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India Economy Updates

Economy News

The Reserve Bank of India (RBI) discontinued issuance of letters of undertaking (LoUs) and letters of comfort (LoCs) for importers with immediate effect, in an attempt to prevent fraud such as the one allegedly carried out by jewellers Nirav Modi and Mehul Choksi. Letters of credit (LCs) and guarantees will continue to be issued like before if they meet certain criteria. (BS) All the 20 public sector banks (PSBs) have obtained approval from their respective boards for the terms and conditions put forth by the Union government to receive capital infusion through bonds as part of the recapitalisation plan. (BS)
Corporate News

 Lenders are exploring the possibility of settlement of dues of Uttam Galva Steels, a move that could ease the way for ArcelorMittal’s bid for Essar Steel. ArcelorMittal was an early investor in Uttam Galva Steels. (BS)Thomas Cook aims to spin off its human resource firm Quess within a year to simplify business structure and secure better valuation for i…

Nifty Outlook

Nifty outlook for the short term The Nifty (cmp 5667)  closed on a weak note, down 141 points. If the decline continues early next week, the index can move to 5,618 or 5,477  over the next couple of weeks.   A rally on Monday will face resistance at 5,850 and then 5,970. Inability to move above 5,850 will be the cue for investors to play short with stop-loss at 6,000. Decline to 5,500 or thereabouts will be followed by a recovery.

Market Update 2012

In the second quarter, the much awaited government reforms finally came through. The government opened FDI in multi-brand retail and aviation, hiked price of diesel, reduced withholding tax on foreign borrowings and also suggested a debt recast for the state power utilities. Markets responded positively to the reforms moves by the government. Continued liquidity support by the Foreign Institutional Investors (FIIs), who have invest about 7b USD so far,  also aided the positive momentum.

Now the Nifty is around 19,200 and post this rise (~10% gain for the Nifty in 2QFY13), valuations are at about 15x FY13 earnings, which is the average of the long term PE band for the benchmarks. Further sustainable rise in the markets will be led only by further initiatives on the core reforms. These core reforms are necessary to encourage more investments and help sustain the earnings and valuations at current levels.

Expectations from the results are not very high, which may act as a cushion for the …

Crompton Greaves

Crompton Greaves stock update:

Crompton Greaves (CRG) is taking steps to align its manufacturing base and

(1) increase associated sourcing from low cost countries, such as India, to supply material for a new transformer facility in Brazil;
(2) its Hungarian facility will cater to a greater share of European demand;
(3) its Belgian facility (high cost base) will have a reduced role;
(4) potential shut down of units in high cost areas.

Presently, each entity in the group (Pauwels, Ganz etc.) operates as an independent silo. CRG plans to integrate key business functions (such as finance, payroll and HR) across the entities, which would help to cut headcount and overhead costs. Besides, CRG’s overseas business may have potential to operate leverage-led margin expansion on a high proportion of fixed costs.

CRG plans to incrementally increase cross selling between recently acquired companies, leveraging group synergies across geographies, technologies and customers. CRG will (1) use Ind…

Important Rules of investment

Important Rules of investment.

Rather than make guesses regarding the direction of the market, here are some investment rules to follow:

Rule 1: Do not attempt to time the market. Statistically it is a certainty that a minority of the millions of investors can time the market in the short-run but the problem is that very few, if any, can time the market for sustainable periods of time. Thus don't try to time or predict the market instead keep invested for longer periods.

Rule 2: Patiently make good investments, regardless of the economic conditions. It is best to assume the market will go nowhere and invest accordingly. Paying attention to a hot or cold economy leads to investors chasing their tails. Good investments should outperform in the long-run, regardless of the macroeconomic environment.

Rule 3: Diversify. In the midst of the crisis, diversification didn't cure simultaneous drops in most asset classes; however ownership of government Treasuries, cash, and certain commo…

NIIT Technologies acquires Proyecta Sistemas de Informacion S.A.

NIIT Technologies:

NIIT has acquired Proyecta Sistemas de Informacion S.A. (Proyecta) and this acquisition by NIITT as a good strategic step. It will likely enhance the presence of NIITT in the European region and will also give it access to large accounts, which can be scaled in the future. The valuations accorded to Proyecta are also not demanding and we expect little impact on the EPS of NIITT.

The FY12E EPS stands at Rs.32.6 and DCF - based price target stands at Rs.276 (Rs.280), based on FY12 earnings. At this target price FY12 earnings will be discounted by about 8.5x which is undemanding. Long term investors can buy on declines, since NIITT has been achieving consistent revenue growth and margins over the past few quarters.

LIC Housing Finance

LIC Housing Finance Results update:

NII grew 41.1% YoY (19.4% QoQ) on back of strong loan growth (34.2% YoY; 10.2% QoQ) along with margin expansion (15 bps YoY; 31 bps QoQ). Net Income was also up 47.4% YoY on back of strong core performance and robust non-interest income (2x Q4FY10; mainly aided by Rs.321 mn profit on sale on investment).

Growth in sanctions & disbursement continued during Q4FY11. Overall sanctions & disbursement grew at healthy pace of 25.3% (YoY) and 34.2% (YoY), respectively. LICHF also bought loan portfolio from LIC (Rs.12.5 bn); adjusting this individual disbursement/loan book grew 37.6% and 34.0%, respectively. Unsurprisingly, developer loan took a breather during Q4FY11 and its disbursement declined 74% YoY.

NIM improved both QoQ and YoY, which is a positive suprise. Asset quality continued to improve further - gross NPA and net NPA now stand at 0.47% (Q4FY10: 0.69%; Q3FY11: 0.67%) and 0.03% (Q4FY10: 0.12%; Q3FY11: 0.18%), respectively.

Long term inves…