RBI can change mkt mood; buy Titan, Jubilant: Dron Capital

The Reserve Bank of India is in a position to change the mood in market despite the Cyprus knock catching investors unawares, says Pathik Gandotra, Partner, Dron Capital Advisors.

Speaking to CNBC-TV18, Gandotra said if the rate cut happens, public sector banks will recover. On private banking space, he advises traders to wait for details as some of them have beenhit really hard in the wake of Cobrapost expose .

Gandotra is not bullish on any of the government companies that are coming up for divestment, but prefers Coal India to SAIL . He also advises accumulation of stocks of Titan which is available at reasonable price after the recent correction. His other bets include Jubilant Foodworks and United Spirits . He says no to metals andITC .

Below is an edited transcript of the analysis on CNBC-TV18

Q: Will the Reserve Bank of India (RBI) be able to change the mood of the market in its policy announcement on Tuesday?

A: I think the RBI can change the mood. If this had not happened, it was expected that the RBI could enhance market sentiment with a cut in rates in the direction in which the economy is moving with a mildly dovish kind of guidance. The events in Cyprus have obviously knocked short-term sentiment. If the global scenario starts to get out of hand then the RBI might initiate more aggressive policy of monetary easing.

Q: What is your outlook on banks?

A: If the rates are cut, then public sector banks will start looking good again. PSU banks may not return to previous highs and if the market gets a whiff of the fact that from hereon rates are going to get cut in one direction, though at a modest pace, then PSU-bank stocks should start underperforming.

Regarding private banks, the details regarding the investigation of allegations of money-laundering are awaited and I expect the findings will be insignificant. But even if the inquiry’s findings are significant, the reaction would be mild.

Consumption demand will take longer to recover: CLSA

Here are a few equity calls for the day on how the markets are expected to trade:

Mahesh Nandurkar, CLSA: The impact of the high inflation and lower wage growth is visible in greater employee unrest. A potential economic recovery by the H2FY14 will improve wage growth, but consumption demand will take longer to recover. Our top picks are ICICI Bank, Tata Motors, L&T, ITC and Zee.

Michael Gavin, Barclays: The imposition of a levy on depositors in Cyprus is a material development that furthers the erosion of bondholder protection at European banks. However, the scope of potential contagion to other peripheral countries in terms of deposit outflows and sovereign debt is considerably more limited than if such a decision would have been taken in previous programmes.

Dow snaps 10-day rally; Asia down after Cyprus deal

The S&P 500 Index failed to break out into new high on Friday, while the Dow Jones snapped 10-day winning streak. In morning on Monday, Asian markets were trading lower on Eurozone concerns.

The Dow Jones industrial average ended down 25.03 points at 14,514.11. The S&P 500 lost 2.53 points to 1,560.70 while theNasdaq Composite Index slipped 9.86 points to 3,249.07.

US data mixed

There was a significant fall in consumer sentiment; Consumer confidence index fell by 5.8 points to 71.8.

New York Fed Manufacturing index went down by 0.8 percent at 9.2.

Industrial production was up by 0.7 percent MoM as against flat in previous month. Consumer price index rose by 0.7 percent MoM, higher than expected.

Asian markets were down after Cyprus bailout deal. Hang Seng and Nikkei fell 2 percent each while Shanghai, Kospi, Straits Times and Taiwan Weighted were down 0.6-1 percent.

Cyprus bailout deal

Eurozone concerns weighed on Asian markets on Monday morning. Euro 10 billion was announced for Cyprus bailout.

Eurozone finane ministers proposed levy on all Cypriot depositors. Cyprus president accepts deal citing no other choice.

Worst over for India, but uncertainty ahead: India Ratings

The worst may be over for India’s economy but uncertainty still lies ahead, and qualitative fiscal reforms are necessary to ward off any further bad news, chief of global rating agency Fitch’s Indian arm has said.

“This is the bottom of the pit (for the Indian economy). Now whether we dig a further or deeper pit for ourselves by not implementing the fiscal reforms, or we find steps to climb up, that is where the uncertainty lies,” India Ratings Managing Director and CEO Atul Joshi told PTI.

“The worst is behind us, but there is uncertainty ahead of us, which if not handled properly would result in further bad news. If handled properly and executed well, then there is only good news ahead,” Joshi said in an interview here.

“This is the bottom and the worst is over as of now,” Joshi said, when asked whether the worst is over for the Indian economy.

Joshi, however, refused to comment on whether the risks still remain about a possible downgrade in India’s sovereign credit rating to ‘junk’ status, or the prospects have improved for an upgrade.

“It would be inappropriate for me to comment on where it (rating for India) will go, as there is a separate sovereign team at Fitch Group to look at that aspect,” he said.

India Ratings, which was formerly known as Fitch India, is a wholly-owned subsidiary of global rating agency major Fitch Group.

India’s credit rating was put on a ‘negative’ outlook by various agencies including Fitch last year due to a slowdown in economic growth rate and lack of economic reforms.

A negative outlook means a potential downgrade from the current rating, which is the lowest investment grade rating ‘BBB-’ in case of India.

“Presently, Fitch has a BBB- rating for India with a negative outlook and the last what we said about it is that there is one in three chance of downgrade and that position remains as of now,” Joshi said.

Another rating agency Standard & Poor’s (S&P) has also put India on a negative outlook, but it recently said that the outlook could be revised to ‘positive’ if the government implements initiatives to reduce structural fiscal deficits, improves investment climate and increase growth prospects.

Besides, Moody’s said in its recent India outlook report that the worst may be over for the Indian economy and the GDP growth rate could bounce back to 7 per cent from 2014 onwards after bottoming out in the quarter ended December 31, 2012.

Asked about steps needed to be taken by the government, Joshi said: “What we need is qualitative fiscal reforms.

Fiscal reforms by compression of expenditure could result in slowdown in short term, but if we are reducing the subsidies, for example by raising diesel prices, that would be positive.”

Cyprus bailout ‘disaster’ risks new Euro crisis

Even as Cyprus’s President Nicos Anastasiades addressed the nation on Sunday night, saying savers would be compensated by shares in banks guaranteed by future natural gas revenues, he was said to be working to renegotiate terms of the highly criticised bailout deal.

Over the weekend, analysts warned the decision by the euro zone to force bank depositors in Cyprus to contribute towards a bailout—a first in the euro zone debt crisis—could hurt other peripheral nations, the euro and the global stock market rally.

That warning appeared to be coming true as the euro edged lower at 1.2934 against the dollar, in early trade on Monday morning local time in New Zealand, the first global market to start trading.

In his televised address, Anastasiades said he had to accept a tax on bank deposits in return for international aid, or else the island would have faced bankruptcy.

“The solution we concluded upon is not what we wanted, but is the least painful under the circumstances,” Anastasiades said.

In that speech, Anastasiades urged lawmakers to approve the tax in a vote Monday.

About 25 lawmakers from the communist-rooted AKEL party, the socialist EDEK and the Greens said they won’t vote for the tax in the 56-seat Cypriot parliament amid deep resentment over a move some called disastrous. If Parliament rejects the tax, that would put the entire aid package in jeopardy. The vote was initially set for Sunday but was postponed until Monday—a national holiday in Cyprus.

The announcement of the vote postponement set off an immediate scramble among top European financial officials. One lawmaker told The Associated Press that European Central Bank was pressuring Cypriot authorities to hold the vote without delay.

Bailout is a ‘disaster’

Still, the structure of the bailout shocked many, including Sharon Bowles, chair of the European parliament’s economic and monetary affairs committee, who called it a “disaster” for European Union rules and the single market.

(Read More: Cyprus Rescue Not a Fit for Other Countries)

Euro zone finance ministers forced Cyprus’ savers to pay as much as 10 percent of their deposits towards a bailout of the country’s troubled banking sector, a move which is expected to raise 5.8 billion euros. In return, the country will get 10 billion euros (USD 13 billion) in assistance.

The arrangement, structured as a bail-in, would give depositors shares in the banks in return for the levy.

According to the Financial Times, Cypriot authorities were trying to shift more of the burden to deposits larger than 100,000 euros, and adding an additional bank holiday on Tuesday to prevent a run on the nation’s banks.

(Read More: Cypriot Authorities in Revised Deal Talks)

Sebastian Galy, senior currency strategist at Societe Generale warned the levy could unleash a sell-off in the euro and the stock and bond markets of peripheral nations on Monday.

“This will probably go down as an ill thought-out rescue plan with consequences for peripheral Europe,” he wrote in a research note. “It breaks a cardinal rule, namely public trust on which money relies…Some peripherals will suffer at the opening in Europe and [it will] hit EUR.”

Doug Kass of Seabreeze Partners on Twitter predicted European stock markets could fall 3 to 4 percent on Monday, while the S&P 500 could fall 1.5 to 2 percent and Spanish and Italian 10-year yields could jump 15 basis points.

“The news is a wake-up call to investors that the European sovereign debt issue is far from being resolved,” Kass said in a note.

But Marshall Gittler, head of global forex strategy at IronFX, an online trading platform, took the opposite view, arguing the bailout could be positive for the single currency.

(Read More: Cyprus Parliament Postpones Key Session)

“This settlement—assuming it passes—removes that tail risk from the market. It also puts Cyprus on a healthy footing, with a debt/GDP ratio estimated at 93 [percent]—not far off the EU average of 90. The economy here can start growing again. So it’s a win-win for the EU and Cyprus and should be well received by the markets,” he said.

Meanwhile, The New York Times reported on Saturday that savers had already been trying to withdraw money from banks via ATMs and that many machines had run out of cash. But it might be too late already. Cyprus has declared a bank holiday on Monday to prevent such a run on the banks and banned electronic transfers.

Cyprus Finance Minister Michael Sarris defended the government’s decision in an interview with CNBC: “It’s not a pleasant outcome, especially of course for the people involved. But we believe it is something that, compared with other possible outcomes, is the least onerous. And we also believe that the exchange of this levy with shares in the banking institutions affected gives an upside potential.”

But the rescue has already been thrown into doubt with Cyprus’ parliament postponing an emergency session on Sunday to discuss the levy and several parties opposing the deal.

“When the dust has settled on this deal, which I hope it never does, we will see that the single market has been sold down the river for a shoddy price,” said the EU parliament’s Bowles.

Gold imports at $42 bn during Apr-Jan

The government today said gold imports have increased in recent years and were valued at USD 42 billion in the April-January period of the current fiscal. For 2011-12 they had reached USD 56.3 billion, Minister of State for Finance Namo Narain Meena said in a written reply to the Lok Sabha.

Also Read: MCX Gold may fall to Rs 28750-28550: Sharekhan

“India’s gold imports have increased in recent years reflecting the increasing size of domestic gold market,” Meena said. Gold imports in 2010-11 were pegged at USD 40.5 billion, while in 2009-10 they amounted to USD 28.6 billion.

According to a report of the working group of Reserve Bank, gold is imported in India mainly through the designated banks and MMTC. During 2011-12, gold imports through designated banks were estimated to be 603 tonne, or 56 per cent of total gold imports.

In a separate reply, Meena said India’s total external debt at the end of September is estimated at USD 365 billion. High gold imports are putting pressure on the country’s current account deficit (CAD), which touched a peak of 5.4 percent of the GDP in the July-September quarter.

The government has taken a number of steps to check import of the precious metal by hiking duty and also linking gold deposit schemes of banks with Exchange Traded Funds of mutual funds.

January factory output likely rose 1.2% YoY

Indian factory production in January probably rose from a year earlier after shrinking in December, boosted by a pick-up in domestic demand and infrastructure output at a three-month high, a Reuters poll showed.

Industrial production (IIP), which includes output at factories, mines and utilities, was estimated to have risen an annual 1.2 percent in January after unexpectedly falling 0.6 percent in December, according to this week’s poll of 24 economists.

Also Read: Double-digit growth without reforms dangerous: Moody’s

If realised, that consensus would fuel the widely held view that the worst is likely over for flagging Indian factories after industrial output grew in just six months of last year.

“Consumption and investment is picking up, which goes to suggest that from a purely domestic demand standpoint, the bottoming out of activity which many of us have talked about is materialising,” said Aninda Mitra, India economist at Capital Economics.

“And in that context, some modest pick-up in industrial activity should not be unexpected,” added Mitra, who is expecting significant growth of 3.2 percent.

Output in the country’s eight key infrastructure industries, widely known as the core sector and accounting for almost 40 percent of factory production, grew an annual 3.9 percent in January, its fastest in three months.

Production in four of those eight industries – coal, steel, electricity and refinery products, which account for a little over a fourth of the IIP – rose in January and likely had a bearing on overall industrial production.

“Mining and electricity output generation has improved over January, as have some segments of manufacturing,” said Abhishek Upadhyay, an economist at Axis Bank.

HSBC manufacturing PMI surveys also showed domestic orders have boosted Indian factory activity so far this year, however weak global demand has hurt exports.

Renewed concerns about the euro zone sovereign debt crisis, fueled by an inconclusive Italian election, have also slowed India’s economic progress.

The euro zone, India’s largest trading partner, has been ravaged by a three-year old sovereign debt crisis that has threatened to push the global economy into a new downturn.

To support growth the Indian government last week unveiled a surge in spending – despite expectations of an austere budget to shore up its finances – and imposed new taxes on the rich and large companies.

The Reserve Bank of India cut its key policy rate for the first time in nine months in January but said any further policy easing would depend on how inflation and the fiscal deficit is controlled.

RBI rate cuts to depend on inflation scene: Rangarajan

Ahead of the Reserve Bank’s review of monetary policy on March 19, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan today said policy rate cuts by the central bank will depend on inflation movement, among other factors.

“It (policy rate cut by RBI) will depend upon how inflation behaves,” Rangarajan told reporters on the sidelines of an event organised by International Chambers of Commerce (ICC) here.

Inflation measured by the Wholesale Price Index (WPI) had declined to 6.62 percent in January. It was 7.18 percent in December and 7.24 percent in November.

In January last year the WPI inflation was 7.23 percent.

Also read: Real GDP growth seen at 4.5% for 3QFY2013: Angel Broking

Rangarajan further said that the central bank will also take notice of action taken by the government on fiscal front to contain fiscal deficit.

In the union budget for 2013-14, Finance Minister P Chidambaram had said fiscal deficit for the financial year ending March 31, 2013 will be 5.2 per cent of the country’s gross domestic product (GDP). For the next financial year, the fiscal deficit target has been fixed at 4.8 percent.

RBI Governor D Subbarao in the third quarter monetary policy review had surprised the market by cutting short-term lending rate called repo by 0.25 per cent to 7.75 percent and Cash Reserve Ratio (CRR) by similar margin to 4 percent, releasing Rs 18,000 crore primary liquidity into the system.

On RBI’s decision to allow companies having exposure in real estate to apply for banking licence, Rangarajan said,”I think the RBI, will take a decision finally. It is a question of deciding who are fit and open… Who will they (RBI) give licence will depend upon number of factors.”

Last month, RBI had issued guidelines for new bank licences, after three years of preparations. The new set of licences comes after over a decade, as previous licences were issued in 2001-02 when two new banks – Kotak Mahindra and Yes Bank got licences.

Jet shares surge on renewed hopes of stake sale to Etihad

Shares of Jet Airways rallied 10 percent to close at Rs 554.10 on renewed hopes that the stake sale to Gulf-based Etihad Airways will be inked shortly. The stock has been under pressure for the last couple of weeks after Etihad chairman’s statement that the deal may take longer to materialize.

According to the latest information, Etihad may buy 10-12 percent in Jet from the promoters for a price between Rs 700-750 per share, reports CNBC-TV18, quoting unnamed sources. It will buy the additional stake through a preferential allotment of shares, sources said.

Under the current rules, foreign airlines can buy up to 49 percent in an Indian carrier.

The share purchase agreement will not have any forward contract clause, sources said.

Industry watchers feel the impending Jet-Etihad deal and AirAsia’s entry into India could trigger another round of fare wars, putting further pressure on the already weak bottomlines of Indian carriers.

SpiceJet flagged off the fare war in January, and Jet and other carriers followed suit last month.

SpiceJet CEO Neil Mills of the view that AirAsia is unlikely to be aggressive in its fare strategy.

“AirAsia is a very credible competitor but they have always been very rational and logical. So I don’t believe that they will undercut and not make any money. If you see their growth in some of the other markets they have tempered the growth when they haven’t been able to make money,” he told CNBC-TV18 in an interview on Thursday.

Economy to bounce back to 8% growth rate by 2015-16: PM

Striking an optimistic note, Prime Minister Manmohan Singh today exuded confidence that the economic slowdown will not continue and the country will bounce back to the growth rate of 7 to 8 percent in next two to three years.

Singh said the government is determined to give a push to the economy as he rejected the Opposition charge over mishandling of the situation and making a mess of it.

Replying to the debate in Rajya Sabha on Motion of Thanks to President’s Address, Singh tore into BJP’s claim that NDA government had performed better and cited figures in various sectors to show the country had grown much faster during the nine years of UPA rule.

“The Leader of Opposition is right in saying that India needs growth rate of. He is also right when he said it will require rapid pace of industrialisation. I would like to remind this House this is precisely the intent of UPA government,” he said.

Sharing members’ concern over the slowdown of economy during the current fiscal, Singh said, “As the Finance Minister said we do not believe growth rate will stay where it is today. We will use all our policies to push up growth rate.

Also read: Real GDP growth seen at 4.5% for 3QFY2013: Angel Broking

We hope and it is our confidence that in two to three years economy will bounce back to high growth of 7 to 8 percent.”