31 May 2016

Politics gives growth a boost

In the last state elections for almost a year, the ruling BJP had a notable success in Assam. In Tamil Nadu and West Bengal, regional parties strengthened their holds and in Kerala, voters switched from one left party to another. Overall, the results confirmed continued marginalisation of Congress but will only boost the ruling party’s upper house position by half a dozen seats. Neilsen consumer confidence research in the first quarter measured India at 134, an increase of three points and the highest level since 2007. Domestic mutual funds reported opening a record number of more than 400,000 new accounts in April, bringing the total to 4.8 million. Following the Nestle Maggi Instant Noodle controversy, The Food Safety Standards Agency of India is drafting new regulations on quality standards of instant noodles and of ingredients. SEBI is tightening regulations on the issuance of P-notes to improve transparency and impose CDD standards to prevent misuse of this access channel to India markets for FPIs. This channel used to account for more than 40% of FPI holdings but this has fallen to less than 10%.

30 May 2016

Boosts and good news

Our interest in the late results also brought a series of positive surprises. Indian Hotels, under new management reported sales ahead by 12.5% and profits by 48.3%. The company is realigning its portfolio, including the sale of key US properties, to focus its growth efforts in Gulf Cooperation Council (GCC) countries and South East Asia. Lupin saw sales ahead by 34% and profits by 47.5%; the company reported good progress in talks to resolve USFDA inspection observations. Torrent Pharma reported sales ahead by 21.5% and profits by 174.6%, from a weak comparable period. Pidilite reported sales ahead by 12.2% and profits by 56.3% on the strength of a surprisingly good improvement in operating margins. Heidelberg Cement saw sales volumes contract by 1.4% but improved operating metrics brought a 173% boost in profits. Finally, Bajaj Auto registered notable success in boosting market share with a 14.2% jump in sales which drove profits up by 29.2%.

Oil, banks and IT

A recovery in the price of oil toward $50 a barrel carried equity markets with it. In India, the Nifty moved sideways, holding in the 7500-8000 range through the later part of the Q4 results season. Then a series of late positive surprises from major public sector enterprises prompted a surge of buying, driving the benchmark index firmly through the 8ooo level after a long wait. The Nifty closed 342 points to the good at 8157 for a gain of 4.4% after trading in a range of 5.8%. The average daily trading volume was $3bn and though two weeks’ FPI trading was a net $160mil of selling, daily FPI trading was net positive in the last few days. Domestic institutions were net buyers of nearly $600mil over the same period. Market breadth was not particularly strong, with advances and declines roughly in balance but when foreign investors started buying again, there was heavy concentration in Banks and IT as well as in index heavyweights like ITC and Reliance. Volatility was stable, the India VIX trading mostly down from its opening of 17, a brief spike to 18 did not last and it closed at 15, two points lower. Nifty futures closed at a premium of 0.6% to cash.

18 May 2016

RBI sees room for interest cuts

Core sector growth in March was 6.4%, compared to 5.7% the previous month. PMI numbers for April were softer: the Services PMI fell from 54.3 to 53.7 and Manufacturing PMI weakened to 50.5 from 52.4 but it is worth noting that the month included several public holidays. April Indirect Tax collection jumped by 42% after the government again took advantage of the low level of energy prices to raise duty. Rising food prices brought a jump from 4.9% to 5.4% in the CPI measure of inflation but the negative surprise is not seen as a trend reversal given increasing optimism about the coming monsoon season. The RBI still sees room for more interest rate cuts to support growth.

17 May 2016

Better domestic corporate debt market, #india

The long-awaited Bankruptcy Bill has now passed both houses of parliament and awaits presidential assent. This is a major reform measure which, by introducing a much accelerated process for reorganisation of defaulting borrowers, is expected to facilitate development of a domestic corporate debt market. Parliament also passed the Finance Bill, which includes reform of the monetary policy decision-making process and the relationship between the RBI and central government; the RBI supports the new process. Implementation of the Direct Benefit Transfer mechanism for LPG has saved the government $1bn in FY16 on payment of the cooking gas subsidy.

16 May 2016

Nestle India outperforming

Interesting results this time around included Nestle India, which is strongly outperforming expectations for market share recovery from the Maggi Instant Noodles controversy. The company reported sales down by just 8.4% and profits by 22.4%: a significant positive surprise. Shemaroo Entertainment reported sales ahead by 18.4% and profits by 29.1%, another major positive surprise. Kotak Mahindra Bank reported net interest income ahead by 46.8%, including the integration of its acquisition of ING Vysia Bank. Net profits were 16.9% up, year on year. Finally, Indraprashtha Gas reported sales down by 8.4%, reflecting much lower energy prices but profits grew by 12.3% as conversion of vehicles to CNG accelerates.

Strong and positive corporate news in #india

TCS’s proprietary bank software BaNCS for securities trading and settlement was deployed by the two largest banks in Myanmar on the opening of the Yangon Stock Exchange. Infosys is expanding its relationship with Microsoft to simplify and automate migration to Microsoft products, especially Azure digital transformation for clients. Bajaj Auto has opened FY17 strongly by shifting more than 200,000 bikes in a month in the domestic market for the first time in three years in April. Indraprashtha Gas opened a record 72 new CNG filling stations in New Delhi so far this calendar year as demand accelerates due to increasing pressure from environmental regulation. Lupin plans to strengthen its branded and specialty drug business in the US with new products, brand acquisitions and specialty buyouts with a therapy focus.

Improving earnings and progress on reform

Equity markets struggled to deal with variable economic signals as recovering energy prices met strong US consumer figures, but weaker employment numbers. India continued to plough its own furrow as evidence improving earnings and progress on reform provided a floor for the equity markets. The Nifty softened just 35 points since our last commentary, dropping 0.5% to end at 7815 after trading in a range of just over 3%. Average daily trading volumes slipped back to $2.8bn as FPIs sold $82mil while domestic institutions mopped up some $320mil in cash equities. Volatility was stable in the high teens, as the India VIX closed where it opened at 17 after trading no more than a point to the upside during the whole period. Market breadth was slightly negative with declines outrunning advances by six to four with positive concentration in IT and negative in ICICI Bank in particular on the back of quarterly results. Nifty futures closed at a premium of less than 0.5% to cash.

5 May 2016

India popular for investments

Lupin has strengthened its branded drug portfolio in the US by re-launching a drug to control post-partum blood loss. Infosys has invested an undisclosed amount from its global innovation fund in a stake in Trifacta, which develops productivity platforms for data analysis, management and manipulation. TCS announced a strategic partnership with Vistara in IT services, including application development. Kalpataru Power Transmission announced $175mil in new contracts in domestic and overseas markets. Pidilite announced the acquisition of a 50% interest in an Italian manufacturer of wood finishes. The company will invest an initial $9.7mil with a similar follow-on investment in a joint venture which will be the exclusive distributor of wood coatings in India.

Less downside, more upside

The improving FDI numbers suggest that the government is seeing some success in creating a hospitable investment climate for foreign investors. The current second budget session of parliament shows signs of visible improvement in progress on essential reforms, with better prospects for passage of a GST Bill along with the Bankruptcy and Factories’ Bills. None of these will bring immediate transformation but would mark a high profile success for the government after a long period of low-profile piecemeal reforms which tended to create an aura of disappointment. With a surge in optimism prompted by above-average monsoon forecasts, downside risk in the markets appears to be limited.

4 May 2016

More wind energy in #india

Full implementation of the 7th ten-year pay commission award for the public services would add the equivalent of 0.7% of GDP to government expenditure. On the other hand, the cost of fuel subsidies has fallen by 29% in FY16, a saving of about $8bn to the exchequer. The country added 3.5GW of wind energy capacity in FY16 compared to a target of 2.4GW.

3 May 2016

1.1bn cell phone users!

In eleven months of FY16 to end-February, India generated $51bn in foreign direct investment, the highest level ever for a comparable period. At the same time, Indian entrepreneurs raised more than $7bn in capital by way of preferential offerings to finance investment in their businesses. Landline telephone use continues to decline in India but the mobile user count reached 1.1bn by the end of March. Confirming much improved project execution, the Roads Minister has set a target of 25,000km in contract awards in FY17 compared to 10,000km in FY16. 

Strong corporate news

Kotak and HDFC banks were in demand among banks and TCS in IT while SBI, ICICI Bank, HCL Tech and Reliance were heavily offered. Nifty futures closed at a premium of 1.1% to cash. We had two results of interest, Agro Tech Foods, which reported sales ahead by 6.6% but profits down by 50% as margins came under pressure. HCL Tech reported sales ahead by 15.4% and profits by 14.4%.

2 May 2016

Weak and volatile market

Major equity markets were weak as the Bank of Japan ducked an opportunity for additional stimulus and the Fed held its hand on raising interest rates amid evidence of a softer economy and weak company results. Indian equities were soft despite optimism on growth and monsoon forecasts. The Nifty shed 49 points to close 0.6% lower at 7850 after trading in a range of 2.2%. Average daily trading volumes were ahead of the trailing twelve-month average at $3.3bn as FPIs added $190mil in net cash equity purchases and domestic institutions sold a net $216mil. Volatility was stable in the high teens as the India VIX mostly traded to the downside, around 15 before closing at almost 17 for a gain of a point on the week. Market breadth was weak, with declines ahead of advances by three to two.