31 Mar 2015

Cash for telecom

The mobile spectrum auction came to a close with aggregate bids of $17.7bn in an aggressive series of bids. This number is 33% higher than the reserve floor for bids. The Supreme Court, where a related action remains in process, has allowed the government to announce the winning bidders and premia. Airtel, Vodafone and Idea were successful bidders for 80% of the airwaves sold and the government is allowed to call in $4.5bn in downpayments.

30 Mar 2015

Mining reforms, a new momentum

The Budget session of the Indian parliament drew to a close with a surprisingly productive record: fourteen new bills passed into law, including a Mining and Coal Mines Act and the Insurance Act. The Land Acquisition Bill has been allowed to lapse and has been passed to the states for the next phase of action. The Mining Act brought two key reforms: the launch of auction-based license allocation and commercial coal mining. The benefits of these reforms are expected to be an increase in exploration and production, including $50bn of stalled projects; $300bn of transfers from the private sector to government over 30 years for auction premia and a predictable regulatory environment. Already, 33 coal mines have been allocated to the private sector and 38 to central and state PSUs for a consideration of $32bn over mine-life, compared to a cash drain of a similar size under the old system.

29 Mar 2015

Rebels in Yemen, PMI index China

Global markets swooned this week on two stories: the oil price jumped when Saudi Arabia led an air attack on rebels in Yemen and China’s PMI index for March slipped to 49.7 indicating contraction. India’s Nifty was in the red for the third consecutive week, shedding 230 points to end the week 2.7% down at 8341 after trading in a range of 4.3%. Daily trading volumes averaged $3.3bn, a little below the twelve-month trailing average, even as both FIIs and domestic institutions were net buyers, of $233mil and $89mil respectively. Market breadth was negative, with declines outpacing advances by four to one and some concentrations in IT, public sector banks and consumer heavyweights. Volatility stayed subdued, the India Vix staying in the low teens, closing at 15 for a gain of a point. After a low rollover in the futures market, the three months’ contract ended the week at a premium of 2.3% to cash.

26 Mar 2015

Weather, corporate results; all important

Weather experts from the US, Japan and Europe are predicting that El Nino effects this year will be weak overall, so there will be little impact on the southwest monsoon. The market may tread water now until the fourth quarter results start around mid-April.


25 Mar 2015

Positive corporate news

Infosys, whose stock traded strongly last week, is promoting its Infosys Automation Platform (IAP) which allows customers to create intelligent robots. It currently has eighteen users but is projecting an eventual total of 900. TCS has set up a 1,000-seat centre in Singapore to support the banking and financial services sector. HDFC Bank has launched a mobile app which allows money transfers to be made to any person in a user’s phonebook. ICICI Bank has sold its profitable Russian subsidiary to Sovcombank in a transaction which closed on March 17th; the bank has now exited the Russian market. Lupin has signed an agreement to raise its stake in the South African company Pharma Dynamics from 60 to 100%; no details of monetary consideration were released.

24 Mar 2015

Fastest growing major economy

India enjoyed the benefit of $4.5bn in FDI in January, double the value of the previous month and the highest level since $4.7bn was received in September 2012. Year-to-date, FDI has reached a cumulative value of $25.5bn. The largest channel of flows was Mauritius, with $7.7bn, followed by Singapore, with $5.3bn. Meanwhile, the Cabinet has cleared a new Bill on black money concealed offshore which will be presented to the Lok Sabha in the current parliamentary session. The OECD has adjusted its forecast for GDP growth in India in the current calendar year to 7.7%, followed by 8% in 2016. It is predicting that India might become the fastest growing major economy.

23 Mar 2015

Indian economy ever more stable

Infosys contributed ten points to the index on the upside while the FMCG majors, ITC and HUL cost the index nearly half the total points’ loss for the week. The benign inflation scenario was confirmed by WPI numbers for February: -2.1% compared to -0.4% in January and 5.0% a year ago. This is the lowest number in the present series, that dates from FY05. The big contributor was fuel, with a decline of 14.7%; primary articles rose by 1.4%, manufactures by 0.3% and food by 7.7%. Improving control over food prices, soft commodity prices and low capacity utilisation look like sustaining the favourable environment for some time. The monthly trade deficit has fallen to $6.9bn, the lowest level since September 2013. Exports and Imports both fell by 15% but the impact of the crude oil price on imports was much the more pronounced. The trade deficit for the year is now projected to be $134bn, which should reduce the current account deficit to just 1.2% of GDP, at $25bn. The RBI says that the country is well placed to deal with any negative fallout from monetary tightening in the US.

22 Mar 2015

Last weeks market: Volatile and dynamic

Markets mostly spent this week first anticipating the latest FOMC meeting and then parsing the Fed’s statement for nuances about monetary tightening, looking for excuses for another 'taper tantrum'. In the event, the Fed’s stance was interpreted as positive for equities and markets responded accordingly. In India, however, the Nifty went the other way, giving up 77 points to close in the red for the second week running, down 0.9%. The average daily trading volume was right on the trailing twelve-month average at $3.5bn, as FIIs were marginal net buyers, of $76mil in cash equities, while domestic institutions sold a net $146mil. Declines outpaced advances by three to two in the absence of significant concentrations. Volatility continued to subside, the India VIX trading almost wholly to the downside, closing at 14 for a drop of a point on the week. Index futures closed at a premium of 1.9% to cash.

20 Mar 2015

The reform that will boost GDP

Keen to mobilize its stalled political agenda and burnish its reform credentials, the government is encouraging negotiations across parliamentary lines as well as at state level in order to avoid having to exercise the 'nuclear option' of a joint session of parliament. The most important reform of all, the introduction of GST on April 1st, 2016 is being promoted through an empowered committee of national and state representatives where progress is good. This single reform is expected to deliver and eventual boost of 1-1.5% to GDP growth. This is particularly significant in the context of FM Jaitley’s comment that India needs GDP to grow at 9-10% for a sustained period in order to achieve development and inclusion targets. With more monetary easing in prospect the current market relapse might be seen as a rare buying opportunity.

19 Mar 2015

Positive corporate news

In the corporate sector, Pidilite announced the appointment of a new Managing Director: Bharat Puri is the former President of Mondelez/Cadbury for South Asia. ONGC Videsh is in negotiations to acquire stakes in two more Siberian oilfields. Meanwhile, the company, along with OIL India and Indian Oil Company, has been identified by the US government as being involved in business with Iran and potentially subject to sanctions. Infosys has opened a business process outsourcing (BPO) centre in Puerto Rico to deliver complex 'order-to-cash' business processes aimed at the aviation sector from a 250-man, 12,500 square foot office. The company has won a five-year contract from TNT of The Netherlands to simplify and transform its IT capability. Bajaj Auto has encountered delays in launching its RE60 quadricycle in Sri Lanka due to safety concerns; the company has launched its Patina electric ignition 100cc motorcycle, the most fuel efficient in class at 96.9kmp/l.

18 Mar 2015

Telecom auction to boost cash government

Following the Budget, the government now moves forward into the trickier part of the current parliamentary session: forcing through long-delayed reforms. One piece of good news on this front has been the eventual approval by both houses of the Insurance sector FDI reform: the increase in the FDI limit to 49% has at last been passed after Congress opposition in the Upper House was overcome. Other essential reforms such as land acquisition can now move up the agenda. As the government tries to improve business conditions and attract growing FDI inflows, it was announced that new FDI in the Services sector grew by 44% in the first nine months of FY15, to $2.3bn. The latest telecom spectrum auction was kicked off at the beginning of the month with some aggressive bidding: based on the latest round of bidding, the auction looks like raising $15.5bn for the treasury.

17 Mar 2015

Containing inflation

The Finance Ministry and the RBI have agreed a revised decision making framework for the RBI, based on inflation targeting, as the governor recommended. The initial target has been set at 4% by the end of March 2017, with a 2% range of tolerance either side.  The governor signalled his support for the Budget and the new operating framework by delivering another surprise 25 basis point cut in the repo rate. Subsequent data points have been supportive with the CPI for February coming in at 5.4%. This was a bit higher than expected but the major components seem range-bound for the moment, providing a continuing benign backdrop. The old RBI target of 6% by end FY16 seems safe, allowing scope for more interest rate cuts in FY16. The HSBC Services PMI for February showed firm underlying growth, advancing from 52.4 to 53.9, though the Manufacturing PMI slipped a little from 52.9 to 51.2. January’s IIP brought a positive surprise, at 2.6% compared to 1.7% in December; this was well above expectations.

16 Mar 2015

Volatility, sensitive market

Equity markets have been dominated by the Greek/German strife and the re-emergence of US monetary tightening scares while China and Japan have been advancing on stimulus action. India meanwhile has been digesting a budget which has gone down well overall. Following the Holi festival, however, the Nifty has gone into reverse, recoiling from record highs to lose 254 points so far in March, down 2.9% at 8648 after trading in a range of 5.6%. Average daily trading volumes dropped back a little to $3.6bn as FIIs were net buyers of $715mil and domestic institutions were net sellers of $123mil. Advancing counters were swamped by decliners four to one with heavy concentration in financial stocks as they gave back initial heavy gains following the repo rate cut. Volatility swooned with the India VIX retreating from the high teens, trading as low as 13 before closing at 15. Nifty futures closed at a premium of 1.7% to cash.

12 Mar 2015

Very clear, very positive signs

The Index of Industrial Production (IIP) for the month of January was reported at 2.6% versus 1.7% in December. The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of January 2015 stand at 135.3, 200.5 and 175.8 respectively, with the corresponding growth rates of (-) 2.8%, 3.3% and 2.7% as compared to January 2014.
The Indian economy is a 'bright spot' on the global economic landscape. Last Wednesday IMF raised its forecast for the current fiscal to 7.2 per cent growth, yet the IMF asked the Indian government to focus on revitalizing the investment cycle and accelerate structural reforms. In its annual assessment IMF also wrote India has emerged as one of the fastest-growing big emerging market economies and the growth rate would further accelerate structural reforms in the country. IMF expects India to grow by 7.5 per cent next year, a further acceleration. Emerging markets' output growth rose to a 5-month high in February, and manufacturing as well as services sector in India expanded at a faster pace than China during the month, as stated in a HSBC report last month.

5 Mar 2015

New budget, new growth

Overall looking at the Indian economy and markets, equity analysts are forecasting the growth-orientated intent of the new Budget to drive earnings growth of 20%+ in FY16, with the Nifty holding its current valuation level of 16.4 times earnings for a prospective return of about 17%. The macro- and microeconomic outlooks will provide an optimistic framework for investors in Indian equities for some time to come.

4 Mar 2015

Efficient and progressive

Key policy changes include a progressive cut in the corporate tax rate from 30 to 25%; the implementation of GST with effect from April 1st, 2016 and the adoption of inflation targeting by the RBI, with the objective of keeping it below 6% in the long-term. The adoption of GST alone is expected to bring a boost of 1-1.5% to GDP. There is an immediate commitment of over $1bn from government resources to fund investment in infrastructure as well a proposal to establish a new national infrastructure investment fund with funding of more than $300mil a year. The Public Private Partnership model for key infrastructure projects will be revised and revitalised to maintain momentum. On the social front, the government is planning to use the Jan Dhan programme (125mil personal bank accounts), UID (757mil cards issued) and mobile telephony (905mil users) to make the payment of subsidy and other social entitlements more efficient. It projects the fiscal impact of all subsidies to be reduced from 2.2% of GDP in FY14 to just 1.7% in FY16.

Budget focus on growth

The focus of the budget was on growth, investment and social objectives. A lower current account deficit, a declining fiscal deficit and a benign inflationary environment have provided an improving macroeconomic platform. This has allowed growth projections for India’s $2trn economy (3% of global GDP) to be revise upwards to around 8% for the next few years. The fiscal deficit has been constrained to the revised target of 4.1% for FY15 by restricting government expenditure. Achieving a target of 3% of GDP has been put back by a year as targets have been set at 3.9%, 3.5% and 3% over the fiscal years to FY18. The improvement in the deficit will be driven by 24% growth in service tax receipts and 18% growth in income tax receipts in the new fiscal year. Also, cigarette duty drew a sharp increase of an average of 16% across all products.

3 Mar 2015

Nifty overcame mid-session dip

The approach of the Union Budget was again characterized by an absence of leaks which muted speculation on detail. In the event, the Finance Minister’s big occasion was well received in the markets as the Nifty overcame a mid-session dip into the red to close with a gain of more than fifty points. The positive close in index futures suggests that mature consideration of the Budget detail will see upward momentum sustained.

2 Mar 2015

Co-operation is the name of the game

The week began with the President addressing a joint session of parliament and urging members to take a cooperative approach to their responsibilities and to work in an atmosphere of mutual accommodation. His comments are significant given the difficulty the NPA government is having despite its overwhelming majority in the lower house, as the Congress Party is using its leverage in the upper house to block important reforms, such as reform of the FDI rules in the insurance sector. 

1 Mar 2015

Steady markets, but positive vibes

Global markets were mostly steady as Greece seemed ready to compromise and the Ukrainian ceasefire began to hold but the Union Budget held Indian markets in anticipation. The Nifty moved sideways during the week, adding just eleven points by Friday but then jumped 57 points during Saturday’s special full session of trading, to close 0.8% ahead for the week at 8902 after trading in a range of 3%. Average daily trading volumes were above average at $3.9bn as FIIs (+$666mil) and domestic institutions (+$8mil) were all net buyers of cash equities. Market breadth was narrow until Saturday, when advances outran declines by three to one. Trading concentrations were evident in stocks immediately affected by the budget: cigarette companies on the downside and Banks on the up. Volatility retrenched overall, with the India VIX holding around 21 where it closed last week until the futures expiry on Thursday after which it pulled back into the teens, closing at 17 for a fall of four points overall. The new on the run three months index futures contract closed at a premium of over 2% to cash.