Update on TMP – The Millionaire Portfolio

Dear Members of TMP Package,

We would like to extend the release of "The Millionaire Portfolio" for a day or two, this is due to the fact that Federal Reserve chairman Ben Bernanke will speak about the outlook for the U.S. economy in New York on Monday, Nov 16th which will set the market trend for next few months to come.

Based on his outlook & future plans, there is some probablity that the rally which started in Mar'09 will get interrupted and we might see a healthy correction of 6-8% in the market during next 1-2 weeks itself. Hence, we would like to wait for Monday/Tuesday to see the impact & after that we will be releasing the millionaire portfolio. The current rally is mainly driven by liquidity created by dollar carry trade hence if dollar start appreciating then global equity market will go for correction else we will continue the rally.

Regards
Team TMP

TMP (The Millionaire Portfolio) will be released anytime before Nov 15th 2009!!!

TMP (The Millionaire Portfolio) - An Offline PMS

Our key objectives are, first, to protect your capital, and second, to see it grow at a healthy rate. We strive to build up a portfolio of stocks carefully chosen through a focused and disciplined approach. We are not market timers trying to predict the tops and bottoms of the market. The strategy is to acquire equities of strong and profitable businesses run by smart and credible managements at market prices well below its intrinsic worth. You can see here in real time how wealth is created.

-Team TMP

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There is more to SBI

Many ppl would know a lot about the banking operations of SBI and they know it as the largest bank in India. They would also have a fair idea of its lending to retail clients and corporate and probably their exposure to treasury services. But there is a whole lot of things associated with this bank which are operational. Some of them are 100% subsidiaries of the bank while the others are partial ones.

SBI has a good exposure to insurance industry through SBI Life insurance. SBI has 74% ownership in the subsidiary while BNP Paribas has the rest. The value of this insurance vertical alone was believed to be valued at around 5 billion USD at its peak. SBI Life is one of the fastest growing life insurers and it has a market share of more than 16%. It even clocked the fastest growth rate in the last year. Gross Premium collection stood at around 7200 crore till Mar 2009. There is a very good chance that value unlocking will happen, when this subsidiary prepares itself for market listing.

Though SBI has the license to operate its General Insurance business as well, it has not taken off so far. However, the bank has got a new operational partner in IAG and the venture is expected to take off some time in this fiscal year.

One well known subsidiary of the bank is the Mutual fund arm - SBI Mutual fund. The bank has been doing pretty well with this subsidiary which is a profit making entity. The subsidiary has exposure to almost all kind of funds and funds like Tax savings and SIP products are a huge hit with the masses. It's SIP space has more than 4 lac accounts.

SBI has a presence in Private Equity business as well which is picking up steam. SBI made a joint venture with Macquaire for an infrastructure fund whose size is expected to be around 3 billion USD. It has already received more than a billion USD.

SBI factors, is a subsidiary which takes care of securitizing company receivables and has witnessed very strong growth rates. This subsidiary is witnessing more than 100% growth rates for the recent few years and has assets of around 4800 crore compared to around 2000 crore last year.

$Team TMP

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Refiners are in for tough times

2008 saw the biggest drop in oil demand which is pegged to be the highest in the last 3 decades. The slump in demand coupled with the spurt in refining capacities lead to the huge fall in refining margins. This was clearly visible from the results announced by most of the Oil refiners - both Indian and overseas. Global refining margins dropped by more than 50% to around 4 USD from more than 8 USD that was quoting an year back.

Many of the refiners in Europe and North America are looking at plans to shut or sell plants due to one of the greatest slump in oil demand. The International Energy Agency has come out a prediction that about 25% if capacity in North America and 30% of Europe's will be idled. On the other hand, traders are betting on a spike in the refining margins. Future prices indicate margins moving to about 11 USD a barrel by mid 2012.

However, this would greatly depend on the timing of the new capacities in India, Brazil, China, Russia and Middle East getting into production. If the additional capacities happen to come in before the probable shutting down of refining capacities, the expected spike in the refining margins may not happen. It is to be noted that India and China alone have increased refining capacities by 1.1 million barrels a day in the last 18 months.

Refiner in US are looking at shutting down or selling the refining plants. One out of six in US is probably looking at closing before 2020 if the US carbon reduction legislation passes and more efficient plants come online in India and China.

The US refiners are currently operating below the five year average of 88% of capacity, since the stockpiles have swollen. Inventory build up was the highest in almost 24 years. The operating levels going down to 80% is not really a distant possibility and any such happening will increase the rate of plants being shut.

The other source of problems form the oil refiners seems to be coming from the increased blending of ethanol with gasoline. Various governments around the world are looking at boosting fuel efficiency and reducing emission from the cars and are adopting ethanol blending measures. For ex - Ethanol accounted for nearly 7% of a gallon of gasoline this year in US and it is expected to reach 14% by 2020 due to the new standards that are being proposed.

One of the worst hit refiner has been our home grown RIL. The new capacities were initiated when the refining margins were quoting at double digit numbers. However, the time of production saw the margins steeply down at less than 8 USD a barrel. Margins hit a low of just above 2 USD a barrel just months back. The huge expectations that were built on RPL have not delivered so far. RIL, unable to compete with the state run refiners is selling in US through HESS.

$Team TMP

IIP numbers experiences a major shift; Mining, Electricty shows impressive growths

IIP numbers or the Index of Industrial production which are being announced on a monthly basis with a time lag of more than a month has become one of the key indicators to watch for. The indicator has become more crucial in the last one year as we saw the industrial production falling steeply and then making a comeback. IIP numbers for a month are reported with a time delay of just more than a month. Sometimes we also get a revised number which is significantly higher or lower than the original estimate.

The IIP number for the month of August was released yesterday. It recorded a growth of 10.4% as against 1.7%. This gains significance, since it clearly surpasses most of the estimates and has returned back to the double digit regime and has indeed posted the fastest growth rate since October 2007.

We have been very much bullish on Mining as a sector and we have indicated this in many of the articles that appeared in the last 4 months. Mining sector, in line with the previous month’s growths has clocked 12% as against 2.8% year on year. Basic goods index was up by around 10% as against 3.9%. However, the star performer this time is the Consumer durables space with a growth of a whopping 22.3% as against 3.9% in the previous year. This space is expected to witness high intensity action for the next 3 months owing to the festive season.

Electricity sector saw most of the growth clocking 10.6% as against a minuscule .8% in the previous year. Manufacturing clocked 10.2% versus 1.7% in the previous year. Consumer non-durables section which can be applied to textile and a kind of FMCG products recorded lesser growth from 7.3% last year to 3.7% this year.

It was in July that the factory production expanded at a greater pace for the second month in a row by growing at around 6.8% as against 6.4% a year ago. June of 2009 was indeed the first time that the industry grew by a high rate of 8.2% after it was hit hard by the global financial crisis.

The double digit growth in August is mainly attributed to the base effect. Suppressed state giving way to more on the positive side. It was also good to witness exports recording a growth on a sequential basis.

$Team TMP

Bet on the mining industry

We have been quite bullish on the mining sector for a while. The reasons are plenty. One of the simplest reasons is that India is bestowed with huge mineral wealth and the accomplishments are clearly lagging behind. The other reason could be the compelling demand coming from Power, Infrastructure, Automobile and Consumer durables sector which are key drivers of demand.

Among the various mineral resources, the most important ones found in India are coal, manganese, ilmenite, mica, iron ore and monazite. India is predominantly rich in Iron ore resources. India virtually contains 25% of the world’s iron ore resources and these are of good quality as well. India's accelerated growth rate warrants a rapid development of the mining sector, on which most of the basic industries in the manufacturing sector depend.

The potential of the mining industry is huge. But, it has been contributing less than 2% of the GDP. The one key reason for it being untapped is that to tap the opportunities huge amounts of money is required and the government is not in a position to invest on their own. Participation from private and foreign entities could bring in such huge amounts, but the mining industry is not that friendly to them and it still follows rules and policies that are at least 50 years old. However, rays of change are visible.

Mining industry was made open to foreign investments in specific set of minerals in 1993 after which not many policy changes happened. However, in 2008, New Mineral policy was released which aims at speedy approvals and increasing investments. The 100 days agenda from the mining ministry is also closely working on the same.

The ministry has recently reported that it aims to cut permit delays and attract overseas capital by simplifying resource investment laws to help double mining’s contribution to GDP at 4%. He is speaking about more than doubling a sector’s output in 4 years and this is no joke. The industry itself will have to grow at a CAGR of more than 17% or 18%. The Mines Minister reported that legislation will be passed in the winter session to which would aid the growth of mining industry. He has also reported that a legal framework will be introduced that will ensure sustainable development and include environmental concerns as well.

Delays in securing mining licenses have been the main hurdles in increasing foreign investments. This view was recently aired by L.N Mittal as well. These delays are holding investments to the tune of even 35 billion USD from entering the country. Land acquisition, displacement of locals and environmental concerns has been the key reasons behind the delays in approvals.

It is true that these concerns should be addressed but that does not mean that one should wait for 3 or 4 years to get the clearances. This is one of the best opportunities the industry has ever had. On one side, there is a huge mineral resource in the country that has been fairly untapped over the years. On the other side, you have money that has not been able to tap it and that has accumulated over the years waiting for an opportunity. And, when these two sides are matched at least to an extent by the new policies, a new era will be born in the Mining industry of the country.

$Team TMP