Are we staring at stagflation in India?
That question tops the list in a week of divergences. Between rising inflation and falling economic growth, between wholesale and retail inflation, between the tanking economy and markets hovering near all-time highs, and between the expectations of the BJP and Shiv Sena in Maharashtra, which has finally gone under President’s rule.
Equities just about held on to their gains post-Diwali with the benchmark Sensex closing 0.08 percent, up this week. The key question now is what is holding up stocks? Of course, liquidity from foreign investors as central banks across the world signal the continuation of easy money policies have helped. Global fund managers are overweight on emerging market equities as this Bank of America Merrill Lynch tells us.
But how long will the party last? The US-China trade deal has hit a snag and it won’t be long before fund managers press the risk-off button. In India, earnings have been a mixed bag and the macroeconomic prognosis gets gloomier by the day.
The Index of Industrial Production contracted by 4.3 percent in September while retail inflation touched 4.6 percent in October. At the end of the week, news reports emerged that consumer spending fell for the first time in more than four decades in 2017-18, primarily driven by slackening rural demand, citing the findings of a National Statistical Office (NSO) survey. The economic slowdown could thus well be deeper than what the official numbers suggest.
It has also been a week of high profile Supreme Court judgements as chief justice Ranjan Gogoi retires. After the Ayodhya verdict last weekend, the apex court ruled on Sabarimala, dismissed the Rafael review petition. But the judgement that was most closely monitored would have been the Essar Steel case with the distressed company finally going to ArcelorMittal. Pity, the steel cycle has turned between June 2017 when the case was first taken up and now!
Elsewhere, Vodafone Idea posted the biggest quarterly loss in Indian history – of Rs 50,000 crore no less (for perspective, this number is close to Essar Steel’s total debt) as it made provisions to pay government dues. Bharti wasn’t far behind booking a loss of Rs 29,000 crore.
At Moneycontrol Pro, we had a string of articles analysing these events, distilling important insights and what they meant for you for your investment decisions. Here’s a look at some of them.
Continuing investment flows into high-value stocks: how long will the party last?
For the last few years, only a handful of stocks in the Indian market have been galloping, giving the false impression that the market is in the grip of a bull-run. In fact, mutual funds and portfolio management schemes (PMS) have been giving lower returns than the benchmark indices for a long time. Mutual funds have a mix of large-cap stocks and smaller stocks, but most PMS schemes invest in small and mid-cap stocks, in search of higher returns. In a narrow market dominated by a few stocks, the frontline indices naturally do better than these broader portfolios. How long can this sustain? Read more.
Is investment in high-yielding state-backed bonds worth the risks?
A few state government bonds issued by authorities belonging to two Indian states that are listed in the market are currently trading at yields that are higher than what they ought to be, despite having sovereign backing. Or, put another way, these state-sponsored bonds are being traded at lower prices. Essentially, these bonds aren’t perceived to be of such high quality after all. But why is there a perception of risk in the first place? And how should investors approach such bonds? Read more.
Is the fall in equity mutual funds inflow a reason for worry?
Data released by the Association of Mutual Funds in India (AMFI) show that inflows into equity mutual funds were at their lowest levels in four months in October 2019. Strangely enough, this has happened at a time when the markets were touching new highs despite the economy going through one of its worst phases in recent times. Does it imply that the mutual fund investor missed the bus, or are they reading something that most professional fund managers have missed? Read more.
Auto Scrap Policy | Success depends on its design and incentives for owners
India’s automobile industry is in a slump that does not show signs of ending. There is one big hope - the government is toying with the idea of taking very old vehicles off the road, thereby creating demand for new vehicles and tackling air pollution. That plan is moving ahead. Last week, the government issued a steel scrap policy, an important precursor. But what everyone would like to know is the mandatory age limits, for different classes of vehicles, after which these vehicles have to be scrapped. This will most certainly affect commercial vehicles but investors in auto stocks will be hoping private vehicles are targeted as well. Read more.
What explains the strength in VIP’s stock and should you buy now?
VIP Industries delivered a muted performance in the September 2019 quarter, reflecting the severe slowdown that has hit discretionary consumption. By the management’s own admission, the slowdown is one of the worst it has experienced in many years and the sales in the festive season haven’t improved things, virtually ruling out recovery for the rest of the year. The stock has however held on amidst the gloom. Our research team had picked up VIP in our Diamond in the Dust series, and the stock has outperformed the Nifty in the past three months. What makes VIP such a resilient stock and should investors still jump onto this business? Read more.
Weekly Tactical Pick | HUDCO: Stable returns, low valuations
HUDCO is our in-house research team’s tactical pick this week. It’s a state-owned (89.81 percent as on September 30, 2019) developmental financial institution that provides long-term finance for social housing and urban infrastructure development in the country. Along with NHB, it’s the central nodal agency for implementation and monitoring of the Pradhan Mantri Awas Yojana – Housing for All by 2022 scheme. Read more to understand why you should pick this stock.
Ideas for Profit | What makes this contract manufacturer worth a shot?
Our in-house research team has picked the stock of a contract manufacturer that both designs and makes air conditioners (ACs) and their components for big brands such as Voltas, Godrej and Hitachi. It also manufactures parts for washing machines, refrigerators and televisions. This is a market with high entry barriers. This company boasts of regular client additions, operational efficiency and good financial metrics. Read more to find out details.
Next week, lenders of debt-ridden Jaypee Infratech will meet on November 18 to take forward the process of insolvency resolution, a new Chief Justice of India takes charge, while China will decide on key lending rates and Twitter’s ban on political ads takes effect. Watch out for earnings analysis after the season ends. More details are available in our Business in the Week Ahead section in the Moneycontrol Pro app.
Bonus: Last week, Moneycontrol Pro introduced the Masters Series where readers like you get to interact with the top market gurus and investment experts, ask them questions directly and network with them.
In case, you missed it, you can watch the videos of presentations by Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers, and Mahendra Jajoo, head of fixed income at Mirae Asset Global Investments (India). Click here and here to view the videos.
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