Here’s a look at the key stories we published over the past week.
By the time you read this newsletter, there would be some clarity on the direction of Sino-US trade talks. The trade war has caused great economic pain globally and India has not remained immune as can be seen from its stagnant exports. Global markets seem to be optimistic about the outcome and have pulled up equities back home as well.
Indian benchmark indices gained about 1 percent last week despite gloomy news on the economic front. After the RBI’s rate cut news had been digested, the key takeaway is that business and consumer confidence are at multi-year lows. Ratings agency Crisil has predicted that September quarter revenue growth for Indian companies will hit a 14-quarter low. Moody’s has cut its projections for India’s growth in the current financial year to 5.8 percent.
Meanwhile, credit growth fell to its lowest pace since November 2017. The continuing decline indicates that GDP growth for the September quarter is likely to be low. What is not going to help is the Reserve Bank of India’s rejection of the Indiabulls Housing Finance-Lakshmi Vilas Bank which will only add to the fear and trust deficit in the financial system.
The other big events of the week were the arrest of the Singh brothers, erstwhile promoters of Ranbaxy, results from TCS and Infosys, and an attack on an Iranian tanker in the Red Sea which again pushed oil prices above $60.
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 the key stories we published over the past week.
Patanjali’s financials are on the mend, risk-on for listed FMCG companies?
Even if it’s not listed, investors keenly follow Patanjali because it has been a disruptor of sorts in the packaged consumer goods industry. Following its plans to acquire Ruchi Soya, credit rating agencies downgraded the outlook on Patanjali Ayurved debt to negative from positive. That is not surprising. But what is surprising is that Patanjali appears to have got its act together. After a washout FY18, Patanjali’s sales rose by 4.8 percent while Ebitda rose by 18.3 percent over a year ago. Is it a danger sign for listed FMCG players? Read more.
RBI has rejected Indiabulls Housing–Lakshmi Vilas Bank merger. What next?
When it came to a decision on the Lakshmi Vilas Bank – Indiabulls Housing Finance merger, it was always a lose-lose situation for the Reserve Bank of India. Both organisations are battling legal troubles and allegations of impropriety which they have refuted strongly. A nod for their union would have had people asking questions about whether the central bank was applying its fit-and-proper criteria correctly. But now that it has nixed the marriage, the central bank has to deal with the aftermath. Read more.
How does India score on structural reforms?
What is the right time for governments to go in for structural reforms? How much of a boost to growth is provided in a typical emerging market by reforms in trade, product markets, labour markets, in domestic and external finance and, most important, in governance? What is the connection between the size of the informal sector and reforms? These are some of the questions, all of them relevant to India that the International Monetary Fund (IMF) tries to answer in a chapter of its World Economic Outlook, released yesterday. The good news: Structural reforms benefit India more because of the high degree of informality. But are structural reforms sufficient to accelerate GDP growth? Read more.
RBI implied estimate of nominal GDP lowest in 17 years
The RBI cut its GDP forecast for FY20 to 6.1 percent. Assuming average consumer price inflation of around 3.5 percent, nominal GDP growth for FY20 will then be 9.6 percent. That’s the lowest in 17 years. Recall that the nominal GDP growth taken in the Union Budget was 11 percent and it becomes clear why achieving the fiscal deficit target will be such a difficult task, in spite of the extremely brave front being put up by the government. And that’s not even considering the tax giveaways. This low nominal GDP explains much of the current gloom, as you can read here. Moody’s and IMF seem to concur, as you can see here.
IIFL Wealth is well-positioned to capitalise on millionaire boom
India is one of the fastest-growing wealth markets and is projected to grow at 10 percent CAGR for the next five years. Thanks to a burgeoning affluent class – those with wealth between $1 -20 million -- India is the only nation apart from China which is expected to see double-digit CAGR in personal wealth. Upper and ultra-high net worth individuals (UHNWI) segment i.e. individuals with investable assets of $ 20 million or more, to is likely to see the fastest growth in wealth. It is with this background that our in-house research team is recommending IIFL Wealth. Read more.
How to identify capitulation - the case study of Yes Bank
Market capitulation refers to the threshold reached after a severe fall in the market when large numbers of investors can no longer tolerate the financial losses incurred. These investors then capitulate (give up) and sell in panic, or find that their pre-set sell stops have been triggered, thereby automatically liquidating their holdings in a given stock. Using the real-life example of Yes Bank, trader Subhadip Nandy explains how investors can make money by identifying this trend in our GuruSpeak section. Read more.
This PSU offers earnings visibility with a decent dividend yield
This state-owned company enjoys a strong competitive position in the fast-growing shipbuilding industry. It has a robust order book that’s 4 times its annual shipbuilding segment revenues. That provides strong revenue visibility and scope for capacity expansion. The company has been prudent in capital allocation, has a strong balance sheet and cash in the books. The stock is also available at an attractive valuation. Like the case? Click here to find out one of the picks of the week from our in-house research team.
Don’t miss this fundamentally strong auto ancillary company
Our in-house research team believes that Gabriel India is a fundamentally strong business that could be a part of a long-term portfolio. Sure, the slowdown in the automobile sector has hit the stock price of this auto ancillary company. That, however, makes valuations very attractive. A strong and diversified customer base, an improving product mix shifting towards passenger vehicles, a focus on the high-margin aftermarket (retail sales of auto spare parts) segment and strong financial performance make Gabriel an ideal candidate for long-term investors. Read more.Next week, the stock-taking of the economy continues with WPI inflation numbers due on Monday. The Finance Ministry is also scheduled to kick start the budgetary exercise for FY2020-21 from October 14. The earnings season will get into full swing with biggies HUL and Reliance Industries scheduled to declare September quarter results. More details are available in our Business in the Week Ahead section in the Moneycontrol Pro app.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.