Dear Team member,
Beating Brexit Blues! Wonderful Wednesday at start
The road to recovery will not always be easy, but I will take it one day at a time, focusing on the moments I've dreamed about for so long - Amanda Lindhout
In a globalized world, the global policy mix matters, says Mario Draghi calling for monetary policies to be properly aligned across jurisdictions. ECB bought corporate bonds to the tune of $5.4 bn after commencing the process on June 8. South Korea and Japan proposed stimulus measures and emerging-markets heaved a sigh of relief. Wall Street inched northward as investors scurried to buy cheap after Brexit wiped off $3 trillion from global markets in two trading days. Macro data was upbeat with US GDP and consumer confidence rising. Back home, Indian markets are poised for a positive start. Volatility could set in ahead of June derivative contracts expiry. DLF will be in action as promoters have chosen to wipe out the company's debt by pumping in Rs. 10,000 crore.
Event Update
Tata Communications: Sells Neotel stake to Liquid Telecom – Accumulate
CMP: Rs461, 12-mts Target: Rs475, Upside 3.0%
In an indication of management urgency, Tata Communications announced sale of its South African fixed line business Neotel barely 3 months after a similar deal lapsed with Vodacom. Liquid Telecom would buy 70% stake in Neotel in partnership with RBH, an empowerment investment group, which would hold balance 30%. The deal EV of ~ZAR6.6bn or US$430mn is not much different, at least in ZAR terms to ZAR7bn agreed with Vodacom while valuation works to 9x FY16 Neotel EBIDTA. We note that Neotel FY16 EBIDTA was suppressed due to Vodacom deal related uncertainties and other one offs; on a more normalized basis, we reckon deal is at 7.7x EBIDTA. Liquid Telecom is a subsidiary of Econet Wireless Global and provides voice, data and internet services across Eastern, Central and Southern Africa.
Technical Acumen
After Friday's Brexit hangover, index has stabilized as it is holding on to low of 7927 and gradually moving higher. However, the way key indices are mimicking the trend in global markets; it suggests that Indian markets are cautious. Vigilant market finds it is difficult to sustain upmove for a long period of time. Gann 3 digit and 4 digit hurdles are placed between 8130-8150. With bullish cues from global markets this morning, index is set for a positive start. However, it is important for Nifty to sustain above these supply zones (8130-8150) for attempting a rally towards previous peak. On the downside, start of the current gann channel (7921) and neckline of the H&S breakout seen in last week of May will be an important support.
Derivatives Insight
² Nifty continue to showcase strength outperforming major global markets. Rollover stood at 46% Nifty and 39% on Banknifty on D-2 days.
² Global cues were positive, Volatility cooled off after the pullback CBOE VIX below 20 levels.
² Options front, aggressive build-up continues across the board with traders playing for expiry between 8100-8200.
² FII's continue to moderate long positions with index futures long to short ratio now shrink to 1.8x levels from peak of ~7x during June expiry.
Fixed Income Market Overview
The Indian debt market traded in a very narrow range and ended the day flat, owing to demand from domestic buyers. The Global Bond markets showed some signs of recovery after Brexit; however, near-term volatility is here to stay. 10-year benchmark yield opened at 7.45% and made the lowest intraday level of 7.44%; it ended flat at 7.45% compared with the previous trading day when it closed at 7.46%. Volume for Gsec stood Rs.640 bn.
The demand at the fixed Repo window was Rs.32bn, whereas supply from fixed Reverse Repo stood at Rs.77 bn. Call WAR traded lower at 6.27% vs. 6.29% during the previous trading session.
The benchmark five-year OIS and one-year OIS closed higher, with the five-year OIS closing at 6.66% vs. previous day's close of 6.63%; the one-year OIS closed at 6.56% vs. previous day's close of 6.54%.
Commodity & Currency Cues
Gold prices scaled lower, as global equities managed to rebound despite lingering concerns over the after-effects of Brexit. However, the fact remains that Britain is still struggling with the process of disentangling itself from EU. The problem is that there is a leadership vacuum, where there is currently nobody to steady the ship and steer the country towards the path of separation. David Cameron is out of the equation and has passed the onus on to the next PM. The opposition Labour party is in disorder, as its MPs passed a motion of no confidence in their leader. Conservative party member Boris Johnson, who was a proponent of 'Leave' vote and considered to be potential prime-minister, seems to be retreating slightly from his earlier stance. Post referendum, he has expressed that Britain should take its time before leaving, while preserving access to the EU's single market. Mr Johnson simply seems to be running with the hare and hunting with the hound. In British Parliament, 3/4th of lawmakers still support remaining in the EU and there is a call to override the referendum. We expect the uncertainty to prolong, and in the process create substantial economic and political ruckus. In the latest, German financial market regulator BaFin stated that it would be against headquartering its merged group (comprising of the LSE and Deutsche Boerse) in London.
Crude oil futures regained lost ground, deriving cues from a strike by workers at oil production facility in Norway. However, reports of a rise in Nigerian production counterbalanced Norwegian bullish prop to a certain extent.
US dollar scaled lower against the basket of currencies, despite an upward revision in US Q1 GDP to 1.1% from the earlier estimate of 0.8%.
Corporate snippets
² Indiabulls Housing Finance is planning to raise Rs6.25bn through issuance of non-convertible redeemable debentures. (BL)
² Tata Communications Ltd. is all set to sell its South African Internet-service subsidiary Neotel Pty Ltd. to Econet Wireless Global for around USD430mn (ZAR 6.55bn). (BS)
² Mangalore Chemicals and Fertilisers (MCFL) has given surety of Rs2.25bn on behalf of its group firm Zuari Agro Chemicals (ZACL) for the import of phosphoric acid, ammonia and other raw materials used for production of fertilisers. (ET)
² Delhi State Consumer Commission has imposed a penalty of Rs2.7mn on Hindustan Unilever Ltd for "playing a fraud" on its customers by floating a "misleading and fraudulent advertisement" on its product 'Surf Excel'. (ET)
² Bharti Airtel deployed Cloudera Enterprise to build a 360-degree view of their customers in India. (ET)
² RPG Life Sciences has entered a technical collaboration with Italian cosmetic leader Labo Cosprophar. (ET)
² PVR said it will be foraying into overseas markets by launching PVR Director's Cut in the UK and the Middle East. (ET)
² Panacea Biotec has launched diabetes drug 'Tenepan', used for treating Type 2 Diabetes Mellitus, in the country. (BL)
² Dr Reddy's Laboratories has bought back nearly 5.1mn shares for Rs15.69bn as part of a 'share buyback' offer launched earlier this year. (BL)
² ITC will invest Rs40bn over the next 2-3 years to set up 8-9 factories across the country for manufacturing of food products. (BL)
² JSW Steel will approach shareholders to raise up to USD2bn from global capital markets to meet its long-term capex requirement and loan refinancing, among others. (BS)
² OCL India, a subsidiary of Dalmia Cement Bharat, has approached authorities to merge Dalmia Cement East with itself for consolidating operations in the eastern part of the country. (ET)
² Tata Communications introduced Wi-Fi+, a new Wi-Fi cloud communication solution to enable telcos' customers to seamlessly access the internet for calling, messaging, and data applications. (ET)
Economy snippets² The Central Board of Direct Taxes (CBDT) has come out with Rule 37BC, which gives relaxation to non-residents from furnishing PAN number in India while claiming TDS benefits. Non-residents include foreign partnership, foreign body corporates, besides foreign companies.
Happy Investing!
Amar Ambani
Head of Research
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