Eldridge Financial Review: Clarification on GAAR will drive market direction in the short term: ING Investment Management India

http://eldrigefinancialreviews.com/category/credit-equity/

What do you expect the earnings delivery to be in Q4 and the commentary to be for FY13? 

One good thing about the expectations vis-a-vis the IT results is that the expectations are poor. Managements like TCS as well as Infosys have already guided for poor volume growth. We are going into the IT results season with poor expectations, which is actually positive. From an overall perspective, the budgets for FY13 or CY12 in the case of global companies are at best flat. These boards are well for a 13% to 16% earnings growth for next year. Valuations in this space, especially in the large cap are in the range of 15 to 17 times. Valuations are not expensive. If you have issues in terms of global flows because of GAAR provisions, rupee should depreciate further. If there is a selloff, that should again be positive. Overall, we are positive on the space and overweight on the sector.

What happened today with regards to PNGRB and the margins for IGL, is not an isolated case of interference. Does this sour the mood for investments? 

Yes. The step taken by PNGRB has been very negative for the company and we have seen a significant de-rating as well as expected EPS downgrades for this stock. It is negative and we have had several such cases of orders being implemented which significantly impacts profitability. We have seen the case of ONGC, Coal India where there is no clarity on implementation in terms of how much they have to provide for, if they default on 80% FSA. We have seen the GAAR provisions which are supposed to be retroactively implemented. All these do not give a positive connotation for global investors.

What can the market do in the near term given the volatility? 

The key issue which is troubling the market is GAAR provisions, its implementation and applicability. We need more clarity which is expected over the next few weeks. If FII P-note holders, private equity hedge fund long only guys are being targeted, that is not going to board well for the market. We need capital flows. We have a huge current account and fiscal deficit. You would have a significant pressure on the rupee if there are no flaws on the capital. And, it is going to be very negative in the markets. Clarification on the GAAR provisions will drive the direction of the markets in the short term.

What does one do with Coal India, BHEL, and GAIL? 

I cannot talk on specific stocks. Vis-a-vis the oil and gas sector, we are underweight in some of the names which you mentioned. I would not like to paint all companies in the PSU space with a negative brush or a black paint. These are stock specific issues. From an overall perspective, regulatory changes are impacting stock performance as well as profitability negatively. Wherever the risks are perceived to be pretty high, we would surely look to go underweight.

Eldridge Financial Review: GEPL Capital`s view on bullions, base-metals, energy

http://eldrigefinancialreviews.com/category/commodities/

Energy

Oil dropped to a seven-week low as an employment report raised concern that U.S. fuel demand will slow and Iran agreed to resume talks on its nuclear program. Futures fell as much as 2.4 percent after the government reported on April 6 that the U.S. created 120,000 jobs in March, below the median forecast of 205,000 in a Bloomberg survey. The Scheduled negotiations between Iran and the United Nations Security Council members plus Germany increased optimism that the Persian Gulf nation won’t act to disrupt supplies.

Bullions

After the U.S missed the estimates job data, Gold mount up for a fourth day to feb.23 and renowned as the longest rally in more than a month. In the speculations, Federal Reserve may take more steps to spur growth and weakening the dollar. Spot gold rose as much as 0.9 percent to $1,654.90 an ounce, the highest level in a week, and was at $1,652.72 at 11:52 a.m. in Singapore.

The dollar cut down for a third day against a six-currency basket as well as the yen as the Bank of Japan refrained from adding to monetary easing. In the previous month, nonfarm payrolls rose 120,000, the smallest gain in five months, compared with economists’ forecast for 205,000. Central bank policy makers saw no need for more stimuli unless the economy falters based from the data on April 6.The Fed bought $2.3 trillion of debt in two rounds of so-called quantitative easing from 2008 to June 2011. June-delivery gold rose as much as 0.7 percent to $1,655.90 an ounce on the Comex in New York, and traded at $1,652.10. Holdings in gold-backed exchange-traded products were 2,397.577 metric tons yesterday, within 0.6 percent of a March 13 record.

Crude

On the month of May crude delivers fell $1.33, or 1.3 percent, to $101.98 at 1:50 p.m. on the New York Mercantile Exchange. The contract touched $100.81, the lowest level since Feb. 15. Prices have climbed 3.2 percent this year. Brent oil for May settlement dropped $1.14, or 0.9 percent, to $122.29 a barrel on the London-based ICE Futures Europe exchange. Commodity and equity markets were closed in New York and London on April 6 for Good Friday. European stock markets are shut today for holidays, along with Australia, New Zealand, Hong Kong, Thailand and South Africa.

Base-Metals

Copper in London declined to the lowest level in a month as investors bet demand from the two largest users may be curbed after China’s consumer prices rose and U.S. jobs climbed less than expected. The metal for delivery in three months fell as much as 1.7 percent to $8,221 a metric ton on the London Metal Exchange, the lowest price since March 7, before trading at $8,318.50 by 10:13 a.m. Shanghai time. The bourse was closed for two days due to public holidays. Copper for delivery in July was little changed at 59,850 yuan ($9,486) a ton on the Shanghai Futures Exchange.

U.S. nonfarm payrolls rose by 120,000 last month, the smallest gain in five months and less than the most pessimistic estimate in a Bloomberg survey of economists, according to a government report on April 6. May-delivery copper on the Comex rose 1.4 percent to $3.771 a pound, after falling to a seven-week low yesterday. China’s customs department is going to release provisional commodities trade data for March today. On the LME, aluminum gained 0.4 percent to $2,117 a ton, and zinc rose 0.8 percent to $2,019.25 a ton. Lead declined 0.3 percent to $2,053 per ton. Nickel fell 1 percent to $18,218 a ton and tin dropped 0.3 percent to $23,100 a ton.

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Eldridge Financial Blog: Swiss investigation into possible bank lending rate fixing is latest in a string

http://www.eldridgefinancial-blog.com/2012/02/eldridge-financial-blog-swiss-investigation-into-possible-bank-lending-rate-fixing-is-latest-in-a-string/

BERN, SWITZERLAND – Comco, Switzerland’s competition commission, has opened an investigation into more than 10 international banks and companies and the country’s two largest, UBS and Credit Suisse, for possible “collusion between derivative traders [that] might have influenced the reference rates Libor and Tibor. Furthermore, market conditions regarding derivative products based on these reference rates might have been manipulated, too.”

The investigation follows what Comco calls an application to its leniancy programme, or self-denunciation, without providing details of who provided the information. The investigation could take several months. The banks targeted by the investigation include: Bank of Tokyo-Mitsubishi UFJ, Citigroup Inc., Deutsche Bank Aktiengesellschaft, HSBC Holdings plc, JP Morgan Chase & Co., Mizuho Financial Group Inc., Rabobank Groep N.V., Royal Bank of Scotland Group plc, Société Générale SA and Sumitomo Mitsui Banking Corporation.

Libor, the London interbank lending rate and Tibor, in Japan, are rates set daily based on bank data, which serve as underlying lending rates. The Swiss National Bank defines Libor as:

“The Libor (London Interbank Offered Rate) refers to the interest rate for unsecured money market loans to prime banks. Each bank business day, specific banks report to the British Bankers’ Association (BBA) the interest rate at which they would be able borrow unsecured funds of a reasonable market size on the London interbank market shortly prior to 11 a.m. The relevant top and bottom-quartile interest rates are disregarded when fixing the Libor. An average is calculated on the basis of the remaining interest rates, and the figure obtained in this manner is fixed and published as the Libor for the day in question. Libor rates are fixed in different currencies and with varying maturities.”

The investigation comes three weeks after European Union anti-trust boss Joaquin Almina said the EU is stepping up its efforts to ensure that derivatives markets remain free and competitive. Antoine Colombani, spokesperson for the European Commission is cited by Bloomberg as stating in January that “Last October we carried out unannounced inspections at the premises of a number of undertakings active in the sector of euro interest rate derivatives based on Euribor benchmark rates,” but that it had not opened a formal investigation.

“Regulators in the US, UK and European Union have been examining how Libor is set, while Japan’s securities watchdog has probed Tibor,” according to Bloomberg.

Comco’s statement notes:

“The London Interbank Offered Rate (Libor) and the Tokyo Interbank Offered Rate (Tibor) are reference rates which are aimed at reflecting the interest rate level in the interbank deposit market. The British Bankers’ Association (for Libor) and the Japanese Bankers’ Association (for Tibor) calculate these reference rates on a daily basis, for a range of currencies, based on submissions by respective panel banks. Derivative traders working for a number of financial institutions might have manipulated these submissions by coordinating their behaviour, thereby influencing these reference rates in their favour. Moreover, derivative traders might have colluded to manipulate the difference between the ask price and the bid price (spread) of derivatives based on these reference rates to the detriment of their clients.”

Eldrige Financial Blog: Fed Apprehension job gains could fade

http://www.eldridgefinancial-blog.com/2012/04/eldrige-financial-blog-fed-apprehension-job-gains-could-fade/

WASHINGTON – The current strong gains in hiring makes the Federal Reserve policymakers worried that it could buzz if the economic growth of the US doesn’t go up.

According to the Fed’s minutes on Tuesday, members were first stated their concerns before they make a plan to keep interest rates at record lows until at least late year 2014. However, some of the members want to take further procedures to improve the economy current status if a condition gets worse or inflation remains reclaimed.

After the meeting, Fed presented the somewhat current view of the economy mainly because of the three consecutive months of hiring in two years. It was concluded that there have been similar raptures of hiring in the previous two years which ended up fading.

On the speech echoed by the Fed Chairman Ben Bernanke last week in the economists gathering, the decline of the economy recovery was the main concern of Fed as it did last year.

Americans aren’t receiving meaningful pay augmentation. Gas prices are high. Additionally, Europe’s debt crisis could reflect on the U.S economy. Provided that the inflation will remain on its current position, analysts think that the Fed will likely give interest rates down in order for them to give the economy an additional support. Most of the economists don’t think that Fed officials will alter their interest-rate policy at their following meeting on April 24-25 and will only relieve credits if the economy gradually moves from its current status.

The economy outlook is going up. Employers added an average of 245,000 jobs a month from December through February. On the other side, the rate of unemployed dropped nearly to 8.3%. The government will report Friday on the job market in March. Most of the economists supposed that the report will give a better month of job creation with a net gain of 210,000 jobs. They also expect that the unemployment rate will remain at 8.3%.

Mike Eldridge - Ameriprise Financial Advisor

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