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.