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.