NOT ENJOYED…

SIMILARLY FINDING AND  I ENJOYED 700% RISE IN KM SUGAR BOUGHT AT 1 AND 1.35, NO OTHE SUGAR STOCK GAVE SUCH PHENOMENAL RETURN. I DOUBLED MONEY IN RANA SUGARS.

I BOUGHT BIRLA ERICSSON AT 10-12, NOW AT 65 LEVELS, SUGGESTED ALL TELECOM OPTIC FIBRE CABLE COMPANIES, WHICH GAVE 300 TO 500% RISE, WITH SOME CLOSE FRIENDS, I EVEN FOUGHT FOR THEIR INVESTMENTS IN THESE STOCKS.

AS A MATTER OF FACT, THIS RALLY HAVE GIVEN LIFE TO MANY TINY STOCKS, DORMANT FOR YEARS. AT THE SAME TIME THERE ARE MANY STOCKS THAT ARE AT THE SAME PRICE OR EVEN LOWER THAN TWO YEARS AGO.

SO, JUST TURN AROUND STORY, LIKE ARVIND AT 44 FOUR YEARS AGO NOW AT 240, PARTICIPATED BUT NO GREAT WAITING….

……….

THE LESSON IS SO SIMPLE THAT FIND OUT…KEEP ON INVESTING……SIT TIGHT WITH OUT DISTURBING THE HOLDING AT LEAST FOR 5-10 TIMES RISE.

………

FOR DAY TRADING..ALWAYS LIVE IN THE CURRENT TREND.... 

EQUITIES...December sell-off..ON THE CARDS...????????

Warning! Be wary of a December sell-off

LOKESHWARRI SK/AARATI KRISHNAN

Global funds may cash out by year-end, preparing for the US to increase rates in the summer of 2015, says Geoff Lewis, Executive Director and Global Market Strategist, JP Morgan Asset Management
With the election and Budget behind us, global events such as Argentina’s debt default and the impending interest rate hike in the US are back on investors' radar. So we caught up with the forthright Geoff Lewis on his recent India trip to find out what is in store for global markets.
Lewis thinks India is in a Goldilocks situation and that equities, both from emerging markets and Europe, may outperform. But he also warns that bonds are best avoided.

 Is the global economy on the mend? What does that mean for investors?

 It has been quite a surprising first half of the year. Everybody expected US and global bond yields to move up. But they moved down. Year-to-date, the best performing asset class has been US REITs, followed by emerging market debt and commodities. If you asked anyone at the beginning of the year, they wouldn’t have expected this. So, the lesson from this is that investors should always be prepared for the unexpected; they should be diversified.
 If you talk of what has changed, we don’t think the economic prospects have changed very much.
The US economy is normalising and becoming healthier. Europe is restructuring and the Japanese economy is becoming better. If you put all that together, the world economy is on an improving trajectory. You won’t get that impression if you watch Bloomberg or CNBC or read the Financial Times. They’re still talking of the end of tapering, deflation and so on.
 It seems to us that the risks of a European collapse or US fiscal policy have been reduced. If you look at the Purchasing Managers Index (PMI) of all the leading economies, you find that they’re all getting much better.
One number can be misleading, but if all the PMIs are improving in tandem, that’s a strong signal.

Indians now have the option of investing in Asian, US or European stocks through mutual funds. So where would you put your money?

 The big change between 2014 and 2015 will be that Japan’s earnings may moderate, while Europe is expected to come up.
So far, you can’t see it in the data for European earnings. When the inflection point comes, we should see European stock markets perform better than the US market.
We are not by any means negative on the US. In the US, we still have moderate earnings growth, low interest rates, strong margins and an economy that’s more visibly growing than Europe and has less structural problems. The US equity market is not overvalued in my view.

Have global investors really changed their view on India because of politics?

 India had large outflows from its debt markets in line with other members of the Fragile Five. But the difference was that foreign participation in Indian debt markets was really low compared with the other markets, such as Taiwan.
There was a global risk-off. But if you notice, the money also came back pretty quickly. At the moment, I think it’s a Goldilocks situation, with $10 billion coming in last year and another $10 billion this year.
 The problem for many emerging markets (EMs) seems to be that it is either famine or feast. But India’s fundamentals now are better relative to China and relative to other EMs.
A lot of investors were telling us earlier, ‘we’d like to wait for the Budget and see if there are outflows.’ But my view is that the portfolio inflows into India tend to be persistent. That suggests that they’re looking at India as a long-term investment opportunity. This also shows they’re probably not looking at India as a manufacturing base for exports but as a good domestic story.
When large foreign investors look at EMs, they’re looking for scalability. A large domestic consumer market provides that; India, Indonesia, China, Brazil and Russia provide that and not really anybody else.
A large pension fund in the US cannot deploy its money in, say, the Philippines. It is looking for a large economy to absorb that money. 
Are foreign investors in Indian bonds short-term oriented compared with equity investors? That is the impression we got from outflows in 2013.
Yes and no. A lot of retail money has gone into emerging market debt mutual funds and ETFs. That is where the selling pressure came from. Retail investors in those funds tend to panic.
The institutional investors did not trigger the panic. Having said that, the Indian (bond) market appears fully valued. As we approach the first hike in interest rates in the US, there will be panic among investors.
Emerging market debt will prove to be a crowded space. You don’t want to be the last one left in the party.

So what will happen when US interest rates move up? Will we see another exodus from emerging markets?

It depends on how the rates are raised. If the US economy grows moderately, unemployment comes down gradually and the Fed raises on schedule, then everyone will be prepared and that is ok. If emerging market earnings also pick up, the positives will outweigh the gradual rate increase.
If rate increases happen with unemployment and wages increasing, inflation rising and investors think the Fed has left it too late, then there will be a global risk-off again. Money will move out of debt and equity and it will be painful for everybody.
My personal opinion is that nobody knows what will happen once interest rates start rising.
It is a watershed event. We have had seven years of easy monetary policy. This marks the end of that unconventional monetary policy in the US and elsewhere.

Will emerging market currencies be affected?

Financial markets tend to anticipate any event three to six months before it happens. And the weakness can continue for three months after that.
There will be a temporary sell-off in the equity market. It does not signal the end of the rally. They are hiking interest rates because economies are stronger and corporate profits are good. That is good for equities.
From January or February next year, the market will start factoring in the rate hike.
Many fund managers close their books in November or December. So the danger period is the closing months of this year and not opening months of next year. That said, there is very little value left in fixed income anywhere.
So you need to have quite a lot of cash instead of fixed income.
If there is a big correction in emerging markets, you can deploy some of that cash.
Gold technically looks as if it is due for a rebound. But it is a poor inflation hedge in the long run. As a portfolio diversifier, you can have 10 per cent in gold. Once interest rates start rising in real terms, it has normally been negative for gold.
Income is still growing strongly in India and China, where the gold demand does not go away.
Have you factored a weak monsoon into assessing India’s growth?
It is negative, but not a disaster.
A really bad monsoon, like 1992, does not seem likely. If you look back at data since 1848, El Ninos or the Southern oscillators have caused a poor monsoon only 50 per cent of the time. Most foreign investors would look at this as a short-term concern.

What’s your view of emerging markets as an investment?

Emerging markets had a very good recovery post-Lehman crisis, then they sort of rested on their laurels. There was really excessive credit growth in places such as Turkey.
Then we saw political risk play out in Thailand, Turkey, Brazil. But we have since seen the situation improve.
Current account deficits have improved across the board. Many of them have raised interest rates; here, India was much ahead of the others.
 We have a very simple view of emerging markets. We think the story about EMs decoupling is basically nonsense. They haven’t decoupled from the global economy in any way.
This is clear from the fact that exports and industrial production for EMs track each other very closely. The last two years have been the worst period for EM exports since 1997.
As the European economy contracted, this hit EMs really hard. Thus, EM earnings have been falling.
So we take the simple view that if Europe picks up, EM exports will pick up and, therefore, their economies, too, will follow suit.  
(This article was published on August 3, 2014)

http://www.thehindubusinessline.com/features/investment-world/warning-be-wary-of-a-december-selloff/article6277421.ece?homepage=true

STOCKS RISE GLOBALLY.....!!!!!!!!

It’s a global bull party!

LOKESHWARRI SK

July 24, 2014:  

The bulls are partying hard not just in India but in many other countries as well. Even as the Sensex has scaled the astounding height of 26,000, benchmarks in countries including Argentina, Canada, Germany, USA, UK and Pakistan are also perched close to their life-time highs.

This surge has made the market capitalisation of all bourses swell. According to the World Federation of Exchanges, the largest stock exchange, the New York Stock Exchange, has seen its market capitalisation increase from $17 trillion in January this year to $19.1 trillion towards the end of June. That the exchange has been able to grow at such a searing pace despite a very high base is a proof of the strength in the ongoing rally. The market cap of all the American exchanges towards the end of June — both North and South American exchanges — is 22 per cent higher than last year.

This may be impressive but the exchanges in Europe, Middle East and Africa (EMEA) have managed to trump their American counterparts with 26 per cent year-on-year increase in market cap. The largest bourse in this segment, the Euronext with market cap of $3.8 trillion, recorded a strong 31 per cent growth. The overall market cap growth in Asia Pacific zone was relatively sedate at 15.9 per cent. Gains were depressed by the leader, the Tokyo stock exchange that has market cap of $4.6 trillion, growing at a slow 14.9 per cent. With the fast paced rally in Japanese markets already done with in 2013, this market has been a relative underperformer.

The Bombay Stock Exchange and the National Stock Exchange with market caps of around $1.5 trillion were out-performers in this category with gains of 39 per cent and 40 per cent increase in market cap.

While Indian bourses aren’t in the global league on market cap, the BSE tops the list when measured on the number of listed companies with 5,406 listed stocks towards the end of June. The TMX, the Canadian stock exchange comes next with 3,805 stocks. The NSE with 1,695 stocks features at the ninth position.

Indian investors however do not appear as enamoured by Exchange Traded Funds with less than 40 ETF listings. Exchanges in developed markets such as NYSE and Deutsche Borse have the maximum number of listed ETFs listed at 1,463 and 1,029 respectively. They are followed by Swiss Exchange and Euronext.

Indian exchanges do not fare that badly in bond listings. The National Stock Exchange has 6,191 bonds listed on it. This compares not too badly with the exchange that tops the list — Luxembourg Stock Exchange with 26,093 bond listings.

(This article was published on July 24, 2014)

http://www.thehindubusinessline.com/opinion/its-a-global-bull-

party/article6245897.ece?homepage=true

RAIN..NO RAIN..HOW GAIN...??????????

Why the monsoon numbers hide reality

Because the ecology of various regions differs, it is silly to club them all under one countrywide average number

Nitin Sethi  |  New Delhi  

July 22, 2014 Last Updated at 08:10 IST

A whopping three-fourth of the country’s geographic area is right now facing a rainfall deficit severe enough to warrant crisis management. The Indian Meteorological Department’s data shows that 74% of India has so far recorded monsoon rainfall much below its normal levels.

Of the 36 rainfall divisions that the IMD divides the country in, 25 are reeling from rains much below what is considered normal for the region. As of yesterday 22 of the 25 have recorded rainfall dipping by more than 40% below the normal for the specific belts. 

Even by the lax Indian government definition, less than 20% rain means a meteorological drought (earlier it used to be triggered on official records by a 10% dip in rainfall).  

Yet the IMD figure of 31% country-wide area-weighted average figure for the entire monsoon season or a 15-16% deficiency in the last week’s rainfall country-wide area-weighted data is being deployed to suggest that the monsoon is not all that bad and its only getting better when one compares to the previous week.  

Let’s not get fooled by the averages. Farmers who depend upon monsoon to water their fields do not live by averages, they have to survive the extremes and the variation in the rains through the season. For a farmer, how the rain is spread over the monsoon period is critical. A dry sowing period followed by a huge downpour at a later stage of plant growth can be cataclysmic. For an analyst keeping sight of only the average rainfall it will only show a near ‘normal’ rosy picture of rain catching up finally. 

The pattern of rain that is most advantageous also differs from crop to crop, in fact, also from seed variety to seed variety. The availability of hardy short-duration varieties that shall survive low rainfall levels but give relatively lower productivity are a safer bet for a farmer in a bad monsoon. The farmer has a short time-gap and the increasing unpredictability of rainfall patterns to make these calls. This is where the government and the IMD reports are meant to come in handy. To have the right seed available and to have it in time is critical. To keep the fields ready to start sowing operations.

 

Northern Limit of Monsoon

 To understand the complexity of decision-making a farmer faces, one has to only read the regional Agromet advisories that the government puts out periodically. For any average city-dweller in India who only has to deal with the question of whether the city roads will be clogged with overflowing sewage or not, it can send the head spinning. 

 It is true, the monsoon is catching up in parts, the IMD raw-data shows. But, for a real picture of where it is and where it is not going to be enough, one only needs to survey the regional papers that reflect a more district-level variation of the hinterland.

 To reassert the point on getting lost in averages: normal monsoon in the evergreen ecological belts of Manipur, Mizoram, is 686.6 .4 mm for the season. For the drylands of Saurashtra, it is merely 213.1 mm for the same period. The ecology of the regions differs. Therefore, what the people grow and how they grow differs. It is silly, by any logic, mathematical interpretation or ecological sense, to club them all under one countrywide average number when reviewing how they shall fare through a year of climate and weather patterns. 

http://www.business-standard.com/article/economy-policy/why-the-monsoon-numbers-hide-reality-114072100869_1.html

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MY SERIOUS CONCERN IS ABOUT THE OPPORTUNITY TO MAKE MONEY IN THE CURRENT SCENARIO FROM STOCKS THAT CAN RARELY OFFER LITTLE HEAD ROOM DUE TO WORRISOME EXTERNAL FACTORS AND FAILURE OF MONSOON FOR NOW...

THE MARKETS ARE SHIFTING GEARS TO SAFE ZONES....IN FUTURE THE INVESTMENTS WILL GO TO GOLD & SILVER, FOR NOW PLS WAIT FOR SOME MONTHS, TILL OCTOBER. I THINK THE YEARLY LOW CUTS WILL BE THE ORDER OF PLAY IN THE STOCK MARKETS. THE TELECOM, IT, INSURANCE AND JEWELRY STOCKS CAN SEE SOME SUPPORT BUT REST OF THE UNIVERSE WILL DRIFT LIKE LAND SLIDES. .....A FREE FALL AND MAY WILL COME WITH EXCUSES AND SOME COME WITH LONGTERM STORY.

PHENOMENAL RISE&HIGHs but A Denial for NOW….!!!

PHENOMENAL RISE&HIGHs but A Denial for NOW….

The Indian markets have performed stupendously, like a race against all ODDs and against all emerging markets. We are the best performing Indices YTD or for the quarter. The Rise is so phenomenal that no-body expected but few could CASH the opportunity. Now many new entrants are making inquiries and many more are looking as a decent opportunity to make HUGE money to meet their DREAMS.

The fact is that, since January-14, Nifty rose by 20%, Mid-Caps by 30% and Small caps by 55%, some Individual stocks rose by 400-700% from their LOWs. The hype generated now is due to change in the Government, a market friendly team at the top. But the fact is that No-body could SELL the National property via LIBERALIZATION for no reason, nor for a simple cause. The National growth based on immediate requirements and will be judged by prioritising/striking a right balance between “NECESSITY & COMMERCIALIZATION”. The Future is GOOD as huge investments will take place and the results will come in due course of time.

As far as the Stock Markets rise is concerned, a dead cheap stocks are at a historic low was one of the major reasons for FIIs relentless investments. The Global markets are also encouraging and FREE Supply/HIGH Liquidity is driving the markets for NOW. Very few are working on the REAL worth for the paper but relying on the PROJECTIONS. The Nifty is POISED for touching 9000+ as experts are working on the next 3-year EARNINGS and P/E that could safely take us above the above said number. I am not pessimistic but play a realistic role for valuing the Available Opportunity. The main reason for Nifty may seek SOUTHWARD JOURNEY because of looming DROUGHT, Poor Investments made by the CORPORATES in the Preceding/Previous 2-3 years, so NO earnings Surprise by the top companies.

So, the scenario is GLOOM in the Short-term, however the POLICY push can give some bounce but for the next ONE year will be very challenging. The Nifty stocks are moving up but the UN-Winding is a concern. The rise from here may not be that much sharp or serious, from here 2-Ups and 4-5 Downs. Because the FUTURE is promising, on any DEEP cut/ steep fall BULLs take charge to make a comeback to take away the Retail Investors most of the STOP-LOSSES.

THE BLOOM and GLOOM story…..THE MOMENTUM IS HIGH….

THE NIFTY MAY TOUCH 8785-8850 RANGE; BUT VERY LIKELY, IN THE SHORT-TERM LOW MAY  TOUCH 7000, NO SURPRISE EVEN IF IT TOUCHES 6600-6400 RANGE

THE BANK-NIFTY MAY TOUCH 20100-22000 RANGE; IN THE SHORT-TERM LOW MAY  TOUCH 12500-800, NO SURPRISE EVEN IF IT TOUCHES 10100-10300 RANGE

THE RELIANCE MAY TOUCH 1450-1550 RANGE;IN THE SHORT-TERM LOW MAY  TOUCH 801-811, NO SURPRISE EVEN IF IT TOUCHES 759-736 RANGE

THE ONGC MAY TOUCH 620-650 RANGE; IN THE SHORT-TERM LOW MAY  TOUCH 311-321, NO SURPRISE EVEN IF IT TOUCHES 270 RANGE

THE SBI MAY TOUCH 3850-3950 RANGE, IN THE SHORT-TERM LOW MAY  TOUCH 1920-1950, NO SURPRISE EVEN IF IT TOUCHES 1450-1430 RANGE

THE ICICI MAY TOUCH 2130-2080 RANGE; IN THE SHORT-TERM LOW MAY  TOUCH 1180-1220, NO SURPRISE EVEN IF IT TOUCHES 970-950 RANGE

THE RELCAPITAL MAY TOUCH 950-1050 RANGE;IN THE SHORT-TERM LOW MAY  TOUCH 440-415, NO SURPRISE EVEN IF IT TOUCHES 330 RANGE

THE RELINFRA MAY TOUCH 1080-1150 RANGE; IN THE SHORT-TERM LOW MAY  TOUCH 520-540, NO SURPRISE EVEN IF IT TOUCHES 440 RANGE

WE CAN EXTEND AND READ MORE NUMBERS… BUT THE DENIAL IS RIDING HIGH EVEN IN MY MIND…

PLS DON’T BUY NOW UNTIL NIFTY TOUCHES 7250-80 RANGE, BUT THE ACTUAL BUYING IN QUALITY STOCKS SHALL EMERGE FROM 7000 ONLY. THOSE WHO ARE COMPULSIVE, SHALL TAKE A STOPLOSS ROUTE RATHER THAN HOLDING FOR LONGER…THW WAIT MAY BE 3 YEARS…!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

BUDGET -BETTER GAINS ---mid-cap companies...!!!

PLS READ MY EARLIER POSTING ON BUDGET DAY MORNING..I SUGGESTED THE LIKELY BUDGET PROPOSAL...THEY REFLECTED...!!!

NOW BASED ON THE BUDGET, THE MOST BENEFICIAL COMPANIES WERE IDENTIFIED BY ET..

For select mid-cap companies, proposals on both direct and indirect taxes will be a booster. Higher income tax exemption limits will boost savings and, in turn, spending by consumers — a much-needed trigger at a time when there is a demand slowdown. 

Mid-cap companies in sectors spanning banking, cement, footwear, infrastructure, irrigation, pharmaceuticals, renewable energy, restaurants, retail chains and tourism will benefit from FY 15 Budget proposals in the medium- .. 

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/mid-cap-companies-to-benefit-from-budget-proposals-top-30-stocks/articleshow/38195977.cms

BAMMIDI-DEEP-MONDAY-14-07-2014

The bounce is very likely on the cards not for the BUDGET positives but due to the OVERSOLD ZONE coupled with good news of IIP numbers and US & EUROPE greener closing...!!! 

The overall BUDGET is good for the economy and for the markets in the Medium term to Long-term but these gyrations are due to Unwinding of Leveraged positions and offloading some of the High beta counters by the HNIs and some fund houses…

The Nifty lost nearly 400 points from the Highs, 7808 to 7447 but if we consider the F&O series, from the opening it lost nearly 65 points only. The Counters like Zee up by-8, Sun Pharma up by- 75+, RANBAXY up by 58+, TATA MOTORS - up by 14+, MARUTI- up by 65+, IRB up by 17+, INFY up by 108+, IDFC up by 18+, HLL up by 19+, HDFC up by 23+ and DrReddy up by 155+ Adani ports, Bharat Forge and many more....

The strength of the markets is intact as the SECTOR rotation has become the priority of the DAY/WEEK. The IT counters made a decent come back and the Pharma has extended their support apart from the FMCG (Mainly positive due to GST implementation by Dec-14).

The FDI hike to 49% in Insurance sector is good news and the long-term is very promising to this sector. The scrips like Reliance Capital, ICICI, SBI and HDFC likely to get re-rated. The other banking stocks into Insurance may see bottom support.

The Broad band HIGHWAY and low power consuming LED lights can offer better returns in the long-term. The Infra opportunity is only an opportunity at least for next 6- months as many issues need to be addressed.

The Global news will dictate the next week, mostly favourable news is building. The improvement in the rain fall scenario and the economic growth based on the declared IIP numbers. The Nifty will be in trading range of 7350-7650 for some time. The quarterly results will influence the Nifty and the counters as well but will stay above 7280 level. Any move below this support level shall be taken seriously and avoid further buying for short-term gains.

The Nifty has good support at 7445, 7380 and at 7350 level for now. The bounce could take us to 7559 and 7660-80 level without any serious resistance from the BEARS. The real test will come into force when NIFTY trades above 7650 level and Reliance above 1030 level. The banks charts got their structure OUT of SHAPE, any up move can be good chance to off-load unless there is very favourable news is announced.

The ICICI is positive only when it breaches 1449 and stays above 1426-29 level, SBI has good potential above 2640, HDFC has more space above 1017-22 level. Relcapital consolidates around 524-594 range for some time before it take a leap and is good above 608 after consolidation. The Rel-Infra has tremendous potential going forward but the consolidation around 685-776 is on the cards. The counters of ADAG are high beta counters and swing is high/volatile.

The Reliance is in midst of many controversies be it in World Cup FOOT-BALL tickets, D-6 gas arbitration and retail business profitability prospects and many… The ONGC is good above 406-08 for 430 targets and Reliance can touch 1022-26 range. The seriously beaten down counters like PFC, BOI, CanBk, BoB, PNB, SBI, Adani, L&T and United Spirits can offer decent returns in this week.