>FLASH ECONOMICS (ECONOMIC RESEARCH)

Shift of global capital flows (towards Asia) and public debts in OECD countries: Towards an inevitable crisis?

Asia’s attractiveness for capital will pick up very significantly after the crisis: vigorous growth - whereas growth has decelerated in OECD countries; development of domestic demand, infrastructure construction programmes; growth in the size of financial markets and banks; improvement in the perception of emerging risk and deterioration in the perception of risk related to OECD countries.

This means that Asia will become more and more attractive for private capital, and that Asian savings will increasingly be encouraged to remain invested locally. At the same time, public debt in OECD countries will rise considerably. We can therefore see the risk of an imbalance between the sharply increased supply of public debt and fading demand for OECD
countries’ public debt, to the benefit of financing of investments in Asia.

To see full report: FLASH ECONOMICS

>GLOBAL ECONOMIC MONITOR )ECONOMIC RESEARCH)

LIFT-OFF?

■ Strength of rebound to surprise…
Second quarter data continue to suggest that the pace of contraction in activity has slowed markedly since the precipitous pace of decline in the first quarter. This sets the stage for a return to positive growth rates in Q2. US economic evidence for example continues to surprise on the upside, with demand for housing and autos in particular rising above expectations. Consensus expectations for the US in H2 are shifting higher towards to 2-2.5% range. We see potential for even stronger growth as the inventory cycle alone could add 1.5% in GDP in H2. It’s a similar story in the euro area, where the success of car incentives is coming on top of the cyclical rebound in inventories. We continue to think that the strength of the recovery in manufacturing H2 will come as a surprise to the markets and will strength expectations that central banks will be heading for the exit early next year.

■ …but rate hike speculation premature
In contrast both the ECB and the Bank of England struck a more cautious tone last week largely on concerns about what happens after the inventory-led bounce in manufacturing. These are concerns that to a certain extend we share. So far the consumer has been supported by falling inflation leading to a resilient consumer outturn in H1. However these trends are about to turn around which will put pressure on consumer spending power in H2. Without a self sustaining recovery in consumption, activity risks falling back next year. As such, expectations of early interest rate rises by the Fed and the ECB look set to be dashed next year even if the market is increasingly moving in that direction in the short term.

To see full report: GLOBAL ECONOMIC MONITOR

>EAGLE EYE ON 17/08/09 (SHAREKHAN)

Momentum turns down

After a day of distribution the Indian stock market ended the session on negative note. Further persistent selling was seen at higher levels all through the day. Today’s negative close marks the end of the pull-up, and may be from Monday bears will take over the market. The 20- and 40-hourly averages are packed at 4517 and 4539 respectively, below which the fall will gain momentum. The daily KST continues to maintain downward bias. The overall market breadth was almost neutral with 633 declines and 600 advances on the NSE.

The hourly KST has turned down with negative crossover, which is a weak sign for the market. Our short-term bias is down for the target of 4325 with the reversal placed at 4732. However, our mid-term bias is still up for the target of 5000 with the reversal packed at 4325.

The Sensex ended the day 106 points lower and Nifty closed 24 points down. The BSE MIDCAP also closed 0.09% lower. However, the BSE SMLCAP closed 0.40% up. Bar energy
sector all showed some buying interest, all other sectors witnessed selling. From the 30 stocks of the Sensex ONGC (up 5%) and Reliance Infrastructure (up 1%) led the pack of gainers, whereas Jaiprakash Associates (down 4%) and Hindustan Unilever (down 3%) led the clutch of losers.

To see full report: EAGLE EYE 170809

>KOUTONS RETAIL (ICICI DIRECT)

High interest hits bottomline…

Koutons Retail’s Q1FY10 results are better than our expectations in terms of profitability. The company reported net sales of Rs 201.8 crore against Rs 157.8 crore in the corresponding quarter of the previous year, 27.8% growth. This was due to a 23.7% YoY rise in retail space under operations. The EBITDA margin improved 405 bps to 23.8% in Q1FY10 against 19.9% in Q1FY09 on account of more than proportionate reduction in other expenses. The net profit grew to Rs 11.5 crore against Rs 10.3 crore in Q1FY09, a meagre 11.7% growth YoY due to high interest cost (107% YoY increase).

Highlight of the quarter
• Koutons Retail added net 0.25 lakh sq ft in the quarter taking the total space under operations to 12.92 lakh sq ft

• A total of 35 stores were closed during the quarter

Valuations
At the CMP of Rs 398, the stock is trading at 10.6x and 7.7x its FY10E and FY11E earnings, respectively. We remain positive on the asset-light business model of the company. However, we expect the margins to be under pressure in the coming quarters due to the current macroeconomic scenario and weak consumer sentiments, where we are cautious. We maintain our target price of Rs 505 per share with an OUTPERFORMER rating, valuing the
company at 10x its FY11E earnings of Rs 50.6 per share.

To see full report: KOUTONS RETAIL