12 Oct 2017

Nestlé India mending fences

In the private sector, Nestle India has been mending fences with the FSSAI: the company will set up a food standards safety institute in Manesar. The company is consolidating product lines and focusing on supporting home cooking. ITC is exploring ways of penetrating the health and wellness sector. The company looking to generate $10bn in revenues from the package foods sector by 2030. In the hospitality field, the company is also planning 40 new hotels with 5,000 rooms in India.GDP growth will be depressed for another couple of quarters as the economy recovers from demonetization and get to grips with the adoption of GST. Against that background, market momentum may be subdued.

11 Oct 2017

Steady interest rates, more tax collection

Initial reports on the GST rollout suggest that collection of the new tax exceeded government expectations by 1.5% in spite of the fact that 36% of projected assessees failed to file. It does appear, however, that some small and medium enterprises are suffering cash flow problems when their input GST rates differ from their output rates, given the delay in recovering input deductions. Meanwhile, Aadhaar-based direct benefit transfers have exceeded $13bn. First quarter GDP growth was a disappointing 5.9%. Manufacturing grew by a mere 1.2% and agriculture just 2.3%. Services grew by 8.7%, with a 6.4% contribution coming from financial services. September’s manufacturing PMI was 51.2, the same as August and the Services PMI recovered from two months of contraction to register 50.7 in September. August CPI inflation was 3.4%, up slightly on firmer food prices, but the WPI number was softer at 3.2%. The RBI monetary policy committee held interest rates steady at its latest review.

10 Oct 2017

Monsoon season closing

The monsoon season has drawn to a close, with aggregate rainfall less than 5% below the long period average, which is defined as a normal monsoon. The dispersion has been very uneven though, with a number of regions in shortfall, yet others reporting late season flooding. As a result, Kharif cropping is about 2-3% down on last year. The late flooding is leaving much improved moisture content in the soil, which will provide well for the Rabi crop. Reservoir levels are still improving though the late moisture retention will help a lot. Overall, expectations for aggregate rural demand through the festive season are good. In order to protect farmers against market risks on their cops, the government is introducing an ambitious crop insurance scheme. This will insure farmers against crop volume risk due to adverse weather conditions.    

9 Oct 2017

Equities: broad upward momentum

Equity markets continue to enjoy broad upward momentum while growth is sustained and, in particular corporate earnings continue to please. Another US interest rate hike this year is now the consensus, even if the underlying inflation expectations are not convincing. Indian markets have been vacillating in a range of 500 points around the 10,000 level without seeing much sustained upward momentum or, indeed downside risk. Has increased by just 1.2% to 9980 after trading in a range of 5.1%. Average daily trading volumes have shifted upwards with a trailing average now at $4.7bn and daily numbers rising every week. Foreign portfolio investors have been consistent sellers of Indian equities on a relative valuation basis for some time now, unloading a net $3,1bn in the latest month. Domestic institutions have largely offset this, buying a net $2.8bn in ash equities but brokers are also reporting a substantial increase in retail buying in the expectation of recent returns being repeated. Volatility remains subdued nonetheless, with the India VIX trading in a narrow range between 9 and 14 before settling at 11. Market breadth is narrow as the market declines but strong on the rise. Nifty futures are typically trading at a premium of 1% to cash.

6 Sep 2017

Corporate news: ITC, Indian Hotels

In the corporate sector, ITC announced a price rise for its premium cigarettes of 20% to absorb the extra tax due to GST. The company also announced that it intended to enter the Healthcare sector by establishing a multi-specialist hospital. Indian Hotels announced a rights issue to raise about $240mil in additional capital. The dilutive effect will depend on the proportional distribution of the proceeds between debt reduction and new investment.

5 Sep 2017

Lawyers have been busy

We have seen a number of interesting legal decisions handed down. In the first, of constitutional significance, the Supreme Court has held that personal privacy is a fundamental right. This was in response to a case brought in protest about the application of the Aadhaar programme. The judgement might restrain the government’s ability to continue to rollout the use of Aadhaar for benefit schemes for its 1.3bn holders. In another judgement, the Court struck down the Muslim divorce process by which a man can easily divorce his wife. This was a very popular decision particularly among women but it will require a statutory response which will be highly controversial. Moving up the geopolitical plain, India has resolved a rumbling dispute with China over disputed building works on the Doklam Plain in Bhutan, India’s client-state. This resolution precedes a state visit to China by Mr. Modi which is to promote the burgeoning trade relations between the two countries.

Pretty good monsoon

The monsoon has eased off and is now standing at a slight reduction on the previous year’s rainfall. Kharif sowing exceeds 92% of last year’s acreage; reservoir levels are 27% lower than last year.