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India Equity Research Reports, IPO and Stock News
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Rupee depreciation
INR depreciation against USD and JPY, is still not well factored into the
stock prices and we see more downside to Maruti, Bharti and R Comm.
Several other corporates will also see a hit to the 2QFY12 results. Key
global commodities of brent and steel have seen only a small correction in
Sep’11 which means that the issue of inflation becomes more prominent
as the prices now higher in INR terms. On the other hand, positive impact
on stocks such as Reliance and BHEL has not reflected as yet.
INR down sharply against US$ and JPY; partially against GBP
q INR has depreciated by 9% since June 30th with bulk of the depreciation coming
through in August and September. INR weakness against JPY has been even higher
at 15%. Against GBP it has been 6.5%
q INR weakness in September (5.7%) has been a part of a much larger global event
and our economists team believes that INR (and other Asian currencies) will likely
recover against US$ as the dimensions of risk aversion change.
q RBI is generally known not to intervene in the currency market, although during
2HFY12 RBI will have flexibility to do so if they so wish given that the liquidity
situation will likely improve with deposit growth expected to outstrip loan growth.
Key commodities not corrected; inflation outlook gets complicated
q While several global commodities have corrected, the two most important global
commodities (from an India perspective) viz. steel and brent crude has seen
minimal correction – which has been more than offset by INR depreciation.
q We believe that the issue of inflation gets further compounded with the rupee
depreciation and the RBI pausing the rate hikes a little less of consensus.
2QFY12 results will be impacted due to balance sheet impact
q Depreciation of INR against USD will mean that the liabilities of the corporate
running unhedged USD debt will go up in INR terms. We understand that most of
the corporates keep the principal unhedged though some forex cover is bought for
interest payments.
q Companies that get hit due to the above are Reliance Comm, Bharti, Tata Steel,
Tata Motors, Suzlon and Jet Airways.
q Accounting for the same is unclear but many corporates will route these losses
through P&L in 2QFY12 itself. Certain others viz. Godrej Consumer will directly
adjust in the networth.
More downside to Maruti and Bharti. Positive for RIL, BHEL
q If INR vs USD sustains at 49.5, IT companies will see FY13 earnings upgraded by
10-12%. Other exporters viz. Pharma cos and Suzlon also benefit, though in case
of Ranbaxy, the impact of long-term forward currency contracts would mean large
losses and Sep quarter might be a loss. Reliance and Cairn India will also see a
10%+ earnings upgrade.
q On the negative side, Maruti will be the most severely impacted and we believe the
stock price reaction doesn’t capture this impact fully. Other stocks, where believe
that stock price reaction doesn’t capture the full impact are Reliance
Communication, Bharti, India Cement and Ultratech.
q On the other hand, we believe that positives on BHEL (INR has depreciated against
RMB as well) and Reliance have not not been well understood yet. Also, Godrej
Consumer stock has over-reacted on the downside, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rupee depreciation
INR depreciation against USD and JPY, is still not well factored into the
stock prices and we see more downside to Maruti, Bharti and R Comm.
Several other corporates will also see a hit to the 2QFY12 results. Key
global commodities of brent and steel have seen only a small correction in
Sep’11 which means that the issue of inflation becomes more prominent
as the prices now higher in INR terms. On the other hand, positive impact
on stocks such as Reliance and BHEL has not reflected as yet.
INR down sharply against US$ and JPY; partially against GBP
q INR has depreciated by 9% since June 30th with bulk of the depreciation coming
through in August and September. INR weakness against JPY has been even higher
at 15%. Against GBP it has been 6.5%
q INR weakness in September (5.7%) has been a part of a much larger global event
and our economists team believes that INR (and other Asian currencies) will likely
recover against US$ as the dimensions of risk aversion change.
q RBI is generally known not to intervene in the currency market, although during
2HFY12 RBI will have flexibility to do so if they so wish given that the liquidity
situation will likely improve with deposit growth expected to outstrip loan growth.
Key commodities not corrected; inflation outlook gets complicated
q While several global commodities have corrected, the two most important global
commodities (from an India perspective) viz. steel and brent crude has seen
minimal correction – which has been more than offset by INR depreciation.
q We believe that the issue of inflation gets further compounded with the rupee
depreciation and the RBI pausing the rate hikes a little less of consensus.
2QFY12 results will be impacted due to balance sheet impact
q Depreciation of INR against USD will mean that the liabilities of the corporate
running unhedged USD debt will go up in INR terms. We understand that most of
the corporates keep the principal unhedged though some forex cover is bought for
interest payments.
q Companies that get hit due to the above are Reliance Comm, Bharti, Tata Steel,
Tata Motors, Suzlon and Jet Airways.
q Accounting for the same is unclear but many corporates will route these losses
through P&L in 2QFY12 itself. Certain others viz. Godrej Consumer will directly
adjust in the networth.
More downside to Maruti and Bharti. Positive for RIL, BHEL
q If INR vs USD sustains at 49.5, IT companies will see FY13 earnings upgraded by
10-12%. Other exporters viz. Pharma cos and Suzlon also benefit, though in case
of Ranbaxy, the impact of long-term forward currency contracts would mean large
losses and Sep quarter might be a loss. Reliance and Cairn India will also see a
10%+ earnings upgrade.
q On the negative side, Maruti will be the most severely impacted and we believe the
stock price reaction doesn’t capture this impact fully. Other stocks, where believe
that stock price reaction doesn’t capture the full impact are Reliance
Communication, Bharti, India Cement and Ultratech.
q On the other hand, we believe that positives on BHEL (INR has depreciated against
RMB as well) and Reliance have not not been well understood yet. Also, Godrej
Consumer stock has over-reacted on the downside, in our view.
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