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Morning Trekk

Wednesday, 20 November 2013

Volume 2 Issue 6
Visit us at http://www.investrekk.com

Letter to Mr. Narendra Modi


Since you were declared PMship candidate of BJP two months ago, you have very aggressively accused the Congress Party for all the mess in the country. In particular, you have raised issues of food inflation, corruption in public life, poor governance, incompetence, nepotism (dynasty), and dichotomy of power sharing between 7RCR and 10 Janpath. You have usually not held any bars in attacking the Gandhi family and Prime Minister, accusing them for all round failure. While the issue of propriety and morality of personal attacks is debatable, the mood of people so far appears forgiving. However, the moot point is whether highlighting incumbent governments failure is reason enough for voting BJP led NDA to power or people would want to see something more. While you have repeatedly cited the Gujarat Model of development as cure to all malaise, unfortunately we have really not heard any concrete proposals, programs and policies you would want to implement (if voted to power) to take the country out of this mess. For example, people may want to know - .Read more Market outlook The market has regained the momentum it lost post Diwali and appear set to break out of its sideways trend. However, a convincing close outside 59106310 range would only confirm a directional trend. A break out of the current neutral range, shall take Nifty to 5750 or 6700 level in no time. The risk reward at the current level is however neutral. .........read more More inside Markets overnight What we found interesting in global news What we found interesting in local news

Vijay K. Gaba +91-22-24036039 investrekk@gmail.com Thought for the day A man cannot be too careful in the choice of his enemies. Oscar Wilde (Irish, 1854-1900)

Word of the day Moiety (n) One of two equal parts; a half.
(Source: Dictionary.com)

Shri Nrada Uvca On World Toilet Day, a World Bank report says 53% Indian households defecate in open. No one has so far challenged this report. Should all politicians making claims of development, equity and social justice be barred from public life forever for making false claims, lying and misrepresentation of facts?

This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Readers should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. InvesTrekk Global Research (P) Limited does not provide portfolio management, stock broking or any other fund based service. The model portfolios mentioned in this report are merely to illustrate the investment style and strategy recommended in the present times. Please refer to the important disclosures at the end of this report. Copyright 2012 InvesTrekk Global Research (P) Limited. All rights reserved. InvesTrekk Trekking the path less travelled and InvesTrekk are trademarks of InvesTrekk Global Research (P) Limited.

20 November 2013

Letter to Mr. Narendra Modi


Since you were declared PMship candidate of BJP two months ago, you have very aggressively accused the Congress Party for all the mess in the country. In particular, you have raised issues of food inflation, corruption in public life, poor governance, incompetence, nepotism (dynasty), and dichotomy of power sharing between 7RCR and 10 Janpath. You have usually not held any bars in attacking the Gandhi family and Prime Minister, accusing them for all round failure. While the issue of propriety and morality of personal attacks is debatable, the mood of people so far appears forgiving. However, the moot point is whether highlighting incumbent governments failure is reason enough for voting BJP led NDA to power or people would want to see something more. While you have repeatedly cited the Gujarat Model of development as cure to all malaise, unfortunately we have really not heard any concrete proposals, programs and policies you would want to implement (if voted to power) to take the country out of this mess. For example, people may want to know 1. Would you be able to control food inflation? If yes, how and in how much time? 2. How would you ensure that corruption is eliminated from all public offices? 3. What would you do to bring an end to dynastic politics? 4. How would you ensure elimination of Nagpur-New Delhi dichotomy? 5. If you form government with the help of multiple regional parties, how would you ensure good governance and competence in the ministries and departments administered by non-BJP constituents? 6. How would you improve fiscal balance without substantially cutting on subsidies, without raising taxes and tariffs, and continuing with MNREGA, Food Security entitlement and Right to Education enforcement? 7. How would you bring INR/USD level back to below Rs50/USD level? 8. What would you do to create millions of new jobs urgently needed to employ burgeoning workforce of the country? 9. What would be your policy to improve bilateral relations with neighboring countries? 10. Would you free the caged parrot or implement Lokpal legislation and bring CBI under this independent constitutional authority? We appreciate that the incumbent administration may be suffering from fatigue and appears totally demoralized. It has probably lost the plot and perhaps has no ideas as to how to get out of this socio-economic mess. A change is therefore most desirable. But the change if not properly managed could create more problems rather than solving any. In coming days we shall highlight why you may like to be little more careful in your criticism. With warm regards and best wishes. 2

20 November 2013

Markets overnight
Chg Chg %

India equities Indian equities consolidated after rallying hard for two days. Benchmark indices ended the day with marginal gains. Volumes were close to average. Volatility was little higher. Market breadth was even at 1:1. Realty, PSU banks and infra sectors outperformed the benchmark indices. Hindalco, PNB, JSPL, JPA and SBI were top Nifty gainers. Pharma and FMCG underperformed. BPCL, Sesa Sterlite, Power Grid, HDFC Bank, and Coal India were top Nifty losers. Global equities US stocks fell after disappointing forecasts from Best Buy Co. and Campbell Soup Co. Brazils Ibovespa declined the most in seven weeks on speculation Latin Americas largest economy will remain stalled, making stock rallies hard to sustain. India currency and debt Indian 10yr benchmark yields were lower at 9.02%. Indian rupee appreciated to 62.37/USD level. On Monday short term overnight market volumes were higher at Rs1106.66bn with call money rate at 8.71%. LAF repo outstanding was higher at Rs410.76bn. Global debt US Treasuries fell, pushing the yield on the benchmark 10-year note up from a one-week low, before a speech by Federal Reserve Chairman Ben S. Bernanke that may help gauge the outlook for monetary stimulus. Global currencies The dollar fell for a second day versus the yen on speculation Federal Reserve speakers including Chairman Ben S. Bernanke will reiterate economic growth isnt yet sufficient to trim stimulus. Global Commodities West Texas Intermediate oil fell for a second day as investors weighed the prospect that the U.S. will taper economic stimulus. Crude stockpiles declined after eight weeks of increases, according to a Bloomberg News survey. Rubber declined for a second day as Japans currency rebounded from a two-month low against the dollar, reducing the appeal of yen-denominated futures. Gold fell as investors weighed comments from Fed policy makers about the outlook for stimulus amid a rally in equities thats cut demand for the metal as an alternative investment. Platinum and palladium dropped to one-month lows and silver retreated to the lowest since August.

NIFTY NIFTY Fut CNX Midcap Sensex NSE VIX

6203 6230 7618 20891 19.3

0.23 0.21 0.03 0.19 2.49

GOI 10yr yld INRUSD

9.020 62.38

(0.11) (0.06)

S&P500 FTSE100 STOXX50 Nikkei225

1788 6698 3049 15127

(0.17) (0.37) (1.05) (0.24)

US10yr yld Ger10yr yld Japan10yr yld

2.73 1.72 0.61

2.20 2.33 (3.28)

EURUSD USDJPY DXY

1.356 100.09 80.61

0.37 0.18 (0.15)

CRB Index WTI Fut ($/bbl) Cu Fut ($/lb) Gold Fut ($/oz) Silver Fut ($/oz)

272 93.55 317 1274 20.37

(0.37) 0.60 0.63 0.08 0.00

Source: Bloomberg, BSE, NSE, RBI

20 November 2013

Market outlook and strategy for today


5 things that will make us bullish on market: (a) Final clearance for implementation of GST from April 2015. (b) Fall in inflation to RBI acceptable range of 6%. (c) A sharp fall in NIFTY to below 5250 level led by banks. (d) Sharp sustainable fall in global energy prices. (e) A truly coalition government at the center post election. Broad market direction The market has regained the momentum it lost post Diwali and appear set to break out of its sideways trend. However, a convincing close outside 59106310 range would only confirm a directional trend. A break out of the current neutral range, shall take Nifty to 5750 or 6700 level in no time. The risk reward at the current level is however neutral. We expect more action in mid and small cap arena in next few months. We continue to suggest that in this phase investors must restructure equity portfolios by (a) rationalizing portfolios by exiting low quality small and midcaps and (b) rationalizing weight of commodities and financials in portfolio where these are overweight. The PSU stocks are gaining maximum momentum in this rally. Most of the beaten down stocks appear poised for a smart up move. We would however encourage investors to avoid these stocks for investment purposes. It is important to note that this rally is akin to IT rally of 1999-2000 and abundant credit rally of 2007. It is not backed by economic fundamentals in any part of the world and hence least likely to sustain in little longer time frame. This cycle like the previous will be shallow, limited, and unsustainable. The reversal therefore could be much sharper and deeper. It is important to note that the losses in 2001-02 and 2008-09 were at least 5x the gains made in the preceding rally. While it may sound a ridiculous to miss this alluring opportunity to make some quick money, we would caution that all trading positions must be created and held with strict stop loss. Strategy (a) Avoid leverage. Gradually complete deployment of equity allocation over next 6months. Overweight consumers (auto, FMCG, telecom and pharma), tier-II ITeS, and unleveraged large capital goods. (b) Create aggressive trading shorts only when Nifty appears closing convincingly below 5910 level. (c) Buy MNCs like Cummins, Siemens, United Spirits, Bosch, Bayer Crop (d) Hold all long trading position with strict stop loss of 1%. (e) Avoid commodities and PSUs from mid to long term perspective. (f) (f) Keep cash only in very short term debt. Avoid longer duration debt. Create positional short in USDINR with 2-3year horizon. (g) Gradually build trading position in gold with 15-18months perspective

20 November 2013

Morning walk through the woods


OECD cuts global growth forecasts on emerging-market slowdown The Organization for Economic Cooperation and Development (OECD) cut its global growth forecasts for this year and next as emerging-market economies including India and Brazil cool. The world economy will probably expand 2.7% this year and 3.6% next year, instead of the 3.6% and and 5.8% predicted in May, the Paris-based OECD said in a semi-annual report on Tuesday. Most of the emerging economies have underlying fragilities that mean they cannot continue growing as they used to, OECD chief economist Pier Carlo Padoan said in an interview. They used to be an important support engine for global growth in bad times. Now the reverse is true and advanced economies cant be said to be in very good times again. The reduced growth prospects underline how the global economy remains vulnerable five years after the collapse of Lehman Brothers Holdings Inc.While the euro-area has exited a recession, the OECD said the European Central Bank should look at ways to ease policy further and the Federal Reserve must keep an accommodative stance for some time before it begins tapering its stimulus. The Fed is in a very tricky position, Padoan said. Many people were surprised by the huge reaction when discussion about tapering was introduced. The Fed has to re- assess market reactions and this makes deciding when to taper more difficult. But it will have to happen eventually. (MINT) Bitcoin gaining validity fuels rally in virtual currency Bitcoins rally is accelerating as the U.S. Department of Justices description of the digital currency as a legal means of exchange bolsters the prospect of wider acceptance as an alternative payment system. Bitcoins, which exist as software and arent regulated by any country or banking authority, surged to a record $744 on Bitstamp, an active Webbased exchange where they trade for dollars, euros and other currencies, after the remarks at a hearing by the U.S. Senates Homeland Security and Governmental Affairs Committee. The gains extended an advance that has seen the price of Bitcoins quadruple in the past two months and climb 45-fold so far this year. Growing interest from investors in China and a limited supply of Bitcoins have also been fueling the increase in price, while last months closing of the Silk Road Hidden Website -- where people could obtain drugs, guns and other illicit goods using Bitcoins -- was already spurring speculators to bet Bitcoins would gain more mainstream acceptance. Now, government agencies from the U.S. Secret Service to the Financial Crimes Enforcement Network have weighed in to say that the virtual currency thats designed to be difficult to trace has potential benefits, as well as risks. (Bloomberg) 5

20 November 2013 Indonesia contemplating ban on export of ores Indonesia will press on with a plan to ban raw-mineral exports next year, while signaling that the curbs may be amended in practice, according to two officials who addressed a conference in the largest mined nickel producer. If we look at the existing law, yes by 2014 we are sure to implement this, but we also consider the effect and discuss it with parliament, how to deal with this, said Bambang Adi, deputy to the coordinating minister for economic affairs. Dede Suhendra, director of mining at the Energy and Mineral Resources Ministry, told the gathering: We have to appreciate companies that are serious about building smelters. Indonesia is seeking to boost the value of commodity sales, and while a blanket ban is mandated by the 2009 Mining Law, the government may exempt companies that are operating or planning to build processing plants. Nickel is this years worst base-metal performer on the London Metal Exchange amid record stockpiles. Citigroup Inc. raised its nickel forecast yesterday, saying the proposed curbs are being mispriced by the market. We dont talk about export ban, but implementing a law created by government and parliament, Bambang, who helps to oversee mining policy, told the conference in Jakarta. Now, we are in process of how to create regulation below the law. This is still in the process. The government has received 89 proposals for nickel-processing plants with potential capacity of about 50 million metric tons, Suhendra said. The plants will be located in Kalimantan, Sulawesi, Papua and Maluku, he told delegates. (Bloomberg) China central bank vows faster FX reform China's officials indicated on Tuesday how they plan to steer reforms on interest rates, the currency and stock markets, following a top-level party meeting that promised sweeping changes over the next decade. Following up on that, central bank chief Zhou Xiaochuan vowed to quicken the process of full yuan convertibility, which would allow the free movement of capital across China's borders and which is a demand of many of the country's major trading partners. The reforms unveiled by China's leaders were seen as the boldest in nearly three decades as they try to put the world's second-largest economy on a more stable footing after years of breakneck expansion. Zhou's comments were released as part of a public guide book to the reforms, which was on sale in bookshops for 30 yuan ($5). At more than 300 pages, it provides the full text of the Communist Party's decisions on its reform plan and includes an explanation of the changes by President Xi Jinping. It also includes articles by top officials, such as Zhou. The central bank governor promised on Saturday to "pull out all stops to deepen financial sector reforms". (Reuters)

20 November 2013

Events in our back yard


Green shoots hardly visible; industry still in trouble Green shoots in the Indian economy are visible at best in patches and can be well-spread only when there are signs of pick-up in the investment cycle, says an Assocham study. The study comes days after Finance Minister P Chidambaram said the green shoots are visible and measures taken by the government will help the economy achieve the potential growth rate of 8%. "The spread-sheet analysis of industrial data suggests that two dozen industry segments have reported negative trend in production in the first half of the current fiscal. Unless a reversal is seen in demand, it is difficult to revive the investment cycle," Assocham Secretary General D S Rawat said on the study. Unless we see clear signs of revival in the capital goods sector, the investment in manufacturing cannot be visible, the study pointed out. The capital goods sector reflects the state of investment in the key manufacturing industries, and it continues to suffer -- an indication of the lack of appetite among the industry in the face of demand slowdown, it said. The capital goods sector showed a de-growth of 0.7% in the April-September period of 2013-14. Moreover, the segment reported 6.8% negative growth in September, the survey said. The situation was bad even in the previous fiscal, as in the first half of 2012-13 and in September 2012 the capital goods had posted a de-growth of 14.2% and 13.3% respectively, it said. The continuation of de-growth over de-growth is a great cause of concern, the paper pointed out, adding that the consecutive negative trend also shows that there is huge surplus capacity lying in the sector. "It would take quite a while before fresh investment can be expected, as even if a positive territory is found, it has to first absorb the surplus capacity with the industry before a demand-driven investment is expected," Rawat said. Leave alone green shoots, industries like hot rolled steel and sugar machinery produced 58% and 39% less in September 2013 than the same month last year, the study said. Besides, colour TV sets sold 30% less while commercial vehicles were down 28.5% during the review period. Return to high growth along with the feel-good factor is very important at this point of time so that consumers retain confidence which, in turn, would prompt fresh investment and resumption of stalled projects, according to the study. "What is even more worrying are the signals that the government may cut its expenditure to rein in fiscal deficit. While controlling fiscal deficit is a must, drastic cut in government expenditure would lead to further squeezing of business opportunities since the government is among the largest purchaser of goods and services," the study said. (BS) 7

20 November 2013 Financial Technologies sells its SMX unit for $150 million Embattled trading platform provider Financial Technologies (India) Ltd is selling its Singapore Mercantile Exchange (SMX) unit to Intercontinental Exchange Group Inc for $150 million. Analysts had expected Financial Tech would shed some of its ownerships in exchanges to protect its core trading platforms business as the company faces regulatory scrutiny that has sent its shares down more than 80 percent this year. It will use the proceeds to repay foreign currency loans, the company said in a statement. (Reuters) Power Grid $1.2 billion share sale likely on Dec 3 State-run Power Grid Corp of India's (PGRD.NS) sale of shares, valued at about $1.2 billion, is likely to open on December 3, three sources with direct knowledge of the matter said, as part of the government's drive to revive the divestment programme. The Power Grid offering, which was approved by the Indian cabinet earlier this month, includes fresh issue of company shares and the government's divestment of a 4 percent stake. The government's planned sale of stakes in Power Grid and other state companies including miner Coal India is critical to relieving pressure on public finances that could put the country's investment-grade credit rating at risk. India has targeted raising $6.4 billion from selling stakes in state companies in the fiscal year ending March 2014, but has so far managed about $230 million, as ministries squabble over the timing of the issues and the rupee's fall against the dollar. The Power Grid issue is likely to remain open for investors to bid until December 6, said the sources, who declined to be named as they were not authorised to speak to the media before a public announcement. (Reuters) UP Sugar mills suspend operations Defying a State Government directive, more than two-thirds of the 99 private sugar mills in Uttar Pradesh have issued a suspension notice, expressing their inability to start crushing for the 2013-14 season in the absence of a viable pricing policy. About 65 private mills, including Bajaj Hindustan, Balrampur Chini Mills, Dhampur Sugar Mills and DCM Shriram Consolidated Ltd, submitted the suspension notice to the UP Cane Commissioner in Lucknow on Tuesday. Last week, Chief Minister Akhilesh Yadav had directed mill owners to end delays and start crushing by the end of this month. Left with no other option and for reasons beyond our control, we are constrained to give notice of suspension of operations at our sugar units, the notice said. (BL)

20 November 2013

Important disclosures
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