Archive for the 'Business and Economy' Category


Covered calls in USDINR

On Friday, USDINR closed at lowest levels in the last 2 years at 65.83. Intraday INR touched lows of 65.91. EM currencies across the board have been hit by Yuan devaluation last week. Coupled with prospect of US Fed rate hike in September, global markets are nervous about EM currencies. Lot of currencies like MYR (Malaysian Ringgit), ZAR (South African Rand) and RUB (Russian Ruble) have been hitting multi-year lows. MYR has gone below 1997-98 crisis levels. Few other currencies like Kazakhstan Tenge and Vietnam Dong have been competitively devalued. In Tenge case it has been allowed to free float from peg against USD. All Oil exporting economies are suffering hard with current levels of $ 40-45 per barrel.

Don’t know if these are signs of currency war but it might turn out to be so if CNY (Chinese Yuan) depreciates further. Recently RBI governor, Raghuram Rajan commented about CNY devaluation ( As per him maybe CNY devluation is not a concern at current levels but if it depreciates further it might be a cause of worry in future. INR has been an island of calm among EM currencies and is one of the out-performer till now. I had bought August and September series USDINR futures and sold 66 calls. Buying USDINR future means you are paying roll cost which during panic scenarios like the current one turns out to be 1 percent. This was my main concern while buying USDINR futures. This was the reason I had sold 66 calls, otherwise I would have carried naked future position.


Policy rates unchanged in RBI December credit policy


RBI has left CRR and repo rate unchanged at 4.25% and 8% respectively in its December credit policy. There was knee-jerk reaction in market as large number of market participants were expecting at-least CRR cut. But Central bank has taken more dovish stance and guided for a repo rate cut in its January policy.

I have squared off sold Bharti 360 calls and sold few Ambuja cements 220 call.



India Q4 GDP shocker @ 5.3 percent

If the UPA-2 government does not panic after seeing this number then I wonder when will they ? It’s an absolute shocker. This number should send shivers down the spine of Finance ministry babus. Budget estimates were made on estimated GDP growth of 7.6 percent. If we have this new hindu GDP growth for one or two more quarters of FY13, fiscal deficit is bound to shoot up substantially. We have gone below GDP growth number during financial market meltdown after Lehman bankruptcy. Analyst estimates of Q4 GDP were close to 6 percent. Q4 number has pulled down full year FY12 GDP growth to 6.5 percent.  As things stand right now, I can’t see from where growth would come ? One of the biggest highlight of this shocker is service sector growth @ 7.9 percent. But when there is no growth in Manufacturing and Agriculture sectors, than for how long service sector can continue to grow in double-digit. Traditionally, Indian markets have enjoyed higher P/E multiples on higher ROE’s and higher GDP growth. We have also attracted portfolio flows from FII due to higher growth. If we don’t have growth than who will invest here? Without growth we would not be able to sustain higher twin deficits (current and fiscal) which we run. Growth is sacrosanct in India and without it we might not be able to provide jobs to a lot of young people. It would result in a situation where our biggest advantage, favorable demographics might boomerang on us.

Despite this dismal number, FM statement shows the state this government is in. He continues to blame the uncertain global environment and tight monetary policies. Forget about 7 % which PM and FM have been confident about, it would be tough to achieve even 6-6.5 % growth in FY13. Most of the investment banks have downgraded Indian GDP estimates for current year, with Morgan Stanley being the most pessimistic at 5.7%.

Yesterday, globally PMI (Purchasing Manager’s Index) numbers were bad. Euro-zone PMI figure dropped to 3 year low, China’s official PMI figure also dropped to 50.4 from 53.3. (HSBC China PMI number showed seventh month of contraction – reading below 50 on PMI indicates contraction). Flight to safety and panic is highlighted by several decade low on US treasury 10 yield and German two-year bond yield falling below zero.

T N Ninan highlighted in today’s BS editorial that this global slowdown has resulted in some silver linings for Indian economy ( Apart from crude oil, import substitution and higher gross fixed capital formation in recent GDP reading, one more positive could be the rate action by RBI in its June 18th mid-quarter review policy. Given economic slowdown and sharp drop in crude oil prices (Brent falling below $100/barrel yesterday) and its lag impact on inflation might prompt RBI on rate cut.


Not a positive news for ONGC..

If this piece of news is correct, then it will be detrimental for upstream companies. It will be suicidal for ONGC. In the last financial year FY10-11, ONGC paid Rs. 24,892 crore as subsidy. As per this news, ONGC subsidy share would increase to Rs 47,640 crore this fiscal. Till now, market was under impression that upstream companies would share one-third of Rs. 1.14 lakh crore subsidy. But it seems the Finance Ministry wants upstream companies to share one-third subsidy of Rs. 1.71 lakh crore, which was the subsidy amount before June duty cuts and fuel price hike. It goes without saying that it would be body blow for ONGC. I guess a lot of investors would have cried foul if this subsidy hike would have happened after FPO. After this subsidy hike, it would be difficult for government to come with FPO price more than 230-240. It might be a possibility that the government scraps FPO altogether after its antics. In Q4, FY11 also government arbitrarily increased upstream subsidy share from 33% to 38.8%. Its time to stay miles away from ONGC on long side. Government just want to reduce its share of subsidy so you never know what is the next googly. I have written ONGC October series 300 calls. Given all the negative sentiment around market in general and ONGC in particular, it would be difficult for ONGC to move up sharply from current levels. But one has to watch crude price level, if it corrects sharply, it might make the case for ONGC not falling sharply either. INR has depreciated recently, nullifying any kind of positive impact of crude price fall.


QE3: Not good for India..

On 13th July’11, the US Fed chairman Ben Bernanke, gave hints that the central bank might consider QE3 given the weak economic data in US of the past few weeks. US stocks rallied, treasury bond prices and dollar tumbled. Precious metals like Gold and other commodities rallied after fed chairman’s semiannual monetary policy report. US economy expanded just 1.9 percent in Q1 and, Q2 outlook is also not good. Job growth had come to a halt in June while Jobless rate rose to 9.2 percent. Fed QE2 program ended on June 30,2011.

Under quantitative easing program, US Fed will buy financial assets from banks and other private institutions. QE3 will keep US interest rates low for extended period of time. If QE3 does becomes a reality, it will lead to rally in commodities like Crude Oil. It won’t be a good scenario for Indian markets. Bloated oil subsidy bill will be a big headache and it will test government’s fiscal deficit targets as well. Already we are fighting with Inflation, in case of sharp commodities rally it will be a tough struggle. China’s  FY11 Q2 GDP growth rate at 9.5 percent, which was above analyst estimates will also put upward pressure on commodity prices.

In the short-term, QE3 will lead to rally in all asset classes but not sure how long it will last, especially for Indian markets. Somehow I feel, it will make markets more complex to trade. I would love to go long, but the trouble in uncle Sam’s  poor cousin Euro-zone will be at the back of my mind. Euro-zone is a ticking time bomb and you never know which country’s trouble will trigger chain reaction across the world.

July 2018
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