Trade data for Jan’17 is driven largely by surge in commodity prices. Trade deficit was still contained at USD 9.8bn due to sharp decline in gold imports, reflecting the impact of demonetization. Petroleum deficit widened to USD 5.4bn on expected lines; nearly twice its lows in Mar’16. Rising commodity prices amidst depreciating INR/USD are likely to widen deficit further, once the
Easy come, easy go.
The recent run-up in the Indian market may not sustain without better support from earnings and fundamentals. Global and domestic macro factors are generally less supportive and domestic demand conditions weak. 3QFY17 saw a strong recovery in earnings from a very low base in several sectors but underlying trends continue to be subdu
Gsec yields are expected to harden with RBI signaling change in its stance to neutral, rising inflationary pressures, hardening global yields and tightening global financial conditions. Also absence of aggressive OMOs in FY18 will likely unwind the artificially suppressed yield curve, leading to further steepening. Based on our model, we believe Gsec yields to harden in range of 7.5-7.8% in FY1
Background & Business
Aditya Birla Fashion & Retail (ABFRL) – having extensive reach with a footprint of 6mn square feet in India – is considered to be India’s No.1 pure fashion lifestyle company having five largest and most admired brands i.e. Louis Philippe, Van Heusen, Allen Solly, Peter England & Pantaloons.
Shift in RBI’s monetary policy stance from accommodative to neutral has led to a sudden bear steepening of Gsec curve. This shift marks an end of the lazy trade in PSU bank (PSBs) stocks where optimism was led mainly by disproportionate trading gains. We see 10-15% downside in PSU bank index; Private players remain our preferred bets. We identify improvement in operating matrix for ICICI
* OMCs reported decent results in Q3 driven by strong volume growth and inventory gains. Core earnings of OMCs adjusted for inventory gains/losses came in at Rs12.7/12.1/7.6/share for BPCL/HPCL/IOCL versus reported EPS of Rs15.7/15.7/8.4.
* Marketing margin of BPCL/IOCL improved by 2.3%/2% qoq to Rs4,143/3,860/mt. However, HPCL’s margin contracted qoq by 13.1% to Rs4,058/mt. Tot
It is not all bad in Trump land. Yes, we have those pesky Twitter wars, anti-free trade rhetoric, fights with the Australian Prime Minister and the list goes on. It seems that US politics has entered a dark age.
There are a few bright spots that will change the course of the US economy and our personal lives. One is President Donald Trump's promise to cut corporate taxes to 15 per
* WPI inflation spiked to a 30-month high of 5.2% in Jan’17 from 3.4% in the preceding month, surprising on the upside (consensus: 4.2%). The surge is entirely due to a sharp increase in crude petroleum and mineral oil inflation. Excluding these items, WPI inflation was much lower at 3% (Dec’16: 2.1%).
* Inflation in crude petroleum and mineral oils &ndash
* Indian equities catching up on the underperformance since demonetisation:
Significant outperformance of US equities and other DMs vs. Indian equities since Trump victory is due to a combination of (a) the pro-growth narrative for the US economy; (b) growth uncertainty in India due to demonetisation and weakening investment cycle and (c) declining sp
CPI inflation slid to a record low of 3.2% in Jan’17 (consensus: 3.9%), falling for the sixth month in a row. As in each of the last five months, the decline was led by easing food inflation (0.5%) even as core inflation inched up slightly. With stickiness in core inflation, upside risks to inflation (from 7th CPC HRA hikes, higher oil prices and INR depreciation) and a change in RBI&rsqu
Dec’16 IIP fell by 0.4% YoY as the demonetisation-led demand crunch hurt manufacturing output, with 17 of 22 manufacturing industries posting declines. Consumer durables/non-durables were the worst hit (output down 10.3%/5%) even as healthy growth in electricity and mining output supported the headline number. Given that output is affected with a lag, industrial production is likely to re
In Q3FY17, due to massive selling by FPIs (USD 4.6 bn), Nifty fell by 5% and underperformed other EMs and DMs. A host of factors - (a) the pro-growth narrative for the US economy; (b) growth uncertainty in India due to demonetization pains and weak investment cycle; and (c) strengthening dollar and declining spread between India and US bonds – accentuated the FPI outflows but it was absor
Demonetization seems to have hurt industrial activity
* Index of Industrial Production (IIP) declined 0.4% YoY in December 2016, as against +5.7% in November and much lower than market consensus of +1.2% (our expectation: +3.8%). It implies that IIP grew only 0.3% YoY in 9MFY17, marking third-worst growth in the corresponding period over past 35 years
* Liquidity surplus improved last week.
Banking liquidity surplus improved for the week ending Feb 10, with the weekly average surplus at Rs 3.94 tn as against Rs 3.2tn in the previous week ending Feb 3. The improvement in liquidity surplus has continued due to non-rollover of CMB. Peak surplus last week witnessed was Rs 4.07 tn. RBI has however conti
Retail inflation in Jan’17 ease sharply to a low of 3.2% YoY compared to 3.4% in Dec’16. Lower print is mainly due to sharp decline in food inflation particularly vegetables. Contrastingly, core inflation has inched up to 5.1%, primarily emanating from services. We believe the recent lower than expected inflation is transitory partly attributed to demonetization. Our diffusion index
* Liquidity surplus improved last week.
Banking liquidity surplus improved for the week ending Feb 4, with the weekly average surplus at Rs 3.2 tn as against Rs 2.5 in the previous week ending Jan 27. The improvement in liquidity surplus was largely led by CMB maturities worth Rs 950 bn last week along with month-end government spending. RBI has
In a surprise move, the RBI kept key policy rates unchanged (consensus: 25bps cut) in its 6th bi-monthly Monetary Policy meet. Importantly, it changed its policy stance to “neutral” from “accommodative” given uncertainty over the demonetisation impact, upside risks to inflation and sticky core inflation. We think India is at the end of a rate cut cycle, with the focus no
The Reserve Bank of India in its sixth Bi-Monthly Monetary Policy review kept its benchmark repo rate unchanged at 6.25 percent. Other important rates were also kept at the same levels; Reverse Repo Rate at 5.75 percent, marginal standing facility and bank rate at 6.75 percent. The RBI governor expects inflation rate to linger in the ran
RBI’s decision to maintain status quo on policy rates belies consensus expectation, but is in sync with our expectations. Importantly, the central bank has shifted its monetary policy stance to neutral from accommodative. The change in stance revolves around upside inflationary risks accompanied by some scope of transmission from earlier policy rate cuts left on market determined interest
Our analysis of daily food prices (provided by the Department of Consumer Affairs, DCA) and monthly fuel prices reveals that while food inflation bottomed out in December 2016 (Exhibit 1), inflation in fuel items (petrol, diesel included in ‘Transport & Communication’ under ‘Miscellaneous Items’) will continue to move higher (Exhibit 2). Prices of vegetables, the mos
“Government has released its final all India crop situation - Rabi 2016-17 on 3rd Feb 2017. The acreage under Rabi crops exceeds the season’s normal area due to adequate irrigation facilities available following a normal monsoon. The area under Wheat, Pulses particularly Chana, Lentil and Field Pea and Oilseeds – Rapeseed- Mustard and Groundnut increase substantially during th
The Union Budget’17-18 chose to slightly deviate from the fiscal consolidation path, budgeting for a FY18 fiscal deficit at 3.2% of GDP (vs. 3% earlier). Tax revenue assumptions were modest, but disinvestment and telecom receipts projections were optimistic even as demonetisation-led gains could help bridge the shortfall. Expenditure growth was muted and most existing schemes were continu
On 2nd February’16, the Bank of England’s Monetary Policy Committee voted unanimously to maintain Bank Rate at 0.25 percent. It left its plans for government and corporate bond purchases which amounted to £435 billion unchanged. The BoE governor Mark Carney, in his speech, appeared in no rush to raise interest rates, war
Bulls & Bears - India Valuations Handbook - A positive start to the new year, Telecom, Metals and Cement top outperformers - Motilal Oswal
Positive start to the year:
Nifty started CY17 on a positive note, rallying 4.6% in January – the highest rise in last 10 months. Markets ended CY16 concerned about the potential impact of demonetization on earnings in 2HFY17. So far, the headline earnings performance for the 90 companies in our MOSL universe (which have announced results s
“Markets have given thumps up to the budget it was a balanced budget in terms of the rural, infrastructure and push for affordable housing. Fiscal target of 3.2% looks manageable considering the ambitious expenditure esp on the capital exp front be supported by buoyancy in revenues and an expanding tax base which seems plausible at this juncture considering the 17% growth we have witnesse