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India Equity Strategy
Color of Money: Analyzing the government's borrowing program
• Special focus: The Street has been sceptical about the government’s
aggressive fiscal consolidation target for FY12 and the budgeted
borrowing program. The government’s track record on this count has,
however, been creditable. In six of the past 10 years, the borrowing
program has been contained at less than budgeted levels. There was a
substanial overshoot on only one occasion – in FY09, during the
global financial crisis. Separately, the borrowing program is typically
front-loaded, early in the fiscal year, implying that any issues will
come to the fore only later in the year.
• 4Q FY usually marks the seasonal peak in liquidity tightness: This
is usually followed by a substantial decline in 1Q FY and a seasonal
pick-up again in 2H FY. A decline in wholesale rates has typically
augured well for the performance of Financials. Our Financials team
believes that wholesale rates have likely peaked and should come off
in 1Q FY. We have recently turned more constructive on Financials
against this backdrop of potential outperformance in 2H FY.
• FII selling pressure being absorbed by DIIs: Over the past month,
FIIs remained sellers (US$1B), but the pressure was largely absorbed
by DIIs. Open interest in the futures segment has continued to decline,
but open interest in options has risen, suggesting additional hedging
activity. Our money flow monitor suggests inflows into Financials and
Energy, and outflows from Consumer Discretionary and IT Services.
• Insider transcations: Insiders were net buyers over the month. The
breadth was positive too.
Net Buy: Sesa Goa, Jaiprakash Associates, GMR, Jindal Steel &
Power, DLF, United Sprits, Axis Bank, Hindalco
Net Sell: ITC, Wipro, HDFC Bank, Kotak Mahindra Bank
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Strategy
Color of Money: Analyzing the government's borrowing program
• Special focus: The Street has been sceptical about the government’s
aggressive fiscal consolidation target for FY12 and the budgeted
borrowing program. The government’s track record on this count has,
however, been creditable. In six of the past 10 years, the borrowing
program has been contained at less than budgeted levels. There was a
substanial overshoot on only one occasion – in FY09, during the
global financial crisis. Separately, the borrowing program is typically
front-loaded, early in the fiscal year, implying that any issues will
come to the fore only later in the year.
• 4Q FY usually marks the seasonal peak in liquidity tightness: This
is usually followed by a substantial decline in 1Q FY and a seasonal
pick-up again in 2H FY. A decline in wholesale rates has typically
augured well for the performance of Financials. Our Financials team
believes that wholesale rates have likely peaked and should come off
in 1Q FY. We have recently turned more constructive on Financials
against this backdrop of potential outperformance in 2H FY.
• FII selling pressure being absorbed by DIIs: Over the past month,
FIIs remained sellers (US$1B), but the pressure was largely absorbed
by DIIs. Open interest in the futures segment has continued to decline,
but open interest in options has risen, suggesting additional hedging
activity. Our money flow monitor suggests inflows into Financials and
Energy, and outflows from Consumer Discretionary and IT Services.
• Insider transcations: Insiders were net buyers over the month. The
breadth was positive too.
Net Buy: Sesa Goa, Jaiprakash Associates, GMR, Jindal Steel &
Power, DLF, United Sprits, Axis Bank, Hindalco
Net Sell: ITC, Wipro, HDFC Bank, Kotak Mahindra Bank
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