13 Juin 2013

Fitch upgrade of India rating from Negative to Stable

The big news is the Fitch upgrade of India rating from Negative to Stable on the of a more controlled Fiscal deficit.  That’s a big relief and the pending worry which probably will get resolved is that of a negative outlook from S&P.  The conspiracy theory is that the Indian Government's strongly worded action to Fitch for sharing its data with SEC probably brought about this reaction and hence S&P will be a big event as and when it happens.

However the overhang today is of the global markets.  Rupee has slipped back from 57.7 yesterday to 58.3 to a USD in morning trades. . I think markets should make a comeback as the Fitch upgrade is definitely a big event. Nevertheless, the confidence is low its all about flows which are not coming in.  I would maintain a negative stance though near term the RBI meet on 17th will raise hopes for a rate cut. I think the rating differentials between the larger top companies which have held on and the mid range valuations is high and that may come off with the ITCs, HDFC , Sun etc coming off.   Makes sense now to hedge through short Nifty positions, more than ever.

The FM in a speech has gloated about Fitch statements. Has indicated that there will be a series of decisions taken in June. That would be coal prices, coal allocations, Gas prices, FDI in certain sectors. Has said that this year there will be no curb on expenditure and he will ask Government sector to spend earlier than later as has been the norm.  4.8% of fiscal deficit for FY 14 he says is achievable given that 4.9% was done in FY 13.

Bharti is one which is making a come back. As per paper reports the Promoter family has increased stake in the last few days. Even though the increase is marginal, this goes down well with the markets.  What also affects is how the media reports certain things. Yesterday there was a report which indicated that Bharti was the lowest in terms of revenue marketshare in March quarter as against Idea and Vodafone. Today there is another media note which says that these numbers need to be looked at on an annual basis.

Sun Pharma hit 6-7% down in early morning trades to 920 levels.  But since then has bounced back just like a top class stock.  Clearly many use this as an opportunity. A look at the fundamentals indicate that the earnings profile over the next couple of years will be a bit muted given the high base.  Two large opportunities of FY 13 will temper the growth numbers and even margins which were posted in FY 13. Lupin,  Cipla, Torrent Pharma are three interesting opportunities which we are looking at. At the moment, more inclined towards Lupin and Torrent Pharma.  There is a domestic pricing policy which will be announced in next few weeks and that will hurt the domestic players.  Sun Pharma is least impacted at 1-2% of profits, but companies such as Cipla have relatively higher impact of 5-6%.  Overall that may be a dampener for the sector as relative valuations will be looked at. More on these later in the day.

Apollo Tyres has attempted a large acquisition. They will buy Cooper tyres for Rs 15400 cr and the acquisition will be through the leveraged route. With Business based in US and China, I think this stock will now be out of purview of investments

Future Group said in a Conference that they see possibilities of a tie up with Amazon. Amazon has initiated its business in India. The Stock suffers given that that the next set of restructuring is due later this month.

Shiv Vani in a conference call indicated that its business was coming back to normal. Of the 20 large rigs that it has, 9 rigs came in for rehiring last year. (Typical rig hiring period is 3 years). Almost all are hired with the exception of 1.  There are 3 awaiting deployment and will be deployed by September. There will be 4 rigs coming up for rehiring this year. These are expected to be redeployed by this year itself as ONGC is aggressively rehiring again. The negative is that the rates are 15% lower than earlier.  He had bought an offshore rig last year for Rs 350 cr.. The only one and this he has deployed. He says he is willing to sell this one in order to pare down his debt and consolidate.  He did appear concerned about the cashflows and how he will manage the repayments. That in some sense is good.. That he is alert about the repayments which are due in FY 16.. And has already reoriented some repayments. But for now, the cashflows do seem a bit tight given that his balance sheet has deteriorated. This he expects should be ok this year and release lots of cash.  As a stock, its been trashed completely. The stock is down because of the cashflow problem. If he is able to sell some of his equipment, he should make a nice recovery.  The fact that the company held a conference call, probably the first in 3-5 years is a positive sign.