View from Research Desk on January 02, 2009

Trade deficit for Nov 08 at $10bn, up 33% YoY but sequentially showing improvement

For the month of Nov 08 the trade deficit stood at $10bn as compared to $7.5bn in the same period a year ago. Though this is 33% higher YOY but if we compare it over the last 4 months we would see that in Aug 08 trade deficit was at around $12bn, in Sept 08 we clocked around $10.8bn while in Oct it was at $10.4bn. Thus, clearly showing a marked improvement. The main reason for this is fall in Crude prices thereby reducing Oil import bill. Assuming that oil companies normally keep an inventory of 1-1.5 months & crude prices have fallen further in the last few months, the trade deficit is likely to reduce further in remaining months of current fiscal. Though the exports are likely to remain under stress, the improving trade balance figure will improve domestic liquidity & ease pressure on Rupee.

Exports for Nov 08 were down by 9.9% YOY

Though consecutively for the second month in a row India witnessed exports falling due to global economic slowdown. However the positive to draw from yesterday's nos is that the pace of decline has reduced remarkably. In Oct 08 our exports fell by 12-1%., thus showing some pick up in export activity.

 

 

Theme to consider for short term

 

Buyback of FCCBs by corporates

 

In the recent past many corporates have announced intentions to buyback there outstanding FCCBs after the easing of norms by RBI. This action is imperative because the current stock price of most of these companies is far less than their conversion price. In such a situation the corporate who have issued these FCCBs have two options i.e. either they reset the price for the conversion or repay the original purchaser of these FCCBs. Since the CMP of shares very low, reset of price would mean a huge dilution of equity thereby impacting EPS of the company, the second option on is better. But for repayment company needs money with it to repay the lenders. Therefore we understand those companies who have strong business models & corresponding good balance sheet can opt for buying back FCCBs. Some of the companies have already announced their plans like RCOM, ICCI & JP Assoc. Our analysis shows that some more can announce the same in days to come. We would like to consider buying stocks like Jubilant, Everest Kanto, Bharat Forge, Aurobindo Pharma & Hotel Leela based on this theme. All these companies have good businesses & have cash or the capability to arrange cash for the buyback.

 

Global cues:

 

Most of the mkts across the globe (except Hong Kong, South Korea & Singapore) are closed due to New Year. SGX is trading at around 3050 level covering the yesterday's movement in our mkts. Others are trading higher by 2 odd percent.

 

Our Take:  Most of the global mkts are closed so no major global cues to follow. Yesterday we saw strong moves but they were on very low volumes. We would watch out for clues only after Monday when all the world mkts will be working as well as all the international participants will be active. For today we would expect range bound movement with positive bias.