29 Feb 2012

India plans major boost to health sector, to invest 2.5% of GDP by 2017


In a major boost to the healthcare sector, total government expenditure on health would be increased to 2.5 percent of the gross domestic product (GDP) by 2017, the Times of India reports.

Healthcare is one of India’s largest sectors, in terms of revenue and employment, and the sector is expanding rapidly. During the 1990s, Indian healthcare grew at a compound annual rate of 16%. Today the total value of the sector is nearly $40 billion.

24 Feb 2012

Nifty breaks seven-week run of gains

Despite news of improving US employment data, a Eurozone agreement on a second Greek bail-out, to which Greece assented and advancing markets elsewhere in Asia, India broke a seven-week run of gains as the Nifty  surrendered 135 points to close 2.4% down at 5429.

On the domestic front, the Prime Minister’s Economic Advisory Council emphasized the need for fiscal consolidation to rein in the fiscal deficit by raising indirect taxes and cutting the subsidy on diesel fuel. It also recommended prioritizing growth strategies to cut the current account deficit.

Foreign Institutional Investors’ (FII) stock ownership changes in Q3FY12 have been published. These show $1.2bn of net FII sales in the quarter: selling shares in the Banking, Metals & Mining and Industrial sectors, while buying IT and Consumer stocks. Domestic mutual funds were buyers of IT, Industrials and Metals & Mining and sellers of Consumer and Telecom stocks. FII ownership of BSE200 stocks was valued at $162bn at end December, compared with $182bn at the end of September. Speaking of FII selling, Citibank contributed substantially to the market sell-off this week through its block-trade sale of 9.9% of Housing Development Finance at a discount of 8.6% to the market.

The market may still be pricing in elevated expectations for the outcome of the Uttar Pradesh state elections and corresponding boost to the ruling coalition but ministers also seem optimistic. The Finance Minister talked up the prospects for retail FDI reform after the Union Budget and reform of Airline FDI now looks a racing certainty. The medium term outlook looks fine, with the market  multiple about one-third the way up the historic range but global and domestic influences may still give rise to short-term downdrafts.

Himalayan Fund's full Weekly Market Commentary is available on the website.

ICEMAN

23 Feb 2012

Indian economy may grow at 8 percent in 2012-13: Rangarajan

India's economy may grow at 7.1 percent this financial year and inch up to 8 percent next fiscal if the global environment turns favourable, chairman of the Prime Minister's Economic Advisory Council C. Rangarajan said Wednesday.

Mr. Rangarajan made his comments at the presentation of the "Review of the Economy 2011-12" in New Delhi today.

Meanwhile, the New York Times reports that "India’s internet technology industry continues to expand, thanks to domestic growth and a push into new regions like the Middle East and Africa."

22 Feb 2012

Results Up, But Fall Short Of Benchmark



Himalayan Fund’s NAV per share added 17.9% in January, thus under-performing our benchmark index by 3.5%. Again we must apologise for this but hasten to point out that for most of the month the markets were again driven by a very small number of Index stocks. The top five percentage gainers in the index represented less than 5% of total market capitalization.

Amongst our more widely diversified portfolio, we had some spectacular performers, nonetheless. Tata Steel added 44.4%, Larsen & Toubro (long out of fashion) gained 41.5%, Exide Industries added 35.6%, Balkrishna Industries added 29.7% and another recently out of favour stock, Jindal Steel & Power, added 28.4%.

We had no holdings in the red in January but performance was held back by Pidilite Industries (0.4%), Cadila Healthcare (0.9%), FDC (5%) as well as heavyweight IT counters TCS (5.1%) and Infosys (6.6%).

Economic data during the month reinforced two trends, both of which provide increasing scope for the RBI to ease monetary policy this year. Industrial production continues to slow along with private sector investment and inflation continues its downward trajectory. The RBI signalled a change in policy priority from inflation-busting to promoting growth with a cut in banks’ cash reserve ratio, to ease liquidity. The monetary easing cycle in India has historically coincided with stock market strength, so from that perspective, the January advance was not a surprise, though the scale was.

Beyond economics, the state elections offer the Congress coalition government the prospect of strengthening its hand, so long as it has a successful campaign in Uttar Pradesh. The markets may be entertaining excessive optimism on this point but the Union Budget in early March followed a week later by the next RBI policy review should limit the downside.

17 Feb 2012

Core Inflation Falls To 6.6%


For the seventh week in succession, Indian markets posted notable gains as US economic data provided more comfort and investors appeared to be writing off Greece as a lost cause. The Nifty added 182 points to close 3.4% up at 5,564.

The big economic news of the week was that Wholesale Price Inflation dropped sharply in January, to 6.5%, below the Reserve Bank of India’s (RBI) revised target for year-end and a two-year low. The major contributors were lower food prices and primary manufactures prices. More encouraging, however, was that core inflation, which had continued to rise in recent months, also fell, to 6.6%.

The government approved twenty FDI proposals worth a total of $210mil.

In a possibly transforming move for the sector, the telephone regulator (TRAI) issued a new National Policy statement, which needing no further approvals, goes into effect immediately. Key elements include more clarity on consolidation standards; a unified license fee rate (8%); incentives for rural rollout; an increase in the spectrum limit to 25% and provisions for spectrum sharing. The last two items should also help advance much needed sector consolidation.
The turn in the market is clearly being driven by foreign portfolio flows, drawn by the prospect of monetary easing and some improvement in India’s political scenario. Further monetary easing becomes more likely all the time, with pressure easing on the RBI, leaving only questions about when and how fast. There is still room for political upset, however, so we may still see short-term downdrafts even though the outlook through the year is improving all the time.

Himalayan Fund's full Weekly Market Commentary is available on the website.

ICEMAN

11 Feb 2012

Rupee Rebound May Be Short-Lived

“The Reserve Bank of India's victory in reversing a sharp decline in the rupee may be short-lived and the currency will remain vulnerable unless the problems of a hefty fiscal and current account deficit are addressed,” the Economic Times writes. The paper says that the RBI’s measures to support the Rupee have been “quick fixes” and warns that “the tide of funds that has flooded into India this year could just as quickly reverse.”

This comes after the Rupee dropped to its lowest level in over a week, dipping to 49.5250 on February 9.

10 Feb 2012

Cold Snap Reaches India

Global markets were optimistic this week thanks to an improving outlook in the US but then Greece sold them another dummy, agreeing a new austerity plan before descending back into chaos and pushing markets into losses for the week. India bucked the trend but only just, the Nifty adding 56 points to close 1% up at 5382, for the sixth weekly rise in row.

The December Index of Industrial Production (IIP) data showed growth slowing to 1.8%; Mining production fell by 3.2% and the consistently lumpy Capital Goods sector fell by 16.5%. Otherwise growth would have been 5.2%. The softening IIP will ease pressure on the Reserve Bank of India and boost expectations for policy rate cuts in March.

The government is considering a proposal to allow the direct import of airplane fuel (ATF) by airlines in a move which would allow them to cut their fuel costs by about 20%. This proposal is advancing in parallel with the proposal to allow 49% FDI in airlines, which this week received support from the Confederation of Indian Industry.

Following the Supreme Court decision on mobile spectrum licenses, the regulator (TRAI) will recommend a new auction procedure within two months, along with recommendations for surrendering existing licenses. This should facilitate overdue consolidation in the sector.

Foreign interest in the Indian equities has been sustained and broadened into the mid- and small-cap segments.

The increasing likelihood of monetary easing continues to outweigh external uncertainties for the moment.

Meanwhile, the cold snap has even reached India this week: the temperature in Mumbai dropped to 8.8 degrees centigrade and Delhi was even lower!

Himalayan Fund's full Weekly Market Commentary is available on the website.

ICEMAN

4 Feb 2012

FT: rupee’s recent surge driven by an increase in capital flows


According to the Financial Times (registration required) “the rupee’s recent surge was driven by an increase in capital flows – particularly deposits by non-resident Indians taking advantage of a weak rupee and high interest rates.” The Rupee was severely weakened in 2011 due to foreign institutional investors “abandoning India”, but investment by FIIs is picking up in the New Year.
The FT warns that “with the euro still in turmoil the appreciation is not expected to last long.”

More On The 2G Telephone Scandal

“As scandals go, it is a corker,” says The Economist about the 2G telephone scandal that is rocking India at the moment. It has a good background story here.

In a further article, the magazine concludes that “from a business perspective, two conclusions can be drawn. The first is a cheering one: India’s legal system seems to be working just fine at the very top. The second is less sunny: the mobile-phone industry faces turmoil.” But it also asks a worrying question: “is the smell from the telecoms business a sign of a deeper rot?”

3 Feb 2012

Rupee On The Rebound

Against a broadly positive backdrop in global equity markets, India sustained its upward momentum for a fifth week in succession. Just a month into the New Year, foreign investors have bought a net $5bn of Indian stocks and bonds and even the mid- and small-cap indices are now starting to out-perform. The Nifty added 121 points to close 2.3% up at 5205.

India’s per capita income grew by 15.6% to $1,300 in the period 2010-11.

Global numbers for Purchasing Managers’ Indices in January boosted confidence, with the US, China, Germany and the UK all suggesting manufacturing growth. An improvement in risk appetite against this background has brought a sharp reversal in sentiment as a number of respected strategists have had to reverse year-end cuts in asset allocation to India embarrassingly quickly. As a result, the Rupee has snapped back from its 2011 drop of 16%, recovering almost half of that in January and maintaining its strength into February.

The end of the week was dominated by the Supreme Court’s action in the 2G telephone scandal. It has ordered the cancellation of 122 spectrum licenses, mostly held by smaller  operators with foreign partners. This is expected to have two effects: overdue consolidation in the sector and the bonus of an unexpected boost to non-revenue fiscal income to help a deteriorating fiscal deficit.

The positive sentiment should be sustained if the outcome of the Uttar Pradesh elections, which start this week, bring an opportunity for the Congress-led coalition to stabilize its position in the Lok Saba, the Indian parliament. If the Reserve Bank of India then follows up in March with policy rate cuts, the market outlook will be highly optimistic. Since the mid- and small-cap market segments have now joined the party, the prospects for attractive returns look good.

Himalayan Fund's full Weekly Market Commentary can be found on the website.

ICEMAN