28 Aug 2015

India: exceptional characteristics

A government panel has found that there is no legal basis for claims for MAT against FII/FPIs, which should put that matter to rest. Monsoon rainfall has fallen back to 10% below the LPA and as the El Nino effect gains strength, prospects now look weak for the rest of the season. Crop sowing, however, is still running ahead of the previous year, so food prices may not be affected. The market will still be subject to August weakness, especially due to external factors but India’s exceptional characteristics should encourage investors.

27 Aug 2015

Positive corporate news in India

Infosys has commenced construction of a 25,000-seat campus in Mohali, which is to be completed in 2018. The company also announced a significant realignment of service offerings across all of its businesses to drive a $2bn boost to revenues by 2020. Lupin has opened an R&D centre for inhalation products in Florida and has received USFDA approval for two dosages of its generic version of Tricor. Nestle India is starting to gain some pushback in the Maggi noodle crisis: the Bombay High Court found in its favour, setting aside the FSSAI ban on sales and questioning the regulator’s authority. Also, in the US, the company’s importer had six samples approved for sale by the USFDA.

26 Aug 2015

India is different

Amidst the current global jitters, it is important to differentiate between India and many other emerging market economies that are much more exposed to global liquidity flows. India is not heavily export-driven, though sustained growth in exports would be welcome. Domestic demand remains the key economic driver and a burgeoning recovery in public sector infrastructure projects this fiscal year will make a significant contribution to GDP growth. In the first two months of FY16 alone, the government kicked off $6bn of large infrastructure projects. The management of the reserves by the RBI is another mark of external stability: reserves stand at an all-time high of close to $350bn and have a maturity structure geared to withstand external shocks. 

25 Aug 2015

China is dumping

Meanwhile, the Indian CPI dropped to 3.8% in July from 5.4% in June, well within the RBI’s target range, helped by sustained softness in food and commodity prices. WPI was in disinflation for the ninth consecutive month at -4.1%. This has re-ignited expectations of 25-50 basis points of repo rate cuts to come before year-end. The Index of Industrial Production in June was stronger than expected, at 3.8% driven by strength in basic goods and consumer durables. Government efforts on supply-side reforms appear to be unlocking potential for broad spectrum growth. Finally, in terms of fiscal balance, indirect tax collection in July was 39% ahead of the previous year and year to date is running at 37% ahead.
The RBI sees no immediate threat to Indian recovery from the Chinese devaluations but is monitoring developments. The government has, however, imposed countervailing duties on some products which China is suspected of dumping, including steel and textiles.

Late results in

Two late results to report: Balkrishna Industries reported a fall of 13.2% in sales but soft input prices boosted margins so that profits jumped by 31.5%. Kalpataru Power Transmission reported sales ahead by 10% and profits ahead by 16.5% as executions improved.

China shock

China shock really starts to get to equity markets as they reacted to the devaluations of the Yuan. Nothing else seems to matter now and at the time of writing a sharp fall in Shanghai is echoing through all markets. A word of caution, though; August market cracks are almost always exaggerated by the fact that the bosses are still away and the desks are manned by juniors with limited discretion. The current turmoil would be more worrying in October! Over two weeks, the Nifty gave up 265 points to end last week 3.1% down at 8300 after trading in a range of 4.8%. Daily trading volumes have been at the twelve month trailing average of $3.3bn. Foreign portfolio investors (now designated FPIs) have sold a net $750mil of cash equity as domestic institutions (DII) have been net buyers of nearly $500mil, with domestic mutual funds still feeding strong inflows into the market. Market breadth was weak, with declining counters to the fore by three to one. Volatility crept upwards, with the India VIX trading steadily up from 15, rising to 19 before settling back to 17. Nifty futures closed at a premium of less than 1% to cash amidst some nervousness.

13 Aug 2015

Indraprashtha Gas, HCL Techno, Torrent Pharma and Zyg Pharma

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.

12 Aug 2015

Indirect taxation rise

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.

11 Aug 2015

South Indian Bank

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.

10 Aug 2015

Next week’s forecast is better

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.

Equity markets: good week

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.