Edited by Vani Rao
BSE Sensex and NSE Nifty hit new highs on sustained foreign fund inflows
Indian equity benchmarks extended a fall in noon trade, with the Sensex falling over 100 points, weighed down by profit booking in oil & gas, banks, and capital goods stocks. The Sensex declined 123.22 points to 22428.27 and the Nifty slipped 38.90 points to 6713.65.
Continuing their record-setting spree, the benchmark BSE Sensex and NSE Nifty climbed to hit new record-highs in early trade on Thursday, April 3, 2014, on sustained foreign fund inflows amid a firming trend overseas.
The 30-share Sensex shot up by 69.16 points, or 0.30%, to quote yet another record-high of 22,620.65, surpassing its previous intraday record high of 22,592.10 on Wednesday, April 2.
Wall Street climbed to record peaks on encouraging signals from the US labour market ahead of Friday’s non-farm payrolls report. A survey from ADP Research showed that 191,000 new jobs had been created in March while February’s figure was revised to 171,000. The Dow Jones Industrial Average was up 0.2%, the S&P 500 gained 0.6%, and the Nasdaq Composite gained around 0.2%.
Asian markets continued to climb higher on Thursday morning after Wall Street extended into record high territory. The Chinese government announced another mini-stimulus, as a result of which China’s Shanghai Composite was up 0.2%, Hong Kong’s Hang Seng gained 0.6%, and Japan’s Nikkei Stock Average was up 0.4%.
Overall, emerging markets have taken a beating so far in 2014, but analysts are pointing to one Brazil, Russia, India, and China (BRIC) market as especially attractive: India. Analysts who watch the BRIC markets say that India’s near-term future is promising.
India’s equity market is up 6% this year, while the emerging market index is down about 0.2% in the same period. India’s rise comes despite economic hiccups in the subcontinent. After enjoying speedy growth over the past decade, India’s economy hit the brakes in 2012 with rising inflation, growing current account deficit (CAD), and a weakening rupee, which lost almost 13% against the US dollar in 2013. Investor wealth soared by over Rs.10.27 lakh crore to Rs.74.15 lakh crore during 2013-2014 on the back of rising stock prices helped by foreign fund inflows.
The BSE Sensex gained 3,550.5 points, or 18.84%, in 2013-2014. Led by the rally in the stock market, investor wealth soared by Rs.10,27,424 crore to Rs.74,15,310 crore as on Monday, March 31, 2014, from Rs.63,87,886 crore in 2012-2013.
Foreign investors, the main drivers of the Indian stock markets, have made net inflows of a whopping Rs.80,000 crore during the current fiscal year. Moreover, analysts expect that the Bharatiya Janata Party (BJP) would win the elections that are set to conclude by mid-May. This has fuelled the rally in the stock market, given the party’s perception of having a more market-friendly stance.
On the other hand, the growth of Asia’s third-largest economy has slowed to 4.7%—far below the double-digit growth it enjoyed in recent years. As a result, India has been dubbed a “fragile five,” a term used to identify five economies—India, Turkey, Brazil, Indonesia, and South Africa—that are seen as too dependent on foreign capital. However, despite the recent economic slowdown, there is optimism for a bright future ahead. The biggest driver of the bullish market in India is the hope for a new government there. India is set to elect a new prime minister in April—results will be announced on May 16.
Despite India’s troubles over the past few years, more recent economic data indicate that India is heading in the right direction. India’s inflation, measured by the wholesale price index, dropped to 4.6% from 5.05%. The rupee has stabilized, gaining almost 3% against the dollar this year. India’s CAD, a key concern among investors, is shrinking. From October through December, India’s CAD narrowed to USD4.2 billion—or 0.9% of the GDP—from USD5.2 billion—or 1.2% of the GDP—in the previous quarter. This is attributed mainly to the government’s restrictions on gold imports and central bank measures.
Indian equity markets are at a very interesting stage. On one hand there is hope of a stable government while the country is yet to see a meaningful recovery in the underlying economy.
Adding to the complication is the volatile state of global markets, there is huge pressure on the emerging markets led by China. The economy is slowing and is witnessing problems with shadow banking. It is one of the biggest causes of worry among the global investors. At the same time, the US Fed is continuing with the tapering program and has revised the guidance of a tentative rate increase ahead of expectations. This is a red flag that investors have to be aware of.
Once the rate hike cycle starts, we will see unwinding of carry trades along with the liquidity being sucked out towards the US. Also, if the developed markets are recovering faster, we will continue to see macro trade of Developed Markets (DM) vs. Emerging Markets (EM). That said, it is not going to be easy to determine the flows amidst turbulence. India is relatively better off when compared to other BRIC nations. Also, it has acted well in terms of policy decisions in the last six months post the mid-2013 shake off, which can help it to outperform relatively.
On the domestic front, investors are hoping for a stable and a strong government in the upcoming elections. We currently are in the “hope period”, which will keep markets relatively buoyant, even if there are no signs of economic recovery.
Movers & Shakers
Shares in Sesa Sterlite (NSE:SSLT) gained 1.4% and Hindustan Zinc (NSE:HINDZINC) rose 0.66% after Moody’s Investors Service upgraded its outlook for parent company Vedanta Resources Plc to “Stable” from “Negative”.
State-run power equipment manufacturer BHEL shed 4%, while top coal mining company Coal India plunged 2%.
Engineering and construction major L&T Limited (NSE:LT) fell 1.5% as media report suggests that the company may write-off Rs15,000 crore worth of slow-moving orders.
India’s largest lender State Bank of India (NSE:SBIN) plunged 2% followed by Axis Bank Limited (NSE:AXISBANK) with 1.4%.
The Indian Rupee was marginally higher on US dollar sales by banks. However, weakness in Asian currencies weighed on the rupee. Earlier, it opened flat at 59.94 per US dollar on Thursday, April 3, 2014, as against the previous day’s closing of 59.90 per US dollar. Dollar buying by importers has prevented further appreciation of the rupee.
Meanwhile, the Euro nursed modest losses, having come under pressure as the market turned cautious on expectations the European Central Bank (ECB) may sound dovish following its policy review later in the day. The fall in the Euro helped the dollar index edge up to 80.229, although it remained in a slim range ahead of Friday’s US jobs data. The Yen is at a two-month low of 103.94 versus the US dollar. The Euro is under pressure ahead of the ECB’s announcement. The Yen slumped as safe demand for the currency receded.
Crude futures fell on Wednesday, April 2, 2014, on talks that Libyan ports held up by armed protesters will resume oil shipments soon, which offset the otherwise bullish supply data out of the US. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate crude oil for delivery in May traded at $99.68 a barrel during US trading, down 0.06%. New York-traded oil futures hit a session low of $98.87 a barrel and a high of $99.82 a barrel. The May contract settled down 1.81% at $99.74 a barrel on Tuesday. NYMEX oil futures were likely to find support at $98.82 a barrel, the low from March 25, and resistance at $101.96 a barrel, Monday’s high.
Gold added on to sharp overnight gains on Thursday, April 3, 2014, consolidating after recent losses on bargain hunting and signs of increasing physical demand in Asia. Spot gold rose 0.2% to USD 1,291.25 an ounce by 0029 GMT, after gaining 0.8% on Wednesday, the metal’s biggest one-day jump in nearly three weeks. The metal gained despite strong economic data that showed US companies stepped up hiring in March for a second straight month. This offered fresh evidence that the US economy was regaining momentum after a weather-driven lull over the winter. Markets are now eyeing US non-farm payrolls data on Friday, April 4, 2014, to gauge the strength of the recovery and the Federal Reserve’s stimulus outlook. Indian gold imports likely jumped in March from the previous month after the central bank allowed more private banks to ship the metal.
Services Purchasing Manager Index in India decreased to 47.50 index points in March 2014 from 48.80 index points in February 2014. Services PMI in India averaged 51.42 index points from 2012 until 2014, reaching an all-time high of 57.50 index points in January 2013 and a record low of 44.60 index points in September 2013. The HSBC India Services PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies. The index tracks variables such as sales, employment, inventories, and prices. A reading of above 50 indicates that the services sector is generally expanding; below 50 indicates that it is generally declining.
RBI grants IDFC, Bandhan Financial bank licences
The Reserve Bank of India (RBI) on Wednesday, April 2, 2014, granted two preliminary licences to set up new banks in a country where only one household in two has access to formal banking services.
The approval of licences for IDFC Ltd. (NSE:IDFC) and Bandhan Financial Services marks the start of a cautious experiment for a sector dominated by lethargic state lenders, many of which are reluctant to expand into rural areas or towns where banking penetration is low. No new Indian bank has been formed since Yes Bank (NSE:YESBANK) in 2004.
The RBI said the approval would be valid for 18 months, during which IDFC and Bandhan Financial will have to comply with requirements laid down by the central bank. IDFC, a Mumbai-based non-bank financial company, specialises in infrastructure lending, while Bandhan Financial is a microfinance organization based in Kolkata. The central bank said 25 applicants had been considered and judged under criteria including analysis of their financial statements, their track record over the past 10 years and their potential to run a bank.
Access to Banking
India has 27 state-run banks and 22 private sector banks, according to RBI data. However, its ratio of branches to adults is only about one-fourth of Brazil’s, leaving about half of households in India – a country of 1.2 billion people – without access to the banking system.
Over the last few years, the RBI has been pushing banks to make more genuine efforts to penetrate into India’s hinterland and increase lending to farmers, small traders and businesses. But banks, struggling under huge piles of non-performing assets that are eroding their capital, have been reluctant to do so. The RBI formed a four-member external panel to start evaluating the applications for new bank licenses from November, but has made clear that it will go slow.
Novartis Sues Biocon
In yet another patent infringement battle in India, Swiss drug maker Novartis has taken Indian biotech firm Biocon Ltd (NSE:BIOCON) to court on its anti-diabetes drug. Novartis has sued Biocon in the Delhi High Court for patent infringement on Galvus, the chemical name Vildagliptin, in an attempt to block generic versions. Novartis has since obtained interim relief.
Novartis’s case stems from the fact that Biocon received approval from the Indian drug controller for its generic version of Vildagliptin. Novartis argued that Galvus is a novel molecule and patent protected in India and its basic compound patent expires in 2019. Hence, any possible launch by Biocon would infringe on Novartis’s patent.
Based on the arguments, the Delhi High Court ordered that Biocon cannot commercially manufacture, sell, or export Vildagliptin until the next court hearing. However, Biocon could manufacture Vildagliptin for in-house research purposes. Galvus or Vildagliptin is a DPP4 inhibitor class of drugs that is used to treat type-2 diabetes. This is Novartis’ second patent infringement battle on Glavus, the first being against Wockhardt, which also had requisite approvals from Central Drug Standard Control Organisation (CDSCO) since May 2013 to sell a generic version. It was just last month that based on Novartis’s plea that the Delhi High Court issued an injunction against Wockhardt. In another legal tussle, Wockhardt has challenged the validity of the patent on Galvus. The case is simultaneously proceeding at the Indian Patent Appellate Tribunal (IPAB).
The legal tussles become significant for Novartis as Galvus is the biggest brand in the DPP4 inhibitor class of drugs in India, clocking roughly Rs.200 crore of annual sales. Besides this, Novartis also has a co-marketing tie-up with USV Limited to sell cheaper versions of Galvus under a different brand name in tier 2 and tier 3 towns in India. This category of anti-diabetes drugs called DPP4 is gaining traction in the Rs.3,000-crore diabetes drug market in India. And with small and big drug firms getting requisite approvals, there has been a race to sell cheaper versions of this class of drugs.
In the Next 24 Hours
The Ministry of Commerce and Industry, Government of India, would report the Balance of Trade (BoT) data for March on April 4, 2014. India recorded a trade deficit of USD8,130.20 million in February 2014. BoT in India averaged negative USD1,809.03 million from 1957 until 2014, reaching an all-time high of USD258.90 million in March 1977 and a record low of negative USD2,0210.90 million in October 2012. India had been recording sustained trade deficits due to low exports base and high imports of coal and oil for its energy needs.
The Industrial Production data for February would be reported by the Ministry of Statistics and Programme Implementation (MOSPI). Industrial production data in India increased 0.10% in January 2014 compared to the year-ago period. Industrial production in India averaged 6.79% from 1994 until 2014, reaching an all-time high of 20% in November 2006.
The Manufacturing Production data would be reported by the by the Central Statistical Organization on April 4, 2014, for March 2014. Manufacturing production decreased 0.70% in February 2014. It averaged 6.94% from 2006 until 2014, reaching an all-time high of 24.30% in June 2007.