24 Sep 2015

Corporates continue to invest

The Indian pharmaceutical market grew by 1% in August. Lupin saw the highest growth amongst the sector leaders in domestic formulations at 21%. Torrent Pharma, benefitting from successful integration of last year’s acquisition of Elders Pharmaceuticals domestic business also grew by 21%. Supreme Industries is experiencing volatile raw material prices: polymer prices, except PVC, have been affecting revenue growth as the company has had to make adjustments to inventory valuations. In spite of this the company is expecting to see compound annual growth of 18% in sales and more than 30% in profits over the next couple of years. Ultratech Cement has received state environmental clearance to expand its plant at Awarpur in Maharashthra. The company will spend $40mil on expanding clinker production by 30% which will boost cement output from 4.5MTPA to 6MTPA.

23 Sep 2015

Last burst of monsoon

The monsoon is coming to a disappointing end, though a late depression in the Bay of Bengal will bring a last burst fo rain to the south and maybe the central regions. The overall outcome however looks like being about 16% below the Long Period Average (LPA). About half of India’s meteorological regions have reported deficient rainfall and reservoirs are 19% below their LPA, which may be a problem for the second cropping season. The kharif sowing is about 1.8% better than last year with pulses (+11%) and coarse cereals (+5.7%) notable strong. Smart supply-side management by the government as well as restraint on Minimum Support Price (MSP) increases (low single figure) suggest that there may not be a negative effect on the inflation outlook due to the poor monsoon. Thus the market is building expectations of a repo rate cut of at least 25 basis points and maybe even 50 on September 29th. 

22 Sep 2015

Further monetary easing

RBI Governor Rajan reacted to the Fed decision by suggesting that several emerging markets would be vulnerable in the continuing uncertainty about US monetary policy but emphasised the strength of India’s external position and the scope for further monetary easing.  This position was fortified by a couple of data points. India’s balance of payments deficit was 1.2% of GDP in the first quarter of fiscal 2016, with foreign reserves boosted by $11.4bn. This will obviously be offset somewhat in the current quarter by outflows triggered by the China crisis but these seem to be slowing now. August inflation numbers brought more encouraging news. WPI registered its tenth successive month in negative territory: -4.95%. The big contributors were Fuel & Power at -16.5% and Manufactured goods at -1.9%. Food inflation was muted, declining by 21.2% despite a jump of 65% year on year in onion prices. The CPI index grew by an annualised 3.7% in August, kept comfortably within the RBI’s target range by the same factors with different weightings. 

21 Sep 2015

Some confidance in the markets

The government may be on the back foot for the moment in parliament with its GST Bill, which it will try to move again in the winter session in November. Meanwhile, the states have been busy, with an empowered group of States’ finance ministers meeting to agree model state enabling legislation. On the side of fiscal policy, the government appears to be planning in the next Union Budget, to cut Corporation Tax by 1.5%, while setting a target date for the withdrawal of open ended tax benefits. 
With portfolio outflows driven by concern about China apparently slowing down and the lively prospect of a repo rate cut in India , the market may have a ring of confidence for a while.

FOMC, non-event!

So the September FOMC came and went: a non-event! In spite of strengthening domestic economic data, Chairman Yellen chose to allow external risks to determine monetary policy, in the short-term, at least. Many equity markets responded negatively but India continued to advance for a second week in succession, the Nifty adding 193 points to close 2.5% ahead at 7982, after trading in a range of 3.8%. Oddly, the advance came despite a drop in average daily trading volume to less than $2bn, as FPIs sold a net $293mil in cash equity and domestic institutions bought a net $226mil. Further evidence of growing retail interest in equities is encouraging. Advancing stocks outnumbered decliners by about 30% as volatility subsided noticeably: the India VIX opened flat and then declined steadily to close at 18, for a decline of seven points. Nifty futures closed the week at a premium of just sixty basis points, with investors still wary of the short-term outlook.

17 Sep 2015

Corporates moving forward


Indraprashtha Gas has been set a target by the government to reach 300,000 more households in the current fiscal year. This is some two times its previous best performance and will have to be pursued against difficult planning procedures and a soft market. The US Department of Labor has completed its investigation of the use of the H1-B visa programme by Infosys, as reported by a whistleblower. The investigation has found no evidence of abuse. Kalpataru Power Transmission is seeking shareholder approval to issue $50mil in new equity b way of a private placement. Nestle India will be using digital marketing platforms to re-establish consumer trust in Maggi instant noodles in preparation for a product relaunch by year-end.

16 Sep 2015

GDP plus seven percent in 2015


Economic data is still favourable, with GDP growth now confidently expected to be above 7% this fiscal year. July’s Index of Industrial Production delivered a strong positive surprise, registering 4.2% against expectations of no more than 3.4% and an actual 3.8% in June. The Capital Goods sector brought the big surprise, jumping 10.6%. Meanwhile, with oil and food prices still subdued the CPI number for August looks like hitting a record low, adding to pressure for a big repo rate cut from the RBI. The government is still struggling to push its GST plan through parliament, with the Congress Party obstructing progress in the Upper House, in spite of supporting the idea in principle. State elections in Bihar have been scheduled for five weekends in October and November. The outcome should be good for the government and improve their position in the Upper House.

15 Sep 2015

Waiting for the FOMC


Markets will probably be seized with anticipation waiting for the FOMC meeting which will announce its interest rate decision on Thursday. Our preference would be for the Fed to act this week, swiftly followed by the RBI the following week, or even before.

Priority for growth acceleration

Prime Minster Modi invited some forty Indian entrepreneurs, bureaucrats and chamber of commerce members of all kinds to his home for a conference on priority-setting to accelerate growth. He will have heard sustained clamouring for aggressive cuts in interest rates for a start. The RBI governor was in attendance and on the sidelines has admitted he is in a minority of one holding out on monetary easing. 

14 Sep 2015

Spare us continued volatility-pumping


It is starting to look like a broad swathe of central bankers wish the Fed would finally get decisive and bring an end to the uncertainty over a trivial increase in the Fed funds rate. Certainly it is a landmark, bringing an end to a long period of effectively no interest rate. In the context of two sustained periods of double-figure rates over the past forty years, however, to see rates slowly progress to a forecast 2% seems like an anti climax. It is to be hoped September 17th will bring the moment and spare us continued volatility-pumping by the financial TV fan club!

13 Sep 2015

Sense will return to markets

Investors rejoice! Last Saturday was Leger Day; the second part of the old stock exchange saying “Sell in May and go away and don’t come back till Leger Day”! The St. Leger is the last classic race in the English horse racing calendar and the implication is that on Monday, the grown-ups will return and sense will return to markets. India anticipated this in the past week and broke four successive weeks of losses, the Nifty adding 134 points to close 1.8% up at 7789 after trading in a range of 4.3%.  Average daily trading volumes stayed subdued at $2.2bn as FPIs continued to sell, unloading some $500mil of cash equity which was exactly mopped up by domestic institutions. Volatility stayed at a higher level as the India VIX traded up a point to 27 before settling back, eventually closing a point down at 25 on the week. Market breadth was good as advancing stocks outweighed decliners by six to four with gains evenly spread. Nifty futures closed at a modest premium of just 0.8% to cash.

10 Sep 2015

Disappointing corporate results

The first quarter corporate results season was a disappointment overall: the third successive quarter of declines in profits. Gross margins improved but operational leverage was lost because of revenue declines. On an optimistic note, there were signs of demand improving in some consumer and industrial segments. HDFC Bank is leveraging its strong deposit growth to accelerate credit growth by cutting its base lending rate aggressively. The market responded by cutting the share prices in the banking sector fearing margin pressure. Kalpataru Power Transmission has received new orders totalling $140mil from five international projects in Tanzania, Ukraine, Thailand, Tajikistan and Ethiopia, as well as domestic orders from Karnataka PTC and Gail. Ultratech Cement will boost total production capacity to 71.2mtpa by the end of this year. The company is negotiating the purchase of 2.2mtpa of additional capacity from Jaiprakash Associates in Bilal but needs approval from 26% shareholder SAIL. Lupin received final USFDA approval for the manufacture and sale of its Omeprazole delayed release formulation. This is a generic version of Astra Zeneca’s Prilosec ulcer capsule which has a market demand of some $185mil a year.

Indian Oil privatisation, money maker

The government received $1.5bn in privatization proceeds from the share placement in Indian Oil. The Foreign Investment Promotion Board has approved twenty projects worth $200mil in aggregate. The government is to auction 20 major mining licenses in the remainder of this calendar year, to boost investment spending. It will also move to an auction process for offshore oil and gas exploration licenses, to re-invigorate flagging interest in the sector.

9 Sep 2015

Monsoon is a challenge

The monsoon continues to be of concern. Rainfall remains sparse and unevenly distributed and stands at -12% of the LPA for the season. Nonetheless, kharif sowing remains 1% above the previous year: cotton is the weakest at -8% so far but the all-important pulse-cropping is 12% ahead, year-on-year. Reservoir levels are down, however, currently at 58% of capacity, compared to 67% at the same time last year. On a historic note, in years of poor monsoons, when Minimum Selling Price (MSP) increases are low, inflation tends not to be exaggerated; MSP increases are modest this year and commodity prices remain subdued.

8 Sep 2015

Fastest growing major economy this year

Indian GDP growth in the first quarter was 7%, a little lower than expected but still enough for India to be the fastest growing major economy this year. Finance Minister Jaitley has said that recovery to 8-10% is possible with accelerating infrastructure development and a good policy mix. RBI Governor Rajan, in a speech at the Kansas City Fed conference at Jackson Hole, said that whereas many central banks have exhausted monetary policy arsenals, India remains in an accommodating mode. This has raised expectations of more repo rate cuts to come in the remainder of this year. He reaffirmed that India has plenty of foreign reserves to withstand currency volatility and reminded his audience of India’s much-improved fiscal standing.

7 Sep 2015

Moving forward soon

Sustained selling by FPIs was the dominant feature last week, as they unloaded $3.1bn in cash equity. Though the selling pressure fell towards the end of last week. Domestic institutions were the default buyers, purchasing a net $3.4bn. Market breadth was heavy on the sell side, with counters marked down by six to four across the board. Volatility saw a sharp upward spike from recent levels, the India VIX trading up from its low of 17, as high as 36 before settling back to end at 23, for gain of six points.  Nifty futures closed at a premium of 1.1% to cash.

Indian markets have relapsed to a very undemanding valuation level. Thoughtful consideration by equity investors as they return to work should prompt some recovery in appetite between now and year-end. 

Buy low, buy now

After two weeks of China induced vapours in fragile markets we now have had Labor Day and hopefully some more mature minds will bring some stability to markets. Decent US labour market numbers on Friday may dampen interest rate jitters and allow the Fed to address its domestic policy responsibilities without being overburdened by foreign concerns: after all 25 basis points is only a gesture. In the midst of all this, India has suffered from portfolio outflows arising from an exodus from Emerging Market funds. The Nifty has surrendered 645 points, ending up 7.8% down at 7655 after trading in a range of nearly 9%. Daily trading volumes have been heavy but trailed off to a belowaverage $2.8bn.