Articles

Weekly wrap-up: Market updates, news and insights for the week ending 31st August

Publish date: 31st August, 2018

News: GDP June quarter surprises market at a healthy 8.2%

Our perspective:

• The GDP growth of 8.2% in June quarter was led by a sharp recovery in agriculture at 5.3% compared to 3% in the last quarter. Gross Value Added (GVA) also grew by 8% in Q1.
• The big thrust to GDP came from the growth of non-public services and a 13.5% boost to manufacturing. That is surely going to be music for the stock markets.

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News: Nifty closed the week almost directionless at the 11,681 mark

Our perspective:

• With a weak rupee, the stocks that held up the Nifty were from the traditional dollar defensives in IT and pharma. Reddy Labs, Lupin, Tech Mahindra were the gainers
• The encouraging A/D ratio of 3:2 on the last day of trade is the redeeming factor but the big overhang for markets will continue to be the INR inching towards 71/$.

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Major Milestones – Nifty from 1000 to 11,000

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News: Rupee cracked beyond the 71/$ mark on global EM concerns

Our perspective:

• The sharp fall in the rupee was triggered by currency crisis in Turkey, Venezuela, Argentina and Brazil. Trade deficit at $18 billion in July and CAD inching towards 3% also hold the key.
• The weakening rupee limits the policy options for the RBI. With forex reserves around the $400 billion mark, the RBI may come under pressure for one more rate hike.

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News: Donald Trump threatens to withdraw the US from the WTO

Our perspective:

• Trump has always held the belief that the WTO was skewed in favour of the exporters like Germany and China and had been demanding a change in the model.
• Trump’s pressure tactics are already paying off in Mexico and Canada as well as EU and very soon China could follow suit. Trump realizes that the US is just too large to overlook.

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How to identify stressed companies

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News: Warren Buffett makes his big bet in Indian ecommerce via Paytm

Our perspective:

• Buffett’s investment in Paytm comes in the aftermath of the Wal-Mart deal with Flipkart and the big Amazon allocation of $5 billion to Indian ecommerce space
• Buffett had traditionally been sceptical of technology and had given Google and Facebook a miss. Currently, Apple is the biggest holding in the Berkshire Hathaway portfolio.

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News: Indian Oil lines up Rs.22,000 crore expansion plan for the year

Our perspective:

• Indian Oil will be looking to ramp up by upgrading its refining capacity. Record GRMs compared to the Singapore Benchmark offers an opportune moment.
• Indian oil companies are ramping up capacities rapidly as the government looks to reduce its 75% dependence on global crude imports with CAD already at 3% of GDP.

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Why we have a Reduce call on Indian Oil

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News: Reliance Infra completes sale of Mumbai power business to Adani group

Our perspective:

• The sale is valued at Rs.18,800crore making it the largest power sector deal in India. It will help Reliance Infra to reduce its debt levels from Rs.22,000 crore to Rs.7,500 crore
• The ADAG group has been facing a cash crunch and will be looking to this opportunity to cut down on its group debt in a big way.

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Why we have a Buy call on Power Grid

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News: Varde Partners and AB Capital launch $1 billion Stressed Assets Fund

Our perspective:

• With more than $100 billion of stressed assets still not provided for in the system. This could be the next big opportunity for investors.
• Most of the NCLT cases are selling their loan books at a hair-cut of anywhere between 50-60% and that offers a tremendous opportunity to buy into non-cyclical sectors.

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News: Brent Crude inches closer to the $80/bbl mark

Our perspective:

• With the Iran sanctions likely to kick in from November onwards, there is a strong expectation that the supply crunch may led to a sharp rally in prices.
• The only reason that the oil prices are not really shooting up is on the expectation that the trade war between the US and China may result in a global slowdown in trade.

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Why we have a Buy call on Vedanta

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News: Nielsen projects double digit growth for the consumer goods sector

Our perspective:

• Nielsen believes that with the worst impact of demonetization factored in and smooth implementation of GST, consumer goods could benefit from more organization.
• The 150% MSP for farmers, according to Nielsen, could be accretive to demand for products like two wheelers, FMCG products, consumer durables etc.

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News: Emerging markets carry trade comes under a cloud

Our perspective:

• Carry trades work best when the asset returns are high and the currency is stable and the EM carry trade had worked perfectly in the last couple of years.
• However, recent currency weakness in economies like Turkey, Brazil, Indonesia, Argentina and to a lesser extent India is spooking the carry trade for global investors.