20 Jul 2017

Recovery of industrial production

Emerging from the demonetization reform, investors will be observing the adaptation to GST now; the submission of returns in August will be the first test. Meanwhile, the recent destocking will affect Q1 results but will probably drive a recovery in industrial production this quarter.

Strong and professional news

Pidilite has set up a 24/7 phoneline to provide assistance to any of its dealers or stockists struggling with GST implementation problems. The company is forecasting 15% sales growth based on double digit volume growth and 3% price increases. ITC packaged food sales grew at 12% last year, driving non-tobacco FMCG sales above $2bn. The company is expected to use lower GST rates to cut prices and boost market share. TCS has been awarded a contract to implement an integrated technology platform for TMX, Canada’s clearing and settlement business. TCS BaNCS product will replace existing systems, subject to regulatory clearance. Kalpataru Power Transmission has won more than $100mil in new contracts, boosting its already strong order book.

19 Jul 2017

7% more credit card transactions

The Nikkei Manufacturing PMI registered 50.9 in June, down from 51.6 in May. The latest Index of Industrial Production dropped to 1.7% from 3.1% previously; Capital Goods production fell by 3.9% and Consumer Durables by 4.5%. These numbers probably reflect the surge of pre-GST destocking seen in heavily-discounted sales. The Services PMI advanced to 53.1 from 52.2 in May. The latest Consumer Price Index registered an historic low at 1.5%. The main contributor was softness in food prices within which vegetables retreated by 16.5% and pulses by 21%. The numbers add pressure on the RBI to cut the repo rate at its August review. Demonetization has receded from the headlines recently but two reports emphasize the potential benefits. First, direct taxation jumped by 14.8% in Q1FY18 to $22bn on improved compliance and second, the number of credit card transactions in the economy appears to have grown by 7%.  

18 Jul 2017

South Indian Bank and TCS

The first quarter FY18 results season is upon us and the first week produced two reports of interest. South Indian Bank reported net interest income ahead by 23% and net profits ahead by 6.7%. The results were well received because the bank is now seen as having appropriate non-performing loans provisions. TCS reported sales ahead by 1% but profits reduced by 6%. The company came under some margin pressure in the quarter and suffered from the relative strength of the Rupee.

Improved appetitie for equities

The appetite for equities has improved since the Fed moved interest rates in June. Indian markets saw three weeks of reversal through the end of June on GST nervousness but turned positive in July. The Nifty has climbed to new highs, adding 311 points to close 3.3% ahead at 9886 last week after trading in a range of 4.9%. Average daily trading volumes have stayed just above the trailing average at $4.3bn as FPIs sold heavily at first, unloading a net $333mil before turning buyers again last week. Domestic institutions bought steadily throughout, investing a net $532mil. Foreign and domestic institutions combined have injected a total of $15.5bn into Indian markets in the first half of 2017, 3.4 times the amount invested in the comparable period in 2016. Volatility stayed suppressed as the India VIX traded up at first to 12 before slipping back slightly to close at 11. Market breadth was strong with advances outrunning declines by two to one. Index futures closed at a premium of 0.8% to cash equities.

Progressive monsoon

The monsoon is progressing well with excess or normal rainfall in 33 out of 36 regions. Rainfall was about 5% above normal by early July which has allowed Kharif sowing to advance to 8.9% ahead of the previous year. The total area sown has reached 38.2%. Reservoir storage is already 18% ahead of the same time last year.

29 Jun 2017

Less smokers in India


The Global Adult Tobacco Survey shows that tobacco consumption in India fell by 6% between 2010 and 2016. The Youth segment (15-24 years) declined by 33% and the Juvenile segment (less than 15 years) by 54%. The biggest impact will have been on ITC which has been expanding its FMCG and leisure business segments. The company is now looking to drive the market share of its Savlon antiseptic towards $100mil in value. Lupin has received USFDA approval to market its generic Oxycodone Hydrochloride painkiller. The company has also launched its Buproprion Hydrochloride extended release tablets for the treatment of major depressive disorders. TCS is collaborating with Intel to design infrastructure reference architecture which will allow customers to rollout Internet of Things, Cloud and AI services. Bajaj Auto has cut the prices of motorcycles to shift stock and to adjust prices to a lower level of taxes which will apply under GST.

28 Jun 2017

Stronger banking regulations


The RBI has initiated action to resolve non-performing loan issues at public sector banks by disclosing that it was moving the banks to take insolvency action against twelve borrowers representing 25% of NPLs. The cabinet has agreed to introduce a Financial Resolution and Deposit Insurance Bill to provide a comprehensive framework for dealing with bankruptcy of banks, insurance companies and other financial companies. The Finance Ministry is encouraging public sector banks with appropriate resources to consider acquiring smaller banks.