30 Aug 2017

Monetary news, inflation low

At its August policy review, the Monetary Policy Committee cut policy rates by 25 basis points. This was widely expected given the benign inflation outlook and at 6% it brings rates to their lowest level since October 2010. Economic data have been weak, reflecting the one-off adjustment before GST.  June’s IIP contracted by 0.1%, with contractions of 6.2% in Capital Goods and 6.6% in Consumer Durables. The July Purchasing Managers indices reflected the same slowdown: Service fell to 45.9 and Manufacturing to 47.9. Anecdotal evidence from our channels suggest that “deferred purchases” are driving a recovery already.

28 Aug 2017

Doldrums are gone

Emerging from the August doldrums without a material market setback, global equities are still in demand in spite of geopolitical risk being quite high thanks to North Korea. In India, the Nifty has spent some time above the critical 10,000 level before subsiding under pressure from “risk-off” foreign selling. The Nifty eventually retreated 158 points, closing 1.6% lower at 9857 after trading in a range of 4.7%. Average daily trading volumes slipped $4.7bn as FPI selling of $1.4bn in cash equities was more than offset by $1.6bn of buying by domestic institutions. Volatility remained subdued: the India VIX traded between 10 and 16 before closing at 13 for a gain of 3 points. Market breadth was flat overall, with advances equal to declines and Nifty futures traded largely at a premium of about 75 basis points to cash.

10 Aug 2017

Well performing monsoon

The second quarter stock selloff has to be seen as a sales deferral to the current quarter that will also be reflected in the next IIP. The monsoon is performing very well, with rainfall now running 5% above normal. Kharif sowing is 3% ahead of last year and the area under cropping is already at nearly 80% of the previous year.  Reservoir capacity is 4% ahead of a year earlier. All of this adds up to a significant boost to consumer demand and production in the current quarter. Record low inflation may add a rate cut to the mix this month.

9 Aug 2017

High earnings private sector banks

Our private sector banks continue to contribute high quality earnings. HDFC Bank delivered a steady 20% increase in Net Interest Income (NII) and a 20% increase in profits. Kotak Mahindra Bank is emerging from the integration of its major acquisition and reported NII ahead by 14.7% and profits growth of 26%. Both banks have among the best ratios of non-performing loans in the market.

Nestle India marketshare, plus plus

In the Consumer sector, Nestle India continued its push to recover market share with a 7% advance in sales while rising costs brought a reduction of 6% in profits. Agro Tech Foods reported a drop of 1.8% in sales and an increase of 6% in profits. ITC suffered a heavy drop of 24.3% in sales but grew profits by 7.4%. Pidilite reported sales down by 2.1% and profits by 16.8%. The company saw a sharp reduction in channel inventories combined with rising raw material prices. It raised its advertising substantially to support wholesalers and dealers through the GST adoption process. In IT, HCL Tech reported a rise of 7.4% in revenues and 8.3% in profits as it worked through the completion of recent acquisitions.

Q1FY18's on their way

We saw a slew of Q1FY18 results among portfolio stocks. Several companies reported weak sales following the widespread de-stocking seen in the run-up to the introduction of GST on July 1st. TV18 reported sales ahead by 4% with an improvement of nearly 10% in its quarterly loss in spite of reduced advertising income. Bajaj Auto reported sales and profits both down by 5.6% as dealer de-stocking added to a slowdown due to the adoption of higher emission standards. Supreme Industries reported sales down by 7.9% and profits down by 25.9% as raw material prices squeezed margins.