Risks to Complete Recovery of Economy

India’s biggest macro risk is a second successive drought that would push the economy off the global recovery track. This would likely pull FY11 growth down to 5.5% levels from our normal-rains base case 7.7%.The direct hit on the harvest would be reinforced by shrinkage in rural demand as incomes fall again. Besides, the RBI would likely be forced to tighten to anchor 5% inflation expectations as depleting buffer food stocks would fire up agflation. In the double drought of 1987-88, India had also slipped behind the global recovery of the time.

Crude OIL @ USD 120 / barrel – A rising oil import bill and portfolio outflows to oil producers would likely push India’s import cover (ie, months of imports fundable by fx reserves) to single digit for the first time in 10 years. This, in turn, would limit the RBI’s ability to buy oil bonds from oil refiners and neutralize the monetary impact by releasing fx to fund higher oil imports.

Double Dip May Hurt – India is at a relative advantage clocking 6% growth in FY11-12 if the rains are normal. That said, we do not expect, let us be clear, a double dip. Even if a “W” does materialize, the growth impact of falling external demand should be restricted to 150bp on the demand side as exports are but 18% of GDP. India is dependent on foreign capital for project finance of 3-4% of GDP and this could hit the growth to minor extent.

Picks + Equity pricing for 2010 – Merrill

india equity picksIf you have been tracking the Equity Strategies for 2010, then we are sure you are too excited to know the top picks by Bofa Merrill. But before BUYING into any of these, we would like to enlighten you about – What’s Priced in and What’s Not in the Indian market.

Currently at 17x one-year forward earnings, the Indian Markets are pricing – Global liquidity is likely to stay easy, GDP to grow at 7.8% in FY11 and Earnings growth is likely to recover to over 20% in FY11. (more…)

Merrill’s Equity Strategy 2010 – Pick Cherries

india equity strategyEarlier BOFA-Merrill in its expectations for 2010 has said it will be the year of consolidation. In continuing its coverage on equity strategy for 2010, Merrill advises investors to pick cherries. Since company and sector performances are growing more differentiated, suggesting the market is responding less to macro economic news and more to business specifics. Thus, adopt a stock-specific approach for portfolio construction in 2010. (more…)

Airlines – Take Off Strong in November

Indian airline passenger traffic recorded a strong 29.8% YoY growth during the month of November. This concurs with our view of strong traffic growth for the industry for FY10 and FY11. Despite slightly lower market share MoM, Jet Airways (including subsidiary JetLite) has retained its leadership in terms of market share.

Expect industry-wide yields to improve due to a restricted increase in supply and improving traffic. Yields have already seen an industry wide increase of +20% on the back of fare hikes done by the carriers. Better seat factors should also enable sector to improve margins and return to profitability.

The current softening of crude prices would enable the industry including Jet Airways and SpiceJet to post strong numbers for the month of December.

Implications of Moody’s Revised Ratings on Outlook for India

International rating Agency, Moody’s has revised the rating for India’s Economic Outlook.

  • The local currency sovereign bond rating at Ba2, Moody’s has revised the outlook from stable to positive.
  • Foreign Currency Bank deposits ratings have been raised from Ba2 to Ba1

Implications of the Revision – The ratings still remain below those of S&P/Fitch. The
changes are a reflection of (a) India’s strong growth prospects (b) its robust external position and (c) its demonstrated ability to withstand the global financial crisis.

Here is the complete Guide to Moody’s and S&P / Fitch Rating
Investment Grade:
Moody’s: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3
S&P/Fitch: AAA, AA+, AA, A+, A, BBB+, BBB, BBB

Non-Investment Grade:
Moody’s: Ba1, Ba2, Ba3, B1, B2, B3
S&P/Fitch: BB+, BB, BB-, B+, B, B

As Indian citizens, it hardly matters to us about these ratings since we have stronger faith in the Discplined and Ethical Central Bank, the RBI which has saved India from crisis.

One can always argue that these ratings decide the FII flow, but the Indian Insurance / Pension scheme have become a driving force in the market, can you believe it ?

Advance Tax 3rd Q 2009-2010

Here is Breaking News about Advance tax by various Indian Corporates for Q3 FY 2009-10. Those paying lesser advance tax have been highlighted in Red.

Tata Motors pays Rs 100 crore versus Nil (YoY)
M&M pays Rs 195 crore versus Rs 4.5 crore (YoY)
Tata Steel pays Rs 650 crore versus Rs 260 crore (YoY)
Hindalco pays Rs 100 crore versus Rs 40 crore (YoY)
HUL pays Rs 200 crore versus Rs 155 crore: Sources
L&T pays Rs 270 crore versus Rs 312 crore (YoY)
Grasim Q3 advance tax at Rs 150 crore versus Rs 75 crore: Sources
UltraTech pays Rs 90 crore versus Rs 65 crore (YoY)
HDFC Q3 advance tax at Rs 320 crore versus Rs 280 crore: Sources
Dena Bank pays Rs 65 crore versus Rs 60 crore (YoY)
IndusInd Bank pays Rs 65 crore versus Rs 22 crore (YoY)
Bank Of Baroda pays Rs 330 crore versus Rs 220 crore (YoY)
Bank Of India pays Rs 102 crore versus Rs 370 crore (YoY)
Tata Power pays Rs 81 crore versus Rs 29 crore (YoY)
Tata Chem pays Rs 40 crore versus Rs 83 crore (YoY)
Indian Oil Q3 advance tax nil versus Rs 1,100 crore (QoQ)
BPCL Q3 advance tax at nil
Central Bank pays Rs 138 crore versus Rs 163 crore (YoY)
Bajaj Auto pays Rs 320 crore versus Rs 105 crore

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