29 Feb 2016

Stable and the trend is up

Major equity markets stabilised a bit with signs of consensus emerging on oil production but India remained in a cloud of negative sentiment following a disappointing earnings season as investors nervously awaited the Union Budget. The Nifty surrendered 181 points to close the week 2.4% down at 7030 after trading in a range of 4.2%. Average daily trading volumes slipped further below the trailing average to $2.3bn as FPIs sustained selling pressure, unloading a net $458mil bringing net sales for the month to-date to $1.4bn. By comparison, domestic institutions were net purchasers of $330mil last week and $1.2bn in the month to-date. Volatility was higher, the India VIX trading mostly to the upside, rising to 25 after a slight initial decline and closing at 22, for a gain of a point on the week. Nifty futures closed at a premium of just over 1% to cash. 

25 Feb 2016

Mutual funds, net buyers

Elsewhere, PSU banks have now written off $14bn in bad loans between 2012 and 2015with a big recent spike in write-offs as the government owned banks adapted to new RBI standards. The RBI has allowed banks to raise the liquid portion of SLR bond holdings from 7 to 10% which creates $41bn of additional lending capacity. Total tax revenue receipts reached $157bn by the end of January, 73.5% of the budget target which leaves collections some $24bn behind in reaching the annual target of $213bn. 
Funds flow data show that in January, domestic mutual funds were net buyers of equity and debt while foreign portfolio investors were net sellers of equity but buyers of debt. Mid and small cap equities saw the heaviest selling.

24 Feb 2016

HCL Tech continue to make waves

In company news, HCL Tech has closed the largest outsourcing contract by acquiring Volvo Motors’ external IT service company in a deal valued at $2.8bn over five years. The deal involves the transfer of some 40 clients as well as 2,500 employees across eleven countries. Heidelberg Cement has commissioned a waste heat recovery based power generation facility at its Narisgarh plant. The clinkerization alternative to grid power is worth estimated savings of some Rs60 to 70 per tonne in production costs. Shemaroo Entertainment’s “Miniplex” movie premier service is launching a new feature film to subscribers of Tata Sky and Airtel Digital this month. Axis Bank is to raise $500mil in Tier II capital bonds to boost its capital base. TCS is seeing growth of 15% per annum in its BFS (Banking and Financial Services) segment compared to 13.5% overall revenue growth. TCS’s BaNCS financial back office system has been installed at Colonial First State, bringing automated corporate action and custody to Commonwealth Bank’s operating platform.

23 Feb 2016

Indraprashtha and IGL

Just two late Q3 results to report, both negative for obvious reasons. Indraprashtha Gas reported revenues down by 1.5% and profits down by 2.8%. IGL’s performance is tightly geared to the falling energy prices, so stronger volumes are a better gauge of performance. A revised price agreement for the supply of gas from the Middle East as well as structural improvements in demand in key markets are the key to future earnings.

Some corporate news, positive

Just two late Q3 results to report, both negative for obvious reasons. Indraprashtha Gas reported revenues down by 1.5% and profits down by 2.8%. IGL’s performance is tightly geared to the falling energy prices, so stronger volumes are a better gauge of performance. A revised price agreement for the supply of gas from the Middle East as well as structural improvements in demand in key markets are the key to future earnings.

22 Feb 2016

Volatility in a narrow market

Looking back over two weeks in global equity markets we have seen a period of sharp volatility in the face of uncertainty over China during the New Year shut-down, followed by a surge in optimism following Presidents’ Day in the US. Optimism was fuelled by a production standstill agreement between some major producers which brought a jump in the price of oil. Equity markets rose in sympathy, though enthusiasm waned towards the weekend. India’s Nifty saw a big selloff followed by a strong recovery, though not enough to offset the earlier losses. The Nifty closed 278 points in the red at 7211, down 3.7% but the trading range of 9.4% better reflects the swings. Average daily trading volumes were below the trailing average though sustained foreign portfolio selling (-$740mil.) was offset by a surge of domestic buying (+$762mil.) on the early dip in the index. Volatility was higher, with the India Vix rising sharply from its opening of 18 to a peak of 27 before subsiding to a low of 17 and closing at 21 for a gain of three points. Market breadth was narrow overall, with declines just shading advances by 11 to nine. Energy, IT and bank stocks were the main movers in both directions over the period. Index futures closed at a modest premium of just 0.6% to cash.

10 Feb 2016

No consumers as confident as Indian

The January PMI numbers were encouraging. The services PMI was 54.3, up from 53.6 in December. The Manufacturing PMI moved back into growth territory at 51.1 in January after touching 49.1 in December. Market liquidity continues to suffer from foreign portfolio outflows. Since the end of the year, the equity market has seen outflows of $1.64bn in equities and $0.46bn in debt. Local support has been encouraging though: domestic institutions have bought a net $1.78bn in cash equities and the long open interest in the options market has been growing. Indian consumer confidence was rated the highest in the world by Neilsen in its latest quarterly report. India scored 130, the same as for the past three quarters.

9 Feb 2016

Meeting fiscal targets

We had 'thin gruel' this week as far as company news goes, but we did have a monetary policy review at the RBI. Policy rates were held at the current 6.75% level for the repo rate and 5.75% for the reverse repo. Reserve rates were also held constant. The commentary confirmed that the accommodative monetary stance would be maintained so long as inflation stayed on track for CPI of 5% maximum through March 2017. The RBI’s GDP growth forecast is 7.4% for the fiscal year ended next month and 7.6% for the following year. Governor Rajan is expecting the government to meet fiscal deficit targets and contribute some fiscal expansion in the Budget at the end of the month. The RBI will support the Prime Minister’s “Start up India” plan by helping improve the ease of doing business as well as supporting the availability of credit for start-ups.

8 Feb 2016

Impressive healthcare opportunities

Our Healthcare holdings got a shake during the week on rumours that the US was going to demand local manufacture of chemical compounds used in medication for service and veterans’ health programmes. In the event, the likely impact on Indian generics manufacturers will be insignificant, so improving earnings reports gave our holdings a good boost. Torrent Pharma reported sales ahead by 31% and profits by 189%. Lupin looked weak with sales just 7% ahead and profits down by 12% but company guidance was for sustained improvement coming from acceleration of some delayed USFDA approvals. Lupin has received USFDA approval for its generic Glumetza, a Metformin compound, which has received a first-to-file assent. It will be sold at 15-20% below market, with a marketing exclusivity for 180 days.

7 Feb 2016

Company results, positive suprises

We had several quarterly reports to digest, the numbers did not all look great but from a sentiment perspective, all were treated by the market as positive surprises. Pidilite reported sales ahead by 9% and profits by just over 50%. VIP Industries reported sales ahead by 15% and profits by 32.9%. Firstsource Solutions reported sales ahead by 8.6% and profits by 16.6%. Bajaj Autos reported a decline of 2% in sales, mostly due to weak exports but profits grew by 11.7%. Heidelberg Cement saw sales fall by 1.8% on weak demand due to the poor monsoon but the P&L swung from loss to healthy profits on improved operating margins

6 Feb 2016

Poor oil company results drive India down

In generally weak global equity markets, India was unable to sustain last week’s gains as global sentiment was dominated by poor oil company results. The Nifty gave up 105 points to close down 1.4% at 7489, after trading in range of 3.4%. Average daily trading volumes were below $3bn as FIIs and domestic institutions were all net sellers in small amounts: around $70mil each. Volatility was again subdued, the India VIX trading in a range of 16 to 19 before ending at 18 for a gain of a point. Market breadth was good, defying the downward trend as advances exceeded declines by two to one. We saw interesting concentration on the downside, as Reliance Industries and ICICI Bank both cost the Nifty 35 points each, nearly 70% of the week’s movement. Nifty futures closed at a premium of 1.1% to cash.

4 Feb 2016

#startupindia, Modi takes the lead

PM Modi launched 'Start up India' to reverse the tendency for start-up enterprises to be domiciled outside India. Benefits of the programme include three years’ exemption from income and capital gains taxes, a $1.5bn fund to support credit requirements and an 80% reduction in patent fees. Nearly three quarter of Indian start-ups are domiciled abroad. We are monitoring the build up of foreign interest in the market carefully, for the first time in a while, it includes the futures market. It might be time to star accumulating Himalayan Fund shares again.

M&A in healthcare

Five Indian drugs companies, including Lupin and Torrent Pharma, are in negotiations to acquire Sagent Pharmaceuticals, a NASDAQ-listed producer of specialist injectables. Axis Bank is tying up with Apollo Munich a health insurance company, to provide a range of customised insurance products for its clients. Meanwhile, Munich Re announced that it is to increase its stake in Apollo Munich by 23%, taking advantage of relaxed FDI rules in the sector.

3 Feb 2016

Investments in ICT #investindia

Infosys has made a $4mil investment in Waterline Data Science, a producer of data discovery and governance software. HCL Technologies has negotiated an IT infrastructure agreement with Alsthom to provide workplace engineering services to 30,000 employees in 360 locations in 62 countries. This will include “PC as a Service”, enabling local end-user support. HCLT also announced the acquisition of Point to Point Ltd. and PtP Products Ltd. of the UK for a total of $12mil.

Mobility key for development

Bajaj Auto, still to report quarterly earnings, issued a statement responding to the economic problems in its largest export market, Nigeria, which accounts for 15% of sales. Sales in Nigeria jumped by 50% in December, as buyers feared price increases due to currency depreciation. Management says the currency risk is no more than $20 per unit, not a big concern and it does not offer credit terms. Bajaj will be launching a new model in India shortly. Called V, it is a 150cc commuter bike, made of metal recycled from India’s famous Vikrant aircraft carrier which played a pivotal role in the 1971 Indo-Pak war.

India: banks in focus

Banks again featured amongst our results reports this week. HDFC Bank continued its long history of consistent performance, reporting NII some 24% up year on year and profits 20% up. ICICI Bank disappointed again, with NII 13.3% ahead and profits rising just 4.5%; the bank continues to wrestle with its asset quality. As the largest private sector lender, it carries heavy exposure to some of the riskiest credit risks. Supreme Industries reported sales ahead by just 5% but profits reflected widening margins, rising by 114%.

2 Feb 2016

Strong rebound, #india

A broadly positive week to end January in equity markets with many markets posting a strong rebound on Friday. The Fed held rates but the Japanese Central Bank introduced negative policy rates in a move widely welcomed in markets. India joined the party on Friday, the Nifty rallying strongly to close the week 141 points to the good, a rise of 1.9% to 7564, after trading in a range of 2.3%. Average daily trading volume was about the recent average at $3bn though Friday saw a surge in foreign buying after net selling of $202mil through Thursday. Domestic institutions were net buyers of $177mil. Volatility was subdued through the futures’ expiry as the India VIX traded to the downside of its 19 opening: closing at its low of 17 for the week. Market breadth was good as advances outran declines by three to two. Gains were well spread, though almost 90% of the points’ gain in the Nifty came from IT, Consumer Goods and individual contributors like Sun Pharma, Reliance and HDFC Bank. The new three month index futures contract closed strongly, at a premium of 1.9% to cash.