31 Jul 2012

Himalayan Fund up 6.2% in June

Global equity markets recovered their composure in June as an optimistic mood drove the MSCI World Index to a gain of 4.75%. India joined the party, with the Nifty adding 7.2% for the month in dollar terms, with the currency holding steady.

Portfolio performance



Himalayan Fund rose by 6.2% in June, thus under-performing our benchmark index by 1%. Our portfolio out-performed sectoral indices in Energy, Financials, IT, Metals and Construction but underperformed in Autos and Consumer Goods and we remain absent from the Real Estate and Cement sectors. Nine stocks representing 35.7% of the portfolio outperformed, the most spectacular being Indraprashtha Gas (+22%), which substantially clawed back previous losses on the strength of a favourable High Court judgment against a tariff ruling.

The Fund made no changes to the portfolio during the month.

Outlook

Concern about the absence of a policy reaction to a broad global economic slowdown is dominating markets this summer.

The Eurozone continues to fail to resolve the problem of stimulating some growth somewhere, not to mention saving the Euro. The US is barely growing and certainly not enough to create jobs in significant numbers, in spite of the fact that major corporations are piling up earnings.

In India, corporate earnings look to have bottomed out, so upward revisions may follow the current reporting season. Meanwhile, the outlook for policy action may be improving and providing a floor under the market during the monsoon parliamentary session. Major reforms look like being finessed and a prime ministerial panel on the introduction of anti tax-avoidance rules is likely to propose terms friendly to foreign investors.

The monsoon itself is weak so far and could end up below average; this may pose an inflation risk and delay further monetary easing. It is worth remembering, however, that in the last two comparably weak monsoons, 2002 and 2009, the Nifty gained 4% and 84% respectively. For the moment, the outlook through the end of the year looks optimistic, on balance.

23 Jul 2012

New President, New Reforms?

The election of Pranab Mukherjee as India’s 13th President increases the prospect of necessary reforms.

The IMF produced a pessimistic revision of its global GDP outlook, cutting its forecast for the current year to 3.5%, the slowest since 2009. The forecast is subject to warnings that it could be worse if the US does nothing about its so-called “fiscal cliff” and the Eurozone fails to move decisively towards a robust monetary union. The IMF downgrade included India, which is forecast at 6.1% in 2012, down from 6.8%.

India’s Wholesale Price Index eased to a five month low of 7.25% in June, against expectations of nearly 7.6%. Retail Price Inflation (RPI) declined to just 10% in June as a base effect in housing prices contributed. The WPI number is still well outside the RBI’s comfort zone, delaying the prospect of any further monetary easing.

State and federal parliamentarians have duly elected Pranab Mukherjee to the ceremonial post of President of India. Apart from ceremony, there are two areas in which a president can have an effect: he gets to choose who to invite to form a government, a potentially crucial move in a tight outcome. He can also be instrumental in forging compromise in policy disputes between the centre and the states. Both of these roles could be important as the centre tries to implement important reforms. His election now opens the door to a cabinet re-shuffle which would give Manmohan Singh a last opportunity to reprise his early nineties reform record, revive investor sentiment and initiate a recovery in the markets.

The likelihood of some positive action is good, which suggests that this is not the time to exit this market.

ICEMAN

13 Jul 2012

Positive business results and a good monsoon

This was mostly a week of red ink for the markets, dominated by Eurozone bad news again. Moody’s cut Italy’s sovereign rating from A3 to Baa2 just as the OECD forecast that Germany was the only Eurozone country which would cut unemployment before the end of 2013. China’s GDP growth was in line with expectations in the second quarter so markets got a lift on Friday. The Nifty gave up 90 points on the week, closing 1.7% down at 5227 after trading in a range of 2.5%. Daily trading volumes settled back to $2.1bn again, although FIIs were again net buyers, of $218mil, bringing their monthly total to $658mil for July. Five stocks representing 17% of market cap cost the index 64% of the overall loss. Advancing stocks were outnumbered nearly three to one. Yet volatility remained pretty flat: the India VIX opened and closed at 18.

The first quarter results started, with HDFC delivering another gold-plated performance: both revenue and profit up 19%. Then the bellwether, Infosys, came with 28.5% more revenue and 33% more profits but cut its guidance and is reluctant to guide anymore. Collapse of fat lady! The stock was slashed by up to 10% on the day. TCS announced the following day, sooner than previously but delivered 32% more revenue, 32% more profits and a more optimistic outlook, so the stock was chased up in a down market. Finally, our other gold-plated financial, HDFC Bank reported net interest income up by 22.3% and profits ahead by 31%.

Rumours abound about plans to re-shuffle the cabinet after the Presidential election on July 19th and the Vice-presidential election a couple of weeks later. Meanwhile, the PM has warned his colleagues in public of the risk of India’s sovereign rating being downgraded if they don’t act on fiscal consolidation and economic reform with a very few weeks. Meanwhile, the monsoon has improved, with above normal rainfall in the latest week cutting the cumulative deficit to 22%. The market is ready for a boost and it seems increasingly likely that the politicians will help this summer.



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

ICEMAN

6 Jul 2012

Gold and Oil Prices Key to Current Account Deficit


Indian markets, and the Rupee, are holding steady in the face of this month’s presidential elections.
Last week saw further action by central banks in China, Europe and the UK, and poor job creation numbers from the US. Indian markets put up a fair show and managed to close the week in the black. The Nifty closed 38 points up at 5317 points, for a gain of 0.7%.
The Rupee held on to its gains from last week, even as the trade figures for 2012 showed a record trade deficit. The deficit was mainly caused by imports of oil and precious metals. Steady earnings in the software industry did help to dampen the deficit. The key for this year’s current account deficit, and by extension the rate of the Rupee, is the collapse in gold imports after the government amended import duties and the decline in the oil price.
This year’s monsoon continues to stutter, with rains currently 30% below normal. The rains are spreading, however, and have reached the upper parts of the west coast this week. Water reservoir levels are still behind expectations at this early stage, and are starting to affect hydro-electric generating capacity.
Indian companies will start to release their first quarter results in the coming weeks, but the event everyone is really looking forward to, is the presidential elections later this month. The elections are expected to usher in a new phase of reform driven by Prime Minister Manmohan Singh, who has taken over at the wheel of the Finance Ministry. He is expected to reduce diesel fuel subsidies, which are weighing heavily on the budget, and to boost investment sentiment by acting decisively on the long-stalled foreign investment rules and even the dreaded anti tax-avoidance rules (GAAR). Any combination of results should sustain the exchange rate  and generate better market momentum.
Himalayan Fund's full Weekly Market Commentary is available on the website.
ICEMAN