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Weekly wrap-up: Market updates, news and insights for the week ending 27th July
Publish date: 27th July, 2018
News: Nifty closed the week with a strong 111 point rally at 11,278
Investment perspective:
- The positive movement in the Nifty was largely driven by better than expected performance of ITC. Heavyweight ITC was up by 5% on Friday.
- There was also short covering in metal counters like Tata Steel and Hindalco and in oil companies like IOC and HPCL.
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News: BOB Q1 profits doubled to Rs.528 crore in surprising turnaround
Investment perspective:
- While the interest income was up by about 10%, the bank actually benefited from a 70% fall in the provisions of doubtful assets during the quarter.
- This could be a signal that for the quality PSU banks, the NPA cycle may be turning around finally and going ahead it may be more benign.
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HDFC Bank Q1 results – Key highlights
News: Merger of Vodafone India and Idea approved by the Government
Investment perspective:
- This merger will create a $23 billion telecom giant and will be the largest telecom player in India in terms of number of subscribers and market share in the mobile space
- Merger approval was held up after the DOT had pointed to spectrum dues to the tune of $1 billion. Vodafone has paid its part in cash, while Idea has furnished bank guarantee.
Related reads
4 things to know about the Idea – Vodafone merger
5 things to know about Reliance Jio’s impact on Indian telecom
News: Indian bond fund managers may be veering towards shorter duration debt
Investment perspective:
- Most fund managers are of the opinion that the delta risk taken on long maturities is not commensurate with the available yield, making duration up to 3 years more attractive.
- There is also the medium term uncertainty over oil prices and the potential trade wars between the US and China. RBI has also taken a stand focused on inflation targeting.
Related reads
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News: Imran Khan’s primary challenge in Pakistan may be the economy
Investment perspective:
- Forex reserves in Pakistan have steadily fallen in the last 2 years from a high of $20 billion to just about $8 billion currently. An IMF bailout may be inevitable for Pakistan.
- Pakistan has been forced to devalue its currency four times since the beginning of the year and that has taken a heavy toll on the manufacturing sector.
Related reads
6 assumptions that influence RBI monetary policy
News:Bharti’s stellar Africa performance has a worrying India story behind it
Investment perspective:
- Revenue from Bharti Africa rose by 14% in the recent quarter helped by greater data usage in Africa as well as less pricing pressures coming from stable African currencies.
- However, overall results looked rosy on the back of an Rs.1844 crore deferred tax gain. Bharti’s ARPUs in India have fallen from Rs.196 to Rs.105 in the last 8 quarters.
Related reads
Q1 FY-19 results – What to expect
News: Monsoon spread continue to be worrying for Kharif farmers
Investment perspective:
- While rain deficiency has come down from 9% to 3%, there has been deficient rainfall in the states of Telangana, Andhra Pradesh, Bihar as well as parts of UP and Maharashtra.
- The big challenge could be from the rice and sugar belts of Uttar Pradesh and Bihar. RBI and the government will be keen to ensure that food inflation does not shoot up.
Related reads
Economic Data – 5 things that the numbers say
India’s food inflation problem
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News: Brent Crude inches closer to the $75/bbl mark
Investment perspective:
- The sharp rise in oil prices in the last week was driven by falling US stockpiles. Saudi decision to stop shipments via the Bab-al-Mandeb strait in the Red Sea added to the panic.
- This Strait transports 4.8 million bpd and could seriously impact global oil prices. For India, it is a double worry since it will mean higher trade deficit and also higher imported inflation.
Related reads
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News: Facebook sees one of the worst value destruction in modern stock markets
Investment perspective:
- The stock lost nearly $124 billion in market cap in a single day on 26th July after the company reported slower growth in users and in revenues
- While four IT stocks (Apple, Alphabet, Amazon and Microsoft) have a market cap of over $800 billion each, this correction surely makes the NASDAQ look quite expensive.
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News: Hero Moto and Bajaj Auto miss out on their street estimates in the quarter
Investment perspective:
- In both the cases of Bajaj Auto and Hero Moto, there was visible pressure on their margins due to the sharp rise in input costs during the quarter.
- The bigger challenge could be that Bajaj may be planning to adopt a price cutting strategy to increase its market share in India from 16.5% to above 20%, leading to a price war!
Related reads
Hero Honda – Results below estimates
Bajaj Q1 earnings: A blip or should you be concerned?
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News: EU may be preparing for retaliatory tariffs worth $20 billion on US imports
Investment perspective:
- With not much emanating out of discussions between the US and the EU, the EU may go ahead with its retaliatory tariffs in response to the US duties on steel and aluminium
- The EU and Japan have already started talks on creating an alternate trade bloc and China and Russia may also participate in an anti-US bloc, complicating equations further.
Related reads
5 indicators to gauge the intensity of the Trade War
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News: Paint companies likely to pass on GST cuts to customers
Investment perspective:
- In the last GST meet on 21st July, the GST council had implemented a series of GST cuts including reduction of GST on paints from 28% to 18%.
- Mid-sized paint companies like Berger Paint and Kansai Nerolac have already committed to cutting their prices to give a 10-15% boost to paints demand.
Related reads
Why Asian Paints could be in a sweet spot
Why we have a buy call on Kansai Nerolac Paints
News: Aleris acquisition to help Hindalco foray into value-added products
Investment perspective:
- With the $2.6 billion acquisition of Aleris by Novellis, Hindalco will be able to achieve total revenues of $21 billion for the full year
- The acquisition gives Hindalco exposure to the high margin aluminium segment which caters to specific industries like construction, automobiles and aerospace.
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