31 Oct 2016

Corporate action in India

In the private sector, Torrent Pharma have invested $28mil for a 75% stake in a start-up enterprise, PurO Wellness. Infosys has agreed a cooperation agreement for its Finacle branded Banking and Financial Services platform to provide a blockchain network for ICICI Bank and Emirates NBD to process remittances and trade finance. HCL Techno has spent $85mil to acquire US company Butler Aviation to expand its footprint in the aviation sector. The price represents one year’s sales for Butler. Nestle India disclosed that it Maggi brand is rapidly recovering market share following the product ban in 2015 for alleged ingredient rule breaches.

12 Oct 2016

#india: strong consumer confidence

We are approaching the second quarter results season, in which we may see evidence of inventory-building in anticipation of a bumper festival season. There is already evidence of strong consumer confidence arising from the seventh pay commission awards and the expectation of an excellent kharif harvest feeding through to sales of two- and three-wheelers. Improved execution of public sector infrastructure projects is also evident and this may eventually be the spark for a recovery in private sector investment as excess capacity gets absorbed through the rest of this fiscal year and the first half of the next. With the new MPC laying out a path to fuirther monetary easing, the outlook for Indian equities looks assured.

11 Oct 2016

Corporates in India look good

Kotak Mahindra Bank has acquired, subject to regulatory approval, the microfinance non-bank financial company BSS Microfinance, for an outlay of $20mil. This acquisition will give the bank access to 217,000 customers through a branch network of 78 outlets. Aurobindo Pharma has dropped out of the bidding for the UK & Ireland portfolio of TEVA, the Israeli pharmaceutical operator. The company is still working on two prospective acquisitions in Europe. Lupin Pharmaceutical Inc., Lupin’s US subsidiary, has entered a strategic licensing agreement with MONOSOL RX. Lupin will develop multiple pediatric products for delivery through Monosol RX’s Pharmafilm technology which provides quick-dissolving, taste-masked and easy to administer delivery. The technology already has two USFDA approved products and a robust pipeline of applications. Staying in the US, Pidilite has recalled Tempra and Finger paints from the market due to quality concerns. The recall is not significant for the company in financial terms.  

10 Oct 2016

Something new: Public Debt Management Body

The Finance Minister has announced that the RBI’s role in debt management will be eliminated over a two year period to remove a perceived conflict with its role in setting interest rates. Initially a new cell will be established to handle debt management, which will eventually be formalized in a statutory Public Debt Management Body. The government has raised $3.2bn in proceeds from disinvestment in the first half of the current fiscal year; this is the highest total ever raised in a comparable period. The September Services PMI retreated to 52 from the recent high of 54.7 seen in August. 

India monetary stability

The big news of the week in India was the first meeting of the newly constituted monetary policy committee (MPC), which concluded with a unanimous decision to cut the repo rate by another 25 basis points, to 6.25%. The accompanying briefing brought some subtle clarifications, such as that the inflation target of 4% with a 2% upside margin was now a 'medium term target' rather than an objective with a fixed target date. Also, the target for real interest rates was established at 1.25%, instead of the previous range of 1.5-2%; this leaves scope for further repo rate cuts to come. Risk to India’s external balance arising from the redemption of FCNR deposits was played down as the first phase of redemptions has not affected liquidity and reserves remain at a record level of $370bn. Finally, it was noted that the accumulation of non-performing loans in the banking sector is slowing.

9 Oct 2016

Advances ahead of declines by four to one

Presidential campaigns and hurricane Matthew dominated US news, as soft job-creation and a downward revision of earlier numbers provided a backdrop to the US rate debate. The week ended with a 'flash crash' in sterling as the British currency continued to bear the brunt of reaction to Brexit. In India, the Nifty pushed slightly higher, adding 86 points to close 1% up at 8698 after trading in a range of just 2%.Foreign portfolio investment was sustained with net buying of $146.5mil in cash equity. Domestic investors were sellers of a net $67.4mil. Average daily trading volume subsided from recent levels, to $3.5bn. Volatility also retreated: the India VIX opened at 17, the high for the week and then retreated to close at 14 for a fall of three points. Market breadth was strong with advances ahead of declines by four to one. Nifty futures closed at a premium of 1.4% to cash.

6 Oct 2016

Monsoon on normal level

The monsoon season is coming to an end and the IMD is forecasting that the final outcome will be 'normal' even if a little below the long period average overall. The slowdown in precipitation came too late to impair crop-sowing, so a bumper Kharif harvest is expected to boost rural consumer demand while the public sector pay awards do the same for urban consumption.  The effects of these factors are expected to be reflected in third quarter earnings and capacity utilization rates.

5 Oct 2016

Nestle versus Cadbury and Ferrero Rocher

Pidilite has tied up with WD-40 to distribute a multi-purpose lubricant spray in India. Lupin has received USFDA approval to market its generic version of memantine hydrochloride extended release capsules for treating Alzheimer’s disease. Nestle India has asked the Supreme Court for permission to destroy 550 tonnes of instant noodles recalled in the recent additive controversy. They have passed their sell-by dates and represent a health hazard in the 39 locations where they are stored. The company is launching its European brands of premium chocolate in India to take on Cadbury and Ferrero Rocher. Bajaj Auto expects a 15% volume boost in domestic sales in this year’s festive period compared to flat sales last year. Exports will continue to be held back by Nigeria which is not recovering. Bajaj will launch a new 400cc bike in November.

India, second biggest market in the world

India has climbed 16 places in the World Economic Forum’s Global Competitive Index to 39th place. This is due to improved business sophistication and good market efficiency. Indian has overtaken the US to become the second biggest internet market in the world with 333 million users, behind China which has 721 million. The Bank for International Settlements rates India’s vulnerability to banking distress as lower than other major economies, because of a lower credit to GDP gap. China is rated much worse in the sample of 40 countries examined.

NDA reform works!

Elsewhere, there are good signs of life in the NDA reform programme. The GST Oversight Committee has moved aggressively on its agenda for implementation; it has already agreed on one major component: minimum thresholds have been agreed for the new nationwide tax. The committee has now moved on to its next priority: setting the uniform national rate and a decision is not expected to take long. Meanwhile, the government is planning to double the number of benefits paid through Direct Benefit Transfer (DBT) to 147 by the end of this fiscal year in March. Pilot schemes are already under way on paying kerosene, food and fertilizer subsidies. The Union Budget process has been modernized: the railways budget will be cancelled and the date for presentation of the Union Budget will be advanced to the beginning of February.

4 Oct 2016

Indo-Pak strife

The Indo-Pak strife over Kashmir blew up as Indian forces conducted a punitive strike against camps in Pakistan suspected of harbouring terrorist groups responsible for the deaths of 18 Indian troops in recent raids. This is unlikely to escalate beyond vacant threats, such as from a Pakistani politician threatening to use nuclear weapons in retaliation. It is worth remembering that that by maintaining a high expectation of a security threat from India, the Pakistani military is able to keep a strong hold over the government. At the same time, being in the process of a major long-term re-equipment programme, India is not really prepared for a major escalation.

3 Oct 2016

Up and down, but positive

In a kind of 'back-to-school' period, interest-rate bears were disappointed by central bankers maintaining accommodation as the US heads for a least-worst Presidential election, Europe adjusts to Brexit and global growth plods along. Over the past couple of weeks the Nifty has see-sawed in a trading range, closing with a drop of 169 point or 1.9% to 8611, after trading in a 4% range. Foreign portfolio investors were a bit shy in the earlier part but then stepped up, buying a net $467mil overall. Domestic institutions were also net buyers, of $320mil in cash equity. Average daily trading volume was up again at $4.1bn, but trending higher recently.  Market breadth was not great, with advances barely outrunning declines and some random volume spikes. Volatility was low and stable at first, the India VIX trading the 13-15 range before spiking up to 19 in the last couple of days before settling back to close at 17 for a gain of 4 points. Nifty futures had a volatile settlement day before closing at a premium of 1.3% to cash on the new three-month contract.

HCL Tech boost

HCL Tech will boost investment in Social Mobility Analytics and Cloud (SMAC) applications; these currently take about 60% of annual investment which is expected to rise to 80-90% by 2019/20. Infosys unveiled an innovative mobile modular platform to drive e-commerce programmes across retail channels.