Confusing Signals…leading nowhere: Rajesh Agarwal Jindal

rajeshagarwalAs we prepare to welcome the New Year 2015, and look back there seems to be a lot of confusion on the signals being emitted from the economy. While on the one hand “October IIP” comes as a bolt from the blue, inflation data on the other hand surprises positively.

The index for industrial output (IIP) for the month of October slipped to a three-year low of  negative 4.2 percent, led by a de-growth in manufacturing sector, which stood at -7.6 percent as against 2.5 percent (month-on-month). The shocking declines came in from consumer durables (-35.2 percent vs. -11.3 percent) and in the consumer goods (-18.6 percent vs. -4 percent) segments. The contraction in consumer durables is bewildering considering it was right in the middle of the festive season.


Inflation based on Consumer Price Index (CPI) further cooled to 4.38 percent in November as against 5.52 percent in October led by favourable base.


The Wholesale Price Index (WPI) –based inflation fell to zero per cent, compared with 1.77 per cent the previous month, primarily on account of a sharp fall in global commodity prices. In recent times, while crude oil prices have seen a sharp reduction, other commodities have also seen a softening trend. The fuel & power index declined 5.4 per cent, in line with global crude oil price trends — petrol and diesel prices fell 5.1 per cent and 9.8 per cent respectively.

Services sector activity in India accelerated at the fastest pace in five months in November, driven by faster growth in new business orders. The HSBC India Services Business Activity Index, that tracks changes in activity at Indian services companies on a month-by-month basis, rose from 50.0 in October to 52.6 in November, registering the highest pace of growth since June.

India’s exports grew by 7.3% YoY in November, a reversal from (-) 5% contraction in October and primarily on account of favourable base effect. On a cumulative FYTD basis, exports grew by 5% YoY. Imports grew by 26.8% YoY in November a sharp uptick from 3.6% growth registered during October. On a cumulative basis, imports grew by 4.7% YoY during April-November 2014. In terms of key imports gold imports surged by ~570%YoY to ~ USD 5.6 bn in November 2014. Meanwhile, crude imports contracted by 9.7% YoY to USD 11.7 bn in November.


Surge in gold imports and incomplete pass through from the steep fall in crude prices to crude imports bill has offset the surge in exports growth and widened the trade deficit to USD 16.9 bn in November (prior: USD 13.4 bn deficit). On a cumulative basis, trade deficit widened to USD 100.6 bn in April-October FY2015 as against USD 96.9 bn during the same period in the previous year.

Home and auto loans are unlikely to be cheaper as Reserve Bank of India (RBI) kept the policy rate unchanged for the fifth time in a row, The governor however hinted at softening of stance “early next year” if inflation continues to abate and there is an improvement in fiscal health.   “A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle,” he said. The repo rate continues to be at 8 per cent while the cash reserve ratio has also been retained at 4 per cent.

Capital market regulator SEBI has strengthened insider trading rules, streamlined the regulations governing listed firms and eased the norms for de-listing of companies. It has widened the definition of who exactly is an insider by including persons in possession of or with access to unpublished price sensitive information. The onus of proving that they were not in possession of the price-sensitive information has been put on them. SEBI has reduced the timeline for de-listing from 137 to 76 days besides allowing the use of the stock exchange platform for de-listing, takeover and buyback offers.

Sales volume of Domestic Passenger Car stood at 156,445 units in November, 2014 against 142,849 units in the same month of last year, registering a YoY increase of 9.52%. However on MoM basis sales declined by 1.63%.


On the external front, the dollar’s strength is being supported by reasonable economic data from America. The US October payroll data is interpreted as positive and US GDP is estimated to have grown at an annualised 3.5 per cent in July-September 2014.


Chinacut interest rates unexpectedly, stepping up a campaign to prop up growth as it heads towards its slowest growth in nearly a quarter century. The cut—the first such move in over two years, came as factory growth has stalled and the property market, long a pillar of growth, has remained weak.


There is increasing tension in Ukraine with uniformed Russian troops and tanks operating in eastern Ukraine. The rouble has seen a decline of over 30 per cent and this could trigger depreciation across other former Soviet nations.


On the corporate side the month gone has been a month of consolidations with a number of mergers and acquisitions being announced. While on the banking side it was the big bang announcement of the merger of ING Vysya Bank with Kotak Mahindra Bank creating the fourth largest private sector bank in the country. The combined entity will have 1,214 branches, with a wide-spread pan-India network.


Second announcement came from the IT sector with Tech Mahindra Ltd. acquiring US-based Lightbridge Communications Corporation (LCC) for $240 million. Headquartered in McLean, Virginia, LCC is one-of-the world’s largest independent global providers of network engineering services to the telecommunications industry, with more than 5,000 employees in over 50 countries.


The third major announcement came from the vibrant retail sector where Mr. Kishore Biyani-led Future Consumer Enterprise Ltd, which runs convenience retail chains KB’s Fairprice and Big Apple, completed the acquisition of the Nilgiri’s convenience store chain for Rs.300 crore. Nilgiri’s has 150 franchise stores with revenues of Rs.800 crore, of which Rs.200 crore comes from the private labels business. Future Consumer Enterprise is strong in the West and North. With this acquisition, the company will have a strong footprint in South India.

Another major announcement came from the power sector with Adani Power entering into a binding agreement with Gautam Thapar-led Avantha Group to buy out its 600 MW Korba West unit for more than Rs 4,200 crore. Korba West Power owns a completed 600 MW coal-based power plant at Korba and an expansion is in progress. The deal makes Adani Power the largest private sector power utility in the country with an installed capacity of 11,040 MW.

Heavy turbulence is being witnessed in the Airlines Sector, Spicejet is facing tough business conditions and the situation has only worsened in recent days with cancellation of 70-80 flights a day and a total of over 1,800 flights having been cancelled for the current month alone. Besides, the Airports Authority of India (AAI) is said to be considering putting SpiceJet on cash-and-carry mode soon if it does not furnish a bank guarantee against its dues to the airport operator, which stand at around Rs 200 crore. Concerned over the deteriorating condition of SpiceJet and large-scale flight cancellations, DGCA had also withdrawn 186 of its slots and asked it to clear salary dues of all its employees.

Foreign institutional investors (FIIs) have kept faith in the India story this calendar year (2014). Their net investment in the Indian equity market is set to exceed Rs 1 lakh crore for a third straight year.   The current calendar year will be fourth in the past two decades when foreign investors invested more than Rs 1 lakh crore in a year. Cumulatively, the foreign investors have made net inflows of Rs 7, 85,297 crore ($162.57 billion) in the Indian equity market since 1992.

Going forward, the biggest concern at this point of time is the global interest rate scenario which will be the key for future flows into India. An increase in US interest rates could decelerate FII flows and could cause problems for India, but that would be temporary as domestic liquidity is picking up, secondly even if the interest rates are increased Indian equity would still be lucrative when compared to yields and last but not the least the sincere efforts of the government would start showing results in coming times. We once again reiterate our stance of picking up quality stocks with sound management with a medium to long term horizon.

The year 2014 is turning out to be one of the best years for the Indian stock market in recent times. CNX NIFTY has gained about 37% since the beginning of the year. A combination of factors has led to the rally, sentiments in the marketplace changed, first in anticipation and later as a consequence of the new government taking office under Prime Minister Narendra Modi in May, falling commodity prices specially crude and the unabated flow of hot money. While there is every possibility that markets can correct and consolidate, given the huge up-move from 4800 to 8600, the outlook however remains positive. As the Ace Investor Mr. Rakesh Jhunjhunwala is of the opinion that India is witnessing the mother of all bull runs and with a strong government in place & falling crude prices, he is double bullish. ‘This is just the trailer he says………….picture abhi baaki hai……………………”

For More Information:

(Working as Head-Research at Eastern Financiers Ltd, am a post graduate in commerce from Calcutta University, and have gained wide experience in the last 18 years. Prior to joining Eastern Financiers, I have gained in depth knowledge of the Financial Markets while working with Capital Market Publishers, Lohia Securities & CD Equisearch. As head of the Equity Research Wing, I appear regularly as Guest Analyst at CNBC, Awaaz, CNN-IBN, NDTV Profit , Zee Business,Bloomberg UTV, ET Now & R Plus.)