23 Jul 2015

Strong monsoon expected

The monsoon news this week continues to be poor as rainfall has again been deficient across many regions. The independent forecaster Skymet, however, is sticking with its optimistic forecast of 102% of LPA for the season. Next week’s forecast is better, with widespread heavy rain expected after the 21st. There is some concern for early-sown crops as the dry conditions have been extended but there is still no widespread drought expectation. The continuation of the results season and the opening of the monsoon session of parliament will dominate market sentiment next week but the overall momentum should be positive.

22 Jul 2015

Slight increase of inflation

Indirect taxation collection in the first quarter of FY16 rose by a fairly strong 37.5% according to the Chief Economic Advisor; this may be a harbinger of the long-awaited acceleration in economic activity. CPI inflation rose from 5.1% to 5.4% in June, with food prices the main propellant. The government is very active in managing supply-side constraints to prevent the hoarding which has characterised previous periods of tight supply. For example, they have been heavy importers of pulses this year to ensure supplies of a most important foodstuff for poorer people. WPI continues to contract, for the eighth successive month, by 2.4%; this index includes a lot of imported commodities. The Finance Ministry will provide an additional $2bn of support for debt-laden PSU Banks over and above the $1.3bn provision in the Union Budget. The intention is to boost lending activity by capital-strapped banks as a stimulus to growth.

21 Jul 2015

Second quarter results

The second quarter results season is unfolding slowly with only one announcement of interest in the second week. South Indian Bank reported flat net interest income and profits down by 48% as the new CEO continues to restructure the loan book. Next week will bring three or four more announcements; in the meantime it is worth noting a surge of interest from local retail investors in the equity markets. Domestic mutual funds have seen net inflows of $5.2bn this year, increasing by 3.5 times year on year following a total inflow of $13bn in FY15. The total value of domestic mutual funds in Indian equities now amounts to $58bn, still not significant compared to aggregate FII holdings of $308bn but a fast-growing influence. Added to $137bn of holdings by insurance companies, this gives a total domestic institutional interest of 11.7% of market cap. The interest of FIIs is 23.1%. The sectors with the highest FII interest are private sector Banks and NBFCs, IT, Autos and Pharma.

20 Jul 2015

Market driver

Indraprashtha Gas has bought an additional 250,000 shares in Maharashthra Natural Gas Ltd., raising its stake to 50%. HCL Techno has acquired assets of Trygstad Technology Services of the US in an all-cash transaction. This will enhance HCL’s ability to offer turnkey solutions to large independent software vendors. Torrent Pharma has completed its acquisition of Zyg Pharma pvt Ltd from Encore Group. Zyg is a manufacturer of dermatological formulations including gels, ointments and lotions. Torrent expects this acquisition to strengthen its market position in dermatology, especially in developed markets like the US and Europe.

All good news

Equity markets had a good week even as the heads of both the US and UK central banks said interest rate rises were in sight. Investors preferred to focus on a third Greek bailout going well, Chinese markets recovering and world powers agreeing the terms of a nuclear treaty with Iran. India could be a major beneficiary of the lifting of UN sanctions on Iran, so the equity markets responded accordingly. The Nifty added 249 points to close 3% up at 8610 after trading in a range of 3.6%. Average daily trading volumes were a bit lower at $2.8bn but FIIs were net buyers of $307mil while domestic institutions sold a net $71mil. Market breadth was strong, with advances ahead by six to one. Ten index majors made double figure points’ contributions to the Nifty advance as the upward momentum spread across the board. Volatility was subdued, the India VIX trading up a point at first before settling back eventually closing at 15, two points down on the week. Nifty futures closed at a 1.1% premium to cash.

17 Jul 2015

Interest rate cut

This week saw another negative monsoon report, with rainfall sufficiently deficient across all regions to drag the seasonal average down to 4% below the LPA. The week’s precipitation was 51% below the long-period average. At the comparable period last year, rainfall was as low as 43% below the LPA. Cropping this year remains good, so inflation concerns have dropped out of market sentiment for the moment. In fact expectations for another interest rate cut within this calendar year have revived as the macroeconomic conditions seem to fit well within the RBI’s objectives. Meanwhile, the market will be watching the Q1 results unfold.

16 Jul 2015

Kotak Mahindra Bank, Nestle and Infosys

The Foreign Investment Promotion Board has finally approved an application from Kotak Mahindra Bank to increase its foreign investor limit to 55%. The existing shareholding by foreign investors had reached 48.5%. Nestle paid Ambuja Cements something more than $30mil to destroy packs of Maggi Instant Noodles recovered in the nationwide recall in its kilns. Meanwhile, the company has resumed export sales of the product line in markets where the additive standards have not been breached; these include the UK, EU, Singapore and Hong Kong. Infosys has won a multi-year outsourcing contract from Deutsche Bank to apply innovative technology in client servicing. The drug regulatory authority in Brazil has suspended imports of a compound ingredient supplied by Lupin over concerns about the manufacturing process. The company says the volume involved is insignificant and it will substitute from an alternative plant by September.

15 Jul 2015

The apparent softening in the purchasing managers’ index

The IIP for May confirmed the apparent softening in the purchasing managers’ index, falling to 2.7% from an adjusted 3.4% in April, a little less than forecasts. Manufacturing, which makes up 75% of the index, fell from 5.1% in April to 2.2% in May. Mining grew by 2.8% and power generation by 6%. The government is negotiating with the World Bank and the ADB to provide $2bn in funding for low-coast loans to solar power generation projects. IDFC has signed a memorandum of understanding with Russia’s Direct Investment Fund to provide finance for hydroelectric projects. To provide impetus to public sector investment in infrastructure, the government has approved the issuance of $6.2bn in tax-free bonds by seven public sector entities to finance projects in transport, housing and energy.

14 Jul 2015

TCS issued its first quarter results

The new market bellwether, TCS issued its first quarter results on Thursday. In local currency terms, sales grew by 16% and profits by 9%. The sales number was a minor negative surprise in dollar terms but margins and profits were better than expected. The guidance was stable rather than optimistic, so the market reaction was generally negative, even though the broad outlook for the results season remains positive.

13 Jul 2015

Markets had a volatile week

Markets had a volatile week as the Chinese authorities manned the barricades against the force of gravity in their markets and the EU authorities continued to struggle with their Greek problem. Eventually the rot was stopped in China by decisive intervention and the US, UK and German markets shrugged off earlier volatility to join China in the black for the week. In India, the markets broke a three-week advance as the Nifty surrendered 124 points to close 1.5% down at 8361 after trading in a range of 2%. Average daily trading volumes edged back up towards the trailing average at $3.1bn without any institutional support as FIIs and domestic institutions were all modest net sellers. Market breadth was narrow as declining counters outran advances by two to one. The IT sector was a drag on the index as the early first quarter results approached and Tata Motors was hit hard by the China effect. Larsen & Toubro made a big points’ contribution on the upside on the back of a promising outlook on execution and new orders. Volatility was subdued as the India VIX traded between 15 and 18 before closing at 17 for a gain of a point on the week. Nifty futures closed at a premium of just over 1% to cash.

10 Jul 2015

Investments to create and online national agriculture market

The latest monsoon report shows rainfall receding this week, dragging the season’s aggregate down to just 13% above the long-period average. The season’s planting is ahead of schedule already, however and the government is reporting that padi especially is sufficiently advanced to provide assurance that there will not be a shortage this year. The government is investing $30mil to create and online national agriculture market by integrating 585 wholesale markets across India. This offers the prospect of much better prices for farmers. A note to close on: it just crept across the wires late in the week that negotiations opened on June 30th between government representatives on amendments to the Mauritius/ India double taxation treaty.

9 Jul 2015


Lupin wants to strengthen its brand profile by using alliances and strategic acquisitions in the US and emerging markets this year. The US is already its largest market, contributing 45% of the company’s revenues in FY15. This week, the company marked its entry into the Russian market, which has annual sales of $200bn. It has acquired ZAO Biocom which has annual sales of $22mil, just 1% of Lupin. This strategic move is made at a time of rouble weakness, providing access to substantial productive capacity and cross-selling opportunities in Russia and Eastern Europe at a good price.

8 Jul 2015

HDFC, Kotak Mahindra Bank & Indraprashtha Gas

HDFC Bank has exceeded the RBI’s limit on lending to a single borrower in exposure to Reliance Industries. In compliance with relevant procedures, the Board of Directors has approved the excess. Kotak Mahindra Bank has cut its base lending rate by 10 basis points to be in line with the competition and not lose ground in the weak credit growth conditions. The Bombay High Court has cleared Nestle to export Indian-produced Maggi instant noodle products. The UK Food Standards Agency has cleared Maggi Instant Noodles manufactured in India as complying with UK and EU standards for additive content. Indraprashtha Gas will benefit from a ruling by the Supreme Court that the petroleum and gas regulator does not have the authority to regulate City gas sales prices.

7 Jul 2015


The Manufacturing sector PMI (now sponsored by Nikkei) for June was 51.3, a decline from 52.6 in May but the 20th successive month above the critical 50 level. Core sector growth surged by 4.4% in May as more signals of expanding growth continue to emerge.

6 Jul 2015

High Performances

It is estimated that the collapse in the price of crude oil provided the Indian government with a boost of $15bn in the fiscal year 2015. About 52% was kept by the government in lower subsidies and higher taxes, providing a substantial cut in the fiscal deficit. If the oil price stays in the $60-65 range, the equivalent boost in FY16 will amount to about $21 bn. So far in this fiscal year, public sector commitments of capital expenditure are running 25% ahead, at $20bn, as the government leads the way for the private sector. Interest in PPP highway projects has been waning for a while but this year there are some $2bn of new negotiations nearing completion.

Public sector commitments of capital expenditure are running 25% ahead

It is estimated that the collapse in the price of crude oil provided the Indian government with a boost of $15bn in the fiscal year 2015. About 52% was kept by the government in lower subsidies and higher taxes, providing a substantial cut in the fiscal deficit. If the oil price stays in the $60-65 range, the equivalent boost in FY16 will amount to about $21 bn. So far in this fiscal year, public sector commitments of capital expenditure are running 25% ahead, at $20bn, as the government leads the way for the private sector. Interest in PPP highway projects has been waning for a while but this year there are some $2bn of new negotiations nearing completion.

Top Performances

This week India was the top-performing major equity market as China plunged amidst policy uncertainty and Greece entered the final stages of its game of chicken with its creditors. It was interesting to hear a bank strategist on Bloomberg describe India as a “haven” equity market in the prevailing conditions! The Nifty added 104 points to close 1.2% ahead on the week at 8485 after trading in a range of 3.7%. Average daily trading volumes fell slightly, to $2.7bn as FIIs were net sellers again, of $96mil; domestic institutions were heavy net buyers by comparison, of $207mil this week. Market breadth was very strong, with advances running ahead of declines by four to one. The two big consumer stocks contributed 20% of the net points’ movement in the index but otherwise the advance was broad-based. Volatility remained subdued, the India VIX trading between 15 and 19 before closing where it opened at 16. Nifty futures closed at a premium of 1% to cash, waiting for TCS to lead the first quarter announcements next week.

3 Jul 2015

First quarter results

The government may not need to pursue more fiscal consolidation to reach its target for a fiscal deficit of 3.9% of GDP in FY16. Its fiscal stance may turn expansionary now as the need to provide funds to kick start infrastructure projects becomes critical. An acceleration in credit growth would be a signal of recent improvement in industrial numbers translating into private sector investment decisions. The RBI’s reluctance to take its foot off the brakes entirely remains an issue, however and its decision this week not to allow gold deposits to be counted in banks’ CRR must be read as sustained caution on its part. Certainly, a good monsoon is a welcome boost for the inflation outlook but at best it can only be expected to bring another interest rate cut late in the year. The first quarter results next month will show us whether the earnings trough has passed, meanwhile the market is still cruising just above the long-term average for its earnings and book value multiples.

2 Jul 2015

Positive outlook for small and medium enterprises

Broadly good harvests will have a galvanizing effect on rural consumer demand, which has been absent recently as a significant driver of economic growth. Not everywhere, though: in response to exceptional demand for its new Pulsar RS200 motorcycle, Bajaj Auto has announced that it will more than double production to 4,000 units a month. ICICI Bank is to tie up with Alibaba, the Chinese internet trader, to offer easier trade finance to small and medium enterprises. The bank also announced a small cut in its borrowing rate in an attempt to grab a larger share of a rather tepid credit market. The board of Lupin has approved the company’s plan to raise $1bn in additional funding.

1 Jul 2015

Implemention of an import buying program

Seasonal planting should advance smartly now, with pulses being the only remaining area for concern. These are a major source of protein and the growing area is one of the few still in shortfall. The government has said it is ready to implement an import buying program and its supply-side reforms will limit the possibility of hoarding driving prices up too far. The Indian coffee crop for the 2015-16 planting season is forecast at 355,600 tonnes, more than 9% up year on year. India is an important coffee exporter to some major European markets and the government is keen to support exports.