GalaTime

• Business Standard: Few takers for highway projects

The government’s ambitious highway projects under the public-private partnership mode are in serious trouble. Construction companies have either not put in bids or have withdrawn from 20 such projects, which fall under the build, operate and transfer (BOT) scheme.

In the last two months, nearly five highway projects worth nearly Rs 3,000 crore could not find a single bidder.

“We have withdrawn from at least five highway packages after being qualified in the technical qualification stage in the last few months. Most of the highway projects on a BOT basis are not viable because of faulty traffic projections and high cost of construction,”

This is not good. It reduces long-term economic growth. Let’s hope the government gets its act together: Mint - Infrastructure projects may get loan relief

• Hindu Business Line: Goods carriers feel the heat of meltdown

. . . volumes for companies operating in the road logistics business have fallen by as much as 20-30 per cent in the last three months as movement of goods has slowed down.

“Currently, volumes from consumer durables industry are down about 20 per cent and automotive parts would be down 15 per cent.”

The impact of this meltdown is going to be felt more severely by the unorganised segment, which constitutes 85 per cent of the transportation industry.

• Mint: Iran says $22 billion deal to sell 5mtpa LNG to India is dead

Iran says it has scrapped a $22 billion deal to sell 5 million tonnes per annum (mtpa) of liquefied natural gas, or LNG, to India due to a dispute over prices and lack of required approvals. Iran later demanded a higher price than the $3.215 per million British thermal unit (mBtu), to which India raised objections.

The proposed $7.4 billion Iran-Pakistan-India pipeline project is also expected to fall through, even as Iran faces economic sanctions by the US and its allies over its nuclear programme.

India imports 7.5 mtpa of LNG in spot markets, which is sourced by Petronet LNG Ltd and Shell India Pvt. Ltd.

Good for RNRL?

• FT Alphaville: Goldman’s travails: Rumours and reality
  

Persistent rumours — and some more hard evidence - of deepening difficulties at Goldman Sachs are fuelling debate over whether the investment bank will attempt another fund raising ahead of its fourth quarter results next month. The shares hit a five-year low, down 8.5 per cent to $71.21, on Monday after analysts at Barclays became the latest to forecast a Q4 loss for Goldman, citing in part its exposure to private equity.

Reuters reports Tuesday that the axe has already begun falling in Tokyo, where the bank laid off 10 per cent of its investment bankers including 10 from its mergers and capital markets teams.

• Business Standard: India Inc goes slow on capex plans, suffers 30% cost overrun

A study by Credit Suisse estimated a month back that capital expenditure for a clutch of 34 projects with an investment of about $190 billion (around Rs 9.16 lakh crore) faced a 19-month delay on an average. The consequent cost overrun, it reckoned, would be about 30 per cent.

. . . projects planned and under execution over the past couple of years are estimated at $1.5 trillion (around Rs 72 lakh crore).

Reliance Industries is believed to be taking it easy with the Special Economic Zone(SEZ)  in Haryana because it anticipates less demand for such space.

• NY Post: Hedge Fund Chief Short & $weet

Chanos’ short-only fund, Ursus, is up 53.2 percent through the end of October, besting the 30 percent performance Chanos booked in 2007, when he was ranked one of the top 100 traders. For October alone, the $5 billion fund earned its investors a whopping 17.8 percent.

“We are short all of the satellite and most of the cable companies in the US,”.

He was short Moody’s too.

• Houston Chronicle: Oil prices low? Chevron CEO says no

O’Reilly tossed aside the notion that oil prices are low. Although half its unprecedented summer high of more than $145 a barrel, $60-$70 oil is still pricey.

On a global basis, it’s the equivalent of 240 million barrels of oil a day, if you can transfer all the energy into oil terms. Put it in gallons per second, it’s 120,000 gallons per second. That’s oil, coal, gas, nuclear, all the sources of energy that the globe uses.

At some point, inevitably demand growth will occur again. We’re in a demand shrink at the moment, based on all the data. Two things have to happen. The price has to stimulate that — that’s how markets work. And that in turn has to help stimulate economic growth.

• Bloomberg: China Announces 4 Trillion Yuan Economic Stimulus

China announced a 4 trillion yuan ($586 billion) stimulus plan to spur expansion in the world’s fourth-largest economy, helping sustain global growth as the U.S., Europe and Japan teeter on the brink of recession.

The funds, equivalent to almost a fifth of China’s $3.3 trillion gross domestic product last year, will be used by the end of 2010.

The package announced today, of which 100 billion yuan is earmarked for this quarter, will go toward low-rent housing, infrastructure in rural areas, as well as roads, railways and airports.

• Business Standard: Pantaloon’s turnover shoots up 87 per cent

Kishore Biyani’s Pantaloon Retail, the country’s largest listed retailer, has posted an 87 per cent growth in Diwali sales from its value retail formats — Big Bazaar and Food Bazaar — compared with the year-ago period, the highest growth rate in three years.

Consumers are spending more on value for money products. All categories in food and fashion are doing well. In fact, the same store growth of 50 per cent in value formats is a record increase for us,”

One of the few retailers who’s got it right in India.

• Mint: Investments of $20 bn on hold as funds dry up for shipowners

The liquidity crisis in the US and now Europe is beginning to hit the shipping industry, with a $20 billion (Rs93,800 crore) investment plan by Indian shipowners to replace part of their ageing fleet and expand cargo capacity likely to end up being put on hold.

“Indian banks cannot lend money for longer periods. They can lend money only for two-three years, whereas shipping firms typically need money for tenures ranging between eight and 15 years,”

Typically, 20% of the cost of a ship is contributed by owners while the balance is financed with debt.

• Economic Times: Banks going slow on credit card hardsell

Amid fears of default rates going up in the wake of high inflation and global slowdown, banks and card issuers in India are going slow in issuing credit cards. Industry insiders indicate that the annual growth rate in the industry could slip to 20-25% by the end of FY09 from 30-35% being recorded over the last few years.

At present, the default rates for payments is around 7.5-9%, according to a CCMC data. Consumers in India spend an average of Rs 4,000 a month on their cards.

Indians spend just 1% of their total purchases through credit cards, while the world average stands at 9%. There are currently 25 million credit cards in the country of which only 40% is active.

• CFR: Peak petrodollars?

On a quarterly basis, the foreign asset growth of the oil exporters probably peaked in either q2 or q3 2008.

. . . the oil exporters will “break even” (neither adding to their foreign assets or dipping into their external savings) this year if oil is around $70 a barrel. That break even price though has been rising quickly — and it isn’t inconceivable that the break even price might be $75 or $80 a barrel next year (unless some folks with ambitious plans cut back in the big way; with rents up 65% this year in Abu Dhabi there is certainly a bit of froth in the market) and, well, the market price of oil could potentially be lower than that.The UAE has announced a similar $13.5b facility, a facility that is considered to be a “quiet” bailout of Dubai by the much richer sheiks of Abu Dhabi.

Hmm. I wrote about the importance of oil money for real estate & commodity bulls: ME / GCC Realty - Last man standing, or not? Imagine if we see a bust in 09 there.

Reliance truly crapped out today, closing 8% down at ~1750. As with the Nifty, there was steady selling all through the day:

Today’s volume was 10.7M shares (turnover of Rs 1928 crores), one of the highest this year. Note also that Reliance is the largest constituent of the Nifty-50 index, accounting for ~ 11.8% by weight. 

Whether its FIIs/hedge funds selling or not, this is not a good sign for bulls. The earnings season hasn’t even started yet, and already a lot of cyclical stocks/sectors are starting to crap out (eg. see the double-digit drop in steel stocks).

PS: Wow - FIIs net sold stocks worth Rs 1662 crore on the NSE. Tough to miss institutional distribution if you were watching the markets intraday.

The market’s not too happy with cement stocks, for obvious reasons - slowing demand, increasing supply, government price controls, inability to export (given the shelf life), etc. Residential & commerical real estate growth is bust; infrastructure remains the key hope:

Cement cos change product mix

With rising cement supplies to north India, companies dependent on this market are changing their product mix from portland pozzolana cement (PPC) to ordinary portland cement (OPC) to sustain growth. OPC is used for roads and infrastructure while PPC is used in real estate projects.

Analysts said the data shows that the new trend is gathering momentum in the northern markets. OPC constituted 21.6% of total sales in the June quarter from 16% in the year-ago period. They said even after the rise in OPC production, there is still shortage of this product in the market.

The problem: the budget deficit’s growing rapidly thanks to the government handing out subsidies left & right, it’s only a matter of time before infrastructure projects become ‘cost cutting’ targets. And as for PPPs and such - have you seen infrastructure stocks lately?

Bottom line: Cement prices in India will fall. A lot. Soon.

• Mint: Seven more firms get Sebi approval to sell mutual funds

Sebi has given approval to Nikko Asset Management, Goldman Sachs Asset Management, Indiabulls Financial Services Ltd, Religare Securities Ltd, Shinsei Bank Ltd, Dawnay Day International Ltd and Matrix Financial Services, according to the regulatory body’s website. Approval for the remaining 12 is pending.

India has 35 asset management companies offering more than 950 mutual fund schemes and managing assets worth Rs5.44 trillion as of August.

Total assets under management in the country are estimated to grow 33% annually to reach $440 billion (Rs19.6 trillion) by 2012.

• NYT: Long-Term Capital: It’s a Short-Term Memory

. . . in August 1998, the hedge fund calculated that its daily “value at risk” — meaning the total it could lose — was only $35 million. Later that month, it dropped $550 million in a day.

Modern finance is an antiseptic discipline; it eschews anecdotes and examples, which are messy and possibly misleading — but nonetheless real. It favors abstraction, which is perfect but theoretical.

Long-Term Capital’s investments were far more correlated than it realized. In different markets, it made essentially the same bet: that risk premiums — the amount lenders charge for riskier assets — would fall. Was it so surprising that when Russia defaulted, risk premiums everywhere rose?

By Roger Lowenstein.

• Wall Street Journal: India’s Oil, Telecom Stocks Offer Way to Tap Rupee’s Expected Rise

For more than a year, India’s weakening rupee has given exporters here a boost. Now, many analysts predict the currency is set to rebound, and say investing in import-dependent businesses such as oil and telecommunications could be a good way to play the reversing trend.

. . . the oil and telecom sectors are expected to benefit from the rupee upswing, analysts say. “The oil companies like Indian Oil Corp. and Hindustan Petroleum Corp. are likely to perform better when the rupee appreciates since these companies import crude oil from abroad in terms of dollars and would have to pay fewer rupees for dollars.”

. . . telecom stocks will benefit from a stronger rupee. “Telecom companies like Bharti Airtel and Reliance Communications also stand to gain from an appreciating rupee as they import equipment from the U.S. in dollars,”

• Hindu Business Line: Fall in coal prices may ease cement cos’ burden

Coal cost for the cement companies is likely to range between $190 and $200 a tonne (cost, insurance and freight) in the second quarter of the financial year 2008, against $170-240 a tonne in the first quarter.

On the domestic front, the electronic auction undertaken by Coal India has pushed up coal prices by 30-40 per cent to Rs 1,600 a tonne as the demand has gone up many folds, said another cement company official. Indian coal is of low calorific value compared with imported coal.

• DB: Indian Brokerage Sector

Despite a strong correction of 50-60% YTD, we believe it is still not too late to Sell as these brokerage stocks are currently trading at a premium to market multiples despite having higher betas.

In India the turnover has been steadily growing in the past few years as more FIIs have entered the market and more F&O contracts have been introduced in various securities. However, during the recession of 02 volumes declined 50% yoy.

The Indian broking industry is fairly large and fragmented with 9,000 odd brokers in the cash
segment and around 24,000 sub-brokers. The top five brokers in India command around 15-16% market share.

We expect volumes to decline 16% in FY09E followed by 20% growth in FY10E and FY11E.

Not too encouraging if you are a broker or shareholder.

• MarketWatch: Big jump in gold sale spurs manipulation talk

Recent heat from Congress and regulators, along with public speculation, over whether commodity prices are being manipulated has also reached gold pits, where the debate was stirred by a surge in bets last month that gold prices would fall.

Three unidentified U.S. banks held 86,398 short positions, or bets that gold prices will fall, in the COMEX gold market as of Aug. 5 — 10 times more short positions than a month earlier.

“What you have here is the footprints of hedge funds exiting the commodities markets en masse,” said Kitco’s Nadler.

Manipulation or exodus - does it matter? Price tells all.

• Economic Times: Uncertain growth? ICICI cutting costs aggressively

Caught in an atmosphere of uncertain growth and rising costs of essential services, India’s largest private sector bank is cutting costs aggressively. ICICI Bank is shifting thousands of jobs from Mumbai to Hyderabad. The bank is also cutting down on banking hours in several branches and curbing staff reimbursements such as phone and conveyance bills.

ICICI’s reaction was that all that the management has done is to clampdown on unnecessary costs that had ‘escaped scrutiny during the high growth years’.

Ah, the good old ‘high growth’ years - will we ever see them again?

• TheStreet.com: Piggybacking Your Way to Profits

What do I mean by relentless pricing? This term refers to the signature of computer programs on trend days, when markets fail to turn at natural pivot points that would have triggered reversal activity in prior years. Price channels are the telltale signatures of these lopsided events, usually showing up on the index futures.

Characteristically, the only countertrend movement in these types of sessions happens around the lunch hour and in the final 30 minutes, when a sometimes-violent counterswing shakes out positions ahead of the close. In between, every wiggle against the trend runs into a synthetic wall of pressure that forces pricing in the other direction.

Look at intraday charts of the Nifty future in August; combine that with dropping volumes and what do you get? A nightmare for day traders!

• RGE Monitor: Optimism in Dubai and Johannesburg

Is Dubai a bubble economy? Of course it is, but even when the bubble bursts the accomplishments and dynamic commercial skills concentrated in Dubai will persist and form a solid foundation for enabling future growth. My guess is that as the US and UK financial-based economies implode from debt-deflation, and their military influence in the Gulf recedes, Dubai will strengthen its network of trade and finance deeper into former Eastern Europe, Asia and Africa.

Mauldin offers specific praise for development of South Africa’s housing, retail, banking, commodities and farming sectors. I have never read a piece by him so optimistic about anywhere else, particularly in the developing world. As South Africa continues to grow at 4-5 percent each year (probably an under-estimate of real growth), the middle class continues to grow and prosper. So although a Zuma administration may hold risks, I hope there will be constraints on their policies as the already substantial and growing middle class enforces longer term discipline on the government.

• Bloomberg: Commodity Shipping Lines Reel as Baltic Index Tumbles

The Baltic Dry Index, the benchmark for shipping costs, fell for 23 consecutive sessions through Aug. 12, the worst decline since the third quarter of 2005. The index will average 40 percent less next year and sink another 47 percent in 2010.

Slowing growth comes as shipyards have almost as many capesize vessels on order as already exist in the fleet.

. . . even after the 23-day decline in rates, shipping costs remain more than three times higher than their 20-year average of 2,015 on the Baltic Dry Index.

Wow - those are some dire predictions from GS.

• Business Standard: Auto component makers see growth halving this year

The auto component industry expects growth to halve in the current financial year owing to a slowdown in demand for automobiles due to high interest rates and burgeoning fuel prices. “The industry will grow at 6-8 per cent as compared with a forecast of 12-13 per cent,” . . .

Manufacturers, which have already seen their margins shrink by 300-400 points last quarter, are already struggling as they have been absorbing a part of the rising input costs.

I imagine the next round of quarterly results is going to be ugly - not just for the auto sector.

• Economic Times: Real estate firms delay plans, shares face the heat

Even mid-size developers in India say they hold land reserves of 60-100 million sq ft, sufficient for projects planned in the next 3-4 years.

An analyst at a domestic brokerage said it had recently changed valuation methodology to net-asset-value basis, which had led to some downward revision in target prices. The new method values companies based on current assets rather than future cash flows, he added. CLSA lowered its net asset value estimate for HDIL by 29 percent, citing higher costs on account of rising interest rates.

Welcome to the magical world of real estate accounting & valuations.