FMCG Sector Growth

Interesting chart. Suggests the FMCG sector is not so acyclical as the general perception is. Value growth above 10% is not a given.

Opto Circuit is very good at this game. Check today’s announcement by Opto –

Medical device maker Opto Circuits (India) has signed a contract with Criticare Systems Inc to supply patient monitors to hospitals in Russia’s Tyumen Oblast province.

This came in Hindu Businessline. And moneycontrol gives this a distinct spin..

Opto Circuits US arm has got order to supply monitors to Russian hospitals, reports CNBC-TV18. Opto Circuits India touched an intraday high of Rs 224.80 and an intraday low of Rs 217.50. At 11:28 hrs the share was quoting at Rs 223.65, up Rs 7.90, or 3.66%.

So is the bull market back? I mean, what the f is the Tyumen Oblast province in Russia? Why shud companies be releasing silly announcements like this…

Shady stock, this Opto Circuit.

Note this in the Hindy story – Opto Circuits, however, did not disclose the value of the contract.

Of course it cant, most likely it is some two-bit contract which means nothing much for the stock price if the value was revealed.

Also, while i havn’t checked advance-decline for 2011 yet, I think this will be better in 2012. This is the most important thing for retail investors. If advance-decline is more than 50%, you will most likely make money.

This is how I think 2012 could pan out –

Likely Sensex Trading Range 2012

As this suggests, Sensex may not fall below 15k for any length of time. If sentiments improve, then the trading range may extend to 19K levels.

Of course, ambient sentiment and data would influence the valuation, which we continue to assume will not fall below 14x forward. Factors in favour of this – inflation seems to have peaked, interest rates will head downward. If Congress does ok in the coming assembly elections, it will help.

Negatives – global macro scene, domestic fiscal deficit which could worsen due to things like food security bill etc.

Mumbai, January 3, 2012: The year 2011 saw 427 PE/VC deals worth $11.19bn compared to investments worth $7.96bn across 328 deals in 2010, shows data with research and financial consulting firm, Four-S Services. With drying-up of the public market as well as debt becoming costlier, India Inc. turned to PE investors for fresh funding.

The year also saw a surge in number of high value deals – there were 30 deals above $100mn in value (worth $5.91bn; 53% of total investments) compared 19 deals (worth $3.46bn) in 2010. Correspondingly, the average deal size for the year went up by 16% to $32.9mn.

The largest PE investment during the year was the $851mn commitment by Bain Capital and Singapore’s GIC to Hero Investments, the Hero group holding firm which is to buy out Honda Motors’ 26% stake in listed two-wheeler maker Hero Honda. This was followed by Apax Partner’s $480mn investment in NASDAQ-listed iGate Corp to buy Patni Computers. In another mega deal, Apollo Global Management invested $290mn in Welspun Corp as a part of its $500mn commitment to the Welspun Group. Blackstone Group’s owned Sithe Global Power invested around $261mn investment in SKS Chhattisgarh Power Generation. TPG committed $259.9mn to Shriram Capital, rounding up the top 5 investments of the year.

Infrastructure (including power) continues to remain one of the key investment themes for PE players. The sector topped the investment chart accounting for 27.8% of investments with a deal value of $3.11bn. The scale of deficit and government commitment to fund infrastructure projects, makes private participation in the sector one of the most compelling investment themes leading to growing PE’s interest.

The manufacturing sector occupied the second slot in terms of PE investments and totalled $2.02bn across 66 deals; this translates into 18.1% share. The sector was marked by some high value deals, including the largest transaction during the year – Bain Capital, GIC’s $851mn investment in Hero Investments.

The BFSI sector came next with $1.36bn investments across 40 deals. Fund managers believe that there are enough opportunities for private equity in virtually every facet of the financial services industry considering the rising income levels, focus on infrastructure spending, emphasis on financial inclusion, emergence of wealth managers and expected growth of the insurance industry.

However, the year was not so good for private equity exits. Against the backdrop of a difficult public market, PE exit volume fell 35% to 80 deals while value fell 49% to $2.69bn. This is in sharp contrast to 2010 when exits hit a record and there were 124 exit transactions worth $5.30bn on the back of robust capital markets. Fund managers were unable to match their exit timing with desired returns, and held back their portfolios.

Table: PE/ VC investments in India

* calculated over disclosed transactions

Source: Four-S Services

Table: Top 5 PE deals in 2011

Source: Four-S Services

Walking in Beauty:  Closing Prayer from the Navajo Way Blessing Ceremony

In beauty I walk

With beauty before me I walk
With beauty behind me I walk
With beauty above me I walk
With beauty around me I walk
It has become beauty again

Today I will walk out, today everything negative will leave me
I will be as I was before, I will have a cool breeze over my body.
I will have a light body, I will be happy forever, nothing will hinder me.

I walk with beauty before me. I walk with beauty behind me.
I walk with beauty below me. I walk with beauty above me.
I walk with beauty around me. My words will be beautiful.

In beauty all day long may I walk.
Through the returning seasons, may I walk.
On the trail marked with pollen may I walk.
With dew about my feet, may I walk.
With beauty before me may I walk.
With beauty behind me may I walk.
With beauty below me may I walk.
With beauty above me may I walk.
With beauty all around me may I walk.
In old age wandering on a trail of beauty, lively, may I walk.
In old age wandering on a trail of beauty, living again, may I walk.
My words will be beautiful…

SensexMatrix for FY12

For the first 9 months ending today, the Sensex has held very well above the lower limit of this range.

Sensex trading performance over Apr-Dec'11

Counting today’s close at around 15454, and 184 sessions including Friday, the Sensex has closed below the lower end of the range only 4 times. On the other hand, the Sensex breached the higher end of the forecasted range fully 92 times, or about half the time. This breach was highly front ended. Between 1 April and 4 August, or for about 87 straight trading sessions, the Sensex closed above the higher end. In the 97 trading sessions since then, it has breached this range only 5 times.

So what to make of it? In Feb’11 we were more bearish than most market parcipants. Other forecasts were still in the 18K to 21K range for FY12. While they were right in the initial period, the market came down to our range finally.

Currently, market expectations are in the 13K to 16K range for 2012. In other words, market participants are more bearish than our current range.

Here is a new chart on the same from an Angel report, this has longer data.

Earnings Yield versus Bond Yield

What this chart shows is not good for the market. While earnings yield has edged closer to bond yields as markets fall, bond yields are still higher, which means markets will remain bearish. As the chart shows, best returns are made when bond yield falls below earnings yield. Lesson for equity investors – hold your horses, a better time to buy will come

FY13 number will remain aimless till Q2 results are out. Even at Q1 they are often close to trend rate of 18-20%.

Simply goes to show earnings growth projections themselves are quite meaningless for durations beyond 6 months

The Congress certainly knows how to win rural votes. Add to this NREGA and now Food Security Bill (FSB). To increase procurement for FSB, MSPs may keep on going up regularly. It appears government needs to procure over 60 million tons per annum to make FSB work. According to an Edelweiss report, the maximum public procurement of wheat and rice has never crossed 60mn tonnes.

FSB may well ensure another few years of strong food inflation, spiralling fiscal deficit and a Congress rule at the centre.

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Lenders, investors shun debt-laden 3i Infotech; prospect of distress sale looms

I had written earlier how 3i was a great example of a sleeping board (3i Infotech – An example of lax corporate governance) . Here, the chairman, CEO and CEO has unchanged for 8-10 years. It is clear they have practiced cowboy capitalism, and use public and borrowed funds, and run them to the ground. The destruction of other people’s money is simply amazing.

Yet, we have no change in leadership. How come these people havent been fired yet? Now, it appears the company is defaulting.

The ET story says: “The company has been facing a temporary cash flow issue as refinance is not happening on time for shorter maturity loans,” says V Srinivasan, managing director & global CEO of 3i.

3i Info was floated by ICICI Bank, and it no wonder it is still lending to 3i. The CEO is quoted saying “We have borrowedRs200 crore in long-term loans from ICICI Bank in October. Also, ICICI Bank is working on loan syndication for a long-term loan of Rs 300 crore. We are capable for paying the salaries through operations,” he adds

ICICI Bank is still the largest shareholder in 3i. Wonder if it is violating some RBI guidelines, or even corporate governance ethics, by continuing to support 3i at a time when no one wants to touch it. What’s it about ICICI, and corporate governance? The other company floated by it, First Source is in a similar mess.