India Strategy

Key takeaways

Liquidity and currency dominate the equity market. Adverse developments on the global liquidity front and an excruciating fall (10%) in the rupee in a short span of two months have made the Indian equity market jittery. Lack of buying support from domestic sources is compounding the same. Fears of large-scale selling by FIIs because of the weakening rupee is also casting a long shadow. However, at 13.6x 12-month forward PE, the Indian market’s valuation is below its long-period average of 15x and would not be an impediment for a rally, as and when it fructifies.

India outperforms peers over last month. Despite the falling rupee, the Indian equity market has outstripped major equity markets in the last one month. Brazil, Russia and China have fallen more than 10% vs. a 0.5% decline in the Sensex.

1QFY14 earnings to be muted. For the quarter under consideration (1QFY14), we expect ARG’s coverage (160 companies) to post a revenue growth of 3.9% yoy, while net profit growth would be 2.4% yoy. Excluding financials, revenue growth (1QFY14) of companies we cover is likely to be 2.1% yoy, with net profit declining 2.4% yoy.

Impact of past two rupee devaluations on economy, a good precedent. In the 2-3 years following the sharp rupee devaluations of 1966 and 1991, India experienced a sharp contraction in trade deficits, and economic growth sharply rebounded in the 1-3 years following. Inflation however, rose sharply in the subsequent two years.

Market outlook. In the immediate term, volatility is expected to take centre stage. This is largely due to the fact that earning downgrades are yet to run their course and earning predictability is yet to creep in. However, we believe that the 5500-5600 levels on the Nifty would emerge as a strong support and maintain our contention that the next phase of the rally would emerge from an uptick in earnings, post 2QFY14. Thus, 2HFY14 should be much better than the first half. In these challenging circumstances, drawing inspiration from the adage ‘This too shall pass”, and the confidence that earning upgrades would emerge post 2HFY14, we retain our Sensex target for end-CY13 of 22,500—23,000.

Sector recommendations. We are of the opinion that the stage is getting set to slowly shed the defensive approach and start the quest for value propositions and not abhor risk. We have a bias towards Pharma, IT and Consumer. Scepticism persists towards Metals, Construction, and Capital goods. Auto could be a mixed bag and necessitate discerning selectivity.

Macro View

Macro View

Rupee Depreciation

 Rupee Depreciation

Weekly Market Reports

Weekly Market Reports

DCB

DCB

Markets may open flat; Inflation nos in focus

Indian markets are set to begin on a flat note led by mixed global cues. SGX Nifty is trading 3 points higher.

Events for today
Monthly Wholesale Price Inflation numbers to be announced

Results: Exide Industries and TTK Prestige to announce their first quarter results

JSW Steel, DB Corp, JK Cement and Tata Steel to quote Final Dividend

Indian Indices:

Today’s opening on the Dalal Street is expected to be on a flat note tracking mixed Global cues. SGX Nifty is trading 3 points higher.

Inflation numbers for the month of June will be out today. Investors will closely watch the numbers as it could have a bearing on domestic bourses.
On Friday (July 12, 2013) S&P BSE Sensex wrapped trade at 19958.47, up by 282.41 points while the NSE Nifty rose 73.90 points to settle at 6009.00
GLOBAL MARKET
Asian stocks are flat on Monday (July 15, 2013) even after another robust performance on Wall Street, while commodities and major currencies were subdued as investors kept to the sidelines ahead of fresh economic data from China.
European financial markets were steady on Friday (July 12, 2013) while the dollar recovered against peers, as investors turned their attention to speeches from Federal Reserve officials in light of recent dovish comments from Fed Chairman Ben Bernanke.
US stocks rose for a seventh day, extending a record for the Standard & Poor’s 500 Index, as better-than-estimated bank earnings overshadowed a reduced profit forecast from United Parcel Service Inc.
MAJOR HEADLINES OF THE DAY
Tata Steel Europe reports record 1.2 bn pounds loss
Lupin eyes 3-fold hike in revenues to $5 bn by 2018
Greaves Cotton launches high capacity pumps

PSU OMCs in focus after petrol price hike

Shares of public sector oil marketing companies (PSU OMCs), car major Maruti Suzuki and two-wheeler makers will be in focus after PSU OMCs announced hike in price of petrol by Rs 1.55 a litre as the falling rupee made imports costlier. Actual increase will be higher and will vary from city to city depending on local taxes. The new price is effective from midnight Sunday. Meanwhile, the price of diesel was kept unchanged.

FMCG and agri-sector stocks will be in focus after the latest data showed a further pick-up in sowing of kharif crops. The Centre on Friday, 12 July 2013, said that as per reports received from state governments, the total sown area in the country stands at 517.65 lakh hectare (lh) as on 12 July 2013, compared with 341.49 lh at this time last year.

Glenmark Pharmaceuticals after market hours on Friday, 12 July 2013 confirmed that its subsidiary, Glenmark Generics, has filed abbreviated new drug applications (ANDAs) for Lacosamide tablets, and oral solution with the United States Food and Drug Administration (USFDA) with a Paragraph IV Certification for the Orange-Book listed patent. Glenmark's ANDA products are generic versions of VIMPAT, which are indicated for an adjunctive therapy in the treatment for partial-onset seizures in adults with epilepsy.

According to IMS Health data, the VIMPAT tablets and solution had annual sales of approximately $353 million in the United States for the twelve months ended 31 March 2013.

On 10 July 2013, UCB, INC., UCS Pharma GmbH, Research Corporation Technologies, Inc. and Harris FRC Corporation filed suit against Glenmark Generics and Glenmark Generics Inc., in the United States District Court for the District of Delaware, seeking to prevent Glenmark from commercializing its ANDA product prior to the expiration of US Patent. This lawsuit was filed under the provisions of the Hatch-Waxman Act. If Glenmark is successful in its challenge of the patent, it will garner 180-day exclusivity for its products.

Tata Global Beverages before market hours today, 15 July 2013, said that it has entered into an agreement with Tata Realty and Infrastructure for the development of the company's property in Bangalore through a special purpose vehicle (SPV). The consideration for the transfer of the company's property is Rs 195 crore which will be discharged by a mix of cash, equity/other securities in the SPV and constructed space in the developed property. The necessary transaction documents have been executed by the parties in this regard, Tata Global Beverages said.

Kalindee Rail Nirman (Engineers) has roped in Texmaco Rail & Engineering as a white knight after a voluntary open offer announced recently by Jupiter Metal to acquire 30% stake in Kalindee Rail Nirman (Engineers). Kalindee Rail Nirman (Engineers) on Saturday, 13 July 2013, said that the company's board of directors has decided to issue 41.10 lakh equity shares on preferential allotment basis to Texmaco Rail & Engineering at Rs 65 per equity share or such higher price determined in accordance with the provisions of the Sebi ICDR Regulations. After the preferential issue, Texmaco will hold about 24.9% of post issue equity capital of Kalindee.

On 10 July 2013, Jaipur-based Jupiter Metal announced a voluntary open offer to acquire 37.19 lakh equity shares, constituting 30% of the paid-up capital of Kalindee Rail Nirman (Engineers) at price of Rs 65 per share. The open offer is conditional, subject to a minimum level of acceptance of 32.23 lakh equity shares, constituting 26% of the paid-up capital of the company.

After Jupiter's voluntary open offer, Kalindee on 11 July 2013 said that the company's board of directors took note of the voluntary open offer for the company's shares and it will evaluate all options. The developments sparked rally in shares of Kalindee which jumped 18.35% in two trading sessions to settle at Rs 72.55 on Friday, 12 July 2013, from Rs 61.30 on 10 July 2013.

The crux of the issue is very lower promoter holding in Kalindee. Total promoter holding in the company was just 15.63%, as per the latest shareholding pattern available as on 31 March 2013.

Kalindee Rail Nirman (Engineers) is a construction company dedicated to building infrastructure for rail transport under one roof on turn key basis. It has been active in fields of signaling, telecommunications, and track and information systems.

Texmaco Rail & Engineering manufactures a diverse range of products. It is the largest manufacturer of railway freight cars, and hydro-mechanical equipment. Its product range also extends to pressure vessels, road repairing and agricultural machinery.

Torrent Power after market hours on Friday, 12 July 2013, said that the rating agency CRISIL has reaffirmed the credit rating on the debt programme and bank facilities of the company at CRISIL AA, with revision in rating outlook to negative from stable. The rating on the company's short-term bank facilities and debt programme has also been reaffirmed at CRISIL A1+, Torrent Power said.

Crompton Greaves after market hours on Friday, 12 July 2013 said it has deferred its decision on share-buyback. The company said that it has received the observations from the Securities & Exchange Board of India (Sebi) on 12 July 2013 and the company is in the process of incorporating the suggested amendments and therefore the proposed buyback will not commence on 15 July 2013 as disclosed earlier. Crompton Greaves said it will communicate the revised dates shortly.

Tube Investments of India (TII) after market hours on Friday, 12 July 2013 said that it has on 12 July 2013, entered into an agreement with Tsubamex Company (Tsubamex), Japan to form a joint venture company (JVC) in India to engage in the business of design and engineering of sheet metal dies & fixtures and providing related services. The JVC will have an initial share capital of a maximum of Rs 7 crore with 50:50 equity participation by TII and Tsubamex. The JVC will primarily cater to the requirements of automotive industry and white goods sector. The formation of JVC and infusion of equity capital by TII are subject to the approval of the shareholders of the company, TII said.

Asahi India Glass after market hours on Friday, 12 July 2013 said that it is proposing to convene a meeting of the Rights Issue Committee of the Board of Directors of the company, on Wednesday, 17 July 2013, to consider and if thought fit approve the terms of the rights issue including, inter alia, fixing the record date, the price, the ratio in which the shares will be issued and allotted to the existing shareholders under the rights issue and certain other matters pertaining to the rights issue.

Shasun Pharmaceuticals and SeQuent Scientific on Saturday, 13 July 2013, said they have signed a letter of intent (LOI) to form a joint venture (JV) company to develop, manufacture and sell veterinary products inclusive of both active pharmaceutical ingredients (API) and formulations in the global market.

Together the two companies plan to quickly and effectively offer a range of animal health products globally through the JV, they said. SeQuent will hold 73% of the JV and Shasun will own the remaining 27%. In terms of the arrangements proposed in the LOI, SeQuent and Shasun will set up a JV company, into which, contributions will be made by both companies, by way of transfer of identified assets, contracts and licenses.

The combination with Shasun will deliver synergies and technical arbitrage enabling the venture to become a leading global provider of animal health solutions, said Dr Gautam Kumar Das, Joint MD, SeQuent.

Bank of Maharashtra on Saturday, 13 July 2013, said it has reduced its base rate by 25 basis points from 10.25% per annum (p.a.) to 10% p.a on monthly compounding basis, with effect from 15 July 2013.

Sadbhav Engineering on Saturday, 13 July 2013, said it has secured a contract worth Rs 183.57 crore from Sardar Sarovar Narmada Nigam (Gujarat) for constructing Kachccha Branch canal reach.

JSW Steel turns ex-dividend today, 15 July 2013, for final dividend of Rs 10 per share for the year ended 31 March 2013 (FY 2013).

Piramal Enterprises turns ex-dividend today, 15 July 2013, for final dividend of Rs 17.50 per share for the year ended 31 March 2013 (FY 2013).

Tata Steel turns ex-dividend today, 15 July 2013, for final dividend of Rs 8 per share for the year ended 31 March 2013 (FY 2013).

Trent turns ex-dividend today, 15 July 2013, for final dividend of Rs 7 per share for the year ended 31 March 2013 (FY 2013).

D B Corp turns ex-dividend today, 15 July 2013, for final dividend of Rs 3.50 per share for the year ended 31 March 2013 (FY 2013).

Info Edge (India) turns ex-dividend today, 15 July 2013, for final dividend of Re 1 per share for the year ended 31 March 2013 (FY 2013).

JK Cement turns ex-dividend today, 15 July 2013, for final dividend of Rs 6.50 per share for the year ended 31 March 2013 (FY 2013).

South Indian Bank's net profit declined 6.66% to Rs 114.84 crore on 17.34% growth in total income to Rs 1342.88 crore in Q1 June 2013 over Q1 June 2012. The result was announced at the fag end of market hours on Friday, 12 July 2013.

The bank's ratio of net non-performing assets (NPAs) to net advances increased to 1.12% as on 30 June 2013, from 0.78% as on 31 March 2013 and 0.35% as on 30 June 2012. The ratio of gross NPAs to gross advances increased to 1.57% as on 30 June 2013, from 1.36% as on 31 March 2013 and 1.08% as on 30 June 2012.

The bank's capital adequacy ratio (CAR) as per Basel-II norms stood at Rs 13.66% as on 30 June 2013, as against 13.91% as on 31 March 2013 and 13.16% as on 30 June 2012.

South Indian Bank's provisions and contingencies jumped 314.92% to Rs 105.35 crore in Q1 June 2013 over Q1 June 2012.

Market expected to open flat

Indian stocks will today, 15 July 2013, react to weak macroeconomic data which was announced after trading hours on Friday, 12 July 2013. While industrial production registered a surprise contraction in May 2013, consumer price inflation accelerated in June 2013. Trading of CNX Nifty futures on the Singapore stock exchange indicates a flat opening on the domestic bourses today, 15 July 2013. The government unveils data on inflation based on the wholesale price index (WPI) for June 2013 today, 15 July 2013. Asian stocks edged higher on Monday, 15 July 2013, after a report showed China's economy grew 7.5% in the second quarter, matching economists' estimates.

Industrial production declined 1.6% in May 2013, as against a downwardly revised 1.9% growth in April 2013, data released by the government after trading hours on Friday, 12 July 2013, showed. The continuous decline in the output of mining sector remained the major drag on the growth of industrial production, while the output of manufacturing sector also declined in May 2013. The output of the mining sector declined 5.7% and that of the manufacturing sector declined 2% in May 2013. However, the electricity generation grew 6.2% in May 2013, restricting further decline in the output of industrial production in May 2013.

The industrial production growth for the month of April 2013 has been revised downwards to 1.9% from 2.3% reported earlier, while the growth for the month of February 2013 has been scaled up slightly to 0.6% from 0.5% reported earlier.

Consumer price inflation accelerated in June 2013, another data released by the government after trading hours on Friday, 12 July 2013, showed. The combined consumer price index (CPI) for urban and rural India edged up to 9.87% in June 2013 from 9.31% in May 2013.

Shares of public sector oil marketing companies (PSU OMCs), car major Maruti Suzuki and two-wheeler makers will be in focus after PSU OMCs announced hike in price of petrol by Rs 1.55 a litre as the falling rupee made imports costlier. Actual increase will be higher and will vary from city to city depending on local taxes. The new price is effective from midnight Sunday. Meanwhile, the price of diesel was kept unchanged.

FMCG and agri-sector stocks will be in focus after the latest data showed a further pick-up in sowing of kharif crops. The Centre on Friday, 12 July 2013, said that as per reports received from state governments, the total sown area in the country stands at 517.65 lakh hectare (lh) as on 12 July 2013, compared with 341.49 lh at this time last year.

Glenmark Pharmaceuticals after market hours on Friday, 12 July 2013, confirmed that its subsidiary, Glenmark Generics, has filed abbreviated new drug applications (ANDAs) for Lacosamide Tablets, and Oral solution with the United States Food and Drug Administration (USFDA) with a Paragraph IV Certification for the Orange-Book listed patent. Glenmark's ANDA products are generic versions of VIMPAT, which are indicated for an adjunctive therapy in the treatment for partial-onset seizures in adults with epilepsy.

According to IMS Health data, the VIMPAT tablets and solution had annual sales of approximately $353 million in the United States for the twelve months ended 31 March 2013.

On 10 July 2013, UCB, INC., UCS Pharma GmbH, Research Corporation Technologies, Inc. and Harris FRC Corporation filed suit against Glenmark Generics and Glenmark Generics Inc. in the United States District Court for the District of Delaware, seeking to prevent Glenmark from commercializing its ANDA product prior to the expiration of US Patent. This lawsuit was filed under the provisions of the Hatch-Waxman Act. If Glenmark is successful in its challenge of the patent, it will garner 180-day exclusivity for its products.

Tata Steel turns ex-dividend today, 15 July 2013, for final dividend of Rs 8 per share for the year ended 31 March 2013 (FY 2013).

JSW Steel turns ex-dividend today, 15 July 2013, for final dividend of Rs 10 per share for the year ended 31 March 2013 (FY 2013).

Piramal Enterprises turns ex-dividend today, 15 July 2013, for final dividend of Rs 17.50 per share for the year ended 31 March 2013 (FY 2013).

Key benchmark indices surged on Friday, 12 July 2013, after IT major Infosys kicked off the Q1 earnings season by reiterating its revenue guidance for the current year. The S&P BSE Sensex jumped 282.41 points or 1.44% to settle at 19,958.47, its highest closing level since 30 May 2013.

Foreign institutional investors (FIIs) bought shares worth a net Rs 644.82 crore on Friday, 12 July 2013, as per provisional data from the stock exchanges.

The government unveils data on inflation based on the wholesale price index (WPI) for June 2013 today, 15 July 2013. WPI inflation is seen inching up a bit at 4.8% in June 2013, from 4.7% in May 2013, as per the median estimate of a poll of economists carried out by Capital Market.

Asian stocks edged higher on Monday, 15 July 2013, after a report showed China's economy grew 7.5% in the second quarter, matching economists' estimates. Key benchmark indices in China, Hong Kong, South Korea, Taiwan and Singapore were up 0.16% to 0.46%. Indonesia's Jakarta Composite fell 0.66%.

China's economy grew 7.5% in the second quarter compared to a year earlier, while industrial production for June rose 8.9% from year-ago levels, slowing from May's 9.2% growth, the National Bureau of Statistics said Monday. The gross domestic product result was down from the first quarter's 7.7% advance. June retail sales rose 13.3% on an annual basis, beating May's 12.9% increase to extend an upward trend for the data point.

Urban fixed-asset investment -- watched as an indicator of construction spending -- grew an average 20.1% in the January-June period, down from 20.4% in January-May. Fixed-asset investment is reported on a year-to-date basis.

US stocks on Friday, 12 July 2013, recorded a third week of gains, with the Dow industrials and the S&P 500 tallying record closes following upbeat earnings from two major banks. The Dow Jones Industrial Average climbed 3.38 points to 15,464.30, an all-time closing high that had it up 2.2% from the week-ago close. Up 3% for the week and also finishing at a record, the S&P 500 added 5.17 points, or 0.3%, to 1,680.19, with financials pacing its gains. Up for a seventh session in its longest winning stretch since July 2011, the Nasdaq Composite gained 21.78 points, or 0.6%, to 3,600.08, giving it a weekly rise of 3.5%. The major indexes offered little reaction to reports that had consumer confidence dropping in July.

US Federal Reserve Chairman Ben Bernanke is due to deliver testimony on monetary policy in Washington on 17 and 18 July 2013. The minutes of the Fed's June meeting released on 10 July 2013 showed that while "several members judged that a reduction in asset purchases would likely soon be warranted," many want to see further improvement in the labor market before reducing the central bank's $85 billion-a-month quantitative easing program. The Fed currently buys $85 billion a month in government and mortgage bonds in an effort to keep interest rates low and stimulate economic growth. At a press conference following the June 18-19 meeting, Bernanke said the central bank could start reducing its $85 billion in monthly bond purchases later this year if the economy continues to improve in line with its forecasts.