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.