20 Dec 2013

“Tapering” does not equal monetary tightening

Global markets pretended to take Fed “tapering” in their stride this week after almost six months of rehearsals finally taught them that “tapering” does not equal monetary tightening. In India, the RBI left monetary policy unchanged, surprising the market and driving the Nifty up by 106 points to close 1.7% up at 6274 after trading in a range of 2.5%. Daily trading volumes rose to $2.3bn on average as FIIs sustained their buying into the year-end with net purchases of $624mil compared to net sales of $110mil by domestic investors. Volatility subsided through the week as the India VIX first traded up to 19 before settling back down towards 16 where it closed the week, two points down.  Market breadth was very strong with advances ahead of declines by four to one. Three stocks provided 60% of the upside points in the Nifty: TCS, Infosys and Reliance Industries. HDFC Bank was the only feature on the downside, suffering from having its MSCI weighting cut because FII interest hit its 49% limit. Nifty futures closed at a premium of 1.8% to cash.

Last week we noted the unexpected increase in WPI and emphasised how this was substantially due to sharp increases in fruit and vegetable prices. This week, the RBI unexpectedly held its hand on monetary policy, noting that the price of fruit and vegetables had dropped back again in December but reserved the right to act decisively if this was not reflected in the inflation numbers soon. Some analysts are forecasting WPI to pull back by up to 100 basis points on the next print. The Oil Ministry has reported that the diesel fuel subsidy cost has risen from Rs9.99/ltr to Rs10.48/ltr because of the weak Rupee and the high cost of crude oil. Five Oil and Gas development projects worth a total of $1.2bn have been cleared by the Cabinet Committee on Investment. Gold imports have fallen by 84% in value between January and November. Tesco has announced that it will invest $100mil in retail stores by increasing its interest in its joint venture with Trent Hypermarkets, a Tata Group company, to 50%. Carrefour, which has similar ambitions will be monitoring Tesco’s path through the FDI process.

13 Dec 2013

The economy is bottoming out but not yet recovering

In the past two weeks equity markets have been mostly soft in the absence of decisive data and rumbling concerns about the reduction of quantitative easing in the US. Indian markets were flat in the period, the Nifty shedding just 8 points to close at 6168 after trading in a range of 4.3%. Trading was sustained by FIIs buying a net $1n plus over the period while domestic investors continued to sell a net $814mil. Average daily trading volumes were around the lower end of recent weeks, at $2.1bn. Volatility was up in the mid-twenties at the start of the period but subsided later as the India VIX closed three points down at 18. Market breadth was negative as declining counters outnumbered advances by four to one. Concentration was also a feature with just six stocks making the major points’ contributions both positive and negative. By the end of the period, the index futures were trading at a premium of 2.2% to cash.

Domestic data points included second quarter GDP at 4.8%, a slight advance on the previous quarter suggesting that the economy is bottoming out but not yet recovering with any degree of strength. The second quarter current account deficit was $5.2bn, a sharp reduction to 1.2% of GDP as controls on gold imports combined with weak import demand to drive down imports while exports enjoyed a boost from the weaker Rupee. On the balance of payments front, portfolio outflows of $6.6bn, reflected heavy outflows from domestic debt markets: these were offset by $6.9bn in FDI. This was not enough to prevent a drawdown of about $10bn in foreign reserves; the subsidised NRI deposit scheme will really only be seen in the Q3 numbers.

30 Nov 2013

Thanksgiving interrupted trading week


The world’s leading powers negotiated a temporary stay on Iran’s nuclear development plans at the beginning of the week, removing a long-standing risk to oil supplies. In the US, the Conference Board’s index of leading economic indicators showed growth for the fourth month in a row in October on the strength of factory orders and housing starts. Thanksgiving interrupted the trading week in the US and markets there were pretty flat. In India, however, the Nifty added 181 points to close 3% up at 6176 after trading in a range of 3.2%. FIIs sustained their buying with net purchases of $88mil and domestic investors sold a net $140ml as daily trading reached an average of $2.2bn. Volatility was more or les stable, with the India VIX trading between 19 and 22 before closing a point higher at 21. Market breadth was strong with advances ahead of declines by 7 to one; there was some concentration in Nifty trading, happily involving four of our holdings worth about 15% of market cap contributing a third of the points’ gain for the week. Confidence in sustained upward momentum was reflected in the futures market where the three month contract closed at a premium of 2.4% to cash.

23 Nov 2013

Healthy premium


The Banking Committee has sent Janet Yellen’s appointment to the floor of the Senate for a vote early in December while equity markets moved sideways on an absence of data. The Dow crossed a landmark by rising above 16,000, but it sparked little enthusiasm for scaling further heights.

The Nifty eased back by 61 points to close 1% down at 5995 after trading in a range of 4%. Average daily trading volume slipped back below the $2bn level as fears of FII outflows took hold. These were not supported by the evidence, however as FIIs continued with net buying, of $352mil this week, offset by a roughly equal volume of domestic selling. Volatility stayed around the same level as last week, rising to 22 early in the week before subsiding back to 20 to close a point higher. Market breadth was negative with declining stocks outnumbering advances by more than three to one. Concentration was not a feature this week, however, with points’ contributions fairly evenly distributed. Index futures closed at a healthy premium again: 2.3% to cash.

10 Nov 2013

Sentiment remains strong


After the Diwali holiday on Monday, Indian markets joined the world in a soft week. By Friday, the EU had downgraded its GDP growth forecast, the ECB had cut its base rate and the 'tapering' scare had been reignited in the US by job figures which suggested the economy had ridden out the shutdown. In the US new jobs are added at a much faster rate than expected. The Nifty shed 166 points to close 2.6% down at 6141 after trading in a range of 3.6%. Daily trading volumes moved up to the twelve month trading average at $2.4bn as FIIs sustained their buying with net $147mil of purchases.The domestic institutions were the heavier net sellers, of $313mil. Volatility was stable as the India VIX traded between 18 and 20, before closing a point higher at 20. Declining stocks outnumbered advances by four to one as concentration became a feature again. Five stocks representing just 23% of Nifty market cap accounted for 58% of the points’ loss on the index. Nifty futures closed at a premium of 2.2% to cash.

Just one result this week, Indraprashtha gas reported revenues ahead by 18.1% but profits down by 6.5% as the cost of imported LNG ate into margins. As the reporting season draws to a close, the overall picture looks like positive surprises on revenues came in at 44% with negative at 23%; at the bottom line, earnings surprises were 44% positive and 37% negative, reflecting broad margin pressure. An analysis of the IT sector shows the strongest revenue growth for six quarters: 14%, with the leading names to the fore. In geographic markets, Europe grew by 21% and now represents 28% of the total; the US grew by 12% but is still the major marketplace at over 40%. 

The market holds near recent highs as sentiment remains strong. Political commentary is talking up the prospects for a BJP-led outcome to next May’s election which would be expected to be much more business-friendly and drive market momentum sharply upwards. The state elections due around month-end will give an early guide. 

22 Apr 2013

M-Pesa now in India too, FT reports


M-Pesa, the mobile money transfer tool set up in Kenya back in 2007, has now launched in large areas of India. Vodafone India, which has some 150m customers around the country, has teamed up with ICICI Bank to roll out M-Pesa in India via its subsidiary Mobile Commerce Solutions . The scheme has been piloted in Rajasthan since 2011 but with a national launch this week, service begins in eastern parts of the country. Read more here.

Monetary ease to be expected


Equities advanced in global markets as oil and gold prices fell and Indian markets gained strongly in a holiday-shortened week. The Nifty added 254 points to close 4.6% up at 5783 after trading in a range of 5.4%. Average daily trading volumes stayed around the recent level of $2bn but FIIs returned as net buyers, investing a net $120mil in equities while domestic investors sold approximately the same. Unlike other markets where volatility spiked this week, the India VIX opened at 16 and traded mostly to the downside before closing a point down at 15. Market breadth was good, with the advance decline ratio at about three to one. The futures, on the other hand, closed weaker, with the near contract at a discount and three month Nifty futures at a premium of only 16 points; the market evidently taking a cautious view of the next wave of quarterly results.
Read more on the website of Himalayan Fund here.



25 Mar 2013

The Cyprus India connection


Puny little Cyprus, worth less than a rounding error on Eurozone GDP, managed to revive the Euro’s existential crisis with a jolt this week, upsetting this year’s 'risk-on' mentality and throwing equity markets into a bit of a spin. India added some political uncertainty of its own to the mix, causing the Nifty to shed 222 points to close 3.8% down on the week at 5651, after trading in a range of 4.3%. Daily trading volumes were moderate, at $2.5bn but buying by FIIs was sustained at $129mil as domestic sellers dropped another $143mil. The India VIX traded between 15 and 18 before closing a point higher on the week at 16. Declining shares outnumbered advances by sixteen to one, so it was no surprise to see all the action on the downside: seven counters, worth 29% of Index capitalization caused half of the Index points’ loss for the week. Index futures closed at a premium of 1.3% to cash; the order outlook on the seven big movers was mixed but mostly positive at the close. Read more here.

17 Feb 2013

Out of bonds into equities

Even as more and more commentators talked up the rotation out of bonds into equities worldwide, equity markets trod water this week, most staying within 1% either side of the gain line. India was again testimony to narrowing breadth, as the Nifty shed 16 points to close 0.3% down at 5887 after trading in range of less than 1%. Average daily trading volumes were back at recent lows of $2.3bn in spite of FIIs buying a net $505mil; domestic institutions sold $351mil. Market breadth saw three to one declining stocks, with two counters worth just 6% of index capitalization contributing 21 points on the upside and another two, comprising 9% of the index dropping 17 points between them. Volatility was flat at, with the India VIX around 15 for the week. Three month index futures closed a premium of just 1%; interestingly, the short contract was at a slight discount to cash. The Budget is less than two seeks away and will set the tone for the market through the next general election; in order to take advantage of opposition disarray, Congress may call the election sooner that expected.

13 Feb 2013

Equity markets moving sideways

Equity markets had a flat week, moving sideways as investors turned cautious, with political concerns in Italy and Spain re-igniting EU uncertainty. In India, following the start of monetary easing, investor attention turned towards the impending Union Budget, an important test of government reform commitment. Reflecting the global caution, the Nifty shed 95 points to close 1.6% down at 5904, after trading in a range of 2.2%. Average daily trading volumes softened, to $2.6bn, even as FIIs sustained their recent buying, a net $622mil of cash equity fed by sales of $704mil by local institutions. Market breadth was again narrow, with declining stocks well ahead of advances, by over three to one. This point is worth emphasising again because it is making a manager’s job very difficult: two stocks, together representing just 10% of index market cap, contributed more than 25 points to the weekly index movement. On the downside, just four stocks, representing 20% of market cap cost the index more than 53 points. Volatility, on the other hand, remained low, as the India Vix opened at 14 and traded around 15 for the week before closing there. Index futures closed at a premium of 1.2% to cash.

16 Jan 2013

Energy and railways, up

The Finance Minister’s determination to hold the FY13 fiscal deficit to 5.3% continues to generate interest as ratings agencies sharpen their pencils for forthcoming budget. The latest move appears to be a calculated effort to cut the fuel subsidy burden by introducing differentiated pricing for bulk buyers, about 18% of total demand: this market segment is to be charged full market pricing. A second leg of this effort may be more difficult to sustain: rumoured modest monthly retail price increases over a 15 to 18 month period to eliminate the differential. The Prime Minister has given his support by emphasizing that the government must gradually increase energy prices because they can no longer be held at such a low level relative to international markets. In an extraordinary move within six weeks of the annual Railways budget, all passenger tariffs have been increased by 21% with effect from January 21st. They have not been increased for ten years and an attempt to do so last year cost the cabinet minister his job; the difference this year is that the minister in question is from Congress, rather than a coalition ally. The benefit of the increase will be a reduction of about $1bn in the railways’ deficit. Read Ian's full weekly commentary here.

11 Jan 2013

Financial Times optimistic

Journalist Victor Mallet of Financial Times states "Business eyes India’s brighter prospects". Read his article here.

HF Outlook in The Asset

The Asset Magazine online. Read on India.

6 Jan 2013

4 Jan 2013

Positive outlook 2013


Himalayan Fund has experienced underperformance this year and the Board has addressed this by changing the operating structure to cut costs and introduce greater efficiency into the investment process. Following these changes, we have adjusted the portfolio to better align it with the outlook for the next twelve months.  The odds favour an extended period of policy rate cuts as the RBI has disclosed that promotion of economic growth should now take priority. In India, a monetary easing cycle is closely correlated with stock market performance and we believe the Fund is now positioned to outperform in that context, with good exposure to high-quality financial stocks, overweight positions in pharmaceuticals and consumer orientated stocks and quality exposures to stocks likely to benefit from a recovery in infrastructure investment projects. We expect to generate excellent returns in 2013.