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Weekly wrap-up: Market updates, news and insights for the week ending 17th August
Publish date: 17th August, 2018
News: Nifty closed 75 bps higher close to the 11,470 mark
Our perspective:
- The markets during the week did not lose substantial value despite negative global headwinds. To an extent IT and pharma helped support the Nifty.
- The real challenge for the markets from here on could be more internal than external. For second quarter, the earnings will have to start justifying the valuations and macros will need to show better traction, especially on the inflation front. You can read more about this in our detailed explanation here.
Related reads
Market Outlook for August 2018
Market Strategy – Grin and bear it
Strategy – Slow boil visible in Q1 results
News: July trade deficit comes in sharply higher at $18.02 billion
Our perspective:
- The trade deficit was largely driven by a sharp increase in oil and electronic imports. A 41% rise in gold imports is also slightly worrisome due to its unproductive nature.
- If the trade deficits sustains at around the current level then the current account deficit (CAD) could get closer to the 3% mark putting pressure on the INR and on ratings.
Related reads
Subdued inflation to provide comfort from RBI
Why we have a Buy call on Interglobe Aviation (Indigo)
News: Rupee dollar exchange rate decisively crossed the 70/$ mark during the week
Our perspective:
- The immediate trigger for the rupee weakness came from the Turkish Lira crisis which corrected more than 50% since start of the year putting pressure on EM currencies.
Related reads
How the Turkish currency crisis impacts India
Contagion effect of China on World Markets
US-China face-off – Why India should be concerned
News: MPC minutes hint at clear risk of inflation in coming months
Our perspective:
- While CPI inflation for July 2018 came in sharply lower at 4.17%, the MPC appears to be wary about the inflation risk in 2018 as per the MPC minutes.
- The MPC believes that the combination of higher MSP on Kharif output, crude oil pressures and the impact of the dearness allowance payout to government employees.
Related reads
To hike or not to hike: The RBI dilemma
Economy – IIP continues to signal a growth story
Economic – RBI signalling a brief pause
News: Nifty companies end the first quarter with an overall EPS of Rs.114 quarterly
Our perspective:
- The biggest negative impact on the Nifty EPS came from SBI which depressed the overall Nifty EPS by more than Rs.6 in the first quarter
- At the annualized current EPS, the Nifty discounts its full year earnings by a little over 24.5 times P/E ratio, which has traditionally been the upper band of the Nifty trading.
Related reads
Iran, US and possible collateral damage
Latest earnings update on Indian companies
News: SEBI to look at framework for timely disclosure of loan defaults to banks
Our perspective:
- Loan defaults despite being an extremely price sensitive information and value sensitive tend to reach shareholders and other stakeholders almost after a month.
- Earlier this year, this created situations like PNB, where the $2 billion fraud went undetected for years. In the past, the delay in the Amtek default information also created a situation where a run on JP Morgan Fund had almost created a liquidity crisis.
News: Qatar and Germany pledge to support Turkey in the midst of the crisis
Our perspective:
- While Qatar has already pledged a support of $15 billion to bail out Turkey, Germany has also offered all financial and non-financial support to Turkey in the economic crisis.
- If EU goes out of the way help Turkey (despite its openly anti-American stance), it could be the first signal of a resistance to US' recent policies
Related reads
Why the Turkish currency crisis needs to be watched more closely
How the US sanctions on Iran impact India
News: Telecom sector profit margins drop by 1000 basis points over 3 years
Our perspective:
- This is indicative of the pricing power damage that telecom companies have seen in the aftermath of the launch Jio at an extremely attractive price point.
- One has to only look at the ARPUs of Bharti, Vodafone and idea to grasp this fall. Telecom companies now need either better pricing or lower capital costs for better profitability.
Related reads
Telecom – Jio surprises, Idea struggles
Why we have an Add call on Bharti Airtel
News: SBI disappointed the street with a net loss of Rs.4800 crore for Q1
Our perspective:
- The 3rd consecutive quarterly loss by SBI is a historic first for SBI and this quarter the losses were led less by NPAs and more by front-ending investment losses
- Despite the positive vibes by the SBI management, Fitch continues to believe that the PSU banking space may be in for more pain on NPAs and on investment depreciation provisions.
Related reads
Why we are positive on State Bank of India
Banks – Retail loans in top gear
News: Downstream oil companies report sterling results in first quarter
Our perspective:
- The sterling results of IOC, BPCL and HPCL for the June quarter was driven by a sharp rise in Gross Refining Margins (GRM) on a YOY basis due to higher oil realizations
- However, markets are still sceptical that the risk of loading subsidies on OMC remain if crude was to go beyond the $80/bbl mark, which is possible with geopolitical disruptions.
Related reads
Why we have a Reduce rating on BPCL
Why we also have a Reduce rating on HPCL
Why we have a reduce call on IOC
6 effects of rising crude oil prices on the Indian economy
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