Worms Digest 13 September 2013

Good Morning !!!

Sensex: 19270 (1.53%), Nifty: 5680 (+1.56%)
Dow: 15301 (-0.17%), S&P: 1683 (-0.34%)
Nikkei: 14387 (-0.26%)

IIP for the month of July 2013 beats expectations : up 2.6% vs expectations of negative growth. 

Its a major uptick after the negative growth for the last 2 months. Also, IIP numbers for the month of June were revised positively from early reported decline of 2.2% to a decline of 1.8%.

The growth was driven by manufacturing and electricity output which were up 3% and 5.2% respectively. Mining continues to be negative - down 2.3% yoy.

Worms Digest 10 September 2013

Worms Digest 10 September 2013

Good Morning !!!

Sensex: 19270 (1.53%), Nifty: 5680 (+1.56%)

Dow: 15063 (+0.94%), S&P: 1672 (+1.00%)

Nikkei: 14356 (+1.06%)

TRAI recommends sharp cut in reserve prices for spectrum auction and also seeks to bring clarity on various contentious issues

• Seeks clear roadmap indicating quantum of sepctrum  which will be available in future along with timelines - a positive for incumbents as it will allow better decision making and cashflow planning
• No reservation of spectrum for Renewal Licensees (Refarming) in 900 or 1800 MHz bands - a  big negative for incumbents.
• Recommended reserve prices are almost 30-60% lower than the last auction carried on in March 2013.

• Read the entire policy at 
• Overall though refarming has not been done away it is not an incremental negative. In fact, the big positive is a genuine effort by the government to do away with the 'regulatory uncertainty' over the sector and the aggressive stance that TRAI (and effectively DoT) would take against CAG which was leading to policy paralysis. 

Worms Digest 06 September 2013

Good Morning !!!

Sensex: 18980 (+2.22%), Nifty: 5593 (+2.66%)

Dow: 14937 (+0.04%), S&P: 1655 (+0.12%)

Nikkei: 14065 (+0.08%)

Roll back of capital control measure expected soon

• In order to stem the free fall of rupee Reserve Bank of India had cut down limit for overseas direct investment by Indian companies  under automatic route from 400 per cent of the net worth to 100 per cent. RBI also restricted the amount of money residents can invest abroad from USD200000 to USD75000 per annum. It also banned purchase of immovable property abroad. 
• Market participant had come heavily on the government claiming these to be highly regressive measures which then won the assurance of the Finance Minister that these are only temporary measures and will be rolled back at opportune time.
• With INR now back to 66 from a low of 68.8 agains USD, particularly, responding, favorably to measures announced yesterday by new Governor, it is now believed that these capital control measure which anyway failed to achieve the purpose would be rolled back soon.

Credit rating agency Moodys downgraded sub-ordinated debt of  11 Indian Banks. 

• Apart from poorly managed (high NPAs and low CAR) state owned public sector banks like State Bank of India, surprisingly, it has also downgraded high quality and highly safe private sector banks like HDFC Bank and ICICI Bank.  
• Most of these bankers of denied any negative impact of this move on their ability to raise the cost effective fund abroad. 
• Timing of these moves is amusing as yesterday only the new Governor of Reserve Bank of India lifted the cap on overseas borrowing to 100% of unimpaired tier I capital from 50% earlier. 

Oblivious of slowdown Rs.1500crs Hatsun Dairy is on expansion spree

• The company will spend Rs.50crs to expand milk processing capacity by 3,00,000 liters/day from the existing capacity of 25,00,000 liters per day. It claims its milk brand 'Arokya' to be leader in its markets, namely, states of Tamil Nadu and Andhra Pradesh.
• The curd production will also go up by 30000lts per day
• Company will also be expanding its ice-creame chain Ibaco in adjacent states of Maharashtra and eastern state of Odhisa. The ice-creme phenomenon is born mostly of Gujarat which hosts 3 leading brands of the country - Amul, Vadilal and Havmor.  

Bankers to approve soon Rs.7000crs debt restructuring plan of Elctrosteel Steels

• Trapped in downturn and the delayed 10000crs integrated steel plant Electrosteel group is set to get a breather. The company CDR (Corporate Debt Restructuring) proposal is set to be accepted by bankers in coming few weeks.
• Last year company reported Rs.280crs of loss and the same fate continued in June 2013 quarter when it reported further Rs.70crs of loss. However, surprisingly, interest cost was just Rs.44crs. So the company must be capitalizing interest cost to the tune of Rs.120-150crs every quarter. More importantly, there is no way it can pay this high interest cost as the business doesnt generate that kind of money. 
• In order to further the delayed projects the company needs another Rs.3000crs of loans. It would take gutsy banker to give that kind of money when you already have a whopping dues unpaid. 

Other interesting new bites

• Modi is the most desired leader to head the country in CEO poll conducted by Economic Times. Almost 3/4th voted for him. Rahul Gandhi got a mere 7% vote.
• The survey also pointed that the worst is over for the Indian economy.
• Tall claims of USD8-15bn flows from FCNR deposits by various bankers and research analysts may fall short of promises. 
• The Central Electricity Regulatory Commission (CERC) is going to hold on September 13 hearings on the compensatory tariff necessitated for power projects of Tata Power and Adani Power by the increase in Indonesian coal price  
• Power Finance Corporation, the nodal agency for ultra mega power projects (UMPPs), has kickstarted bidding process for two such projects in Orissa and Tamil Nadu, ending five years of uncertainty.
• Indian Railways, which is planning a 1400MW captive nuclear plant to become self-sufficient in energy, has zeroed in on Jabalpur in Madhya Pradesh and Mahi Banswara in Rajasthan as potential sites for its R14,000-crore plant

""Risk is what's left over when you think you've thought of everything." 
-- Carl Richards

Worms Digest 05 September 2013

Good Morning !!!

Sensex: 18567 (+1.83%), Nifty: 5448 (+2.00%)

Dow: 14930 (+0.65%), S&P: 16513 (+0.81%)

Nikkei: 14054(+0.54%)

Reforms roll-on : Government clears Pension Bill

• PFRDA Bill 2011 (Pension Fund Regulatory and Development Authority) was cleared yesterday in Lok Sabha as the opposition party BJP supported the same
• The Bill was due since 2005 and will now strengthen the sector with a regulator in place and opening up  the sectors to more established and experienced foreign players. The foreign investment limit will be same as that for insurance sector which is 26% today. 

Raghuram Rajan charts the course to liberalize the financial markets

• Policy actions to immediately address rupee depreciation
• Allows exporters and importers to re-book cancelled forward exchange contracts to the extent of 50 per cent and 25 per cent of the value, respectively. Currently, exporters are allowed to re-book cancelled forward exchange contracts to the extent of 25 per cent and importers are not allowed to do so 
• to improve dollar inflows RBI to open a window to  the banks to swap the fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years and over at a fixed rate of 3.5 per cent per annum for the tenor of the deposit
• allow banks to borrow 100 per cent (from 50 per cent currently) of their unimpaired Tier-I capital from overseas. These borrowings can be swapped with the RBI at a concessional rate of 100 basis points below the ongoing swap rate
• In a separate notification RBI also allowed foreign companies to borrow from the parent under ECB route foe general corporate purpose provided the loan is not less than 7 years of tenure and 

• Key takeaways from Governor's speech which outline his thought process and future course of actions 

1. He outline the primary objective of the RBI is monetary stability which would essentially demand a stable rupee and low inflation expectations. As mentioned earlier he simultaneously announced the above listed measures to improve dollar inflows. To anchor lower inflation expectations, I expect him to raise the policy rates on 20th September 
2. The second important aspect he stressed upon was inclusive growth. Since its important to spread wings to cover as much population, he said stronger banks will no more require branch licenses which is a great step. 
3. New bank licenses will be announced within or soon after Mr Sinha, Deputy Governor of RBI who is spearheading this process retires which is in January 2014. Interestingly, he also mentioned that there are considering of making bank licenses available thereafter as well on continuous basis. Also under consideration is providing bank licenses to large and strong co-operative banks
4. Emphasizing role and importance of foreign banks in India, he mentioned about the desire to provide near national treatment to foreign banks subject to conditions. This will severally increase the depth of financial sector not to mention competition and productivity of the sector.
5. In order to make productive use of limited financial resources he said there is need to divert savings to productive assets and hence need to lower the current high lever of SLR requirement. However given the fiscal constraints it would take longer time than desired to achieve the same objective
6. Will be reviewing PSL norms to make more efficient
7. Deepen fixed income market - will introduce 10 year interest rate futures. Will generally follow policies removing restrictions on trading and deepening fx and FI mkts 
8. Rajan's baby "Bill Factoring Exchange" for MSME will see the light of the day. 
9. Will come up with policies to strengthen Debt Recovery Tribunals and Asset Reconstruction Companies. Most welcome is step to collect credit data across the banks of a particular lender - common exposures under stress can be managed proactively at least in theory 
10. Stressed the need to clean balance sheet and help roll on the stalled projects. Expect concessional allowances by banks to infra sector
11. In order to protect household sector from persistent high levels of inflation in India RBI will come out with Inflation indexed savings certificates by November 2013

Other Important Developments

• Heavy Industries Minister Praful Patel is pitching for stimulus to revive automobile industry however given the fiscal constraints its very unlikely that Ministry of Finance will accept any such request
• Karl Slym, CEO, Tata Motors confirmed that diesel variant of Tata Nano will be launched during the current year.
• No gold was imported in the month of the August as Customs department had not put in place the requirements as per the RBI guidelines...during the month of September 30mn ton of imports are expected. Meanwhile jewelers are coming under pressure due to short supply of the metal

"For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity"

...Sir John Templeton