For the seventh week in succession, Indian markets posted notable gains as US economic data provided more comfort and investors appeared to be writing off Greece as a lost cause. The Nifty added 182 points to close 3.4% up at 5564, after trading in a range of 4.5%. Average daily trading volumes continued to improve, to $4.1bn as FIIs continued their buying spree, which has reached $2.4bn this month alone. Domestic investors were net sellers into the foreign appetite. Market breadth was strong with advances ahead of declines by more than 3 to one again but the overall advance was still quite concentrated: 52% of the points’ rise was down to five stocks accounting for less than 16% of the Nifty market cap. The India VIX continued to trade in the low twenties but closed the week where it opened, at 24. Monday is a public holiday in India (and the US), but even still Index futures closed quite strongly, the three month contract at a premium of just under 2%.
We had a good run of quarterly results this week. Tata Chemicals saw sales jump by 32% and profits by 15% and Tata Power had revenue growth of 36% with profits up by 174%. Balkrishna Industries had sales growth of 53% and profits growth of 91%. Jain Irrigation saw sales ahead by 18% but a collapse of 99% in profits. The market responded very strongly however, because the sales growth was due to an improvement in collections and in operating margins. The fall in profits was mostly due to foreign exchange adjustments on foreign borrowings and consolidation of overseas activities. Nestle India sales grew by 17% and profits by 19% and Castrol India sales were 11% up but profits advanced by only 1% due to cost pressure.
The big economic news of the week was that WPI inflation dropped sharply in January, to 6.5%, below the RBI’s revised target for year-end and a two-year low. The major contributors were lower food prices and primary manufactures prices, with a helping hand from base effects from a year earlier. More encouraging, however, was that core inflation, which had continued to rise in recent months, also fell, to 6.6%. The RBI continued to supply liquidity to the market through open-market operations, buying $2bn of government securities, driving bond yields down. The government approved twenty FDI proposals worth a total of $210mil. In a possibly transforming move for the sector, the telephone regulator (TRAI) issued a new National Policy statement, which needing no further approvals, goes into effect immediately. Key elements include more clarity on consolidation standards; a unified license fee rate (8%); incentives for rural rollout; an increase in the spectrum limit to 25% and provisions for spectrum sharing. The last two items should also help advance much needed sector consolidation.
Reliance Industries has initiated its share buy-back programme with purchases worth about $70mil so far. Hot on the heels of the award of a major contract for re-equipping the Indian Air Force with Rafale fighters, Reliance signed a memorandum of understanding for cooperation on defense projects with Dassault, the manufacturer. Evidently, the offset element in this contract will involve 85% of the airframes being manufactured in India. Production in the KD-D6 gas field may drop as low as 27mmscmd before Reliance and partner BP can get enough satellite wells drilled to get production rising again, probably in late FY14. Tata Power is to invest $125mil in a 240MW geothermal power project in Indonesia, where it owns 30% of two substantial coal mines controlled by PT Bumi. The company has commissioned a 25MW solar photovoltaic power project at Mithapur in Gujarat.
The government looks like trying to raise about $3bn to offset the fiscal deficit by an auction sale of 5% each of ONGC and BHEL; the timing is uncertain. Direct tax collection advanced by 16% in the latest quarter but will still fall short of the budget target of $120bn. India will settle 45% of its bill for crude oil purchases from Iran in Rupees and may barter surplus grains for part of the rest. Merchandise exports in January increased by 10.4% to $24.5bn and may just reach the FY12 target of $300mil by end-March. The Uniform ID programme has launched its on-line authentication process which will substantially enhance usage as well as issuance.
The turn in the market is clearly being driven by foreign portfolio flows, drawn by the prospect of monetary easing and some improvement in India’s political scenario. There is considerable optimism that the outcome of state elections, in Uttar Pradesh in particular will unblock the parliamentary logjam, bringing welcome movement on important bills up and the introduction of reforms like FDI in organized retail. Monetary easing becomes more likely all the time, with pressure easing on the RBI, leaving only questions about when and how fast. There is still room for political upset, however, so we may still see short-term downdrafts even though the outlook through the year is improving all the time.
