Cash-flush domestic funds and droves of foreign investors are queuing up to expand their exposure in record-breaking Indian equities, after New Delhi unveiled a stimulus plan and data indicated the $2.3 trillion economy was picking up steam after an unexpectedly sharp slowdown in the June quarter.
Corporate earnings of some companies, particularly fast-moving consumer goods maker Hindustan Unilever Ltd that relies on semi-urban and rural regions for much of its sales, showed demand was accelerating despite disruptions caused by teething problems with the launch of the Goods and Services Tax (GST) on July 1.
New Delhi’s decision to pump more than $32 trillion into state-controlled banks over the next two years to shore up their capital, which has been bled by bad loans, as well as spend $108 billion over five years to build national and regional highways have boosted investor confidence on the outlook for growth in the nation of more than 1.3 billion people.
“The feed-good factor is back,” said equity salesman Mihir Shah. “There were a few pleasant surprises in the quarterly earnings, and the government package is a bonus.”
Hindustan Unilever, which makes everyday use products including soaps, toothpaste, detergents, personal care and packaged foods, reported a four per cent rise in volume growth during the September quarter, reflecting improved consumer spending. Net profit rose 16 per cent, while sales value dropped a notch as the company reduced prices in line with the lower GST rates.
The result was a good indicator of the ground situation, Shah said, adding that he was advising clients to increase their exposure to equities. Both the top-30 Sensex and the 50-share Nifty hit all-time highs during the week. “The rally has just begun,” Shah said. “You could see an 8-10 per cent further rise by March.”
New Delhi aims to fund the bailout of state banks by selling recapitalisation bonds worth Rs. 1.35 trillion and another Rs. 760 billion through budgetary support.
“The government is infusing this unprecedented amount to create bigger and stronger public sector banks and to ensure adequate credit for the deserving,” Banking Secretary Rajiv Kumar said.
Analysts at securities houses and rating agencies generally welcomed the move, saying it would plug a hole in the balance sheets of banks with only minor slippage in the fiscal deficit. Morgan Stanley termed the rescue the “Indian TARP”, similar to the Troubled Asset Relief Program by the US administration during the financial crisis.
Goldman Sachs estimated the government move could help add as much as five percentage points to GDP. “A substantial improvement in the growth outlook is likely to be bullish equities,” analysts at the US investment bank wrote in a note.
Shares in government-controlled banks attracted frenzied buying. State Bank of India, the country’s biggest commercial lender, leapt as much as 44.7 per cent to Rs. 351.30 before profit-taking trimmed the gains to Rs. 311.05, still up 28.1 per cent over the week.
Punjab National Bank shot up 78.7 per cent from the previous week’s close, to reach a peak of Rs. 231.45 and closed at Rs. 196.65, while Bank of Baroda jumped 53.2 per cent to 206.65 before ending at Rs. 174.40. Bank of India raced 49 per cent to Rs. 200.80 and closed at 181.05, and Canara Bank rose 53.2 per cent to Rs. 463.70 and ended at Rs. 404.15.
The Nifty sectoral index for public sector banks rallied as much as 47.3 per cent after the government announcement to a high of 4,335.40, before closing at 3,820.70 with a weekly gain of 29.8 per cent.
The banks’ rally fired up benchmark indices. The Sensex hit a record 33,286.51, and closed at 33,157.22, up 2.4 per cent over the week. The Nifty-50 gained 1.7 per cent to close at 10,323.05, after scaling a new peak of 10,366.15.
Maruti Suzuki, which makes every second new car sold in India, reported a better-than-expected 3.4 per cent rise in quarterly profit, while sales grew almost 22 per cent. Its shares climbed almost five per cent over the week to Rs. 8,101.20.
The company sold 492,118 vehicles during July-September, up 18 per cent from the same period a year earlier, showing demand was unaffected by tax changes. Sales of popular compact models, including Swift and Baleno, galloped 43.5 per cent, while utility vehicles like Vitara Brezza and Ertiga rose 27.6 per cent.
With New Delhi aiming to promote emission-free vehicles, Maruti is drawing up plans to draw upon its Japanese parent’s expertise to build electric cars. “We will make electric cars but I can’t give you the date just now because it is all very much a work in progress,” Chairman R.C. Bhargava told reporters.
Asian Paints, the country’s largest maker of paints, said its quarterly profit rose 21 per cent, exceeding forecasts by analysts and driving its shares up as much as 4.7 per cent. Chief Executive K.B.S. Anand said in a statement the market for paints only improved in September as the GST had taken a toll on activity in the first two months of the quarter.
Infosys Ltd, the No. 2 software services exporter, posted a 3.3 per cent rise quarterly profit, above analysts’ expectation, but the New York-listed company trimmed its full-year revenue growth forecast to a range of 5.5-6.5 per cent from its previous guidance of 6.5-8.5 per cent. Its shares rose 2.1 per cent over the week.
New India IPO
State-owned New India Assurance Co Ltd will launch an initial public offering on Wednesday to raise up to Rs. 96 billion in the second biggest IPO this year, behind General Insurance Corp of India’s Rs. 113.72 billion share sale earlier this month.
The nearly a century-old general insurer is selling 120 million shares in a price range of Rs. 770-800 each, including 24 million new shares. The remaining 96 million shares are offered by the government.
Meanwhile, an IPO by Reliance Nippon Life Asset Management Ltd, India’s third-largest mutual fund manager, to raise up to Rs. 15.42 billion received bids for more than 80 times the shares on offer when the sale closed on Friday.
Ahead of the public sale the company had allocated shares to anchor investors that included Abu Dhabi Investment Authority, Kuwait Investment Authority and Fidelity International.
The writer is a journalist based in India.