26 Jul 2016

Mixed basket: ups and downs

Elsewhere, Heidelberg Cement reported sales ahead by 7.2% and profits ahead by 79%. Bajaj Auto, facing severe competitive headwinds at home and currency translation issues on exports, reported sales up by 3.5% but profits down 3.6%. Torrent Pharma reported a drop of 20% in sales as one of its big selling generics in the US market lost its exclusivity; profits were 53.9% lower as a result. Supreme Industries’ results reflected a change in its accounting period and policies which produced a drop of 6.7% in sales and 28% in profits. Finally, Firstsource Solutions reported a gain of 20.5% in revenues and 38.5% in profits as it displaced competitors to gain exclusive IT provider status with SKY.

25 Jul 2016

Corporaal results look good

In mid-season for first quarter results, we have quite a few which are of interest. Banks have proven to be as consistent as we expect. HDFC Bank reported net interest income growth of 21% and profits ahead by 20%. Kotak Mahindra reported NII growth of 22% and profits, after consolidation of its acquisition, ahead by 291% as it benefits from synergies. In the Consumer Sector, Agro Tech Foods reported an increase of 5.1% in sales and a gain of 32.9% in profits. Sales at Pidilite were 6.8% up and profits grew by 16%. Nestle India continued its recovery from the Maggi Instant Noodles controversy with sales ahead by 16.7%. Profit comparison is not meaningful on an annualized basis but was ahead by 14% on the quarter.

21 Jul 2016

India, all systems go!

Last week we thought the Nifty would be trading in a range in the mid 8,000s and it promptly move quite firmly above 8,500! The Monsoon Session of parliament starts next week and the Congress party, which has used its rump power in the Upper House to block the GST Bill, has announced that it will now support passage. Investor sentiment is only likely to improve on the back of favourable political winds and economic reform. 

20 Jul 2016

Optimistic monsoon forecasts

This year’s monsoon has continued to justify optimistic forecasts. Rainfall has now extended to cover the entire country and in the latest week reached 11% above the LPA. This brought the seasonal average for the ear-to-date to 102% of the LPA. Twenty-nine out of thirty-six regions have reported normal or excess rainfall this year to-date. July and August are the crucial months for kharif crop sowing and early reports indicate sowing is proceeding at a good pace, especially in grains and pulses.

19 Jul 2016

Indian corporates continue to develop

In the private sector, it is reported that the USFDA is accelerating the approval process for ANDA applications, with the idea of reducing the mean approval timeline to eighteen months. It is hoping to clear a backlog of applications which would be good for competition in the market but perhaps not so good for producers’ margins. Meanwhile, Lupin confirmed that the USFDA July 2015 inspection file at its Goa plant has been closed. The company has warned however, that some routine matters arising from a March 2016 inspection of its Dhabasa plant in Gujarat remain outstanding. Indian Hotels announced the completion of the sale of its Ritz-Carlton Boston property for a net consideration of some $125mil, which will be used to reduce debt.

First quarter GDP indicates growth, 7.9%!

With shortages arising from a couple of weak monsoons, food price inflation has accelerated, bringing an increase in the Wholesale Price Index for June from 0.8% the previous month to 1.6%. The Consumer Price Index was stable at 5.7% as the jump in food prices was balanced by soft numbers in other categories. The Index of Industrial Production advanced y 1.2% in May, boosted by a 6% gain in consumer discretionary categories but offset particularly by another lumpy decline in Capital Goods, down 12.4%. As an indicator of improving economic conditions generally, indirect tax collection accelerated by 30.8% in the first quarter against a budget projection of 10%. A flash report on first quarter GDP indicates growth of 7.9% annualized against widespread expectations in the low 7s percent. As some states struggled with the tail-end of two years of weak rainfall, the statistics for NREGA, the rural employment guarantee scheme make interesting reading. The scheme generated 790mil man-days of work in the first quarter of this fiscal, compared to 548mil the previous year. A surge in numbers in the drought-affected states of Uttar Pradesh, Karnataka, Rajasthan and Tamil Nadu drove the increase.

18 Jul 2016

Strong results IT sector

The first quarter results season kicked off with our interest concentrated in the IT sector. TCS reported sales ahead by 14.2% year on year and profits ahead by 10.7%. Revenues from the Financial and Retail sectors were weaker than expected even though operating margins were better. Brexit is expected to dampen discretionary IT expenditure by clients in the short term. Infosys declared a 17% increase in revenues and a 13% increase in profits. The company reported headwinds in discretionary client spending and foresees some slowing in revenues from consulting services and implementation of applications packages.

17 Jul 2016

Solid market, looking good

Strong data on retail sales and industrial production in the US underpinned a strong surge in US equities, driving markets to another high as a potential Italian banking crisis and geopolitical clouds overshadowed foreign markets. India’s markets also enjoyed sustained upward momentum in spite of a weak start to the earnings season. The Nifty added 218 points to close 2.6% up at 8541 after trading in a range of 3.3%. Average daily trading volume moved well above the trailing average at $3.5bn as foreign buying increased to a net $362mil in cash equity. Domestic investors supplied a net $301mil of the rising FPI demand, Volatility remained in stable in the mid-teens as the India VIX traded down to 14 before closing a point higher on the week at 16. Market breadth was very strong with advances outrunning declines by four to one; the downside was heavily dominated by the IT sector where weak forward guidance prompted heavy selling action. Index futures again traded at a premium of more than 1% to cash.

14 Jul 2016

Positive and strong corporate news in India

In the private sector, Torrent Pharma announced the acquisition of the bulk drug manufacturing facility of Glochem Industries at Vishakhapatnam, as well as some drug master files. Lupin received its USFDA Establishment Inspection Report, providing closure on the March 2015 inspection of its Goa plant. It also reported settlement of several minor comments from a follow-up inspection this year. The stock price responded very strongly after spending a few months in the doldrums. Kalpataru Power Transmission announced two new orders for transmission lines: one from Senegal worth $200mil and one from Afghanistan worth $86mil. TCS reported a new partnership with the Royal College of Physicians of Ireland to provide a cloud platform for global digital sharing of medical research. Infosys management explained that its acquisition strategy would focus on small scale investments to fill gaps in research and geographic coverage. Supreme Industries has leveraged the benefits of 25-30% reductions in raw materials costs to boost sales through price reductions on quality products such as pipes and consumer products. This will allow them to sustain a five-year track record of 20% compound growth.

13 Jul 2016

Modi continues to give momentum to change

Prime Minister Modi took advantage of the parliamentary recess to add more than a dozen junior ministerial appointments in the course of which he also shuffled a couple of existing ministers into minor postings. The clear political strategy was to grant patronage to politicians from states which are due to hold elections next year to boost government alliances and, potentially the NDA’s standing in the Upper House. There was also an underlying political mesage that appointments would be contingent on performance, commitment and transparency. The Monsoon session of parliament will probably see the enabling Constitutional Amendment for the introduction of nationwide GST tabled again. According to the mathematics, it stands a good chance of passing this time. The resulting implementation is likely to take some time but the effect will be a permanent boost to GDP. This could be the landmark reform of the Modi government.

12 Jul 2016

Monsoon session of parlement India

The next milestones for market sentiment will be the first quarter results coming soon and the monsoon session of parliament starting towards the end of the month with the monsoon rains providing a constant undercurrent. The news on the latter is so far so good. After a delayed start, by the end of the first week of July, overall precipitation is 218.2mm across the country, compared to a long-period average (LPA) of 215.3mm, an excess of 1%. Most regions have seen normal or excess rain and all areas which have previously experienced drought conditions have had some relief. Only five regions out of thirty six have seen below normal rainfall. The meteorological department is maintaining its monsoon forecast for 107% of LPA. The economic consequences are likely to filter through into aggregate demand in the October/December quarter. An above normal monsoon should, by historical standards contribute an additional 0.5-1.0% to GDP due to stronger growth in agricultural production alone. The boost to growth from a good monsoon will be accentuated by the Cabinet decision to implement the recommendations of the Seventh Pay Commission. These will give a 23% salary increase to 4.7 million government employees as well as income and benefits improvements to 5.3 million pensioners.

11 Jul 2016

Cruising into slow news season

Global equity markets have been strong over the half-year-end, supported by investors searching for return and very strong job numbers in the US; they have also appear to have ridden the Brexit shock. Now we are cruising into the slow news season with monetary easing in the limelight and rate increase expectations postponed well into next year. India has seen a strong couple of weeks as the Nifty added 234 points to close 2.9% up on Friday at 8323 after trading in a range of 3.8%.. Average daily trading volumes were slightly above the twelve-month trailing average at $3.2bn as FPIs were net buyers of a modest $152mil against domestic selling of $124mil. Volatility subsided quite sharply overall as the India VIX traded mostly to the downside of its opening level of 19, hitting 14 before closing at 15 for a decline of four points. Market breadth was moderate with 70% advances but the ratio was in decline more recently. IT stocks were squeezed as investors fretted about revenue growth in a tight global economy but Consumer stocks were strong on hopes for the domestic economy. Index futures closed at a premium of over 1%.

Attractive returns through year-end

The market may be range bound in the mid-eight thousands in the short term, but through year-end, it looks like politics, economics and the weather may eventually feed through into earnings to generate attractive returns for investors through year-end!

1 Jul 2016

Brexit bothers India too

TCS has sold its cloud-based HR platform, Chroma, to Bajaj Financial Services. The company also announced a global partnership with Randstad Global IT Solutions to design and deploy one of the largest end to end public cloud marketplaces for IT infrastructure services. HCL Technologies is to partner with Leaseplan on a strategic ICT initiative in leasing platforms, to provide data warehousing, and enterprise IT solutions including application development and maintenance.The Brexit vote wiped a total of $2trn off global equity values; $400bn of this was taken off the Financial Services sector. Emerging markets suffered aggregate losses of only $128bn or 5% of the total. Some Indian companies, such as Tata group which has extensive UK exposure may see some more volatility. Foreign exchange markets may have overreacted and should stabilize next week.