10 Dec 2015

Shake of the lethargy


Recent equity market softness has brought the valuation parameters back to interesting levels. The forward PE ratio for the Sensex is now at 14.3 and Price to Book is 2.3. Bothe these are below the historic average. The March quarter should bring continued progress on reform, notably on fiscal consolidation in the Union Budget. The market should shake off its current lethargy and produce a strong performance in the first quarter.

9 Dec 2015

Andhra Pradesh support by World Bank

The World Bank has agreed a financial assistance package worth about $700mil for the power sector in Andhra Pradesh. Following the boost to the power sector from reorganisation of the finances of state level distributors, the nuclear sector received a boost with the signing of a nuclear fuel supply agreement with Australia, with immediate effect. In the railway sector, the government has already spent $1.6bn on railway development projects this fiscal year, more than twice the aggregate for the previous year. It has also awarded contracts to Alsthom and GE for the delivery of new locos with substantial local content. 

ICICI Bank, Kotak Mahindra, HCL Techno, Infosys


ICICI Bank has sold 4% of its life assurance joint venture to two private equity investors, valuing the whole at $4.9bn. Meanwhile, Kotak Mahindra Bank has had license approval for a 100% subsidiary, Kotak General Insurance, to start a full line of general insurance products, including health. HCL Techno has been awarded a long-term contract by Deutsche Bank for maintenance and application development work, including systems integration, product design and application implementation. Finacle, Infosys’ banking services platform sold through its product subsidiary Edgeverve Systems, will be offered via the Oracle Cloud as a managed service. Pidilite has acquired the Chemifix trade mark in Sri Lanka, along with certain assets of CIC Holdings which has been a provider of PVAC adhesives in Sri Lanka.

Remarkably cooperative start


The Winter Session of parliament has got off to a remarkably cooperative start, with no wilful obstruction from the opposition so far. The GST legislation may be the biggest beneficiary of this: various empowered and advisory committees working on implementation seem to be reaching common ground on subjects such as standard rates, as the NDA government negotiates constructively with the opposition. This is good, because both S&P and Moody’s have recently commented that India’s various ratings will be on hold for up to eighteen months and will come under pressure in the absence of continued reform by the government. Implementation of GST will be considered a major 'credit positive' within that timeframe.

8 Dec 2015

Qatar waives penalty


Second quarter GDP growth was 7.4%, with evidence emerging that public expenditure has become the major accelerant. Manufacturing contributed 9.3% in a positive surprise and even agriculture, despite a poor monsoon achieved 2.2%; services grew at a stable 8.8%. Confirming recent IIP numbers, gross fixed capital formation accelerated by 6.8%, suggesting that breaking the logjam in project execution is slowly reviving capital expenditure. Wholesale Price Inflation (WPI) completed a full year in the red with a print of -3.8% in October. Prolonged soft inflation could pave the way for a further 50 basis points in repo rate reductions but probably not until the June quarter at the earliest. Sustained softness in commodity prices has allowed the trade deficit to improve further to $9.8bn in October: exports fell by 18% in slow global markets but imports fell even more, by 21%. Services exports are stable at about $6bn a month. Helpfully, Qatar has waived a $1bn penalty due from India under LNG “take or pay” supply contracts and seems ready to renegotiate the price in line with prevailing lower market costs for energy.

7 Dec 2015

India flat, for now.


Since everyone seems to have positioned themselves for a Fed funds rate increase in December and closed risk exposures through year end to protect performance, markets have been moving pretty much sideways. Not least in India, where the Nifty has been more or less flat since Diwali, closing at 7782 on Friday compared to 7783 on the eve of Diwali, after trading in a range of just 3.4% for the period. Average daily trading volumes have been stable at just over $3bn a day while FPIs and domestic institutions have been trading volumes with each other while increasing retail interest has made up any difference. It is worth noting that domestic institutions have injected $15.5bn into Indian equities, even as FPIs have pulled out. Market breadth has been narrow, with honours about even between advances and declines. Volatility has also been restrained, the India VIX trading in a range of 14-19 before closing at 16. Nifty futures closed at a premium of 1.5% to cash.