27 Jun 2017

Inflation on the way down

A new data series for the Index of Industrial Production (IIP) showed growth of 3.1% in April compared to 3.8% in March. The figure was depressed by seasonal weakness in Capital Goods, which contracted by 1.3%. Numbers may be subdued in the current quarter because of traders discounting heavily to move stock before they have to adjust for GST on July 1st. This may offset any benefit from remonetization, but the combination of remonetization, restocking and rising consumer confidence from a good monsoon may deliver a sharp recovery in Q2FY18. Inflation figures for May showed a sharp fall as CPI came in at 2.2%, mostly driven by a decline of 1.1% in food prices; fuel and power prices rose. Core CPI rose by 4.1% but the below target figures were not enough to prompt any policy rate reduction by the RBI. In fact the MPC minutes showed quite strong resistance. Net Income Tax receipts for FY18 up to June 15 are showing an increase of more than 26% to almost $16bn.

Mixed picture on equities markets

Equities have been mixed over the past couple of weeks as investors reflected on how far markets have outpaced economic policy and data. Indian markets have seen two weeks of mixed trading, a bit flat-footed as investors wait to see the impact of GST adoption on July 1st. The Nifty 50 gave up 93 points to end 1% down at 9575 after trading in a range of just 1.2%. Average daily trading volumes dropped back a little towards the trailing average at $4.2bn as FPIs sold a net $281mil in cash equity and domestic institutions were net buyers of $401mil. Volatility was low as the India VIX again traded in the 9 to 12 range but eventually closed two points down at 9. Breadth was narrow, with declines ahead of advances by 6 to 4. The immediate outlook seems to be for continued range trading as index futures closed at a premium of just 0.7%.

Good monsoon, inspiring perspective

The monsoon is progressing well with good rainfall and spatial coverage. As a result, kharif sowing is ahead of last year. Consumer sentiment is rising, especially in urban areas. The government will go soft on small businesses struggling to adapt during the early phases of GST adoption. PM Modi has set off to meet President Trump in Washington. The market is closed for Eid, so this week’s action may be subdued.

15 Jun 2017

Good monsoon

There is some concern about state level plans for cancelling farm debt. In fact it appears that the size-limits for application of the policies are so restrictive that the effect may not be significant.  Meanwhile, the outlook for the farming community continues to improve with the arrival of what is now expected to be a good monsoon.

14 Jun 2017

Further rate cut prospects may be good

At its June monetary policy review, the RBI held the repo rate at 6.25%, in spite of evidence of weak growth and benign inflation. In fact it revised its own GDP forecast for FY18 down to 7.3% with an adjusted inflation target of 4% for year-end. The decision was not unanimous and the tone of the report was neutral suggesting further rate cut prospects may be good.

13 Jun 2017

#nestle, #tcs, #kotak mahindra bank

In the private sector, Nestle India continues its efforts to broaden market share by launching iron-fortified, low-salt lines of Maggi instant noodles aimed at health conscious consumers. ITC is also broadening its market appeal by adding frozen foods and planning a launch of sauces and condiments. Infosys reports institutional clients pushing for 20-30% cost reductions over a five year period. TCS applied for less than a third of previous numbers of H-1B visas in the US last year as it stepped up recruitment from US engineering and business schools. Kotak Mahindra Bank is to seek approval at its AGM in July for $800mil in additional capital funding. It plans to raise this amount by way of private placement of convertible securities.

12 Jun 2017

World Bank: India +7,2% growth

The World Bank is forecasting a recovery for India to 7.2% growth in FY18 as evidence of benefits from what has turned into 'remonetization' starts to feed through. Early evidence shows a dramatic jump in the number of digital transactions; debit card transactions have jumped by a factor of ten over a twelve-month period. Some effects of the move towards implementation of GST on July 1st are appearing: retailers are offering up to 40% discounts in order to shift inventory in advance. Agreement by the GST Council on applicable rates for GST seems to have inspired foreign investor sentiment as FPIs invested a net $4.2bn in Indian debt and equity markets in May.

11 Jun 2017

ITC, Indraprashtha Gas, Torrent Pharma

We had three results to consider this week: ITC reported sales ahead by 10.5% and profits by 7%. Indraprashtha Gas reported sales growth of 12.9% and earnings growth of 22.9%. Torrent Pharma disappointed with sales down by 6.2% and profits down by 42.3%.