Two major events (Independence Day & the Bilateral visit to Japan) during the month and the star performer of both the events Hon’ble Prime Minister of India – Mr. Narendra Modi.
On the 68th Independence Day, the Prime Minister or should it be “Pradhan Sewak” as Mr. Modi likes to call himself, laid emphasis onfinancial inclusion, developing model villages in every block and toilets across the country in every school within one year, potential of tourism, digital India in which electronic items were produced indigenously and e-governance was the norm. He further put emphasis on the power of the youth to take the country forward and said a scheme would be launched to impart job-oriented training among youngsters. He laid stress on economic self-reliance, saying the country should strive to become a manufacturing hub for global investors with zero-defect products and zero-effect on environment.
“I tell the world, Make in India,” Modi said, reaching out to investors. “Sell anywhere but manufacture here. We have the skill and talent for it.”
The masterstroke was however the end of Planning Commission. Government is working to set up a body that will replace the Planning Commission. The body is likely to have eight members, who will be among the top economists, social activists and a scientist. Out of the eight members, four will be from the government, whereas the four will be from outside. According to reports, the panel will be headed by the Prime Minister or a chairman and would act as a think tank and will advise government on reforms and to resolve issues between the states and the Centre.
India and Japan signed a pact to develop “Kashi” into ‘smart city’ by using the experience of “Kyoto”. Kyoto is an ancient city, so is Kashi. Kyoto has thousands of temples, so does Kashi. The two cities have signed an agreement to ensure greater co-operation in the fields of art, culture, conservation and modernisation. The holy city of Kashi is often referred to as the oldest living city in the world and holds an important place in India’s religious and spiritual map. Kyoto, often called the city of ten thousand shrines, was the ancient capital of Imperial Japan. Today it is confluence of modernity and heritage. One is the holiest city for millions of Hindus across the world, while the other – with its 2,000 temples and heritage – has been the ancient Capital of Japan.
India will get USD 35 billion from Japan over the next five years for developmental projects, including building of smart cities and next generation infrastructure as also cleaning of the Ganga, as Premier Shinzo Abe pledged to partner Prime Minister Narendra Modi’s vision of inclusive development. The two sides also signed five pacts covering defence exchanges, cooperation in clean energy, roads and highways, healthcare and women while vowing to take their relationship to newer level. The USD 35 billion funding, at an average of USD 7 billion per year, would be the highest from any country.
On the macro front, Exports grew at a lower rate of 2.4% YoY in August vs. 7.3% in the previous month. Meanwhile, imports growth slowed down on lower crude oil prices. Trade deficit narrowed to USD 10.8 bn in August, the lowest level since April trade deficit of USD 10.1 bn. Services exports grew by 3.4% YoY to USD 13.4 bn in July while imports grew by 3.0% to USD 6.8 bn in July. As a result, net services exports came at USD 6.5 bn in July higher than USD 5.8 bn in June.
July IIP dropped to 0.5% YoY amid an unfavorable base effect and continued contraction in consumer goods. August CPI eased to 7.80% YoY on the back of softening core inflation, while food price pressures remained. Looking at industry based classification, electricity sector growth showed an increase to 11.7%, in line with the core sector data. The mining sector output has improved and continues to gather momentum, although, the coal block related issues could cause some uncertainty in this sector in the months ahead. With declining global commodity prices and a stable rupee, the core inflation is likely to see a decline as this may offset some demand led pressures on prices. We continue to expect that RBI will keep its policy rate unchanged.
Globally, Fed chief Janet Yellen cautioned against the Fed moving too quickly to raise interest rates, Yellen said there was no “simple recipe” for central bank policymakers in deciding when the labor market had improved enough to handle a rise in interest rates. Economic conditions are improving but the Great Recession was so damaging that it has made assessing the job situation “especially challenging,” she added.
The European Central Bank has cut interest rates, The headline interest rate has been slashed to just 0.05%, from 0.15% before. The central bank also increased the fee it imposes on banks to store money at the E.C.B., to 0.2 percent from 0.1 percent. The ECB also announced that it was embarking on a program to buy asset-backed securities, and indicated it is prepared to ease policy even further. The ECB’s actions were taken against a backdrop of weak economic growth and essentially no inflation.
Back home, The Reserve Bank of India (RBI) has said that the Indian economic growth is poised for a take-off amid signs of economic reforms, fiscal consolidation and projected improvement in investments. The central bank forecasts the gross domestic product (GDP) to grow around 5.5% in 2014-15 after two painful years of sub-5% growth, its annual report stated. Even if the rainfall is normal in the rest of the monsoon season, some rainfall deficiency will stay. “However, its adverse impact on growth, inflation, fiscal and trade deficits is expected to be small,” RBI said.
The Supreme Court declared allocation of all the 218 coal blocks made since 1993 as “illegal and arbitrary” while also holding that the central government had no power of allocation under the relevant laws. However, the Supreme Court reserved its decision on their fate after the NDA government and coal block allottees took divergent stands on cancellation of the allotments without referring them to a scrutiny committee. Attorney general Mukul Rohatgi stuck to his earlier stand that the Centre was prepared for cancellation of all coal block allocations as a logical corollary to these being declared illegal but requested the court whether it could consider saving 46 of them which have either started mining for end-use plants or were on the verge of doing so.
In line with its Budget announcement of enhancing the royalty on minerals, to boost the income of states in which these are produced, the government raised the royalty rates for 33 minerals. Iron ore and bauxite would now see a rate rise to 15 per cent against the earlier 10 per cent. Manganese ore would attract a royalty equivalent to five per cent from 4.2 per cent of the notified sales price. This should lead to an increase in input prices for all mineral-based industry, especially steel and cement. It should also substantially boost state government revenue.
Another major development during the month was the ” Pradhan Mantri Jan Dhan Yojana (PMJDY)”, 15 million new zero balance savings account were opened on the day of its launch on 28th August. Banks have garnered deposits of Rs 1,500 crore in zero balance accounts opened under the scheme within two weeks of the launch. Finance ministry feels at this rate the total current and savings accounts (CASA) deposits of the banks may cross Rs 5,000 crore by January 26 next year. The main features of the PMJDY scheme include Rs 5, 000 overdraft facility for Aadhar-linked accounts, RuPay Debit Card with inbuilt Rs1 lakh accident insurance cover. Besides, account holders under the scheme will get life insurance cover of Rs30, 000.
Sectorally, Auto Sector has been doing well. Sales of medium and heavy commercial vehicles picked up after almost two years of decline, while demand for passenger vehicles in the domestic market rose for a fourth continuous month, by a strong 12.5 per cent. The government might consider extending excise duty concessions to the automobile sector beyond December, a move that would provide further relief to automakers. The concessions were earlier valid till June 30.
The oil & gas space has become the centre of attraction with crude touching new yearly lows, Diesel price deregulation looks imminent after the difference between retail sale price and its actual cost dropped to a historic low of just 8 paisa a litre, helped by the monthly increases and softening in international oil rates. “Oil Marketing Companies (OMCs) are now incurring combined daily under-recovery (revenue loss) of about Rs 195 crore on the sale of diesel, PDS kerosene and domestic LPG.
Banking is another sector which has been in limelight, the month gone by witnessed incidents of banks declaring wilful defaulters, a number of individuals and small corporates were declared wilful defaulters. What made headlines though was Vijay Mallya being declared so. After United Bank declaring Kingfisher Airlines, promoter Vijay Mallya and three other directors’ wilful defaulters, SBI said it has also sent a notice to tag them as “wilful defaulters”. PNB, IDBI Bank, Federal Bank and Axis Bank are also in the process of following suit. SBI, which is the lead bank of a lender consortium to the defunct airlines, has an exposure of over Rs 1,600 crore. The airline owes Rs 7,600 crore to 17 banks.
Mobile handsets sector is one more sector that has been buzzing. After last months frenzy for Chinese Smartphone Xiaomi, huge appetite was witnessed for Apple’s new offering. Apple announced a record number of preorders for the iPhone 6 and iPhone 6 Plus, with over four million devices sold in the first 24 hours. That’s double the number of orders placed in the first day the iPhone 5 came out two years ago. In a statement, Apple said, “Demand for the new iPhones exceeds the initial pre-order supply and while a significant amount will be delivered to customers beginning on Friday and throughout September, many iPhone pre-orders are scheduled to be delivered in October.”
Domestic equity markets have been on a growth trajectory since a year, easing geopolitical tensions, falling crude oil prices and abundant liquidity have helped in droving Indian equities to newer highs. Foreign institutional investors (FIIs) remain the biggest buyers of stocks though Domestic institutions have started nibbling. FIIs have now bought stocks worth 85262.86 crores in 2014.
Going forward, The Sensex earnings multiple at 17.0 times FY15 earnings looks a bit stretched, and investors would be better off being cautious as the near term upside looks a little difficult. Some reforms have taken place but the quantum of impact on the bottomline of corporates needs to be seen. Hot money, lower crude prices, monsoon not turning out to be as bad as was earlier expected, , are some of the factors that are driving the markets. While we believe that markets could witness correction in short term, earnings expansion, government initiatives towards infrastructure and strengthening economic data, provides comfort on the medium-term. Investors can use any correction as an opportunity to invest but the focus should always be on quality. We strongly believe that the Government’s pro-growth approach will aid the revival in the economy and would in turn boost equity markets.
Some of the major events to decide the course of the market in the very near term would be the outcome of the FOMC meet and the RBI policy, apart from the outcome of the bye elections – any negative surprises would result in a sell off, but we would again reiterate that one should use the sell off to accumulate quality stocks and have a long term view. As of now with the successful Japan visit by the Prime minister the mood in both the countries From Kashi to Kyoto……………………….its love in Tokyo
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(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.)