27 Jun 2017

Inflation on the way down


A new data series for the Index of Industrial Production (IIP) showed growth of 3.1% in April compared to 3.8% in March. The figure was depressed by seasonal weakness in Capital Goods, which contracted by 1.3%. Numbers may be subdued in the current quarter because of traders discounting heavily to move stock before they have to adjust for GST on July 1st. This may offset any benefit from remonetization, but the combination of remonetization, restocking and rising consumer confidence from a good monsoon may deliver a sharp recovery in Q2FY18. Inflation figures for May showed a sharp fall as CPI came in at 2.2%, mostly driven by a decline of 1.1% in food prices; fuel and power prices rose. Core CPI rose by 4.1% but the below target figures were not enough to prompt any policy rate reduction by the RBI. In fact the MPC minutes showed quite strong resistance. Net Income Tax receipts for FY18 up to June 15 are showing an increase of more than 26% to almost $16bn.

Mixed picture on equities markets


Equities have been mixed over the past couple of weeks as investors reflected on how far markets have outpaced economic policy and data. Indian markets have seen two weeks of mixed trading, a bit flat-footed as investors wait to see the impact of GST adoption on July 1st. The Nifty 50 gave up 93 points to end 1% down at 9575 after trading in a range of just 1.2%. Average daily trading volumes dropped back a little towards the trailing average at $4.2bn as FPIs sold a net $281mil in cash equity and domestic institutions were net buyers of $401mil. Volatility was low as the India VIX again traded in the 9 to 12 range but eventually closed two points down at 9. Breadth was narrow, with declines ahead of advances by 6 to 4. The immediate outlook seems to be for continued range trading as index futures closed at a premium of just 0.7%.

Good monsoon, inspiring perspective


The monsoon is progressing well with good rainfall and spatial coverage. As a result, kharif sowing is ahead of last year. Consumer sentiment is rising, especially in urban areas. The government will go soft on small businesses struggling to adapt during the early phases of GST adoption. PM Modi has set off to meet President Trump in Washington. The market is closed for Eid, so this week’s action may be subdued.

15 Jun 2017

Good monsoon

There is some concern about state level plans for cancelling farm debt. In fact it appears that the size-limits for application of the policies are so restrictive that the effect may not be significant.  Meanwhile, the outlook for the farming community continues to improve with the arrival of what is now expected to be a good monsoon.

14 Jun 2017

Further rate cut prospects may be good

At its June monetary policy review, the RBI held the repo rate at 6.25%, in spite of evidence of weak growth and benign inflation. In fact it revised its own GDP forecast for FY18 down to 7.3% with an adjusted inflation target of 4% for year-end. The decision was not unanimous and the tone of the report was neutral suggesting further rate cut prospects may be good.

13 Jun 2017

#nestle, #tcs, #kotak mahindra bank

In the private sector, Nestle India continues its efforts to broaden market share by launching iron-fortified, low-salt lines of Maggi instant noodles aimed at health conscious consumers. ITC is also broadening its market appeal by adding frozen foods and planning a launch of sauces and condiments. Infosys reports institutional clients pushing for 20-30% cost reductions over a five year period. TCS applied for less than a third of previous numbers of H-1B visas in the US last year as it stepped up recruitment from US engineering and business schools. Kotak Mahindra Bank is to seek approval at its AGM in July for $800mil in additional capital funding. It plans to raise this amount by way of private placement of convertible securities.

12 Jun 2017

World Bank: India +7,2% growth

The World Bank is forecasting a recovery for India to 7.2% growth in FY18 as evidence of benefits from what has turned into 'remonetization' starts to feed through. Early evidence shows a dramatic jump in the number of digital transactions; debit card transactions have jumped by a factor of ten over a twelve-month period. Some effects of the move towards implementation of GST on July 1st are appearing: retailers are offering up to 40% discounts in order to shift inventory in advance. Agreement by the GST Council on applicable rates for GST seems to have inspired foreign investor sentiment as FPIs invested a net $4.2bn in Indian debt and equity markets in May.

11 Jun 2017

ITC, Indraprashtha Gas, Torrent Pharma

We had three results to consider this week: ITC reported sales ahead by 10.5% and profits by 7%. Indraprashtha Gas reported sales growth of 12.9% and earnings growth of 22.9%. Torrent Pharma disappointed with sales down by 6.2% and profits down by 42.3%.

Improving European grwoth prospects

Equities remain in demand as European growth prospects improve and markets accept continued withdrawal of stimulus in the US. Indian markets are range-bound near all-time peaks supported by foreign and domestic buying. The Nifty 50 has added just 73 points to reach 9668, a gain of just 0.8% after trading in a range of 1.7%. Average daily trading volumes remained above the trailing average at $4.5bn as FPIs bought a net $48mil in cash equity and domestic institutions were net buyers of $170mil. Volatility stayed subdued as the India VIX traded in the 9 to 12 range before closi ng where it opened at 11. Breadth was narrow, with advances just ahead of declines by 5 to 4. The outlook seems for continued range trading as index futures closed at a premium of just above 0.5%.

India’s per capita income: +10%

Fourth quarter GDP growth fell to 5.6% as the impact of demonetization continued to feed through. Private investment remains a weak contributor. The central fiscal deficit for the year met the government’s target of 3.5% of GDP. India’s per capita income grew by 9.7% in FY17, to $1,600. Purchasing managers’ index figures for May give conflicting signals, though both sub-indices continue to indicate growth. The manufacturing PMI slipped from 52.5 in April to 51.6 while the Services PMI advanced strongly from 50.2 to 52.2.

4 Jun 2017

3 reasons to invest in India via Himalayan Fund

Investing in the dynamic and emerging market India is a solid contribution to every portfolio. Three reasons to do so:

1) The main reason the invest in Himalayan Fund is the return. The return historicly has been very good and the fund management proofed to be able to make the right selection of the last years.

2) Himalayan Fund is the only foreign investment fund that can trade direct on the stock exchange of Mumbai, hence no middlemen, no extra costs.

3) The dual-listing at the London Stock Exchange and Euronext Amsterdam offering excellent liquidity.

1 Jun 2017

HCL and TCS do buy-back

HCL Tech and TCS have commenced their share buyback tenders. Kotak Mahindra Bank has approved an increase in its FPI limit from 43 to 44%, subject to regulatory approval. Indraprashtha Gas will buy out its joint venture partners in Central UP Gas and Maharashtra Natural Gas to take control of both entities.

Uncertainty and changes

GST is on track for July 1st implementation and the GST Council has set the applicable rates for 80-90% of goods and services (1211 items) and is trying to limit the list of exemptions to just 100 items. Pending implementation, some dealers may be deferring purchases which might cause a temporary drop in excise duties. All vehicles, boats and private planes have been assigned the top 28% rate. Following the recent global cyber attack, the RBI has instructed banks not to reopen ATMs until obsolete operating software has been upgraded. The government intends to direct physicians to prescribe only generic drugs where possible which will be a blow to local branded medicine producers.

31 May 2017

Slow food inflation

April CPI was 3%, compared to 4% in March helped by the slowest food inflation number since FY04. Food inflation was just 1.2% thanks to vegetable and pulse prices retreating. Core inflation, at 4.4% was also below trend.  A new IIP index, rebased to FY12 shows that industrial production ahs been growing stronger and more consistently than indicated by the old series: FY17 growth was 5%, with manufacturing growing 4.9%, consumer durables 6.2% and consumer non-durables 9%. Total FDI for FY17 amounted to $60.1bn; the cabinet has just approved the abolition of the Foreign Investment Promotion Board which as presided over inward investment for 25 years.

30 May 2017

Mixed bag of quarterly results

We had a mixed bag of quarterly results with more evidence of consumer-facing stocks suffering revenue headwinds from demonetization. Bajaj Auto saw sales fall by 8% and profits by 9.9%. Pidilite sales rose just 4.3% and profits gained a modest 6%. Nestle sales grew by 8.1% and profits by 11.9%. Lupin sales came under pressure in the US and grew by just 1.7% while profits dropped by more than 50%. VIP Industries reported sales growth of 12% and profits growth of 41%. Firstsource Solutions sales grew just 2.2% and profits retreated by 19%. Heidelberg Cement reported sales growth of 33% and profits ahead by 52.4%. Finally, with a burgeoning order book, Kalpataru Power Transmission reported sales ahead by 12.5% and profits by 37% as margins expand on new orders. About two thirds of the way through the quarterly results, Nifty constituent stocks have reported an average of 14% sales growth and 25% profits growth.

Record highs, low volatility

Global markets continue trade near record highs with record low volatility in spite of the Fed’s commitment to gentle tightening and sustained stimulative policies by the other major central banks. India continues to test new equity market highs though top-of-the-market sensitivity to surprises is evident. The Nifty has made new highs, adding 194 points to close 2.1% higher at 9595 after trading in a range of 2.8%. Average daily trading volumes were $4.5mil, above the trailing average while foreign investors were almost completely absent, selling a net $7mil of cash equity. Domestic institutions were more confident however, as sustained mutual fund inflows drove net equity purchases of $405mil. Volatility was stable with the India VIX trading between 9 and 13 before closing unchanged at 11.  Market breadth was even as advances just matched declines and following the recent pattern, Nifty futures closed at a small premium to cash.

Monsoon already started

The monsoon looks like arriving early; it is already causing flooding in Sri Lanka.

16 May 2017

Novartis sells to Torrent Pharma

Kotak Mahindra Bank has bought out Old Mutual of the UK from its minority position in their life assurance joint venture for a consideration of USD 200mil.The leading private sector bank has announced   a qualified institutional placement of 62mil shares at 913 Rupees a share to raise an expected USD 1bn in new capital. Nestle will try to reduce its dependence in India on the Maggi brand by introducing some of its 2000 globally branded products. Lupin has received USFDA approval to market its generic Olmestan Medoxomil blood pressure lowering drug in the US market. Following an inspection of its Aurangabad facility in Maharashthra Lupin was served a 483 letter with eight observations. Torrent Pharma has acquired two popular women’s’ healthcare brands for the Indian market from Switzerland’s Novartis AG.

Infosys hiring 10,000 technicians

Tacking into policy headwinds in the US, Infosys announced that it would be hiring an additional 10,000 US national technicians and opening four new technical centres, starting with Indiana in August. Meanwhile the company has started its annual performance appraisal process in India, which could see hundreds of underperformers losing their jobs. 

15 May 2017

HCL Technologies as bright spot

Results announcements included Agro Tech Foods which reported sales just 4.1% up and profits ahead by just 1.1% as demonetization effects came into play. Shemaroo Entertainment saw sales down by 4.1% and profits don by 16.4% as advertising revenues were cut back sharply due to the currency withdrawal. One bright spot was HCL Technologies which distinctly for its sector reported a robust 12.7% revenue growth and a 20.9% advance in profits. Earnings guidance from HCLT was also strong.

Annual Report, Euronext / London Stock Exchange

Himalayan Fund’s 2016 annual report is available for download from the Fund’s website: www.himalayanfund.nl.

Domestic liquidity sustaining force in Indian equity

India’s telecom subscriber base had grown to 1.18bn at the end of February. April’s Nikkei Purchasing Managers showed continued expansion. The Manufacturing Index was 52.5 slightly up from March and the Services Index was 50.2, down from 51.5 in March, but expanding nonetheless. Mutual fund managers bought USD 1.6bn of equities in April compared with a total of USD 6.3bn for the whole of the year ended March 31st. This is further evidence that domestic liquidity is becoming a sustaining force in Indian equity markets and the timing suggest strongly that demonetization has made a strong contribution. April’s mutual fund inflows of USD 1.5bn were largely driven by burgeoning sales of regular savings plans. This augurs well for the ability of Indian markets to withstand the effects of volatile global liquidity.

Low volatility and record highs

Global equity markets have been experiencing very low volatility while major markets have been hovering around record highs. US economic data continue to be a dominant influence and this week we saw mild inflation data and lower than expected retail sales numbers. Soft figures are considered too late to influence Fed policy, however, so markets are ready for another rate rise in June. In India the Nifty closed 97 points up at 9401 for a 1% advance after trading in a range of 1.9%, including a high of 9450. Average daily trading volume was USD 4.7bn, still well above the trailing average of $3.8bn a day. Foreign portfolio investors were small net buyers, of $38mil, while domestic institutions sustained their steady buying, adding USD 155mil. The India VIX traded in a narrow range again, from just below 11 to just over 12 before ending at 11, for no change. Market breadth was narrow, with advances just ahead of declines and points’ contributions to index movement widely spread. Once again, Nifty futures closed at a slight premium of just 0.4% to cash.

4 May 2017

GST will make markets volatile

Indian equities have appreciated to 2.7% of global market capitalization, compared to a trailing six-year average of 2.1%; rapid growth in aggregate capitalization suggests the market will continue to be supported by inflows from ETFs and index funds. A study by the US Federal Reserve estimates that the introduction of nationwide GST will boost GDP by up to 4.2% over time as lower taxes on manufactures boost output and reduce the cost of products. The introduction of GST on July 1st will probably lead to some destocking in June, an increase in working capital, a boost to market share for larger companies and an increase in compliance costs.

3 May 2017

HCL, Singapore Exchange, Andhra Pradesh: all good news

In corporate news, HCL Techno has signed a memo of understanding with the government of Andhra Pradesh to establish a campus in the Vijayawada-Amarati region. The company has negotiated a five-year extension to its IT services engagement with the Singapore Exchange. HCL also announced the acquisition of US based Urban Fulfillment Services for a consideration of up to $30ml. Lupin’s Goa plant as undergone a USFDA inspection for the third time in fifteen months. The latest F483 letter raised three observations which are mostly procedural but Goa produces 63% of Lupin’s US sales. The company has received USFDA approval for its generic version of Novartis’ TOBI inhalation solutions as well as for a generic version of Wellbutrin XL tablets which have US market sales volume of $755mil a year. The stream of approvals continued with approval for two generic treatments for HIV-1. Aurobindo Pharma also received a F483 letter for its Hyderabad facility; this one had six observations. At the same time, the company got USFDA approval to market two generic extended release tablets. Staying in the Health sector, Torrent Pharma is close to finalizing a deal to acquire Novartis’ women’s healthcare portfolio in India.

2 May 2017

Monsoon and consumer confidence

India held its position as the largest recipient of remittances from abroad in 2016, although the overall figure of $62.7bn was 9% lower than the previous year. Following the release of the preliminary monsoon forecast, forecasters have been downplaying the potential impact of El Nino in favour of the more beneficial Indian Ocean Dipole Effect. This is important for consumer confidence. 

HDFC Bank, TCS Kotak Mahindra Bank - all doing well

We have seen the first run of quarterly results affecting stocks in our portfolio. Infosys opened with sales ahead by 3.4% annualized and profits more or less flat. The company announced that it will increase its payout ratio to 70% in dividends and share buybacks. Continuing with the tepid trend in the sector, TCS reported sales ahead by 4.2% and profits by 4.2%. HDFC Bank raised the tempo a bit with an advance of 21.3% in net interest income and 18.3% in profits. The top private sector bank’s board authorized issuance of nearly $8bn in debt instruments over the next 12 months through private placements. Kotak Mahindra Bank vindicated our long-held confidence with a 16% gain in NII and a 40% jump in profits. Supreme Industries suffered slightly from a demonetization effect, with sales ahead by just 7.7% but profits jumped by 20.1%.

HF, annual report available (HYF:LSE / HIMFD:AEX)

Himalayan Fund’s 2016 annual report is available for download from the Fund’s website: www.himalayanfund.nl.

Cling to record levels

Equity markets continue to cling to record levels though they are finding it hard to sustain upward momentum. The US administration’s efforts to fulfill election promises on policy initiatives are also meeting resistance, so investors’ confidence in making America great again may be waning. In India, a lukewarm results season has not so far excited investors but consistent domestic liquidity support is holding the markets at historic highs. The Nifty has added another 153 points or 1.7% to 9304 after trading in a range of 3.2%. Average daily trading volumes moved further above the trailing average to $4.8bn in spite of net selling of $434mil by foreign portfolio investors. Domestic institutions more than compensated buying a net $712mil in cash equity. Market breadth was good with advances exceeding declines by 30%. Volatility stayed muted as the India VIX traded at historic lows: it opened at 12 and traded up a point before sinking back to close a point lower at 11; in the meantime it fell below 10. Reflecting the difficulty in sustaining firm upward movement, index futures traded at a premium of just 0.4% to cash.

21 Apr 2017

IPO of Avenue Supermarkets

FPIs bought a net $4.7bn in cash equities in March, the highest monthly volume ever. Domestic interest in the market was sustained in the IPO of Avenue Supermarkets, which was oversubscribed by 104 times. Finally, Infosys reported fourth quarter sales ahead by 3.4% and flat earnings, in spite of headwinds from INR appreciation and visa issues in the US. China has reported quarterly growth of 6.9% which will be compared with India’s Q4 number soon; forecasts suggest a number in the low sixes, for an annual rate of 6.7%. The RBI is forecasting 7.4% for FY18. India is already domestic demand driven, something for which China is striving.

20 Apr 2017

Kotak Mahindra Bank, Kawasaki, Kalpataru Power Transmissions

A Supreme Court decision blocking the manufacture and sale of vehicles under old BFIII emission astandards with effect from April 1st will affect some motorcycle manufacturers. Bajaj Auto will be unaffected. However as it implemented the new BFIV standards at the start of the year and has no old stock in the system. Bajaj announced that it will terminate its sales and service agreement with Kawasaki in India. Kotak Mahindra Bank announced plans to raise $800mil in capital by various means to take advantage of concentration opportunities as well as to finance digital capabilities. The Chairman’s interest will be diluted by 3.4% as a result. Kalpataru Power Transmissions announced new orders worth $180mil in Telangana and Oman.

Indian corporate news, looking good

HCL Techno announced a share buyback of 35million shares at a 16% premium to the market price on the announcement date. This is equivalent to a special dividend of INR24 per share or the sum of the previous four quarters’ dividends. The buyback will absorb almost 30% of the cash on the balance sheet at the end of the third quarter. The company is in negotiations to settle a $100mil lawsuit from Miller Coors over breach of contract on a project to implement SAP software at the brewing company.

19 Apr 2017

RBI target: 4,75% plus

The RBI has revised its target forecast upwards to 4.75% for the end of FY18 but the dismantling of the agricultural price maintenance structure, subdued energy prices and the introduction of GST should allow this to be met. Meanwhile, policy rates were left unchanged. The RBI was focused mainly on managing the excess liquidity in the system while keeping an eye on inflation. A perpetual concern is the monsoon and an independent forecasting agency has forecast rainfall of 95% of the long-period average this year with a 5% margin of error. They are predicting a 60% probability of the El Nino effect limiting rainfall from July onwards.

Reforms are counter-inflationary

Towards the end of March, a surge in the value of foreign currency assets drove the country’s external reserves up by $2.7bn in a week to more than $366bn. Nikkei Purchasing Managers’ indices moved decisively into growth levels: Manufacturing to 52.5 compared to 50.7 in February and Services to 51.5 after 50.3 in February. March CPI was higher, at 3.8% but imminent reforms are likely to be counter-inflationary.

Surge in gold imports

India’s current account deficit widened in the third quarter due mainly to a surge in gold imports during the festival period. The balance of payments was further affected by sharp FPI outflows caused by the Trump effect and demonetization as well as redemptions of non-resident foreign currency deposits which were maturing. In the end, the third quarter balance of payments was in deficit by $1.2bn compared to a surplus of $8.5bn in the previous quarter. 

18 Apr 2017

Last weeks, Indian shares in numbers

The Nifty 50 stands pretty much flat at 9151 despite trading in a range of 2.7%. Average daily trading volumes have been very high at $5.3bn by comparison to a trailing average of $3.6bn. Some of this may be due to promoters shuffling their holdings in anticipation of changes in the capital gains tax regime effective April 1st. Foreign portfolio investors bought a net $1,481bn while domestic institutions were also net buyers, of $220mil. In spite of the powerful flows, however, market breadth was narrow, with advances barely exceeding declines. Volatility remains low, with the India VIX continuing to hold its range, trading down from 12 to 10 before closing where it opened. Index futures closed at a premium of just 0.6% again.

Sharp recovery in foreign inflows

Since our last commentary, the failure of Obamacare reform in the US has tempered the optimism in equity markets and turned attention more towards the difficulties of achieving policy action in the Congress. In India, excessive pessimism about the effects of demonetization has been succeeded by a sharp recovery in foreign inflows. The market has been testing historic peaks but resisting a decisive breakthrough. 

9 Mar 2017

Bumps in the road

The next quarterly results and GDP figures are going to be overshadowed by the introduction of GST on 1 July. The GST Council is setting an upper limit of 40% in the new Act to allow future increases if required. Initially it will be levied at a range of rates up to 26%. The technology appears to all in place but there will be bumps in the road. Nonetheless, the government will have executed two major reforms within twelve months.

Partners with Facebook

In the private sector, the board of TCS has approved the repurchase of 56.1million shares for about $24bn, at a maximum price of Rs.2800. This is the biggest ever share repurchase in Indian history. The board of Infosys, considering a similar move, has initiated an amendment to the company’s Articles of Association which do not currently allow such a move.  Shemaroo Entertainment has contracted to provide content to VIU for its view on demand (VOD) service available through its website or iOS and Android apps. The company is also partnering with Facebook to launch a live music web show. Lupin’s Japanese subsidiary has agreed exclusive distribution rights with Astellas Pharma Inc. for its quetiopene fumarate extended release tablets in Japan. The company has also received USFDA approval for generic sodium, potassium ad magnesium sulfate used in colonoscopy.

8 Mar 2017

India’s external strength

The Foreign Investment Promotion Board has aproved 15 FDI projects worth a total of $2bn. In the first three quarters of FY17, 2,500 new applications for FPI status which may partly explain the recent acceleration of FPI purchases of Indian equities. In an interesting reflection of India’s external strength, the country’s holdings of US Treasury paper now stand at $118.2bn, making it the twelfth largest foreign holder.

7 Mar 2017

Accelerating activity

More evidence on the impact can be read from the Q3 GDP figures. These show a decline to 7% from an adjusted 7.4% the previous quarter. This is much better than expected and tends to confirm the growing sense that expectations were excessively pessimistic. The latest growth was led by a 19.9% increase in government expenditure combined with an impressive increase of 10.1% in consumption. Gross Fixed Capital Formation pulled overall growth down, increasing by only 3.3%. The official growth forecast for FY17 has been held at 7.1% but the Q3 figures combined with anecdotal evidence suggest that a positive surprise may be in the offing. The Nikkei Purchasing Managers Index for February may be confirming this: a modest increase from 50.4 to 50.7 suggests accelerating activity. Although January’s core sector growth figure slowed to a five-month low of 3.4%, it’s worth noting that the number was depressed by contraction in refinery products, fertilizers and cement, three areas heavily affected by demonetization.

Strong growth 'consumption stocks'

The third quarter results were broadly in line with expectations overall and suggested that the worst effects expected from demonetization have been postponed, if not exaggerated. Annualized earnings growth for the Nifty was 14% with a particularly strong performance coming from consumption-orientated stocks. Many of these also showed encouraging signs of a shift from unorganized to organized business segments. Earnings downgrades have been a depressing feature of earlier quarters but the momentum of downwards revisions may be slowing. We may start seeing upgrades for fiscal FY18 and 19 based on the manner in which front-line stocks have been improving operating metrics. Q3 results are not really enough on which to make a judgment on the full impact of demonetization but the current quarter should be conclusive.

6 Mar 2017

Adjusting markets, strong volumes

Markets are adjusting to the removal of monetary accommodation with the Fed now expected to raise rates in March. The Indian market has sustained momentum though equity flows have now switched from domestic to foreign investors. Since our last commentary, the Nifty has gained 76 points, to close 0.9% up at 8898 after trading in a range of 2.1%. Average daily trading volumes have remained strong at $3.5bn while foreign portfolio investors have bought more than $1bn in cash equities as domestic institutions unloaded $244mil. Volatility has been stable with the India VIX trading narrowly between 12 and 14 before closing where it opened at 13. Market breadth was narrow, however, with advances just ahead of declines. The only substantial points contributor was Reliance Industries, on the back of the announcement of its telecommunications pricing strategy after an introductory discount phase. Index futures closed at a discount of just under 1%. 

23 Feb 2017

Closing down of 'ghost accounts'


The RBI held interest rates steady at its recent monetary policy review. It adjusted its overall policy stance to neutral from easy to reflect hardening commodity prices and external concerns. The RBI GDP forecast has been adjust downwards to 6.9% for the current fiscal year and 7.4% for next, largely reflecting the impact of demonetization. On the fiscal side, indirect tax collection has increased by 23.6% year to date, largely due to duty increases on fuel. Direct taxes collection is 10% up. The government has closed 33 million fake, duplicate and 'ghost' accounts saving some $3bn in subsidy payments.

22 Feb 2017

Content House of Shernaroo Entertainment


Shemaroo Entertainment reported sales growth of 12.2% and profits ahead by 13.3%. The company is a long established 'content house' with a library of 3,000 titles. It has made two ne key appointments. A new COO has been appointed with specific responsibility for New Media Business, to scale up and drive the company’s digital content consumption volumes. It has also appointed a new head for its direct to home business to drive content strategy and revenue generation. The company has also assigned public performance rights for the songs in its film library to an independent agency, Novex, in order to exploit the revenue potential.

Bank merger pending


Indian Hotels has announced that it will rebrand all of its hotels under the name of Taj Hotels, Palaces, Resorts and Safaris. Both Infosys and TCS are due to consider share buybacks at board meetings in the next couple of weeks. Kotak Bank and Axis Bank have both denied persistent market rumours of an impending merger.

21 Feb 2017

Flow of new results: Nestle India, Kalpataru, Aurobino, ...


Third quarter results continued to flow. Indraprashtha Gas surprised on the upside again: sales advanced just 2.7% but profits were ahead by 36.7% annualized on the strength of margin improvement. Lupin reported sales ahead by 31.5% and profits by 20.7% as US sales continued to advance. Aurobindo Pharma reported sales ahead by 11.4% and profits by 6.3%. The company is looking at establishing a plant in the US for producing injectables for the US market, just as the new US President pressurizes the industry to produce more at home. Heidelberg Cement disappointed with sales down by 5.9% and profits lower by 59.8%. Kalpataru Power reported sales ahead by 28.8% and profits by 57.4% as project execution continues to improve; the company also announced $125mil on new contracts at home and overseas. Nestle India sustained its robust recovery from the Maggi instant noodles controversy with a 16.2% increase in sales and 18.4% increase in profits.

20 Feb 2017

S&P 500 'Trump surge'

US equities continued their 'Trump surge' as the S&P 500 reached another record close. The Dollar faltered a bit, however, as markets took stock of a possible disconnect between monetary and expected fiscal policy. In the rest of the world, there were some signs of a tentative return of risk appetites, notably in emerging markets. The Nifty has added 81 points since our last commentary, closing 0.8% up at 8822 after trading in a range of just over 2%. Again the driving force has been domestic buying, as mutual fund inflows added a net $363mil of net cash equity buying by domestic institutions. Foreign investors were scarce but net buyers nonetheless, of $50mil in cash equities. Average daily trading volumes were strong: $4.2bn compared to a twelve month trailing average of $3.bn. Volatility was subdued, however, rather like in the US, as the India VIX traded mostly to the downside of its opening at 13, where it closed unchanged. Market breadth was positive, with advances ahead of declines by 1.3:1. There were some heavy concentrations though: HDFC Bank contributed 37 points on the upside as it emerged from a foreign trading limit only to return promptly after a surge of buying. The IT sector was also strong with TCS and Infosys contributing 62 points on the upside. The Nifty futures reflected the weak upward momentum, closing at a premium of 0.8% to cash.


Bond issuance exceeding new lending in 2016


Domestic bank lending is being disintermediated at a rapid rate with bond issuance exceeding new lending in 2016 for the first time. Outstanding domestic bonds now stand at 35% of total corporate borrowings. In equities, domestic mutual funds infused $750mil into markets in January, bringing volumes for FY17 year to date to $9bn. Domestic investor appetite for equities sustained momentum during the recent selloff by FPIs.

10 Feb 2017

Some weekend reading, growth through consumption

Then came the Union Budget, which was a model of consistency and stability, clearly aimed at pleasing voters in the run-up to a series of state elections. The overall fiscal deficit target has been set at 3.2% of GDP, a little higher but backed by a conservative fiscal plan. Taxes have been reduced for lower earners and small companies and raised for the wealthy.  Substantial increases were announced for expenditure on capital investment, rural support and healthcare. The government is intent now on stimulating growth through domestic consumption, capital expenditure and infrastructure development. The FY17 GDP forecast is 6.5% to account for the adjustment to demonetization, accelerating to 7.2% in FY18. With the operational metrics of Indian companies improving all the time, commitment to Indian markets looks like being rewarded again.

9 Feb 2017

Lupin US approval

Lupin’s stream of ANDA approvals in the US continues. The company has received approval to market its morphine sulfate extended release tablets for pain management, Paroxetan extended release tablets, a generic version of Paxil anti-depressant and a generic version of the Ortho Cyclon contraceptive pill. Nestle’s MAGGI instant noodles have now recovered 60% market share since the additive scandal. Bajaj Auto is planning to re-enter the Indonesian motorcycle market with its European brand KTM. Kotak Mahindra Bank has sold a 2.1% interest in South Indian Bank for a consideration in the region of $10mil. The bank has been instructed by the RBI to cut its promoter’s interest to 30% by June 2017 and to 20% by June 2018.

Acceleration of local boost in equities

SEBI numbers confirm the acceleration of local interest in Indian equity markets in January as domestic mutual funds were buyers of a net $750mil in cash equity. In spite of a modest recent recovery in foreign buying, FPIs were still net sellers of $900mil during January.

8 Feb 2017

Major breakthrough

A major breakthrough in negotiations at the GST Council has enabled it to set a July 1st launch date. The Foreign Investment Promotion Board has approved a number of FDI proposals outside of the automatic approval channels, worth $180mil. It was subsequently announced in the Union Budget that the FIPB would be abolished by FY18. The government is considering allowing 100% investment in single-brand retail to stimulate investment. The centre has raised $5bn in disinvestment proceeds this fiscal year so far, a record number. The Manufacturing PMI accelerated again to 50.4 in January after dropping below 50, to 49.6 in December.

HDFC Bank, Kotak Mahindra Bank, Bajaj Auto, Pidilite Industries and Torrent Pharma

The third quarter results season is turning into a pleasant surprise with 58% of companies reporting numbers equal to or better than expected. In aggregate, so far profits are ahead by an average of 10.5% compared to consensus estimates of 5.7%. In our portfolio, Agro Tech Foods announced revenues ahead by 2.7% and profits by 28.8%. HCL Tech reported revenues ahead by 14.2% and profits by 7.9%. HDFC Bank reported net interest income ahead by 17.6% and profits by 15.1%. Kotak Mahindra Bank reported NII ahead by 67.6% and profits by 38.6%. Supreme Industries reported revenues ahead by 10.5% and profits by 35.8%. Bajaj Auto showed the most obvious effects of demonetization with sales down by 9% and profits ahead by just 2.6%, a positive surprise nonetheless. Pidilite Industries reported sales down by 0.3% and profits ahead by just 9.1%. Finally, Torrent Pharma reported sales down by 7% and profits by 21%.

Trading volumes accelerated

Average daily trading volumes have accelerated to $3.8bn. Volatility has remained stable, however, with the India VIX trading up as far as 17 at first before receding, to close at 13 for a drop of a point. Breadth was moderate with advances exceeding declines by three to two, consumer stocks in particular drawing buyers. Nifty futures are trading at a premium of about 1.5% to cash.

7 Feb 2017

Grab the opportunity

Domestic investors were quick to grab the buying opportunity and are now being followed, cautiously by foreign portfolio investors. The Nifty has added 341 points since our last commentary, adding 4.1% to close at 8741 after trading in a range of 4.6%.  FPIs have progressively invested a net $212mil in cash equities while domestic institutions have bought a net $435mil.

Uneasy investors

Investors are uneasy about what is coming next in the US, clearly the dominant influence on market direction. The dollar and US equities remain overbought, waiting for earnings to catch up. Meanwhile, India has overcome the initial panic reaction to demonetization and is realizing that the negative effects may have been exaggerated.

27 Jan 2017

Supreme Industries, HCL Tech and Generis Farmaceutica

Supreme Industries has enjoyed a 25-30% reduction in input costs which has helped it boost market share, especially in plastic pipes and consumer products. The company expects to sustain the 20% CAGR in sales it has achieved over the past five years. HCL Tech completed its $85mil acquisition of Butler American Aerospace on January 3rd. Aurobindo Pharma announced the acquisition of Generis Farmaceutica for EUR 135mil, to become the largest supplier of generics in Portugal. The acquisition is seen as fair value and EPS accretive. The company also announced USFDA approval for its generic Levetiracetam sodium chloride injection for epileptic seizures. Lupin has received USFDA approval for its generic Desoximatasone cream for skin disease and for Cevimeline hydrochloride capsules for treating 'dry mouth' in Sjogren’s syndrome.

25 Jan 2017

Phones for everybody!


FDI flows in the first seven months of FY17 increased by 27% over the comparable period of FY16, reaching an aggregate of $27.8bn. In calendar 2016, foreign portfolio investment went the opposite direction, as FPIs sold a net $3bn in so-called “hot money”. The government raised $3bn in the first eight months of FY17 by selling stakes in state-owned enterprises, about 60% of its target for the year. By the end of 2016, India had 1.1bn active mobile phone SIM cards, in a population of 1.3bn!

20 Jan 2017

PMI numbers, inflation, growth

Temporary effects of demonetization can be seen in the latest PMI numbers. The December Services figure was 46.8, almost unchanged from November. The Manufacturing number came in a 49.6, down from 52.3 in October. Core sector growth in November was 4.9% compared to 6.6% in October; the strongest growth came in coal production and electricity generation. Core sector numbers contribute 38% of the Index of Industrial Production, which grew 5.7% in November compared to contraction of 1.9% the previous month. In both periods, Capital Goods was the swing sector. Having contracted by 25.9% in October, the sector grew by 15% in November. A clear beneficiary of demonetization was the inflation rate: CPI dropped to 3.4% in November largely thanks to food: vegetable prices fell by 14.6% and pulses by 1.6%. The RBI’s MPC held rates at 6.25% while the RBI cut its GDP forecast for FY17 from 7.6% to 7%.    

18 Jan 2017

TCS, Infosys, Tata and US Congress

The third quarter results season is already upon us with the bellwether IT stocks announcing numbers which were more or less in line with expectations. TCS reported revenues ahead by 8.7% and profits up by 10.7%. The company announced the appointment of its CFO as CEO, replacing predecessor Chandrasekhan, who has been appointed Chairman of Tata Sons Ltd. Infosys reported revenues ahead by 8.6% and profits by 7%. Both companies emphasized tough trading conditions and refined forward guidance slightly. A move in the US Congress to amend H1-B visa requirements by raising the minimum salary to $100k and remove the “masters’ degree” exemption could present an additional headwind in future.    

16 Jan 2017

The Dollar and the market


The Dollar and US markets have dominated the news since the Presidential election. At the end of the last trading week before inauguration, both showed signs of running out of steam, as Mr. Trump’s first press conference caused tremors in the currency market. In spite of some good bank results, US equities were softer. In India, the first two weeks of the year have witnessed a steady recovery in equities, as the Nifty added 214 points to close 2.6% up at 8400 after trading in a range of 3.3%. Average daily trading volumes at $3bn remained below the twelve month trailing average. Foreign portfolio selling continued as FPIs sold a net $386mil in cash equity, while domestic institutions were net buyers of $413mil. Volatility was stable with the India VIX trading between 13 and 16 before closing at 14 for a fall of a point. Market breadth was strong, with advances ahead of declines by four to one. Nifty futures closed at a premium of 0.75% to cash.  

6 Jan 2017

More revenue for government


In the period April to November, the government recorded an increase of 15.1% in revenue from direct taxation to $60.6bn and in indirect taxation of 26.2% to $81.2bn. The recent mobile spectrum auctions added a further $4.7bn in revenue from upfront payments. November CPI was 3.6%, well below expectations as prices for key food items continued to soften: food inflation is running at 2.6% compared to a twelve month trailing average of over 6%.  WPI also receded slightly from 3.4% to 3.2%.

5 Jan 2017

TCS has been shortlisted


As the year ended, the pace of USFDA approvals picked up, especially for LUPIN. The company received approval for its generic versions of Diclofenac for osteoarthritis pain management, Desoximetazone anti-inflammatory ointment and Voricanazole tablets and oral suspension for the treatment of fungal infections in children. Lupin expects its investments in injectables, inhalers and dermatologicl treatments to accelerate between now and 2020. Indraprashtha Gas may see a slowdown of about 5% in sale volumes due to shortage of cash in the third quarter. It also faces a shortage of CNG converter kits as well as a slight slowdown in industrial demand. Expansion in retail outlets continues, however, as does demand for conversion of vehicles in the Delhi Capital are. TCS has been shortlisted to handle the creation and management of an online interface for taxpayers in the GST rollout.

4 Jan 2017

Expanding tax base


Demonetization had three key objectives: reducing the 'black economy', attacking tax evasion amongst the rich and expanding the tax base boost collections. There is increasing evidence that the first is being achieved, though the second is beset with problems; including evidence that note hoarders have been able to circumvent the exchange rules. Late evidence implies, however, that the third objective will be achieved: December quarter advance tax payments for individuals have increased by 38%. An increase of this scale is sufficiently big to suggest a connection with demonetization. At the end of December, the RBI raised the limits available for note exchanges at banks, with a final exchange date now set at March 31st.

Distribution proceeds to states


Earlier in the year, foreign investors began to doubt the reform credentials of the Modi government, as it struggled with the politics of passing necessary enabling legislation. At the close of the year, we have three significant reforms to measure: first a new Bankruptcy Act which is expected to ease the recovery process for non-performing loans, particularly at state-owned banks. Second, the GST Constitutional Amendment Act is in the process of implementation through a GST Council, which by now has established many necessary operating rules and procedures. One major decision remains to be addressed at the next Council meeting in early January: the distribution of the proceeds between the centre and states. Finally, we had demonetization, implemented quite decisively without any leakage but perhaps with the unintended consequence of seeing off RBI Governor Rajan who is believed to have opposed the idea.

3 Jan 2017

Demonetization left the market exposed


Negative investor sentiment arising from the demonetization move left the market exposed to the sustained liquidity drain towards the US in the absence of clarity on the outcome of the policy. What is clear is that GDP growth in the third quarter of FY17 will be reduced by some 1-2%, dragging the year’s outcome to somewhere in the 6.5-7% range. The outcome depends on how quickly a recovery develops when the availability of new currency notes catches up with demand and deferred purchases of discretionary items are completed. Meanwhile, non-cash transaction volumes continue to rise.

2 Jan 2017

#nifty at premium to cash

Since our last commentary global markets have been mesmerized by the Trump phenomenon with liquidity continuing to be drawn towards an increasingly overvalued US dollar and US equity markets. Notably thee is no sign yet of earnings forecasts for US companies being upgraded to match the resulting multiple expansion. In India, FPI withdrawals have continued, to be replaced by domestic buying as investors took advantage of the demonetization selloff to capture value. As a consequence, the Nifty gained just 97 points to close the year at 8186 while trading in a range of 4.8%. Average daily trading volumes subsided gently over the period, ending at $1.9bn a day compared to a twelve month average of $3.2bn. Direction was largely driven by the FPI action which resulted in a net sale of 4865mil in cash equities; domestic institutions bought a net $360ml. Volatility tended also to the downside, with the India VIX starting out at the high of 18 for the period and declining to a low of 13 before closing at 16 for fall of two points. Market breadth was weak with declines just ahead of advances with downside concentration continuing in cash dependant consumer stocks. Nifty futures closed at a narrow premium to cash.

Continuing overhang of uncertainty


We go into 2017 with a continuing overhang of uncertainty. Expectations as to the impact of Trumpenomics on global markets are a major concern, as are the implications for global trade policies. In India, the overhang of demonetization may be much less enduring. The pace of production of new notes suggests that a major turning point may come after about mid-January. Whether is leads to a hockey-stick recovery in consumer demand is not certain. At the last minute banks have started to announce sharp interest rate reductions for loans as the attempt to recycle the exceptional liquidity accumulated during demonetization. The Indian government is hopeful that this will help boost consumer demand as well as private sector investment, as it accelerates public sector investment.