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On Slack: The graveyard of corporate raiders, Saudi Life With $30 Oil, Trump and Sanders, Bill Gates Mobile Banking, Fed's Bullard, Barron’s 2016 Roundtable, Luxury tax on ICUs, Adani-Hazira Port, Pendulum Swing and more…

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The Slack Discussions

The Slack group at Capital Mind Premium has been extremely active and if you haven’t been there, pop us a note by replying to this email. (If you’re a trial member this probably sound like Greek to you; it will be available when you sign up!)

A brief summary of some of the interesting things discussed there in the last few days:

#general:from the past: 40 Years Ago… And now: L&T – The graveyard of corporate raiders

Engineering conglomerate fended off three corporate raids but emerged stronger.

#general: Saudi Life With $30 Oil

(Saudi, Crude Oil)

#macronomics: Saudi Arabia: A Weak Kingdom On Its Knees?

(Saudi, Kingdom, Economy)

#general: Will Come Out With Alternative Disinvestment Plan Soon: Jaitley

As against the target of Rs 69,500 crore, the government has so far in current fiscal year garnered Rs 12,700 crore. Due to volatile market conditions, the government has been able to sell stake in only four PSUs – Indian Oil Corporation, Power Finance Corporation, Rural Electrification Corporation and Dredging Corp.

#general: How Marketers Use Fear Of Chemicals For Profit: 3 Easy Steps

(Marketing, Chemicals, FDA)

#general: The stock market is freaking out about Trump and Sanders

Donald Trump wants to slap tariffs on China — and maybe Japan. He’d build a wall with Mexico. He promises a more pugnacious American posture in the world, and probably a lot more unilateralism.

Bernie Sanders wants to jack up the federal minimum wage, tax short-term stock market trading, and probably raise other taxes and regulations as well.

#general: Venezuela president declares economic emergency as inflation hits 141%

Venezuelan president Nicolás Maduro has declared an economic emergency, seeking broad powers to address a crippling recession in the oil-dependent country after official figures showed that inflation has spiralled to 141%.

The vaguely worded decree would grant Maduro extraordinary powers for two months to rule on economic matters but must be approved by the National Assembly, now under control of the opposition, where he gave his state of the nation address late Friday.

#general: Why Bill Gates Is Investing in Mobile Banking

The Bill & Melinda Gates Foundation, the world’s largest philanthropic organization, has a singular objective: improve the lives of people in poor countries. Historically, the foundation has given away money, much of it to fight infectious diseases. Now it has a new strategy: invest in technologies that can make goods and services affordable to the poor. Bloomberg’s Erik Schatzker sat down with Bill Gates and traveled to Bangladesh to see how one of those investments, bKash, is transforming finance.

#general: China Said to Put Reserve Rule on Offshore Bank Yuan Funds

China is stepping up efforts to counter speculative bets against the nation’s currency, through imposing reserve requirements on yuan deposits held on the mainland at offshore participant banks.

The move follows pledges by Chinese officials to maintain a stable exchange rate, and a squeeze in interbank funds in Hong Kong that saw borrowing costs in yuan in the city soar to a record last week. Premier Li Keqiang on Friday said that there was “no basis for a continued depreciation of the yuan exchange rate.” The offshore yuan advanced after news of the latest measure.

Bull

#general: Yuan to stabilize this week after China central bank intervention

The yuan is expect to stabilize for the next couple of weeks after the People’s Bank of China used rate increases to fend off attacks by currency speculators, but analysts warn the currency is set to weaken again after the Lunar New Year next month.

“As a result of the PBOC’s intervention, offshore yuan may stabilize around 6.60 over the short term. But after Lunar New Year, it may start to weaken again, especially when most of the underlying negative fundamental drivers remain unchanged,” said Heng Koon-how, senior currency strategist at Credit Suisse.

#general: The strongest weapon to shift geopolitical balances isn’t nukes or missiles, it’s technology

Governments, businesses, and economists have all been caught off guard by the geopolitical shifts that happened with the crash of oil prices and the slowdown of China’s economy. Most believe that the price of oil will recover and that China will continue its rise. They are mistaken. Instead of worrying about the rise of China, we need to fear its fall; and while oil prices may oscillate over the next four or five years, the fossil-fuel industry is headed the way of the dinosaur. The global balance of power will shift as a result.

#general: Iran: US imposes new sanctions over missile test

The US has imposed fresh sanctions on Iranian companies and individuals over a recent ballistic missile test. The new sanctions prevent 11 entities and individuals linked to the missile programme from using the US banking system.

The move came after international nuclear sanctions on Iran were lifted as part of a deal hailed by President Barack Obama on Sunday as “smart”.

#general: PM Modi Announces Three Year Tax Holiday, Rs. 10,000 Crore Fund For Startups

Prime Minister Narendra Modi on Saturday announced opening app-based registration for companies to be completed in a single day, a startup fund of Rs. 10,000 Crore and waiver of capital gains tax for startups among the several allowances that government has decided to make for startups.

“There will be no income tax on startups’ profits for three years,” PM Modi announced amid resounding applause from a large gathering at the Vigyan Bhawan in New Delhi that included over 1,000 entrepreneurs gathered at the Startup India meet up organised by the government.

#gener
al: Widening of NH-24: The highway to affordable housing

The construction of Delhi-Meerut Expressway would improve connectivity between small cities while increasing residential housing spots, say experts.

#macronomics: The Chinese Economy’s Great Wall

The recent decline in China’s currency, the renminbi, which has fueled turmoil in Chinese stock markets and drove the government to suspend trading twice last week, highlights a major challenge facing the country: how to balance its domestic and international economic obligations. The approach the authorities take will have a major impact on the wellbeing of the global economy.

#general-from the past: How They Saved the India Story

For Four weeks starting mid-September, 2008 — your money, in equities, mutual funds, perhaps even in private banks, was, or was perceived to be, at enormous risk. This is the inside story, never told in such detail before, of how your money was saved as India coped with the global financial crisis triggered by the meltdown of the investment bank, Lehman Brothers, in the United States.

#general: When the Fed’s Bullard makes a forecast, remember this

(Federal Reserve, Bullard)

#general: Hypermarkets shrink on online pressure

Hypermarkets and departmental stores are no longer going to be mega-sized outlets. With shoppers going online for a host of items or preferring to buy at specialized stores, retailers have no option but to rein in costs.

#general: Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears

(Default, Mark-to-market)

#macronomics: Barron’s 2016 Roundtable, Part 1: A World of Opportunities

Our nine investment pros see lots of cheap stocks, but little chance that the market will rally sharply in 2016. Why global growth is challenged, rates will stay low, and India could prosper.

On slack2

#stocks: FIPB to consider 26 FDI proposals including Cipla and Glenmark on Jan 22

Foreign Investment Promotion Board (FIPB) is set to consider proposals of Cipla and Glenmark Pharma on January 22. It is also expected to consider Den Networks’s proposals this week.

On 29th December 2015, Foreign Investment Promotion Board (FIPB) approved 4 FDI proposals worth Rs. 1,800 crore. It has approved proposals of Firefly Networks and HDFC Standard Life. Earlier, FIPB has approved 9 FDI proposals worth Rs. 1,200 crore.

#general: India’s SpiceJet launches 2 new routes to Dubai

ndian low-cost carrier SpiceJet has launched two new routes to Dubai, bringing the number of Indian cities it connects with the emirate on a daily basis to ten.

The latest cities to be connected to Dubai are Jaipur and Hyderabad, which will be operated by a Boeing 737 800 aircraft.

#stocks: Tanzania bans Lincoln Pharma’s bacteria-fighting injection

Lincoln Pharmaceuticals said that its highest selling Chloramphenicol Sodium Succinate injection has been banned in Tanzania and the company’s registration has also been cancelled there.

Chloramphenicol Sodium Succinate Injection is an antibiotic used to treat serious bacterial infections.

#general: India Inc’s pledged shares reach 7-year high of Rs 2 lakh cr

According to a report by Prime Database, value of shares pledged by promoters in the NSE-listed companies stood at Rs 2.03 lakh crore as on December last year, as compared to Rs 1.78 lakh crore in December 2014.

#general: Odd-even scheme will be repeated, says Delhi Transport Minister Gopal Rai

Delhi government is likely to implement the next phase of odd-even scheme after March as it seeks to first address two major concerns related to commuting by school children and the possibility of people going for another car to circumvent the restrictions.

Chief Minister Arvind Kejriwal, who today chaired a review meeting on the next phase of odd-even, has asked all departments to look into these two major issues and submit their report in this regard at the earliest.

#general: Oil producing nations to sell $240 bn assets this year: JP Morgan

Oil-producing countries will sell $240 billion of international assets this year, mostly stocks and bonds, in an attempt to hold together budgets blown apart by the slump in oil prices, according to estimates from JP Morgan.

That sum will come from running down their foreign exchange reserves and Sovereign Wealth Fund holdings. They will also raise some $20 billion by selling government bonds of their own to help cover a current account shortfall of $260 billion, the US bank predicts.

#general: Karnataka government enforces luxury tax on ICUs

The state government has imposed an eight per cent luxury tax on each bed in an ICU. Last week, the department of commercial taxes sent a directive to all hospitals across the city stating: “The accommodation provided in an ICU charging more than Rs 1,000 per day per room attracts luxury tax at the rate of eight per cent under the Karnataka Tax on Luxuries Act, 1979.” What the directive means ‘per room’ is per bed. The hospitals without doubt will pass on the burden to the patient.

#general: Tata Steel confirms 1,050 job cuts

Tata Steel has confirmed it plans to cut 1,050 jobs in the UK, including 750 at Port Talbot, the UK’s biggest steelworks. The firm said 100 jobs would go across mills in Trostre, Corby and Hartlepool, along with 200 support jobs.

The plans are a result of falling European steel prices “caused by a flood of cheap imports, particularly from China”, Tata said.

#general: NGT slaps Rs 25 crore fine on Adani-Hazira Port, cancels environment clearance

The National Green Tribunal has slapped a penalty of Rs 25 crore on Adani-Hazira Port Pvt Ltd (AHPPL) and its associate Hajira Infrastructure Pvt Ltd for carrying out work at their Hazira-based port near S
urat without acquiring environment clearance.

The Pune-based Western Zone bench of NGT also ruled that the environment clearance (EC), granted by Ministry of Environment and Forests (MoEF), in 2013 for further development of the port at Hazira, is illegal and set it aside.

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#general: Twenty20: Disrupting Kerala’s political game

For the first time in India, as claimed, an apolitical outfit launched by a corporate house swept the gram panchayat elections, securing 17 out of the 19 seats on the village council. The Twenty20 Kizhakkambalam (Twenty20), a charity outfit floated by the Anna-Kitex Group, shocked political parties by capturing the panchayat with a 69 per cent vote share. In a politically-conscious Kerala, this victory is being hailed as a disruption of the political kind.

#macronomics: Off The Beat – Poor, Poor Banks, Give ’em a Chance

Tackling the problem of bloated NPAs at public sector banks needs fresh thinking backed up with concerted action, and not blind mergers or expensive consultants.

#macronomics: Vacancies in offices fall sharply in five years: JLL study

According to global consultant Jones Lang LaSalle (JLL), vacancy in Bengaluru has reduced from 16% in 2011 to 4% today. Chennai’s vacancy has come down from 32% in 2010 to 12.5% today. Hyderabad has also seen its vacancy reduce from 17% in 2009 to less than 10% now. Similarly, in Pune, the vacancy has reduced from 18% in previous years to 5% today.

#stocks: Porinju Veliyath Adds Biocon to Portfolio, Exits DLF

Porinju Veliyath, managing director and portfolio manager, Equity Intelligence says investors should not be afraid about the sharp correction in stock markets. His comments came on day when Nifty closed below 7,500 for the first time in 19 months.

#stocks: Reliance Jio to Raise Rs 15,000 Crore Via Rights Issue

Gearing up to launch its 4G services, Reliance Jio Infocomm ltd (RJIL) on Monday said it will raise Rs 15,000 crore through rights issue to its existing shareholders.

The company in a regulatory filing said its board has approved the rights issue in a meeting “…the Board of Directors…approved further issue of 15,00,00,00,000 equity shares of Rs 10 each aggregating to Rs 15,000 crore to the existing equity shareholders of the company on rights basis,” the filing said.

#general: Emulate Sikkim model: PM to states

(Sikkim)

#stocks-from the past: Third-party vendor JHS in legal battle with P&G for termination of contract

New Delhi-based third-party manufacturer JHS Svendgaard Laboratories, which used to make Procter & Gamble’s (P&G) Tide detergent powder and Oral-B toothbrush and toothpaste, has filed a complaint against P&G, alleging unfair termination of production contract. An FIR has also been filed in this regard.

In the FIR filed in Himachal Pradesh where JHS has  its factory, the Indian vendor has named 19 P&G officials.

#general: Parag Milk Foods gets ready for Rs 300 crore IPO

As things stand, the issue will consist of a fresh issue of equity shares worth Rs 300 crore, and an offer for sale of up to 19.85 million equity shares. The funds will go towards brand building and expansion.

#general: RBI to inject liquidity of Rs 10,000 cr via OMOs on Wednesday

Based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct purchase of Government securities under Open Market Operations (OMO) for an aggregate amount of 100 billion on January 20, 2016,” RBI said in a release.

Upcoming Expected IPO's2

#backtobasics:

Head and Shoulders Continuation Pattern

How to use the Outliers? (skip the first minute)

Pendulum Swing

Understanding Benchmark Oils: Brent Blend, WTI and Dubai

#marketquotes:

Imagine you bought a bag of cocaine from a drug dealer who was being chased by the police for almost free, as he wanted whatever he could get and run away.

Now, you start giving this to a few people. They get high. Soon more and more people become junkies. You control the supply in your neighbourhood. You price it higher and higher. They keep coming back.

Then after one awesome year, you find out from your corrupt pals in the police that a special team is being formed to crack down on drugs. Now you want to get rid of your inventory. So you start selling at lower rates, pushing up demand by the junkies. As you price it lower, more junkies come to you.

One day, you get a call that the police is out to bust your ass, and you get scared. You dump everything in the toilet and fly away from the country… hopefully some place with a nice beach.

#recommended-readings

@Jagandeep Singh – Gregory Zuckerman’s “The greatest trade ever” and “Fracking”

#questions&answers:

Q: Why is the RBI forcing the banks to recognize NPAs in one quarter and more importantly? NOW? They know some banks Net Worth would be wiped out and this is the worst time for govt. from a recapitalization point of view. And they also know Rupee is going to be under pressure throughout the year. Why try to fight multiple fires at the same time?

For some reason, this seems like desperation from the RBI and I can’t understand the logic of it. RBI could’ve easily allowed the charade to continue till there is some recovery in commodities.

A: Not in one quarter. The NPA (Non Performing Assets) will be recognized over a period
of 5 quarters by March, 2017. Recognizing doesn’t mean full provisioning, they are allowed to spread the provisions

Q: Doesn’t that mean you need to raise capital almost before you complete provisioning to meet your ratio requirements?

A: Yes. That is why it’s spread like for example if you sell assets to an ARC (Asset Reconstruction Company) and the amount you recover is less, the residual hit is to be spread over 3-6 quarters. You will see this in most bank result notes but the point is: you’ve taken the hit.

Q: Why the panic especially in PSU Banks when they’re backstopped by the government? I would’ve assumed Private Banks would’ve been harder hit.

A: The point is: this looks like a bad time, but it was planned for this time all along. Private Banks have been doing the right thing. They have been recognizing (except maybe ICICI and Axis and look where they are)> Private Banks have also been selling to ARCs. PSU bank backstops may still involve massive dilutions from this point, which is probably what is being priced right now. If your book falls 25% you have to dilute 33% and then, to build cap ratios to proper levels, probably have to dilute 50% and even then, this is based on assumed recovery.

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Disclaimer

Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion. 

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

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