Ushering in a New Era – Rajesh Agarwal Jindal

rajeshagarwalWe wish our readers a very happy and prosperous year (FY 15-16) ahead, the year gone by has been splendid and generated hefty returns for investors.  Majority government at the centre, aggressive stance of RBI in taming inflation and the fall in commodity prices specially crude has helped in changing the economic scenario and the perspective of the Foreign Institutional Investors (FII) towards India as a hot investment destination


Over the past year, the bulls were in total control due to foreign institutional investors (FII) constantly pumping in money. FIIs had invested 108,672.69 crores in Indian equities and 162821.87 crores in Debt. Domestic mutual funds pumped in 40,078.70 crores in equity and 594, 918.10 crores into debt. The BSE Sensex closed with a gain of 5500 points or almost 25 per cent, piggybacking on sustained global liquidity.


In a major respite, The Supreme Court struck down a sweeping law that allowed police to jail people for online posts thought to be offensive, with potentially far-reaching consequences for civil liberties and the right to free speech in India. After three years of protests by free speech campaigners and others, a bench comprising justices J. Chelameswar and Rohinton F. Nariman held the section 66A of the Information Technology (IT) Act, 2000, to be unconstitutional.  The court ruled that section 66 was unconstitutional “as it takes within its sweep protected speech and speech that is innocent in nature and is liable therefore to be used in such a way as to have a chilling effect on free speech…”


On the Macro Front, The core-sector output grew at 1.4%, the slowest pace in 16 months, in February, due to dips in production of finished steel, natural gas, crude oil and refinery items, underlining a concern over the pace of industrial recovery. The expansion of the eight core-sector industries, was subdued in January too at 1.8%. In April-February this year, the core sector output rose 3.8% lower than 4.2% in the same period in the previous fiscal year.


The Index of Industrial Production (IIP) for the month of Feb’15 grew 5.0 per cent against the market expectations of 2.4 per cent and Jan’15 IIP was revised upwards to 2.8 per cent from 2.6 per cent reported earlier.


CPI for the month of Mar’15 dipped to 5.17 per cent. It was lower due to  base effect on account of fall in prices in food, housing and clothing and footwear inflation. Core inflation remained stagnant at 4.10 per cent as it was in Feb’15. Ease down in inflation at urban and rural areas was almost at par in comparison with the previous month. Due to which the gap between rural and urban CPI remained stable at 84bps.


The growth of deposits with banks hit a 51-year low of 11.42% last year, according to data from the Reserve Bank of India (RBI). The last time deposits grew at a pace below this was in 1962-63, when the increase was 6.5%. While the slower flows should have worried bankers, they are not yet anxious given there are few takers for credit — neither individuals nor companies are rushing to borrow given loan rates remain relatively high. Credit growth last year hit a 20-year low of 9.75%.


India’s foreign exchange reserves increased by $1.38 billion to $341.37 billion for the week ended March 27. The Indian reserves are being build up by the Reserve Bank of India (RBI) to absorb any future global financial shock that was witnessed in June 2013. The RBI is cautious about the US Fed’s stand that the rate hike might take place in the later part of the year.


Investor demat accounts in 2014-15 have grown by about 1.5 million, almost double the amount of openings seen in the previous financial year. The increase in new accounts is also the highest such increase seen in the last four years. The total number of demat accounts as on February 2015 with the two depositories NSDL and CDSL, stood at 23.3 million, up 6.8%, or 1.5 million, compared to 21.8 million at the end of last financial year.



Mutual fund’s  invested nearly Rs. 6 trillion in debt market in 2014-15, an increase of eight per cent from the preceding year. Besides, Equity investments were around Rs. 40,000 crores during last financial year. Moreover, mutual fund houses are upbeat about overall inflows in equities and debt markets for the current financial year (2015-16) as well. This inflow has helped the mutual fund industry to reach around Rs. 12 lakh crores mark in assets under management (AUM) at the end of the financial year.


The Asian Development Bank (ADB) has  projected India’s growth rate to surpass China and improve to 7.8% in next fiscal and further to 8.2% in 2016-17. India’s growth and investor confidence will improve on the back of government’s structural reform agenda and improved external demand, the Asian Development Outlook (ADO), an annual publication of the ADB, said. As regards China, the ADB projected the economic growth to decelerate from 7.4% in current fiscal to 7.2% next fiscal and 7% in 2016-17. “India is expected to grow faster than the People’s Republic of China in the next few years. The government’s pro-investment attitude, improvements in the fiscal and current account deficits, and some forward movement on resolving structural bottlenecks have helped improve the business climate and make India attractive again to both domestic and foreign investors,” ADB Chief Economist Shang-Jin Wei said.


The World Bank and the International Monetary Fund (IMF) emphasized the need for India to push forward the reforms agenda, including a cut in subsidies, even as they remained largely optimistic about the economic prospects of the country—and pointed out that it would do better than China.  IMF said in its bi-annual World Economic Outlook, released in Washington DC coinciding with its spring meeting, that it would like to see India remove “infrastructure bottlenecks in the power sector” and implement “reforms to education, labour, and product markets to raise competitiveness and productivity”. IMF said India’s growth at 7.5% in 2015-16 will surpass China’s decelerating growth of 6.8% in the same year. “Growth will benefit from recent policy reforms, a consequent pickup in investment and lower oil prices,” the report said.


The World Bank, in its South Asia Economic Focus report, said India’s growth is expected to accelerate to 7.5% in 2015-16 and to 7.9% in 2016-17 on the back of significant acceleration of investment growth during the two-year period. “The country is attempting a shift from consumption to investment-led growth, at a time when China is undergoing the opposite transition,” it added.


Moody’s ratings revised India’s sovereign rating outlook to “positive” from “stable”, a step closer to an upgrade of the credit rating, as it expects actions by policymakers to lift the country’s economic growth.  “India’s relatively weak business environment and standards of governance, as well as widespread infrastructure bottlenecks, will not change overnight, but there is ample room for improvement,” the ratings agency said in a release. Structural advantages, relatively benign commodity prices and liquidity conditions globally will keep India’s growth above its peers, Moody’s said.


In a historic decision, which is likely to have a long term positive impact on Equity markets the labour ministry decided to invest a portion of the Employees’ Provident Fund (EPF) corpus in the equity market. To begin with EPF Organization (EPFO) will invest 5% of its incremental corpus or a little over Rs.8,000 crores in exchange traded funds (ETF).  The finance ministry had advised in March that the labour ministry invests between 5% and 15% of PF money in equity. Depending on the progress, EPFO may in future consider investing more of its income in equity. In 2014-15, EPFO garnered an incremental income of more than Rs.1.6 trillion.


Finance Minister Arun Jaitley asserted that legitimate tax demand cannot be considered “tax terrorism” because India is not a tax haven.Appearing to defend the tax notices sent to about 100 FIIs totaling USD 5-6 billion, he said “taxes which are payable must be paid”. “India is not so vulnerable that every legitimate tax demand is considered as tax terrorism … we are not a tax haven and we don’t intend to be one,” he said while addressing CII’s annual general meeting. The Income Tax department has imposed 20 per cent Minimum Alternate Tax (MAT) on capital gains made by FIIs.


Globally, China faces painful future ahead. Though, China’s Xi Jinping  pledged a new order where China and Chinese-led institutions such as the new Asian Infrastructure Investment Bank would promote prosperity across the region.  At 282 percent of GDP, according to the McKinsey Global Institute, China’s total debt now exceeds America’s 269 percent and Germany’s 258 percent. Even more worrying: If the credit buildup continues at its current pace, that ratio will explode to 400 percent by 2018.


The nuclear agreement reached between Iran and six world powers offers India a fresh opportunity for enhancing political and economic engagement with Iran. The framework agreement reached on April 2 seeks to curtail Iran’s nuclear programme in return for lifting international sanctions. Both Iran and the world powers have set a June 30 deadline for signing the final comprehensive deal that will let Iran enter the world economy.  “The deal does remove a perceived roadblock that made India circumspect in openly courting Iran. We must use this window of opportunity to evolve a consistent Iran policy,” says Atul Bharadwaj, a Senior Fellow and strategic analyst at the Indian Council of Social Science Research, New Delhi.


Sectorally, Telecom was the sector which was the centre of attraction, Bids for spectrum  crossed Rs. 1 lakh crore or $18 billion, making the spectrum auction the biggest ever sale of spectrum by value. The auction has opened a number of new opportunities for subscribers in new circles for 3G services in 2100 MHz band and LTE in the 850Mhz band. This will help operators strengthen mobile broadband connectivity through expansion of 3G services, which in near to medium term will be the main vehicle of mobile broadband in India. This spectrum auction has opened up the possibility of LTE on 850 MHz, in addition to 1800 MHz, as well as 2300 MHz (TD LTE) which was already available. This is a positive development – especially because of indoor coverage, which is critical for LTE, given most of high bandwidth consuming applications like videos are mostly consumed indoors than on the roads.


Pharma was another sector that was full of  buzz, In one of the biggest M&A transactions in India and the pharma industry worldwide, Sun Pharma’s acquisition of Ranbaxy Laboratories has been completed. The merger will create the world’s fifth largest specialty-generic pharmaceutical company and the largest player in the Indian pharma market.  In another instance of consolidation in Indian pharma sector, Strides Arcolab and Shasun Pharmaceuticals announced their merger that will create an entity among the top 15 listed domestic drug makers with a turnover of over Rs 2,500 crore


Auto industry ended FY15 on a subdued note with both Passenger vehicle and two-wheeler segments reporting weak volume growth in March 2015. Maruti Suzuki registered a 1.58% YoY decline in overall sales number during the month. However, as a whole FY2014-15 was a highly fruitful year as many companies achieved record sales numbers after two years of decline. Going forward, While lower fuel prices, interest rate cuts and improved sentiments are expected to encourage sales numbers, unseasonal rains and resultant damage to crops may dampen demand in rural areas.  “The 2015 outlook seems challenging as currently there is low traction in the market with weak delivery on macroeconomic parameters and on low customer sentiments,” said Rakesh Srivastava, senior vice-president, sales and marketing, Hyundai Motor India Ltd.


National Green Tribunal held that all diesel vehicles which are more than 10 years old will not be permitted to ply in Delhi.  Noting that diesel is prime source of air pollution in Delhi, the tribunal said the situation is so alarming that people have been even advised to leave Delhi due to adverse effects on health.


The woes of the mining sector seem to be never ending. The Union government has cancelled the bids of Jindal Steel and Power Ltd. (JSPL) and Bharat Aluminium Company (BALCO) for four coal blocks. The Ministry rejected the company’s bids following reports of cartelization during the recent coal block auction. JSPL had emerged as the successful bidder for the Gare Palma IV/2 and IV/3 and Tara blocks and BALCO for Gare Palma IV/1. “The Coal Ministry will take the final decision on the rejected bids, it will deliberate and decide,” Coal and Power Minister Piyush Goyal said.


Coming to the rescue of stranded gas-based power plants, the Government has decided to come out with a mechanism for importing natural gas. A decision to this effect was taken by the Cabinet Committee for Economic Affairs. About 14,000 MW, with an investment of over ₹60,000 crore, which had no domestic fuel supply, faced immediate risk of becoming non-performing assets. In addition to these, about 10,000 MW of power plants are receiving limited quantity of domestic gas and most of them are operating at very low plant load factor.  To ensure that electricity generated from imported gas does not become expensive, the Government has fixed a preliminary price of ₹5.50 a unit to begin with. Depending on the fluctuations in the imported gas price, an empowered pool management committee will review the rates.


In a major breakthrough the Cabinet cleared gas-pooling that would increase operational efficiency of urea manufacturing units, helping farmers and saving about Rs.1,550 crore of subsidy.  Gas pooling involves averaging out prices of domestic natural gas and imported liquefied natural gas used by fertilizer plants to make the cost of fuel uniform and affordable.  Fertilizer plants consume about 42 million standard cubic meters per day (mscmd) of gas to manufacture subsidized urea. Sixty two percent of the requirement is met from the domestic gas fields, which is cheaper. The balance 37%, or 15.8 mscmd, of gas is expensive as it is imported. As a result the cost of natural gas varies from plant to plant. The CCEA also approved allocation of Rs 4,948 cr for augmenting  strategic fuel reserves to deal with disruption


The government  cleared a proposal worth Rs.10,000 crore to set up the 2,000km long Haldia (West Bengal)-Jagdishpur (Uttar Pradesh) gas pipeline which will supply gas to cities in eastern India like Gorakhpur, Kashi, Patna and Kolkata.


The government on its part has been aggressive in pursuing the infrastructure growth. The budget has focused on kick starting it by increased allocation. The Ministry of Road Transport and Highways has seen its Budget expand by almost 40 per cent over the revised estimates (RE) of 2014-15 to Rs 42,842 crore. The Railways has been allocated Rs 40,000 crore for 2015-16 versus Rs 30,000 crore in the previous year. In all, an additional Rs 70,000 crore has been earmarked under various heads of infrastructure.


Insurance Australia Group Ltd (IAG) is set to raise its stake in its general insurance joint venture with the State Bank of India (SBI) from 26% to 49%, in the first such instance after Parliament cleared a bill on 12 March that raised the maximum permitted foreign stake in insurance sector.


Going forward, Q4 results are around the corner and would be keenly watched out for. We do believe that Indian markets will remain positive despite global uncertainties looming over it, due to the fundamental change following the key reform initiatives undertaken by the government, factors like easing of global liquidity and commodity prices.  Inflation has cooled down and the recent economic numbers increases the hopes of a 25 basis point rate cut in the near future, which will help boost sentiment.  Moreover, Inflation is falling, the current account deficit is below 2 per cent, the rupee is stable and the economy is accelerating, despite disbelief about the new GDP estimates. Global investors don’t have too many attractive emerging market destinations and India looks the best place to park at this instant. Though the overall mood is favourable,  for the market to sustain its dream run, it will require the government to push growth. Moreover with the worlds leading institutions such as World Bank, IMF, Asian Development Bank, Moody’s changing their outlook towards India it seems to be just a matter of time when we usher into a new era of growth.

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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.)