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%.