LM: Ratings downgrade of ICICI Bank, Axis Bank reflects impatience in investors

5 June 2019: ICICI Bank and Axis Bank both found their rating for foreign issuances downgraded to so-called junk rating or below investment rating earlier this week by Fitch.

Fitch’s reason: The operating environment doesn’t warrant a bbb- rating for these lenders. Both these lenders now carry the rating bb+ on their foreign currency issuances and depository receipts. Other ratings pertaining to domestic issuances are unchanged.

The problem for the lenders arising out of these downgrades is that cost of borrowing overseas goes up. Indeed, Bloomberg shows that the yield on both ICICI Bank and Axis Bank’s dollar bond rose in international trade after the downgrades.

But the rise was marginal largely because Fitch’s reasons for downgrade have already been largely factored in by the markets.

Fitch’s argument is that there seems to be no resolution in sight for assets stuck in insolvency proceedings and bad loans outside courts as well. Considering the slowing economy of India, resolution for banks is going to be tricky.

This means that further additions to bad loans cannot be ruled out which in turn has implications for capital and profitability.

“Indian banks are looking at a tough year ahead as resolution is slow. These are known facts but FY19 has been a good year for some of them. A downgrade now sends a wrong signal,” said an analyst from a global brokerage firm requesting anonymity.

To be sure, analysts believe that the rating agency’s move is unfair as lenders have reported improvement in their metrics in FY19.

Both ICICI Bank and Axis Bank reported a notable improvement in asset quality compared with their peers.

That said, Fitch’s downgrade is a wake up call for Indian policymakers and lenders.

Foreign capital is impatient and to keep attracting it, it is not just necessary to fix the banking sector but to fix it quickly.

For that to happen, insolvency resolutions should pick up pace and recoveries should increase. Most large corporate lenders have shown encouraging signs in recoveries but their write-offs too are high. In other words, lenders are simply writing off loans after providing for them through capital instead of getting their money back from errant borrowers.

As for rating agencies, analysts believe that Fitch’s move may not hurt the private lenders but if other rating agencies follow, banks would find themselves in a bind for raising capital.

The LiveMint reported

EQUITY UPDATE: 11 AUGUST 2012

ASIA

Singapore’s GDP declined 0.7 percent in the 2Q12 period on a q/q basis. Preliminary estimates pegged the GDP to decline 1.1 percent. (Bloomberg)

INDIA

Issuance of structured notes in India declined more than 70 percent to INR 5.88 b (USD 106 m) in the 1HY12 period on a y/y basis. Stricter regulations aimed at risk minimization and investors avoiding securities linked with co.’s not performing well in the equity markets was cited as some of the major factors contributing to the declining volumes. (Bloomberg)

GMR Infra – Co. received approval from its Board to raise INR 2500 cr through issuance of fresh equity or bonds. The co. aims at issuing equity, depository receipts, foreign currency convertible bonds to raise the required amount. (Business Standard)

Some of the FII’s investing in India have decided to surrender their licenses on SEBI’s tightening market norms. The move by SEBI to identify FII’s into similar groups based on their investments affected FII’s with multiple operating licenses prompting them to cease operations. As per Indian law, FII is permitted to hold a maximum stake of 10 percent in a co and would now on count an owner’s investments in a co. through multiple sub-accounts into a single one. The no. of FII’s registered with SEBI have declined to 1756 from 1781 in March. (Business Standard)

According a BNP Paribas Securities report, FII’s nought USD 10.7b of Indian equities till August, the highest ever on a year to date basis.(Economic Times)

Maruti Suzuki India Ltd – Co. is most likely to decide this weekend on its decision to resume operations at its Manesar plant. The plant was shut on account of violent clashes between the workers and the management and is expected to resume operations early next week. (Economic Times)

Indian Oil Corporations – According to Moody’s, co.’s refining margins declined more than expected. Margins capped at USD 4 a barrel for the full year ending FY13. (Economic Times/PTI)

Tata Motors – Fitch rating affirmed co.’s and JLR’s rating at ‘BB’ and ‘BB-‘; with outlook stable.  (MoneyControl)

Reliance Infra – Co. has been shortlisted for various national level road projects worth INR 40,000 cr. (Business Standard)

INDIAN EARNINGS

Sun Pharma – Co. reported 1Q12-13 net profit at INR 795.55cr vs. previous 1Q11-12 net profit at INR 501cr. Net Sales at INR 2,658.14cr vs. previous INR 1,635.72cr. Co.’s board declared an interim dividend of INR 4.25 per share of INR 1 each. (Financial Express)

Siemens India – Co. reported 3Q11-12 net profit at INR 36.42cr vs. previous 3Q10-11 at INR 154.77cr. Sales at INR 2,793cr, up 2 per cent. (Financial Express)

Novartis India – Co. reports 1Q12-13 net profit at INR 26.98cr vs. previous 1Q11-12 net profit at INR 37.57cr. Net sales at INR 219.52cr vs. previous INR 200.13cr. (Financial Express)

Eros International – Co. reported 1Q12-13 net profit at INR 31.7cr vs. previous 1Q11-12 at INR 21.7cr. Total income at INR 259.cr vs. previous INR 162.2cr. (Economic Times/PTI)

EUROPE

Greece’s Public Debt Management agency to auction EUR 3.125b in short term debt to pay off a EUR 3.2b bond repayment due on August 20. (Boston.com/ AP)

Julius Baer Group Ltd – Swiss investment management firm is almost finalizing a takeover of Bank of America Corp’s Merrill Lynch wealth management business outside the U.S. The total buyout could be valued at USD 2 b. (Bloomberg)

KKR & Co. – PE firm’s investments in European distressed debt rose almost twice as much over the previous year as banking institutions have cut back on lending activities amid the crisis. KKR increased its investments to USD 512.5 m in 1HY12 vs USD 260 m a year ago. Lending in the euro region declined to high yield borrowers globally excl. U.S to USD 104 b vs USD 139.4 b a year ago. (Bloomberg)

NORTH AMERICA

According to Philadelphia Federal Reserve’s survey of 48 forecasters, showed that 3Q GDP annual growth rate at 1.6 per cent  versus previous estimate of 2.5 per cent in May. real GDP growth at 2.2 per cent in 2012 versus a previous growth forecast of 2.3 per cent. FY 2013 real GDP forecast at 2.1 per cent, 2.7 percent in 2014, and 3.1 percent in 2015.(Reuters/Philadelphia Fed)

Prices of imported goods in the U.S declined 0.6 percent in July vs 2.4 percent decline in June on lower costs of fuel and food. Expectations came in at a price rise of 0.2 percent. Prices excl. fuel declined 0.4 percent. Petroleum products saw a 1.6 percent decrease in their prices vs 12 percent decline a year ago. (Bloomberg)

EQUITY UPDATE – 10 AUGUST 2012

ASIA

China’s Industrial output for July rose slower than expected by 9.2 percent to near three year lows, adding to concerns that the country is slowing in its recovery process. Inflation in the county declined for the fourth consecutive month in July to 1.8 percent vs 2.2 percent a year ago. On a m/m basis, inflation rose 0.1 percent vs -0.6 percent previously. (Bloomberg)

The Bank of Japan kept benchmark interest rates unchanged at 0.10 percent, in line with expectations. The bank stopped short of lowering its monetary policies and kept its asset purchasing fund at JPY 45 t (USD 573 b) and the lending fund at JPY 25 t. Stimulus measures would only come into force if the yen appreciated significantly against the US dollar. (Bloomberg)

South Korean central bank The Bank of Korea (BoK) kept its benchmark seven day repo rates unchanged at 3.00 percent which was unanimously taken by the members. The central bank would give more focus to propping up domestic demand. (Reuters)

Sale of passenger vehicles in China for July rose slower than forecast on a m/m basis on slowing demand and buyers postponing purchases on expectations of stimulus measures from the government. Deliveries of vehicles incl. multipurpose and utility vehicles rose 11 percent to 1.12 m units vs expectations of 1.16 m units. Sale of mini-commercial vehicles saw the biggest decline which could impact logistic operations in the country. Sale of vehicles incl. trucks and buses rose to 1.38 m units, a 8 percent m/m rise. Customers who held back on purchase are due to expectations of various subsidies and other incentives to be offered by the government. (Bloomberg)

INDIA

The Reserve Bank of India has transferred surplus profit of INR 16,010cr in 1Q12-13 (vs. previous INR 15,009cr) to the government of India. (The Hindu Business Line)

Fitch has downgraded India’s 2H12 outlook on the retail sector to negative. The rating agency cited sustained deterioration in discretionary spending ability and its unlikely recovery in the short term. Fitch revised FY13 and FY14 real GDP forecast to 6.5 per cent and 7 per cent from the earlier 7.5 per cent and 8 per cent respectively. (The Hindu Business Line)

Reliance Industries – Co. has slashed its natural gas reserves in its KG-D6 gas field by 70 per cent to 3.10tr cubic feet due to unforeseen geological surprises. (Business Standard/PTI)

Infosys – IT firm secured a USD 700 cr deal with India’s Department of Post for provision of core banking and insurance services across various post offices in India. It will also assist in installing ATM’s in these post offices. (Economic Times)

JSW Steel – Co. and other steel co. that depend on iron ore from Karnataka could face closure due to severe shortage of iron ore, if mining did not resume in the state. The state’s steel industry, whose 21m ton output accounts for 25 per cent of the national production, is operating with just a 45-day supply of iron ore. According to JSW Steel’s management it would be difficult to operate its plants if mining operations didn’t resume. JSW Steel has purchased about 14m ton of iron ore sold at the e-auctions. (Business Standard)

Sail – Co. to outsource the development of its two virgin iron ore mines in Chatisgarh and Jharkand. The mines will have a capacity of 14m tons per annum and 15m tons per annum respectively. (Business Standard/PTI)

INDIAN EARNING

HPCL – Co. reported 1Q12-13 net loss at INR 9,248 cr.vs previous INR 3,080 cr. Net Sales of the co. rose to INR 44,076.5 cr. vs INR 40,795 cr on a YoY basis. (Moneycontrol)

Tech Mahindra – Co. reported 1Q12-13 consolidated Profit After Tax (PAT) at INR 338 cr vs estimated INR 310.73 cr. Sales for the firm increased by 8.7 percent  on a QoQ basis and 19 percent on a YoY basis to INR 1,543cr vs estimated INR 1,539 cr. EBITDA margins increased by 38.66 percent on a q/q basis to INR 330 cr vs estimated INR 295 cr. (Moneycontrol)

Jindal Stainless – Co. reported 1Q12-13 net loss at INR 231.41cr vs. previous 1Q11-12 net profit at INR 85.79cr. Net sales at INR 2,206.69cr vs. previous INR 1,976.93cr. (MoneyControl)

GE Shipping – Co. reported 1Q12-13 net profit at INR 181cr vs. previous INR 162.59cr. Income from operations at INR 802.42cr vs. previous INR 680.53cr. (MoneyControl)

Eicher Motors – Co. reported 2Q12 net profit at INR 75.96cr vs. previous INR 76.31cr. Income from operations at INR 1573.05cr vs. previous INR 1,268.75cr. (MoneyControl)

EUROPE

According to the ECB governing council member Christian Noyer, ECB was ready to intervene in secondary bond markets very soon, to bring down the excessive borrowing costs of Spain and Italy. (Reuters)

U.K Trade Deficit for 2Q12 ended June increased to GBP 28.3 b vs GBP 25 b in the previous quarter on lower exports. The ongoing euro crisis saw lower demand for Britain’s goods which declined 4.9 percent on a q/q basis while imports also lowered by 0.5 percent. The trade deficit for June came in higher than expected at GBP 10.119 b vs a deficit of GBP 8.364 b previously vs estimates of a deficit of GBP 8.73 b. Exports to Germany declined by GBP 525 m, while Netherlands trade declined the most to GBP 819 m. Exports for June declined 8.4 percent over May and imports fell 1.2 percent for the same period. (Bloomberg)

NORTH AMERICA

According to estimates, the trade deficit in the U.S for June narrowed to USD 47.5 b vs USD 48.7 b in May on lower oil prices reducing the country’s imports. The lower oil prices are attributed to low demand emanating from the global crisis. (Bloomberg)

U.S Non farm productivity rose 1.6 percent on an annualized basis for the 2Q12 period vs exp advance of 1.3 percent vs prv rise of 0.7 percent. Co.’s and businesses expanded their operations but still saw hourly work rate output rise by just 0.4 percent. (Bloomberg)

U.S Initial Jobless claims for unemployment benefits declined by 6000 applications to a seasonally adjusted number of 361,000 for week ended 3 August. Expectations came at 370,000 and prv period’s claims were revised to 367,000 applicants. The four-week moving average for fresh claims rose by 2250 applicants to 368,250. Nonfarm payrolls rose by 163,000 in July, but the unemployment rate rose to touch 8.3 percent. (Reuters)

Moody’s downgrades of US municipal bonds issuers hit a 10 year quarterly high in 2Q12. The rating agency cited stressed budgets and weaker liquidity. (Reuters)

Google Inc – Co. is to pay Apple Inc a total of USD 22.5 m in settlement charges for bypassing the privacy settings of customers who used Apple’s safari web browser. (Reuters)

Research in Motion – A US judge has overturned the USD 147.2m for patent infringement in favors of co. (Boston.com/AP)

COMMODITIES

OPEC forecasted FY 2012 oil demand at 88.72m barrels per day vs. previous estimate of 88.68 barrels per day in July. FY 12 demand forecasted at 89.52mbpd vs. previous estimate of 89.50mbpd in July. (MoneyControl)

EQUITY UPDATE – 9 AUGUST 2012

ASIA

Cathay Pacific Airways Ltd – Co. reported its 1HY12 results at a loss of HKD 935 m (USD 121 m) vs exp. Profit of HKD 490 m vs. profit of HKD 2.8 b a year ago, on lower freight traffic, higher fuel costs and decline in demand for premium travel. Slowdown in global trade led to declining volumes and intense competition from other airline firms reduced its profit margins. Stock price declined 4 percent to HKD 12.36 in trade and will not pay an interim dividend to shareholders. Cargo revenues declined 7.6 percent to HKD 11.9 b on 64 percent of luggage capacity, which was lower than the previous period. Sales rose 4.4 percent to HKD 48.9 b. (Bloomberg)

INDIA

According to a FICCI survey of 418 manufacturing units and associates, the July-September quarter is expected to register lower growth as compared to the previous quarter. (Business Standard/PTI)

FII’s made gross purchases of INR 2,751.60cr and gross sales of INR 1,637.39cr. DII’s made gross sales of INR 794.71cr and gross purchases of INR 928.83cr. (Business Standard)

Coal India – Co. to supply 8.8 per cent more coal in FY 12-13. The co. is expected to supply 470m tons of coal in the current fiscal compared to 432.94m tons in FY11-12.  (Yahoo/Reuters)

Maruti Suzuki India Ltd – According to industry body Assocham, the ongoing strike at the firm’s Manesar factory is expected to cost the co. upto INR 90 cr a day as the impending strike continues. The strike has affected around 650 units and could affect around 270 auto parts suppliers. (Economic Times)

INDIAN EARNINGS

Oil India – Co. reported 1Q12-13 net profit at INR 929.93cr vs. previous 1Q11-12 net profit at INR 849.61cr. Turnover up 8.22 per cent at INR 2,439.63cr. 1Q12-13 fuel subsidies at INR 2,015.52cr vs. previous INR 1,780.65cr. (Financial Express)

Mahindra – Co. reported 1Q12-13 net profit at INR 726cr.vs expected INR 625cr. Total revenue came in at INR 9248cr. vs estimated INR 9045 cr. M&M’s exports in 1Q12 were up by 37% to 7,845 units. EBITDA margin decreased by 150 basis points on a q/q basis to 11.80 percent for the 1Q12 period.  (Moneycontrol)

Tata Power – Co. reported 1Q12-13 net profit at INR 312.30cr vs. previous INR 281.56cr. Total income from operations at INR 2284.10cr vs. previous INR 1,921.24cr. (Financial Express)

Abbott India – Co. reported 2Q12 net profit at INR 29.52cr vs. previous 2Q11 net profit at INR 17.10cr. Net sales at INR 402.83cr vs. previous INR 351.50cr. (Business Standard/PTI)

Puravankara Projects – Co. reported 1Q12-13 net profit at INR 50cr vs. previous 1Q11-12 net profit at INR 31cr. Revenue at INR 248cr vs. previous INR 191cr. (Financial Express)

United Breweries – Co. reported 1Q12-13 net profit at INR 1.32cr vs. previous 1Q11-12 net profit at INR 1.88cr. Net sales at INR 98.64cr vs. previous INR 70.03cr. (Financial Express)

EUROPE

Germany’s exports for June declined 1.5 percent vs May’s gain of 4.2 percent vs expectations of a gain of 1.3 percent. Falling demand in the euro zone, which is Germany’s biggest markets, contributed to lower exports. The trade surplus rose to EUR 17.9 b vs EUR 15.6 b in May. Current account surplus rose to EUR 16.5 b vs EUR 8.1 b a month ago. The data rose on account of rising wages in the country coupled with low unemployment levels. (Bloomberg)

Germany’s Industrial Production declined 0.9 percent in June on a m/m basis on lower output from the construction sector. Expectations came in at a decline of 0.8 percent. Factory orders declined more than twice as forecasted. Manufacturing output declined 1 percent, while capital goods saw lower output by 1.6 percent. Construction sector saw its biggest fall in June’s data to 2 percent vs 2.6 gain in May. (Bloomberg)

Bank of England’s Governor Mervyn King supported U.K Prime Minister’s budget curtailment plans as he stated that growth in the UK would be a slow process. He also lowered his GDP forecast for the coming two years that it would expand by 2 per cent , lower than his earlier forecast of 2.5 percent expansion in May. Lack of policies undertaken by the government could also substantiate this lower forecast. Bond purchases would continue for the same level and that interest rates could be reduced in the 2Q13 period. (Bloomberg)

According to the French central bank, French GDP was expected to shrink 0.1 per cent in the 3Q12. (Reuters)

Greece’s credit rating could be cut further from CCC by S&P on concerns that the nation would need more than expected financial assistance from the EU. The outlook on the credit rating was lowered from stable to negative. The nation is deadlocked in talks with the international troika of IMF, ECB and EC to decide on the funding available to the nation. (Bloomberg)

ArcelorMittal – Fitch downgraded co. to ‘BBB-‘ from ‘BBB’, citing challenging short-term outlook for steel markets, particularly in Western Europe. (FoxBusiness)

 

 

 

 

EQUITY UPDATE – 8 AUGUST 2012

INDIA

Rating agency CRISIL reduced it’s forecast for India’s GDP growth in FY12-13 to 5.5 percent from 6.5 percent. Rainfall deficiency and the worsening of the Euro zone crisis are the major factors which could affect GDP, it cited. The agency noted that it expects the Indian economy to attract lower foreign capital inflows compared to its earlier estimates. The rupee was also expected to settle around 53 to the US dollar vs 50 earlier.  The report also revised up its average WPI inflation forecast for 2012-13 to 8.0 percent from 7.0 percent. (Moneycontrol)

According to Dun and Bradstreet Indian CFO survey, macro-economic conditions in India are likely to remain ‘unfavourable’ or remain unchanged in the July-September quarter. Around 73 per cent candidates surveyed were pessimistic or neutral about the macro-economic outlook during 3Q12. (Financial Express)

The Micro and Small Medium Enterprise (MSME) Additional Secretary opposed IKEA’s plan to set up operations in India if it did not source 30 percent of its supplies from domestic industries. With IKEA lobbying for 100 percent FDI, it also was keen on avoiding compulsory sourcing from domestic markets on various investment and cost concerns. (Economic Times)

According to RBS private banking, Nifty index is expected to hit 5,700 level by December 2012. The forecast is based on investor-friendly policy reforms, a 0.50 per cent rate cut by RBI post-September, improvement in fiscal and revenue deficit and a third round of QE from United States. The report also highlighted that a stronger growth in developed world, an enhanced QE programme and a firmer domestic growth could take nifty beyond 6,200 mark. However in an opposite scenario, if US growth falters and disappoint on the QE front, and policy paralysis could take nifty to 4,900 levels. (Economic Times/PTI)

FII’s made gross purchases of INR 2,455.56cr and sales of totalling INR 1,639.61cr. DII’s made gross purchases of INR 1,234.50cr and sales totalling INR 1,179.26cr. (Business Standard)

Reliance Industries/British Petroleum plc – Co.’s received a conditional approval for over USD 1 b of investments in the KG-D6 basin to raise output at these fields. It was also asked by the management Committee to drill additional wells to confirm oil discovery at three wells in the Krishna Godavari basin. (Economic Times)

Coal India – Mining co. agreed to pay a penalty on its failure to provide adequate supply of coal to Indian power projects which resulted in a shortfall ranging from 1.5 percent to 40 percent. It would also negotiate with the Central Electricity Authority on combining prices of imported and domestic coal to market it to customers.  In other news, co. plans to import 20m tons of coal in the current fiscal to bridge the supply shortage. (Economic Times/Fox Business)

Jet Airways – Co. to hive-off its loyalty programme ‘JetPrivilege’ into a wholly-owned subsidiary. (Economic Times/PTI)

Lanco Infratech – Crisil downgraded the rating on co.’s bank facilities to ‘BB’ from ‘BBB’. The rating agency cited relative less time left to meet the debt payment of INR 700cr between October 2012 to January 2013. (Business Standard)

Kingfishers Airlines –  According to a source, co.’s pilots and engineers has decided not to report to work from tomorrow (8th August), due to non payment of salaries. (Financial Express)

INDIAN EARNINGS

Punj Lloyds – Co. reported 1Q12-13 net loss of INR 13.37cr vs. previous net loss of INR 12.25cr. Net sales of at INR 2,706.82cr vs. previous INR 2,248.31cr. (Business Standard/PTI)

Sobha Developers – Co. reported 1Q12-13 net profit at INR 45cr vs. previous INR 26cr. Total operating income at INR 433.2cr vs. previous INR 277.7cr. (Business Standard/PTI)

NHPC – Co. reported 1Q12-13 net profit at INR 669.81cr vs. previous INR 791.05cr. Total income at INR 1,729.53cr vs. previous INR 1,666.89cr. (The Hindu Business Line)

Bombay Dyeing – Co. reported 1Q12-13 net loss at INR 27.50cr vs. previous net loss of INR 39.79cr. Net sales at INT 465.73cr vs. previous INR 394.84cr. (Financial Express)

EUROPE

According to Eurogroup’s President Jean-Claude Junker, the exit of Greece from the eurozone would still be manageable inspite of the risks it posed to the citizens of the country. He ruled out an exit as early as autumn. (Reuters)

A Fitch rating’s investor survey showed that, European fixed-income investors expected eurozone to resist pressures and stay intact. Around 21 per cent respondents expected Greece and possibly one or two more countries to exit the EU. However, according to the rating agency, full break-up and demise of the euro was highly unlikely, because of the huge costs and the strong political commitment anchored to the EU. (Economic Times/Reuters)

Switzerland’s foreign reserves swelled to Swiss Franc (SFr) 406 b (USD 419.7 b) in July as its central bank purchased huge amounts of euros to prevent the franc from strengthening against it. The Swiss National Bank had targeted a rate of 1.20 to the euro as the ceiling exchange rate. Euro holdings of the bank rose to 60 percent of its total reserves in the 2Q12 period vs 51 percent in the 1Q12 period. With inflation still lower in the country, the central bank is expected to channel the euro funds into other currencies. (Financial Times)

Xstrata Plc – Miner reported 1HY12 operating profits at USD 2.5 b, a 42 percent decline on a y/y basis, but came above expectations of a decline of more than 50 percent. EPS excl items came in at 73 cents, down 25 percent on a y/y basis. The co. stated that it would cut down on various fixed costs as slowdown in the economy affected demand, which affected commodity prices. The co. saved around USD 105 m through various cost cutting measures. The co. would also postpone its planned USD 1 b capex plans on opposition from investors to curtail spending. Capex would now be reduced to USD 7.2 b. (Financial Times)

Munich Re – German reinsurer saw its profits exceed expectations on lower outlays arising from claims. Profits for 2Q12 came in at EUR 808 m vs EUR 736 m a year ago. Gross premiums rose 5.5 percent to EUR 12.6 b, a reason which contributed to higher profits. The co. saw its 1HY12 earnings come in at EUR 1.60 b and hence raised expectations of exceeding its targeted profit of EUR 2.5 b stated earlier. EPS for the quarter came in at EUR 4.54 a share vs EUR 4.14 previously. (Financial Times)

Standard Chartered plc – Shares of the bank declined 25 percent in trade on charges of conducting illegal transactions worth USD 250 b with Iranian entities. The bank’s shares to GBP 1195 pence a share in trade and would have time until 15 August to respond to charges against it. Adverse consequences would mean that the firm could lose its license to operate in the United States. (Financial Times)

NORTH AMERICA

According to Fed’s Eric Rosengren,  has suggested that Fed should launch an aggressive open-ended bond buying program , which would continue until economic growth picks up and unemployment starts falling again. (WSJ)

Citigroup – Co. could have to take a writedown of USD 6 b during this quarter on the valuation of its retail brokerage unit formed with Morgan Stanley. Citi valued the joint venture business at USD 22 b while Morgan Stanley pegged it at USD 9 b. The two firms disagreed on the valuation of the brokerage business and a third party appraiser would be appointed to evaluate the outcome. (Reuters)

Facebook Inc – Social networking provider will provide online wagering games to users in U.K with games such as bingo and slot machine online games. Regulations would not permit the co. to start its operations in the U.S, where it generates most of its revenues from. (Financial Times)

GLOBAL

According to research firm Gartner, global expenditure on IT outsourcing projects is expected to rise 2.1 percent to USD 251 b in FY2012 vs USD 246 b a year ago. The advent of cloud computing, expected to grow 48 percent to USD 5 b vs USD 3,4 b prev, would make a significant contribution to outsourcing outlays. (Economic Times)

 

 

 

 

 

EQUITY UPDATE – 7 AUGUST 2012

ASIA

China Vanke Co. – Property developer reported 1HY12 profit to RMB 3.73 b (USD 585 m) vs RMB 2.98 b a year ago. EPS came in at RMB 0.34 a share vs RMB 0.27 a share a year ago. Revenues rose 54 percent to RMB 30.72 b as co. cut its property prices by 10.6 percent on average to increase sales in a market under strict government regulations. (Bloomberg)

Taiwan Semiconductor Manufacturing Co. – Co. will infuse EUR 1.11 b (USD 1.4 b) in ASML Holding NV for a 5 percent stake to develop technology in lithography. TSMC would join Intel Inc which has already acquired a stake in the co through a USD 4.1 b investment. (Bloomberg)

According to a report by UBS AG, China’s stock index is expected to rise 20 percent by the end of FY12. The firm also expects another rate cut by the central bank to stimulate the economy. (Bloomberg)

HTC Corp – Taiwan based smartphone manufacturer saw its stock price decline almost 7 percent to NTD (New Taiwan Dollar) 258.50 as it forecasted lower than expected revenues for the 3Q12 period. Estimates came in at NTD 70 – 80 b vs expectations of NTD 87 b. The co.’s One Series is expected to face stiffer competition from Samsung’s Galaxy phone which could be one of the reasons for the lower estimate. (Reuters)

INDIA

According to Fitch, the outlook on the Indian real estate sector will continue to be negative in second half of 2012. The rating agency cited the persistence of sluggish demand, high construction costs and liquidity pressures. High property prices and elevated inflation to keep demand sluggish. Further to this Fitch said that, real estate companies will continue to face margin compression from high construction costs for building materials and labour. (Financial Express)

The rating agency Fitch, downgraded its outlook on the Indian retail sector to ‘negative’ from ‘stable’. Fitch cited sustained deterioration in discretionary spending, which was unlikely to improve over the short-term. In addition to this, the funding requirement of most retailers were likely to increase, due to store expansions and possibly higher inventory-holding periods. Also private final consumption expenditure was the weakest in last seven years. (Business Standard/PTI)

FII’s made gross purchases of INR 1,738.14cr and made gross sales of INR 1,182.41cr. DII’s made gross purchases of INR 876.85cr and gross sales totalling INR 881.08cr. (Business Standard)

According to Bank of America Merrill Lynch, the worst was not over for rupee, as it stuck to it September end forecast of USD /INR at 57. The bank believed global risk flows and uncertainty over reforms will keep confidence fragile. (Yahoo/Reuters)

ICICI – ICICI ventures to sell its property in central Mumbai, according to sources. The deal is expected to fetch around INR 180cr. (MoneyControl/CNBC-TV18)

SAIL – A consortium of firms led by SAIL plan to make an investment of USD 75 m in the Hajigak iron ore mines in Afghanistan. (Economic Times)

INDIAN EARNINGS

DLF – Co. reported 1Q12-13 net profit at INR 292.79cr vs. previous 1Q11-12 net profit at INR 358.36cr. Consolidated income from operations at INR 2,197.71cr vs. previous INR 2,445.82cr. (Financial Express)

Essar Shipping – Co. reported 1Q12-13 net profit at INR 53.90cr vs. previous 1Q11-12 net profit at INR 18.83cr. Revenue at INR 925.18cr vs. previous INR 670.31cr. (Financial Express)

EIH – Co. reported 1Q12-13 net profit at INR 9.45cr vs. previous INR 15.45cr. Total income from operations at INR 241.55cr vs. previous INR 231.37cr. (Business Standard/PTI)

Uttam Galva – Co. reported 1Q12-13 net profit at INR 10.24cr vs. previous net profit at INR 9.10cr. Net sales at INR 2,057.72cr vs. previous INR 1,533.21cr. (Business Standard/PTI)

Cadila Healthcare – Co. reported 1Q12-13 net profit at INR 194.79cr vs. previous 1Q11-12 net profit at INR 229.82cr. Net sales from operations at INR 1,516.10cr vs. previous INR 1,173.51cr. (Financial Express)

Wockhardt – Co. reported 1Q12-13 net profit at INR 377.97cr vs. previous INR 193.96cr. Consolidated net sales at INR 1,425.82cr vs. previous INR 1,053.21cr. (Economic Times/PTI)

Britannia Industries – Co. reported 1Q12-13 net profit at INR 43.45cr vs. previous INR 41.80cr. Net Sales at INR 1,221.62cr vs. previous INR 1,102.97cr. (Financial Express)

EUROPE

The standoff between the ECB and the European Union over the provision of a bailout package to Italy and Spain could see a breakup of the eurozone, said Italian PM Mario Monti. The leaders of Spain and Italy will await the ECB’s plan of action on government bond purchases as they fear that a request for a full fledged bailout package could mean imposition of ECB’s strict conditions and austerity measures. (Bloomberg)

Greece and the troika of the European Commission, ECB and IMF have reached an agreement on the need for stronger policies to stabilize the economy. The discussions follow two weeks of talks to determine whether the nation would continue to receive international funding worth EUR 240 b from the rescue funds designed for the crisis. The country would have to reduce its budget for 2013 and 2014 by EUR 11.5 b in order to receive international aid. (Bloomberg)

Siemens AG – Co. won a INR 1988 cr supply contract from India-based miner NMDC. The project, which involves the construction of a steel plant in Chattisgarh, India, is expected to be completed by HY2015. (Economic Times)

Standard Chartered plc – Co. could have its U.S unit suspended over allegations that it conducted over USD 250 b worth of transactions with Iranian entities which violated money laundering laws. The imposition of sanctions on Iran saw most banks curtail or stop its funding or lending activities to Iran. (Bloomberg)

NORTH AMERICA

According to Federal Reserve Chairman Ben Bernanke, broader economic data, which may point to a recovery in the U.S, the economy could still witness subdued consumer spending and business activity. He stated that the financial conditions in the country had still not improved as individuals and businesses continue to witness lower demand. (Reuters)

Lending by banks in the U.S rose to its highest since June 2009 to USD 7.1 t for week ended 25 July 2012. New auto loan issuance saw a 56 percent rise to USD 134 b for the Jan-Apr period on a y/y basis over 2009. Easier regulations to access credit for buyers of automobiles could have contributed to the higher lending data amongst other reasons. (Bloomberg)

Best Buy Co. – Co.’s founder Richard Schulze has offered to purchase the co. at USD 24 – 26 a share valuing the deal at around USD 8.5 b. Schulze could finance the deal with USD 1 b in equity contribution from the stake sale in which he owns 20 percent. The rest of the funding would be through PE firms. (Bloomberg)

Knight Capital Group – Electronic trading firm received funding worth USD 400 m in cash through sale of convertible securities. The sale of these instruments is due to make do for the huge losses it suffered due to software errors during a trading session on 1 August 2012. (Bloomberg)

EQUITY UPDATE: 1 AUGUST 2012

ASIA

China’s steel factories saw a 96 percent decline in profits for the 1HY12 period on economic slowdown lowering demand. The China Iron and Steel Association revealed that profits came in at RMB 2.39 b (GBP 376 m) on rising costs and lower demand. (Financial Times)

INDIA

FIIs saw net buying of INR 879.97 cr in trade today on a provisional basis with gross purchases of INR 2940.75 cr and gross sales of INR 2060.79 cr. DIIs became net sellers of INR 493.48 cr on gross purchases of INR 827.81 cr and gross sales of INR 1,321.29 cr. (Business Standard)

The Reserve Bank of India relaxed foreign exchange retention rules, by allowing corporate and exporters to keep entire foreign exchange earnings in respective currencies for a limited period versus a existing provision of 50 per cent conversion to Indian rupee. In other news, RBI lowered India’s growth forecast for the current financial year to 6.5 per cent versus previous estimate of 7.5 per cent. (MoneyControl/BBC)

Reliance Power – Co. is set to utilize USD 800 m as four international banks sanctioned its loan for its power project in Sasan, India. (Business Standard)

Maruti Suzuki – Rating agency ICRA will scrutinize around 14 auto parts suppliers to Maruti Suzuki India on account of the ongoings at the co.’s Manesar plant. Violence at its factory in Manesar has severely affected the co.’s production, thus affecting its suppliers. (Economic Times)

Tata Steel – Co. is stated to have lowered its operating capacity on account of power outages in the northern region of India. (Economic Times)

Bharti Airtel – Co. is exploring options of issuing new shares to raise funds, citing two people aware of the situation. (Business Standard/Reuters)

Tata Motors – Jaguar Land Rover is recalling 2,229 Freelander 2 SUV’s in China due to a potential perforation in power steering hose. (The Hindu Business Line)

Power Co.’s – According to the rating agency Fitch, the outlook on domestic power sector was stable, due to some progress in availability in fuel and a possibility of debt restructuring of SEBs. In related news Coal India agreed to supply at least 80 per cent of coal requirements for new power projects.  (Financial Express/Money Control)

INDIAN EARNINGS

IDBI Bank – Co. reported 1Q12-13 net profit at INR 427.34cr vs. previous INR 335.10cr in 1Q11-12. Total income at INR 6,786.81cr vs. previous 6,059.83cr. (The Hindu Business Line)

Cipla – Co.reported 1Q12-13 net profit at INR 400.76cr vs. previous 1Q11-12 net profit at INR 253.34cr. Net sales at INR 1,917.34cr vs. previous INR 1,550.33cr. (Financial Exprees)

Petronet LNG – Co. reported 1Q12-13 net profit at INR 270.85cr vs. previous INR 256.71cr. Turnover up 52 per cent to INR 7,030.41cr. (The Hindu Business Line/PTI)

Bhushan Steel – Co. reported 1Q12-13 net profit at INR 205.97cr vs. previous INR 209.96cr. Net sales at INR 2747.34cr vs. previous INR 2165.85cr. (Business Standard/PTI)

Titan Group – Co. reported 1Q12-13 net profit at INR 156.09cr vs. previous INR 143.51cr. Net income at INR 2,205.81cr vs. previous INR 2020.60cr. (Business Standard/PTI)

Karur Vysya Bank – Co. reported 1Q12-13 net profit at INR 145.95cr vs. previous INR 116.70cr. Total income at INR 1,109.81cr vs. previous INR 768.72cr. (Business Standard)

Jaiprakash Associates – Co. reported 1Q12-13 net profit at INR 138.84cr vs. previous net profit at INR 184.06cr. Net sales at INR 2,963.57cr vs. previous INR 2,902.30cr. (Business Standard/PTI)

EID Parry – Co. reported 1Q12-13 net profit at INR 22.47cr vs. previous net loss of INR 7.18cr. Total income at INR 578cr vs. previous INR 398.49cr. (Financial Express)

GTL – Co. reported 1Q12-13 net loss of INR 203.95cr vs. previous 1Q11-12 net profit of INR 12.93cr. Revenue at INR 615.98cr vs. previous INR 820.62cr. (The Hindu Business Line)

Man Industries – Co. reported 1Q12-13 net profit at INR 26cr vs. previous INR 24cr in 1Q11-12. Net Sales at INR 326cr vs. previous INR 466cr. (The Hindu Business Line)

Shoopers Stop – Co. reported 1Q12-13 net profit at INR 50 lac vs. previous INR 11.7cr. Gross retail revenue at INR 516.9cr vs. previous INR 448.5cr. (Business Standard/PTI)

Muthoot Capital Services – Co. reported 1Q12-13 net profit at INR 4.93cr vs. previous INR 2.35cr. Revenue at INR 22.17cr vs. previous INR 12.23cr. (Business Standard/PTI)

EUROPE

Italian PM Mario Monti, stated that the timely assistance from the ECB and the bailout funds could slowly help the country return to stability, ahead of his tour to Helsinki, Madrid and Paris this week. Italy is faced by rising government bond yields and surveys indicate that around more than half of the public believe that Monti would not be able to achieve the target of lowering the country’s fiscal deficit. (Financial Times)

ECB’s plans of staging a bailout program for troubled European economies, hit a resistance. As according to a Bundesbank source, most troubled European economies faced a fiscal problems and which should be addressed using fiscal instruments. (CNBC)

EU unemployment rate for the 17 country block rose to 11.2 percent or 17.8 m unemployed people in July vs. 10.2 percent in June 2011. Youth unemployment, the under-25 age group, rose to 22.4 percent. The results were affected mostly by Spain and Greece where the rates were 24.8 percent and 22.5 percent respectively. Germany, was more stable as the rate declined to 5.4 percent vs 5.5 percent previously. The data would weigh on the ECB meet this Thursday when it decides on its monetary policy and interest rates. (Financial Times)

Euro zone inflation for June was stubbornly stuck at 2.4 percent in July, similar for the last three months. The data, combined with the rising unemployment rates, could weigh in on the ECB meet this Thursday. (Financial Times)

Italian unemployment rate at 10.8 per cent in June versus 10.6 per cent in May. (Economic Times)

Moody’s lowered U.K’s GDP forecast to 0.4 percent for FY12 and 1.8 percent growth in FY13. However, the agency did not alter its AAA rating and its outlook on it. The agency stated that policies such as asset purchases, the government’s ability to reduce debt without hampering growth all prompted for the forecast. (Financial Times)

According to Fathom consulting, a Eurozone break-up could force UK into a deep recession, force governments to nationalise banks and trigger a GBP 1tr of QE. (Telegraph UK)

Deutsche Bank – Co. admitted that some of their staff was involved in LIBOR rate-rigging scandal. However an internal inquiry has cleared senior management. In other news, co. to cut 1,900 staff, mostly outside Germany, due to the European economic downturn. (BBC)

Tesco – Standard and Poor’s cut co.’s outlook to ‘negative’, warned on weakening profits. The rating agency has suggested that co. should sell off businesses. (Telegraph UK)

EUROPEAN EARNINGS

BBVA – Spanish bank saw its 2Q12 profit decline to EUR 505 m vs expectations of EUR 700 m. Profits declined 58 percent y/y on its property loan delinquencies. Net interest income rose 16 percent to EUR 3.74 b. The co. set aside EUR 1.43 b of the reqd. EUR 4.6 b to comply with Spanish regulatory laws. The bank’s Latin American division saw revenues rise to EUR 1.02 b vs EUR 774 m on stronger demand for loans and rise in deposits. (Financial Times)

British Petroleum plc – Co. saw its 2Q12 profits decline to USD 3.7 b vs USD 5.7 b a year ago, a 35 percent decline on lower production, higher writedowns on its shale gas unit and a tax charge in Russia. The numbers came in below estimates as lower crude oil and nat gas prices weighed on its earnings. The charges on its Deepwater rig oil spill could still weigh on profitability as it appeased shareholders with its strategy of delivering a 50 percent increase in cash flows by 2014. The co. was also affected by the sale of its Russian JV with TNK where income was lower by USD 700 m on a y/y basis. Lower output also hampered its operations. (Financial Times)

NORTH AMERICA

US consumer confidence for July at 65.9 versus estimated 61.5 versus previous 62.7 ; revised from 62. (FXStreet)

NORTH AMERICAN EARNINGS

Pfizer – Pharma co. saw its profits rise to USD 3.25 b, a 25 percent y/y rise on cost cutting vs USD 2.61 b previously. EPS came in at 43 cents vs 33 cents a year ago. EPS excl costs came in at 62 cents vs expectations of 54 cents. Overheads declined 17 percent with R&D expenses lowered by 24 percent. Revenues declined 9 percent to USD 15.1 b, declining 9 percent y/y on a 53 percent fall in the sale of Lipitor, its anti cholesterol drug, whose patent expired. The co. plans to sell its nutrition and animal health units to raise USD 3.0 b through 20 percent divestment to offset declining revenues of Lipitor. It reaffirmed its FY2012 earnings at USD 2.14 – 2.24 a share. (Financial Times)

 

 

EQUITY UPDATE – 17 JULY 2012

ASIA

China’s FDI inflows declined 3 percent in the Jan-June 2012 period on a y/y basis. Slowing global economy lowered the inflow of capital into China. FDI data came in at USD 59.1 b for the said period. FDI in June came in at USD 12 b, a 7 percent decline on a y/y basis. (Reuters)

IMF warned that Chinese economy could still be destined for a ‘hard landing’, cut China’s growth forecast by 0.2 per cent to 8 per cent.  The global think-tank cited slowing down of investment spending due to overcapacity in some industries. (Economic Times/AP)

ZTE Corp – Shares of the co. declined 17 percent in trade to three year lows on lower profit forecast given by the co. The co. announced that profits would decline 80 percent on a y/y basis. Lower investment income, exchange rates and lower domestic revenues were the causes for the declining profit margin. (Financial Times)

INDIA

Rating agency Fitch stated that India’s infrastructure sector would see a slowdown in activity on delays, regulatory problems and sector specific challenges. Infra co.’s will be constrained by capital raising issues, higher interest rates, depreciation of the rupee and other fuel constraints. (Business Standard)

According to a report by Deutsche Bank India, India’s GDP for FY12 period is expected at 6.3 percent on consistent pressure from inflation which hampered policy measures. (Economic Times)

FII made gross purchases of INR 1639.72cr, and sales of INR 1382.55cr. DII’s made gross purchases of INR 683.29cr, sales of INR 723.88cr. (Business Standard)

IMF lowers India’s growth forecast by 0.7 per cent to 6.1 per cent for 2012; FY13 forecast cut to 6.5 per cent, citing deteriorating of global economic situation. (Economic Times/PTI)

State own oil firms hiked the prices of aviation turbine fuels by 1.7 percent to keep in line with global rates. (Economic Times)

Rashtriya Ispat Nigam Ltd – Co.’s initial public offering of INR 2500 cr has been deferred by the Indian government on account of weaker market conditions which saw a weaker response to the issue. (Economic Times)

Reliance Industries – Co. repurchased 3.51 cr shares totalling INR 2515 cr. The programme is part of the INR 10,440 cr buyback until January 2013. (Economic Times)

Lupin – Citi raises price target for co. to INR 640 from INR 570, maintaining a ‘buy’ rating. However FY13-14 EPS lowered by around 5 per cent due to higher effective tax rate assumptions. (Financial Express)

Gujarat Pipavav Port – Co. raised INR 350 cr through a qualified private placement and preferential share issue. Co. raised INR 199.5 cr through 3.41 cr of share sale and INR 152.52 cr of sale of 2.58 cr of preferred shares. (Business Standard)

INDIAN EARNINGS

Tata Coffee – Co. reported 1Q12-13 net profit at INR 31.84cr vs. previous 1Q11-12 net profit at INR 13.59cr. Consolidated total income from operations at INR 413.73cr vs. INR 334.82cr previously. (Financial Express)

DCB – Co. reported 1Q12-13 net profit at INR 18.9cr vs. previous 1Q11-12 net profit at INR 8.8cr. Income at INR 92cr vs. previously INR 76cr. NII at INR 64cr vs. previous INR 52cr. (Business Standard/PTI)

MindTree – Co. reported 1Q12-13 net profit at INR 89cr vs. previously INR 34.6cr in 1Q11-12. Revenue at INR 563cr vs. previous INR 413.1cr. (Financial Express)

Exide Industries – Co. reported 1Q12-13 net profit at INR 152.03crcr vs. previously INR 163.26cr in 1Q11-12. Revenue at INR 1551.08cr vs. previous INR 1243.28cr. (Business Standard)

EUROPE

European Central Bank President Mario Draghi declined to make a statement on reporting losses on holders of debt issued by Spanish banks severely affected by the crisis in Europe. (Reuters)

The Chairman of the European banking Authority Andrea Enria stated that banks would have to meet stringent capital requirements to prevent them from stalling on lending, to stop the crisis from spreading. The capital adequacy ratio, which was temporarily set to 9 percent, would be made a permanent requirement for banks. He stressed on conservation of capital for banks as a top priority. (Financial Times)

According to a recent IMF forecast Spanish economy is expected to contract 1.5 per cent in the current years and another 0.6 per cent in 2013 versus a previous expansion in 2013, citing lack of confidence in the Spanish economy despite the EU banking bailout and continued outflow of private-capital. (Economic Times)

GlaxoSmithKline – Co. is set to acquire Human Genome Sciences for around USD 2.8 b. The three-month hostile pursuit by GSK would come to an end as the co. rose its offer from USD 13 a share to USD 14 a share.  GSK would access the rights to market Benylsta, a drug treating immune system related diseases and other medicines related to heart disease treatment. (Reuters)

Nokia Oyj – Shares of the co. declined over 3 percent on the co. reducing the price of its Lumia 900 phone by 50 percent in the US for the weekend. With the co. also set to announce its 2Q12 results, investors exercised caution over the co.’s stock purchase. Shares of the firm neared its 16 yr lows at EUR 1.434 a share. (Reuters)

PostNL – Co. shares declined more than 5 percent after TNT Express announced that UPS would delay its EUR 5.15 b takeover of TNT until the fourth quarter 2012. PostNL owned a 29.9 percent stake in TNT Express. (Financial Times)

NORTH AMERICA

Citigroup Inc – Co.s second quarter profit declined on slowing economy. Net earnings came in at USD 2.9 b on a y/y basis, a 12 percent decline. Earnings excl partial stake sale of Akbank, declined to USD 1 a share vs expectations of 89 cents. Citi reduced its positions in troubled euro zone countries from USD 50.5 b to USD 20.1 b. Revenues declined 10 percent to USD 18.4 b on account of write downs of bas assets of Citi Holdings. (Financial Times)

Comcast Corp – Co. is to buy Microsoft’s 50 percent stake in MSNBC for about USD 300 m. (Reuters)

GLOBAL

According to a survey conducted by the National Association for Business Economics, only 23 percent of the co.’s participating, planned on hiring staff in the next six months vs previous number of 39 percent. Slowdown in hiring, on account of a slowing economy and the euro crisis, would all affect the job markets, the study revealed. It also revealed that hiring may have slowed down due to co.’s exercising caution rather than seeing a decline in operations. (Reuters)

DAILY MARKET REPORT – 03 JULY 2012

The markets closed flat again on a lacklustre trading session. The Sensex closed 26.73 points higher at 17425.71 points or 0.15 percent higher. The Index touched an intraday high of 17526.82 and a low of 17351.50 today. The NSE Nifty closed 9.35 points higher at 5287.95 points or 0.18 percent higher.

Deutsche Bank upgraded the utilities sector stocks in India.Sugar industry stocks rose on news that production would decline by 4 percent on lower recovery due to deficient rainfall. Oil marketing firms rallied in trade on news that revenue losses on diesel and petrol and cooking gas declined by 36 percent and 44 percent respectively.

One of the major event of the day saw Barclays CEO Bob Diamond tender his resignation with immediate effect on the aftereffects of the Libor scandal.The Reserve Bank of Australia held its main cash rate at 3.5 percent, unchanged on material easing.

On the global market scenario, Asia closed higher by marginal to a higher level on hopes of a stimulus. Europe too is marginally higher on hopes of stimulus and policy action.

On the sectoral index front on the BSE, the Midcap Index gained 0.50 percent, while the Smallcap Index moved 0.86 percent higher. The Realty index gained 1.98 percent, Metal index inched 0.57 percent higher;  Bankex moving up by 0.48 percent. TheIT Index was declined 0.51 percent and the FMCG index declined 0.47 percent.

On the currency front, the currency appreciated to touch 54.90 to the Dollar. Selling of dollars by banks improved sentiment, leading to its highest rate in one and a half months. On similar lines, Fitch conducted a rating analysis on corporates which could likely be affected in terms of rupee depreciation.

Commodities moved higher with WTI at USD 85.22 up 1.76% and Brent trading at USD 99.33 up 2.04%. On the weather front, severe storms expected over New York, Boston and Washington D.C.

Kindly check the Market Summary tab for further information on stock-related data.

(Business Standard, Economic Times and Moneycontrol)