Articles

Weekly wrap-up: Market updates, news and insights for the week ending 07th September

Publish date: 07th September, 2018

Nifty came under pressure during the week and closed lower at 11,589

Our perspective:

The pressure on the Nifty came from the sharply weakening INR which fell close to the 72/$ mark before bouncing back to better levels.

Apart from the weak rupee, higher bond yields above the 8% mark and the valuation concerns on FMCG stocks also played truant with the markets.

Related reads:

Major Milestones – Nifty from 1000 to 11,000

Major Milestones – Sensex from 100 to 38,000

Everything you need to know about the longest US bull market

News: The rupee finally found support at around the 72/$ mark

Our perspective:

RBI intervention was visible at around the 72 mark as the markets came back below 72 after a brief dalliance. RBI may look to hike rates to stem the rupee fall.

Another factor playing on the rupee, apart from the demand from bankers and importers, was the rising trade deficit. Also, CAD inching close to the 2.8% mark is bad for the INR.

Related reads:

4 questions you may have about Rupee Depreciation

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News: Aurobindo embarks on inorganic strategy with Sandoz dermatology unit

Our perspective:

• The $1 billion deal will give Aurobindo a huge opening into the US generics market especially for skin care products.
• Companies like Aurobindo are using the inorganic strategy to give a boost to their price revival so as to aid their revival in growth in the US markets.

Related reads:

Why we have a Buy call on Aurobindo Pharma

Why we have a Buy call on Cipla

Why we have a Reduce call on Sun Pharma

News: US-China trade war may be turning out to be a losing proposition for the US

Our perspective:

• The US exports suffered hugely due to the imposition of counter tariffs by China on US imports. That has led to the US trade deficit rising by 10%
• Even the US trade deficit with China, which was the bone of contention in the trade war, went up by 10% in the June quarter, virtually negating the impact of the trade war.

Related reads:

Contagion effect of China on world markets

5 indicators to gauge the intensity of the current trade war

Indian markets – caught in the trade war crossfire

News: Mid cap stocks still trade at a huge premium even after correction

Our perspective:

• Despite the sharp correction in mid cap stocks, they still quote at a premium of 20% and at a historically rich P/E ratio of 23.9X. That is not good news for a revival in mid caps.
• Most mid caps had taken hit on a weak rupee and stronger oil prices and both the factors do not appear to be reversing in a hurry. That may not be great news for mid caps.

Related reads:

Finding value in Mid Cap stocks

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News: MPC member questions the validity of the 8.2% GDP growth for June quarter

Our perspective:

• According to Ravindra Dholakia, member of MPC, the GDP growth of 8.2% is not borne out by other macro variables like inflation, interest rates, IIP growth etc.
• Dholakia has been a traditionally a votary for lower interest rates and even now he is in favour of status quo in rates rather than rate hikes

Related reads:

Why RBI Committee hiked interest rates in August

RBI policy – 5 things to know about a repo rate hike

5 reasons GDP slowed to 5.7% in June 2017

5 things India’s GDP growth data tells us

News: Government has virtually ruled out any cuts in excise on petrol and diesel

Our perspective:

• This virtually means that any rise in global crude oil prices will be directly passed on to the end consumers rather than giving them any excise benefits. This could be inflationary.
• However, considering the elections in states this year and general elections next year, markets fear that the government may put some subsidy burden on oil companies.

Related reads:

Why we have a Reduce call on HPCL

Why we have a Reduce call on BPCL

3 reasons why oil prices bother India

5 things to know about diesel deregulation

News: Wipro enters the big league with $1.50 billion contract from Alight of the US

Our perspective:

• In the Indian software industry, the $1 billion contract has become the new benchmark with TCS having a few such clients already
• Alight will take a complete suite of solutions from Wipro and that will enable Wipro to offer a wide range of products at very competitive prices to Alight.

Related reads:

Technology in Q1 – A familiar story

Why we have a Reduce call on Wipro

Why we have an Add call on Infosys

News: Lanco group of Hyderabad may go under NCLT process

Our perspective:

• Lanco may be the first really major power company to go under the NCLT hammer and may offer a template for the other power sector NPAs.
• The group already has a total debt of Rs.50,000 crore and that is getting almost to the point of being unsustainable at this point of time.

Related reads:

Power sector bad loans – All you need to know

Why we have a Buy call on Tata Power

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News: JSPL to split its business to get more value on SOTP basis

Our perspective:

• The restructuring will involve the splitting of its steel and power business as well as its international business into distinct corporate units and listed entities eventually.
• With a total debt of Rs.42,000 crore, JSPL will look to monetize some of its non-core assets and also use the proceeds to reduce its leverage in the balance sheet.