Recap 2013: How equities, commodities, currencies performed

Riken Mehta

Follow me on Twitter @mehtariken 

After nearly a six-year wait, Indian equity benchmarks, the BSE 30-share Sensex and the NSE 50-share Nifty broke their record highs this year.  But that’s not it; 2013 saw a number of fresh multi-year record lows/highs both on the macro and investment front.

Despite FIIs investing USD 20 billion in 2013, the index returns for FIIs in dollar terms is negative at 3.91 percent primarily due to rupee depreciation. The year 2013 has been more stock and sector specific with IT, pharma and FMCG leading the list of winners.

Let’s take a look at how various asset classes fared in the year 2013.

Developed markets versus Emerging markets

As seen from the table, benchmark indices of US, UK and Japan have given handsome double digit returns so far this year. The momentum in these markets may continue as major indices of US (barring Nasdaq) and UK (barring CAC) are trading at life-high. Nikkei is trading close to its 6 year high. Emerging markets have posted negative or single digit positive returns this year, underperforming developed markets.














Commodities

Gold has posted its biggest annual loss since 1981 as investors shifted their money from safe haven asset class to risky asset class like equities on the back of strong economic growth in developed countries. Brent Crude remained in a narrow band of USD 95-115 per barrel.



















Currencies

The domestic currencies of the emerging markets depreciated substantially this year on fears of tapering by the US Federal Reserve. The rupee depreciated to a record low of 69 levels making it one of the worst performing Asian currencies this year. Japanese yen on the other hand weakened to a five-year low on the back of loose monetary policy to spur growth in the economy.











Indian Indices

How to trade when rupee falls: Long IT, Short Nifty, Bank Nifty

Riken Mehta 

moneycontrol.com

Follow me on Twitter @mehtariken 

Major asset classes like equities, currencies, commodities and bonds have seen huge volatility in the last six months on speculation over the pace of the US Fed’s bond purchases. Fears of a reduction in monetary stimulus have been putting pressure on the rupee and equities. However, some traders have used these sharp moves to their advantage. One such strategy has been to go long on IT stocks and short the Nifty and Bank Nifty stocks.

In past six months, every time the rupee has depreciated more than three percent, Nifty has lost two percent while Bank Nifty has shed close to four percent in trade. Barring one instance, CNX IT has given positive returns.

Instances when rupee has fallen more than 3% in short duration (3-8 days) Period: 11-May-2013-12 Nov-2013. Rupee data source: Bloomberg

Days	Rupee	NIFTY	BANK NIFTY	CNX IT
June 5-11 (5 days)	-3.45%	-2.21%	-3.71%	0.54%
Jun 17-26 (8 days)	-5.58%	-3.79%	-7.18%	0.13%
Jul 29-Aug 2 (5 days)	-3.47%	-2.67%	-4.47%	2.54%
Aug 14-22 (6 days)	-5.60%	-5.11%	-7.18%	-2.49%
Aug 26-28 (3 days)	-8.63%	-3.40%	-7.50%	3.57%
Nov 5-12 (6 days)	-3.20%	-4.73%	-8.88%	1.03%

Who 'really' gained from petrol deregulation?

Riken Mehta

Follow me on Twitter @mehtariken 

Petrol prices were deregulated by the government on June 25, 2010 in an attempt to cut down the fuel subsidies and reduce the burden on upstream and downstream companies.  Crude import bill forms a major part of the CAD and fewer subsidies would also allow the government to spend more thereby propelling the growth of the economy. However, nothing has worked as per the UPA government’s expectation.

The burden of upstream companies like ONGC, Oil India and Gail have doubled so far since deregulation on higher under-recoveries and would soon become cash-strapped if things remain constant.

Downstream companies have not been able to pass on the complete hike of petrol and diesel to consumers despite diesel being deregulated in January this year by the government. Also, delay in receiving fuel subsidies led to heavy borrowing by OMCs to meet their working capital requirements. Barring BPCL which has exploration assets, these companies have not rewarded their shareholders who invested on hopes of turnaround since deregulation.

Brent crude has surged 33 percent while rupee has depreciated 34 percent since petrol deregulation. The consumers are now shelling out 50 percent more for petrol and diesel. Sales of auto companies also took a hit as the price differential between petrol and diesel has come down significantly. And it can’t get better with the timing of IOC FPO thereby forcing the government to give subsidies in the middle of the year to repair oil marketing company’s balance sheet.

* From 25-Jun-2010 to 31-Dec-2010

Particulars	On 25-Jun-2010	2010*	CY2011	CY2012	CY2013	Since 25-Jun-10
Avg Petrol (Rs/ltr)	52.2	56.51	69.52	74.6	75.97	50%
Avg Diesel (Rs/ltr)	39.88	47.77	44.98	47.84	56.56	50%
Avg Brent Crude (USD/bbl)	78.12	82.04	110.91	111.68	108.31	33%
Avg USDINR rate	46.54	45.7	46.67	53.49	57.99	-34%
Under Recovery (Rs Cr)		78190 (FY11)	1,38,541 (FY12)	1,61,029 (FY13)	60907 (H1FY14)	Over 4 lakh crore
Upstream burden		30297 (FY11)	55000 (FY12)	60000 (FY13)
BPCL	310.68	6%	-27%	49%	0%	15%
HPCL	401.05	-3%	-36%	15%	-26%	-46%
IOC	377.3	-10%	-26%	6%	-22%	-44%
ONGC	316	2%	-21%	4%	6%	-10%
Oil India	544.08	3%	-15%	-2%	0%	-14%
GAIL	482.75	6%	-25%	-7%	-4%	-29%

Double whammy for India: Dollar Index at 3-year high, Crude at 3-month high

Riken Mehta

Don’t be surprised to see the Indian rupee hitting fresh all-time lows in days to come after the dollar index touched 3-year high on Friday. The latest US non-farm payroll data has exceeded beyond analyst’ expectations signifying that the job creation is happening and the US economy is coming back on growth trajectory. This has further fuelled the speculations of US Fed tapering off the quantitative easing program later this year. 

As seen from the chart, crude and dollar index have moved in the opposite directions. However, with impressive job data, crude has also rallied along with dollar index on expectations of demand for oil picking up in US. Back home, analysts have already predicted the rupee to touch 62-65 levels in this calendar year.  India being net importer of crude will be severely impacted from the current rally in crude and dollar. This will further deteriorate the current account deficit. Also, strength in US dollar will further support the US treasuries leading to more unwinding of positions by the FIIs from the bond market. 

Bargain hunting: 24 stocks you can pick up post mkt carnage

 
Riken Mehta
moneycontrol.com

It was carnage across the board on Thursday after the rupee touched an all time low of 59.93. Fears of a large scale pullback of FIIs from India saw the Sensex crashing 526 points, lead by shares in the metal, banking and realty sectors.

Yet, periods of turmoil like these also provide investors with an opportunity to buy stocks at reasonable valuations. One of the yardsticks used by investors is the market price compared to the book value.

Book value is the net asset value of the company. Technically speaking, it is the sum of the company’s equity capital and reserves divided by number of shares in issue. Simply put, this is the price that a shareholder would get per share if the company were to be liquidated. The book value is a reasonable indicator of whether a stock is overpriced or undervalued.

As per latest data, 25 companies out of BSE 100 are trading at discount to book value post Thursday’s sell-off. Check them out

Source: Capitaline. Close price as on 20th June, 2013

Company	Close Price	Cons Book Value	Latest P/BV
HDIL	36.15	257.8	0.14
Reliance Infra	339.8	957.5	0.35
Unitech	21.05	43.54	0.48
Sterlite Inds	81.4	161.78	0.50
IDBI Bank	74.25	145.63	0.51
SAIL	53.55	99.45	0.54
Hindalco Inds	97.7	178.09	0.55
HPCL	251.65	394.48	0.64
Bank of India	260.25	390.81	0.67
Reliance Capital	330.7	487.34	0.68
Canara Bank	358.5	522.42	0.69
Reliance Comm	124.65	181.26	0.69
Sesa Goa	139.7	201.07	0.69
Bank of Baroda	576.6	785	0.73
Punjab Natl Bank	687.35	934.58	0.74
NHPC Ltd	18.35	24.69	0.74
Union Bank	201.1	265.14	0.76
Tata Steel	272.4	351.85	0.77
Power Fin Corp	154.4	183.01	0.84
JSW Steel	687.2	762.09	0.90
IOC	240.9	259.63	0.93
Reliance Power	64.55	66.24	0.97
Jindal Steel	222.15	227.35	0.98
Adani Enterp	182.65	186.88	0.98

Weak rupee spells trouble for FCCB issuers; check them out

A falling rupee is bad news for companies that had raised capital through foreign currency convertible bonds, if the stock price is quoting at a steep discount to the conversion price. What this means is that the bond holders will ask for their money back, along with interest, instead of converting the loans into equities.

It is a double whammy for the FCCB issuing companies because the weak rupee means not only will the companies have to repay the loans, but there will be an added cost because of the weak rupee. There is a possibility that the rupee may stabilize by the time the bonds come up for redemption, and the impact may not be as bad as feared. However, in the short term, the company will have to make provide for the currency loss in their profit & loss statements.

Following are the companies that have raised capital between USD100-550 million through FCCBs over the last five years.

Source: Capitaline
* = Rs 58 per dollar conversion rate

Company	Source	Issue Size	Issue	Maturity Date	Conversion	Latest	Cash
	Date	(USD mn)	(Rs mn)*		Price (Rs)	Price (Rs)	[Latest]
Tata Steel	19/11/2009	546.9	31720.2	21/11/2014	605.53	290.55	3947
Sesa Goa	24/09/2009	500	29000	31/10/2014	346.88	145.85	24.88
Tata Motors	9/10/2009	375	21750	16/10/2014	623.88	291.75	1841
Tata Power	6/11/2009	300	17400	21/11/2014	1456.12	82.6	1087.4
Larsen & Toubro	9/10/2009	200	11600	22/10/2014	1908.2	1437.4	1778.1
Videocon Inds	3/12/2010	200	11600	16/12/2015	239.53	223.15	504.55
JP Power	27/01/2010	200	11600	13/02/2015	85.81	22.05	583.67
Suzlon Energy	4/4/2011	175	10150	6/4/2016	54.01	9.66	262.65
Welspun Corp	25/09/2009	150	8700	17/10/2014	300	46.3	640.94
JP Associates	28/08/2012	150	8700	18/09/2017	77.5	63.35	1022.2
REI Agro	23/10/2009	105	6090	13/11/2014	46.7	13.55	274.76