22 Sep 2016

Surge in consumer demand

In India, the monsoon season is stuttering to an eventual close at slightly below the Long-Period Average, but the shortfall came too late to prevent a bumper cropping season. So we can look forward a surge in consumer demand driven by farm incomes in rural areas and the fruits of the seventh government pay commission in urban centres. Corporate earnings in the present quarter may only have the benefit of recent deleveraging by companies but earnings visibility improves thereafter.

21 Sep 2016

Plus for cement

Lupin’s US ANDA pipeline is starting to see a succession of USFDA approvals. Its US subsidiary Gavis has received approval for its Azythromycin oral anti-bacterial syrup. The company also received approval for a generic version of Paroxetine extended-release anti-depressant tablets and for generic Moxyfloxacin anti-bacterial tablets. Torrent Pharma is on of a sort-list of three final bidders for zinc-based branded products owned by Apex Labs in India. HCL Techno announced a partnership with Mesosphere, a data infrastructure company, to provide unified operational experience as well as optimal resource allocation for customers. Heidelberg Cement expects to see sustained growth in shipments following the monsoon as demand in its Central region market expands with little new capacity development and resulting price pressure.

19 Sep 2016

Government focus on reviving public sector

First quarter GDP was reported to be 7.1%, somewhat lower than expectations.  Strong contributions from Manufacturing (9.1%), Services (9.6%) and Community, Social and Personal expenditure (12.3%) were offset by weak numbers in Mining (-0.4%), Construction (1.5%) and Agriculture (1.8%). Growth of 18.8% in gross fixed capital formation reflects the government’s focus on reviving public sector investment. Subsequently, July’s IIP contraction of 2.4% reflected the weak Mining sector as well as continued weakness in the Capital Goods sector.

Beware of volatility vultures

“Sell in May and go away and don’t come back till Leger day” is an old saying in the London market which has been adopted more widely in recent years and for the benefit our readers, last weekend was Leger day. In principle we should see markets regain some momentum through year-end. In the meantime we have to run the gauntlet of various 'black' trading day anniversaries in October as volatility vultures try to generate profits by inducing successive periods of market tremors until the Fed eventually moves policy rates by a quarter of a percent. 

Glory for the fiscal balance

The crowning glory for the fiscal balance has been the eventual passage of the GCT Bill. Ratification by a majority of states has brought Presidential assent, allowing the establishment of the oversight GST Council, which will set the standard rate and oversee implementation.

Market obsession with monetary policy

As the summer vacation period came to a close, global equity markets returned to their obsession with monetary policy and in particular their speculation about the imminence of a Fed funds rate increase. In India, the RBI passed into the hands of a new governor, apparently set on a consistent course of policy. The markets traded steadily in the top half of the 8,000s with foreign buying providing a safety net. The Nifty added 207 points or 2.4% to reach 8780 after trading in a range of 5%. Average daily trading volumes rose appreciably, to $4bn, compared to a trailing average of $3bn. Foreign portfolio investors bought a net $437mil in cash equities while domestic institutions were net sellers of 461mil. Market breadth was strong, with advances outrunning declines by two to one. In the index options market, open interest expanded strongly at 9000 for calls while puts were concentrated at the 8600 level. Nifty futures are trading at a premium of 1.3% to cash.

More tax comming in

In August, the PMI numbers showed strength however, with Manufacturing reporting 52.6 and Services maintaining strength with a rise to 54.7. The impact and volatility of food prices in the CPIU index can be seen from the latest reported numbers: overall CPI was 6.1% in July, driven heavily be vegetable and pulse prices. In August, CPI retreated by a full percentage point to 5% as vegetable prices fell sharply while pulses moderated. Direct tax collection grew robustly in the first quarter, rising by 15% to $28bn on accelerating personal income tax collection. Indirect taxation grew even more strongly, by 27.3% to $50.8bn driven by growth and excise collection.

1 Sep 2016

Agricultural looks good

The Nikkei Purchasing Manages’ Index numbers for July showed improvement. The Manufacturing number was 51.8, up slightly on June and the Services number was 51.9, up from 50.3 in June. Core sector growth was 5.8% in June, up from 2.8% the previous month. In June the Index of Industrial Production increased by 2.1%, the best number since December 2015. Inflation numbers confirmed the concerns at the RBI: CPI rose to 6.1% in July, up from 5.8% in June. WPI maintained its advance out of deflationary territory, rising to 3.6% in July after 1.6% in June. The dominant contributor was food prices. The monsoon settled back in August, such that rainfall in the season so far is equal to the Long Period Average. Precipitation in September is expected to be no more than normal, so the final outcome will be lower than optimistic forecasts but normal nonetheless. The final outcome is largely irrelevant however, as the geographic and temporal distributions have enabled bumper cropping, ensuring an excellent kharif harvest. Prospects for the second, Rabi crop, which is dominated by wheat, will depend on water table replenishment, which has been good and reservoir levels which are recovering.