India Losing ROE Edge - Morgan Stanley
Tuesday, September 30, 2008
In a report released just a while ago, Morgan Stanley has expressed its displeasure over India losing its ROE Edge and expects it to slip further down.
India lost its edge over the average EM ROE in 2007. The ROE gap to EM fell to a seven-year low of 4.3% in 2007. This is the second-worst gap since 1995.Second, unlike in the past when India's ROE edge came from superior asset turns, it now comes from a fragile net margin superiority. India's asset turn is now below the averages in the rest of the world for the first time since 1999.
Further, Corporate India's balance sheet has deteriorated. At the end of 2007, Indian companies had an average net debt equity that was higher than in both emerging markets and Asia-Pac. Earnings quality remains suspect – free cash flows are lower than in the rest of the world.
Capex Cycle and Rising Interest Rates a dampener:
Apart from causing a relative rise in debt/equity and thus higher interest cost, the big capex cycle of the past two years has also elevated depreciation expense. The rise in average interest rates is putting further pressure on financial statements.
India's ROE superiority versus the region and the emerging market universe will likely come under pressure.This will cause India's relative multiples to contract.
Read the full article
Published by Webmaster @ 1:12 PM IST.
HCL Tech - Axon Bid Analysis
Monday, September 29, 2008
We first reported about HCL Tech's bid for Axon on the 4th of Sept. However, subsequently the company denied but we knew from our sources that it was only negotiating with the bankers.HCLT intends to fund the all-cash GBP441mn ($818mn) deal through a GBP400mn loan and rest from internal cash. If all goes well, the process should complete by 1Q CY09. HCLT's ERP business is the smallest amongst the top Indian IT services companies, and the acquisition could provide an opportunity to break into the big league in enterprise solutions. Without any doubt there will be short term impact on HCLT's EPS while the company can expect a significant positive leverage in the long term.
The key for HCL Tech is that its enterprise business is $218mn, and is much smaller than that of peers Satyam ($1.1bn) and Infosys ($1.1bn). The acquisition could help propel HCLT into the big league in enterprise business solutions, with Axon's 2000 strong SAP consultants.
This is not a done deal as the risk of a counter bid from Infosys is still ON. In addition, foreign vendors may compete. While companies do run a risk of overpaying in short term, the bigger dividend would come from a significant leverage impact of this acquisition on the overall company. Unfortunately, markets are currently focused on short term results and historically HCL Tech has had patchy record on acquisition integration. The stock is likely to UNDERPERFORM.
Read the full article
Published by Webmaster @ 10:11 AM IST.
Weak Sentiment Prevails
Friday, September 26, 2008
India suffered its capitulation-like fall in June / July when the market fell 20% in a month. At that time, composite sentiment indicator dipped into fear zone. Since then, India has outperformed emerging markets and risen 11% in absolute rupee terms. Even though sentiment remains fragile, it is currently outside what we define as fear territory.
The components of the sentiment indicator that are particularly weak at this point in time appear to be value-at-risk and price relative to 200 DMA. Other metrics are mixed indicating a bearish sentiment with market's low point behind us for now.
What History on Dalal Street has to say ?
The market hit its bottom on 16 July (12,515 on the BSE Sensex), previous bear markets show that the market almost always tests the previous low before a new bull market gets under way. This process of retesting took between 15 and 24 months in the previous three bear markets of the past 18 years whereas this market is only two months from its July low. The pace of the price fall to the end of this bear market could be significantly slower than what we have witnessed thus far.
As you are already aware that you get best returns for investments made during dark phases, continue to invest.
Read the full article
Published by Webmaster @ 8:55 AM IST.
RBI - Eases ECB Norms for Infrastructure
Tuesday, September 23, 2008
Continuing with measures taken last week - making NRI deposits more attractive and providing additional liquidity, RBI has stepped in to rescue the Infrastructure companies. The central bank raised the external commercial borrowing (ECB) limit for infrastructure companies to US$500 million per year for rupee expenditure from US$100 million earlier, under the approval route. The relaxed guidelines also noted that the borrowings in excess of US$100 million should have a minimum average maturity of seven years.The overseas borrowing cap for companies other than those in infrastructure sector for rupee expenditure remains unchanged at US$50 million under the approval route.
The RBI move is likely to have a positive impact. Given the current global market conditions, do not expect a surge in flows. However, the easing of the ECB rules would be rupee positive and supports our view of the unit re-tracing back to Rs43-44 levels by March. As regards growth, new rules are positive for the investment upturn and may help stem the deceleration seen in investment growth.
Read the full article
Published by Sunil K @ 10:32 AM IST.
India Inflation Data Constituents
Friday, September 19, 2008
Like most of our readers I was also curious to figure out the constituents of the Indian Inflation Data. Finally I got to know what are the constituents of the Indian Inflation data and I thought I'll share with our readers here. Due to lack of correct data, analyzing and calculating the same is beyond the scope of this article.Food and Non-Food Articles in Inflation Index:
Fuel Power Light & Lubricants:
Manufactured - Food, Wood, Paper, Leather, Beverages and Textiles:
Manufactured - Rubber, Chemicals, Non Metallic and basic Metals:
Manufactured - Machinery and Transport Equipments:
The official Wholesale Price Index for All Commodities (Base: 1993-94 = 100) If any of you can prepare a spreadsheet and the necessary formulas to calculate, I'll try to get someone survey and fill the values for the commodities and thus we can have city wise inflation data :-)
Read the full article
Published by Webmaster @ 7:56 PM IST.
Real Estate Stocks - All Time Low
Thursday, September 18, 2008
The Indian Real Estate sector, one of the most speculative sector in the growth story and house of cards is severely beaten down on the bourses. All the Realty Stocks have hit a new LOW. They have been making new lows since June-08. The Table below shows Live Stock Prices of Indian Real Estate Stocks.
We are presenting complete All Time High and Low Data for your ready reference.Indian Shareholders Wealth Destroyers:
Ansal Infra - From a High of Rs 550 the stock is now available at Rs 70
Brigade Enter - High of Rs 470, stock is now at Rs 110
DLF - From high of Rs 1,200 stock is available at Rs 380
HDIL - From high of Rs 1,384 stock is available Ex-Bonus at Rs 188
IndiaBulls RealEstate - High of Rs 807, currently at Rs 178
IVR Prime Rs 504 High, Rs 133 now
JaiCorp - RelianceSEZ Spculation Stock - High of Rs 1350 now available at Rs 250
Omaxe Ltd - Rs 500 to Rs 100 [Speculative Realty in Villages surrounding Delhi]
OrbitCorp - Rs 1,000 to Rs Rs 195 [Mumbai Prices Crashing Again ?]
Parsvnath - Rs 525 to Rs 95 [Promoter doesn't understand the business and wanted to get into Telecom]
Purvankara - Rs 500 to Rs 150 [The Royal Rip off since IPO]
Sobha - Rs 1,000 to Rs 200 [Middle East NRI promoter out of touch on what's happening in Bangalore]
Unitech - Rs 480 to Rs 115 [Luck doesn't prevail everytime].
With Home Loan Rates touching a peak, don't expect revival anytime soon.
Related Reading:
End of Indian Realty Party - HSBC
Read the full article
Published by Komal M @ 10:29 AM IST.
ICICI Bank's Exposure to Lehman Triggers Fresh Sell Off
Tuesday, September 16, 2008
If you are a regular reader here, you may have noticed that we didn't put out any recommendation to BUY in the past 15 days but had recommended to book profits on rally. Just when everybody thought the worst was over, Frean and Panic has gripped Global Markets with Lehman filing for bankruptcy.ICICI Bank has exposure of about USD80mn to Lehman Brothers in form of senior debt. This has triggered a fresh round of SELL of in the Indian market though domestic Institutions are BUYING. As Lehman goes under liquidation and the restructuring plan gets filed, the senior debt holders get the money first. We are not sure how the legislation works in US on bankruptcy but the ICICI Bank Plc, UK which has the exposure may get probably 50-60 cents a dollar as a senior debt holder. So roughly Rs1.1-1.5bn may have to be written off depending on the exchange rate.
You already know how good ICICI as a bank is and we do have regrets that two fo the mutual funds we recommend HDFC Top 200 and HDFC Equity have exposure to this bank. However, we cannot ask the Fund Managers to SELL Off but it does raise suspicion about their internal process on how the bank made it to the BUY list.
Update:
ICICI Bank's London subsidiary may have to take additional woes - mark to market hits during 2QFY09 owing to the expansion in credit spreads in the past week. The hit could be as wide as 1-5% of the total portfolio (US$5bn) implying US$100mn to +US$250mn. This would be in the London subsidiary – it can be construed as a hit on ICICI Banks' book value (Rs5-8/shr)
Read the full article
Published by Webmaster @ 12:07 PM IST.
India Trade Deficit - All time High
Tuesday, September 02, 2008
India's Trade deficit in July 2008 hit an all-time high of US$10.8bn. In the first four months of FY09, the deficit swelled to US$41bn, in contrast to US$80 bn for the whole of FY08. Of this, oil accounted for US$26bn and non-oil US$15bn. Exports rose 31.2% in July 2008 against YTD growth of 24.6% mainly on account of the weakening rupee helping the exporters.
Commodity wise export data is now available for FY08, which show strong growth in agro (43%) and oil (33%) exports, while overall manufactured export growth (19%) was much slower. Imports grew 48.1% in July 08 against YTD growth of 34.2%. Oil imports grew 69% in July 08 and 55% YTD.
Figures for July 2008
Exports: US$16.3bn
Imports: US$27.1bn
Trade deficit: US$10.8bn
India's trade deficit is expected to nudge towards 10% of GDP in FY09 unless oil prices correct sharply. So this data explains how global crude oil price has higher co-relation to the Indian Stock Markets.
Read the full article
Published by Komal M @ 1:24 PM IST.
