30 Jun 2016

Strong and positive corporate news

Indian Hotels is moving away from traditional sales networks to cut costs and will increasingly drive sales through on-line platforms. Online sales have already grown from 15% of total in 2015 to 35-40% this year. Shemaroo Entertainment’s Hindi retro music channel on YouTube has reached 1 million subscribers who have downloaded more than 600 million plays. Subsidiaries of Pidilite Industries have acquired control of Kenya’s Nebula East Africa Pte Ltd for an undisclosed sum.  Lupin has received final USFDA approval for the marketing of Voriconazole fungal infection treatment. The company has a pipeline of 160 USFDA applications and expects some 30 approvals in FY17. Nestle is launching 25 new products in India to fend off disruptive competition from new domestic rivals trying to take advantage of the Maggi Noodles controversy. New products will emphasise health and nutrition values.

29 Jun 2016

Monsoon starts late

The latest bi-monthly monetary policy review held interest rates stable, while also maintaining its current year GDP growth forecast at 7.6%. The RBI highlighted upside risks to inflation from food prices after two weak monsoons and supply side concerns arising from recent heat waves. Widespread expectation of a good monsoon this year may not bring relief until after the kharif harvest in the autumn. The current season’s rains are picking up well but remain 18% below normal so far due to a delayed start. Spatial distribution is good, with many regions seeing normal rainfall or better.

28 Jun 2016

Farewell to RBI chief

The departure of the well respected RBI chief at the end of just one term is a bog deal. He has been very influential in maintaining a stable and relatively transparent policy and managing the monetary aggregates to bring inflation under control and strengthen India’s external reserves. He negotiated a new framework agreement with the government on the role and operating process for the RBI. He was not universally popular with the Indian business establishment and recently came under attack from political quarters for not being aggressive enough in promoting recovery. His replacement will be chosen in the next few weeks by the Prime Minister and the Finance Minister in consultation and not by an empowered committee. The government followed the disclosure of his departure with a slew of announcements of relaxations in FDI rules, which may have calmed the markets.

27 Jun 2016

Finding opportunity in a slow market

Weak economic indicators have been offset by the rising price of oil which lulled equity markets into an optimistic mood until the threat of a British exit from the European Union started to draw attention. In the event, the outcome of the referendum caught investors wrong-footed and precipitated an extraordinary day of volatility in financial markets. In India, investors rode the news that the RBI governor would not be renewing his term with a degree of equanimity yet the news of Brexit produced a jump in volatility. Since our last commentary, the Nifty surrendered 132 points, to close 1.6% lower at 8089, after trading in a range of 4.6%.The average daily trading volume was fairly stable at $2.9bn as both FPIs and domestic investors were net buyers of cash to value of $278mil. Volatility was fairly stable in the range of 15-18 on the India VIX until Friday, when it spiked to 21 before closing at 19 for an increase of four points. Market breadth was weak: declining stocks were in the ascendant by three to two. Nifty futures closed on Friday at a premium of barely 0.6% to cash.

21 Jun 2016

UBS likes India too

Just a quote from today to share: "UBS analysts believe that Rajan’s departure will not slow the strong earnings-momentum of India’s companies; they are overweight on Indian stocks in their Asia ex-Japan and emerging-market strategy."

9 Jun 2016

India: surging consumer confidence

The key to market prospects now is the southwest monsoon. The Indian Met has issued an up-date on its projection for the June to September period and has maintained its forecast of above average rainfall in both volume and spatial coverage. The effects of optimism about the monsoon can already be seen in surging consumer confidence. There is also increasing confidence that key aspects of reform will be addressed in the Monsoon Session of parliament, notably in the Finance Ministry which is planning to table the GST Bill in parliament again with improved prospects of passage. Overall then, the outlook through the rest of the year is positive and the timing is good to start buying Himalayan Fund again.

8 Jun 2016

Bajaj Auto will invest over USD 90 mio

In the private sector, Lupin announced that the USFDA has audited its facilities at Mandideep and Aurangabad and has given both a clean bill of health. Torrent Pharma is negotiating to acquire bulk drugs supplier Glochem Industries for a consideration of $45mil. The company is to increase its research and development expenditure by 50% in FY17, to 7.8% of sales and has ten US drug launches in the pipeline. Bajaj Auto will invest more than $90mil this year, mostly in new product launches. The company’s sales in May were 2% upon the previous year at more than 307,000 units.

Q4FY16 GDP growth reported at 7.9%

Economic data also surprised, with Q4FY16 GDP growth reported at 7.9%, pulling the annual number for FY16 up to 7.6% and boosting forecasts for FY17 comfortably above 8%. In April, core sector GDP pushed further ahead to 8.5% with refinery products and electricity generation well into double figures. In terms of per capita income, India registered a jump of 7.4% in FY16, from $1,302.53 to $1,398.70. The services PMI for May came in at 50.7, a slight increase. The government is planning to launch four IPOs of public sector enterprises in FY17, to raise about $1.5bn for the exchequer. The first Nuclear Operators Liability Policy has been issued to Nuclear Power Corp of India; the policy was underwritten by a consortium of insurance companies through the Indian Nuclear Insurance Pool.

7 Jun 2016

Quarter’s results better than expected

The fourth quarter results season drew to a close, bringing our final announcement of interest from Kalpataru Power Transmissions; reported revenues were 30.5% up on the previous comparable period and profits were ahead by 79.7%, another positive surprise. Overall, the quarter’s results were better than expected, sending analysts back to their desks to revise future earnings expectations and raising hopes that the earnings cycle has turned. Key sectors led the way: in Autos, sales grew by 18% overall, surpassing the rolling averages for six and twelve quarters. The Cement and IT sectors showed similar improvement. In terms of profits, it was the Auto (+31.3%), IT (+34.6%) and Pharma (+56.8%) sectors which excelled.

6 Jun 2016

Nifty futures closed at premium of 1% to cash

Markets were blindsided on Friday by a major negative surprise in US job numbers, accompanied by a downward revision of the previous two months’ numbers. Investors had been bringing forward expectations of the next Fed funds rate increase based on the strength of the US economy; after the numbers, the dollar recoiled from recent strength and Treasury yields fell back. Fed action has probably been postponed until July and thereafter runs into a closed period due to the coming Presidential election. A slight recovery in equities may further boost Indian markets next week, after the Nifty ended the week with a gain of 64 points, rising 0.8% to close at 8221 after trading in a range of 1.6%. Average daily trading volumes were above trend at $3.8bn, driven by further net buying of $160mil by FPIs; domestic institutions were net sellers of $132mil. Volatility was stable through the week, the India VIX trading between 14 and 16 before closing where it opened, at 15. Market breadth was weak, however, with declines running ahead of advances by 3 to one in spite of the upward momentum. Nifty futures closed at a premium of 1% to cash.

2 Jun 2016

Earnings cycle is turning

With the end of the Q4 results season, a surge in positive surprises has generated a degree of confidence that the earnings cycle is turning. The next catalyst for upward momentum is the monsoon season. A depression in the Bay of Bengal is bringing heavy rainfall to Tamil Nadu and southern coastal regions and may delay the onset of the monsoon, which has already arrived in the Andamans and Sri Lanka. Nonetheless, forecasts are good and Skymet, the independent forecaster, has raised its overall projection to 109% of the LPA even if its June figure is just 87%. The expectation that rainfall of this level will provide a welcome boost to rural consumer demand, in combination with improved sentiment on structural reform and sustained GDP growth, is sustaining the market.

1 Jun 2016

Corporate contracts

TCS reported that its BaNCS platform for financial services is at the heart of the UK’s National Employment Savings Trust, which has now added 100,000 employer participants. The company is also cooperating with GE to leverage its Healthcare Cloud platform to improve service to its healthcare client-base. Infosys announced that it has won a five-year contract from Commerzbank, Germany’s second largest bank, to manage its IT systems. Kalpataru Power Transmission Ltd. has won new contracts more worth than $120mil, including participation worth $80mil in a turnkey project for construction of a 400KV transmission line in East Africa.